<PAGE> 1
SCHEDULE 14A INFORMATION
Consent Solicitation Pursuant to Section 14(a)
of the Securities Exchange Act of 1934
Filed by Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[ ] Preliminary Consent Solicitation
[ ] Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e)(2)
[X] Definitive Consent Solicitation
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Section 240.14a-11(c) or Section 240,14a-12
DEVELOPMENT PARTNERS III
(A MASSACHUSETTS LIMITED PARTNERSHIP)
--------------------------------------------
(Name of Registrant As Specified in Charter)
-----------------------------------------------------------------------
(Name of Person(s) Filing Consent Solicitation Statement, if other than
the Registrant)
Payment of Filing Fee (Check the appropriate box):
[ ] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
(1) Title of each class of securities to which transaction
applies:
Units of Limited Partnership Interest ("Units")
(2) Aggregate number of securities to which transaction applies:
7,401 Units
(3) Per unit price or other underlying value of transaction
computed pursuant to Exchange Act Rule 0-11 (Set forth the
amount on which the filing fee is calculated and state how it
was determined): $2,693,033 , equal to the estimated amount of
cash to be distributed to the partners upon liquidation of the
Registrant
(4) Proposed maximum aggregate value of transaction: $2,693,033
(5) Total fee paid: $539
[X] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number, or
the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
(2) Form, Schedule or Registration Statement No.:
(3) Filing Party:
(4) Date Filed:
<PAGE> 2
DEVELOPMENT PARTNERS III
(A MASSACHUSETTS LIMITED PARTNERSHIP)
5110 Langdale Way
Colorado Springs, Colorado 80906
(719) 527-0544
March 18, 1998
Dear Limited Partner:
We are pleased to let you know that, during the last quarter of 1997,
Development Partners III (A Massachusetts Limited Partnership) (the
"Partnership"), together with the other partners of Casabella Associates,
implemented and completed a competitive bidding process for the disposition of
Casabella in Scottsdale, Arizona, its real property investment. The competitive
bidding process included the participation of a number of well-screened and
fully-qualified institutional real property purchasers and resulted in Casabella
Associates receiving and accepting an offer to purchase its property and
executing a purchase and sale agreement (the "Purchase Agreement"). The
Partnership holds a majority interest in Casabella Associates.
The Partnership is now in a position, subject to the approval of a
majority in interest of the limited partners, to dissolve and consent to the
sale of Casabella. Accordingly, pursuant to the enclosed Consent Solicitation,
the Partnership is seeking the consent of the limited partners to dissolve the
Partnership (the "Dissolution"). The Dissolution and the principal terms of the
Purchase Agreement are discussed in more detail in the Consent Solicitation
under "Description of Dissolution."
FOR THE REASONS SET FORTH IN THE ENCLOSED CONSENT SOLICITATION, THE
GENERAL PARTNERS RECOMMEND THAT THE LIMITED PARTNERS CONSENT TO THE DISSOLUTION.
Accompanying the Consent Solicitation is the Partnership's Form 10-K
for the year ended December 31, 1996 and its most recent Form 10-Q for the
quarter ended September 30, 1997.
We urge you to read the enclosed document carefully and to return your
signed consent as soon as possible to GP L'Auberge Communities, L.P., c/o
Gemisys, 7103 South Revere Parkway, Englewood, Colorado 80112. You may also
return your Consent to GP L'Auberge Communities, L.P., c/o Gemisys, via
facsimile at (303) 705-6171. For your convenience a postage-paid return envelope
has been included. If you have any questions about the enclosed material, please
call our Investor Services line at (800) 262-7778.
Very truly yours,
STEPHEN B. BOYLE, GP L'AUBERGE COMMUNITIES, L.P.,
General Partner General Partner
By: L'Auberge Communities, Inc.,
its general partner
By: Stephen B. Boyle,
President
YOUR VOTE IS IMPORTANT
PLEASE SIGN AND DATE THE ENCLOSED CONSENT AND
RETURN IT IMMEDIATELY SO THAT YOUR VOTE CAN BE COUNTED.
<PAGE> 3
DEVELOPMENT PARTNERS III
(A MASSACHUSETTS LIMITED PARTNERSHIP)
5110 Langdale Way
Colorado Springs, Colorado 80906
CONSENT SOLICITATION
March 18, 1998
INTRODUCTION
This solicitation of written consents (the "Consent Solicitation") is
furnished by GP L'Auberge Communities, L.P., a California limited partnership,
and Stephen B. Boyle, the general partners (the "General Partners") of
Development Partners III (A Massachusetts Limited Partnership) (the
"Partnership"), in connection with the Partnership's solicitation of consents
from the Partnership's limited partners (the "Limited Partners") to dissolve the
Partnership (the "Dissolution"). If the Dissolution is consented to by a
majority in interest of the Limited Partners as described herein, the
Partnership and the other partners of Casabella Associates would proceed to
cause Casabella Associates to sell Casabella in Scottsdale, Arizona, as soon as
is practicable, consistent with obtaining reasonable value therefor, and the
Partnership's share of the net proceeds will be distributed to the Limited
Partners. The Partnership holds a majority interest in Casabella Associates. As
discussed below, Casabella Associates has entered into an agreement (the
"Purchase Agreement") to sell Casabella to a purchaser unaffiliated with either
General Partner, although there can be no assurance that such agreement will
result in a consummated sale of the property. The General Partners recommend
that the Limited Partners consent to the Dissolution.
This Consent Solicitation contains forward-looking statements within
the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the
Securities Exchange Act of 1934. Actual results could differ materially from
those projected in the forward-looking statements as a result of a number of
factors, including those identified herein.
This Consent Solicitation, and the enclosed consent form (the
"Consent"), are first being mailed to the Limited Partners on or about March 18,
1998.
DESCRIPTION OF DISSOLUTION
BACKGROUND AND REASONS FOR DISSOLUTION
The Partnership was organized in 1988 for the purpose of acquiring,
operating and ultimately selling or disposing of one or more multifamily
residential rental properties. The Partnership's original investment objectives
contemplated that the Partnership's investments would be held for approximately
five to seven years, with decisions about the timing of eventual property sales
or other dispositions to be left to the General Partners' discretion based on
the anticipated economic benefits of continued ownership and other factors. The
national recession that extended through the early 1990s had the effect of
depressing real estate values. Subsequently, the market where Casabella is
located experienced an oversupply of new apartment developments. These
conditions led the General Partners, on behalf of the Partnership and the other
partners of Casabella Associates, to conclude that it was advisable for
Casabella Associates to hold Casabella longer than initially anticipated.
Instead of selling Casabella during the downturn in its market,
Casabella Associates continued to hold and operate the property. As improvement
in the market became apparent, the General Partners began to prepare the
property for sale and to devise and implement a disposition strategy. The
proposed
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Dissolution and sales transaction is the final step in the disposition process.
After considering various alternatives for marketing Casabella, the General
Partners determined that, given the quality of the property, the most
advantageous offers were likely to be obtained by approaching a reasonable
number of well-qualified institutional real estate purchasers in a competitive
bidding process. Accordingly, with the assistance of a licensed real estate
broker unaffiliated with any General Partner of the Partnership (the
"Unaffiliated Broker"), approximately 15 institutional real estate purchasers
representing a broad cross-section of the institutional real estate capital
market were approached. As a result of the competitive bidding process,
Casabella Associates received multiple offers to purchase Casabella. In order to
maximize the sales price, the General Partners permitted each offeror the
opportunity to increase its offer. From the resubmitted offers, the General
Partners selected the highest and best offer and executed the Purchase
Agreement, subject to the consent of the Limited Partners to the Dissolution.
Certain of the principal terms of the Purchase Agreements are discussed in this
Consent Solicitation under "Description of Dissolution -- Liquidation Strategy;
Pending Sale."
A sale of Casabella at this time will enable the Partnership to take
advantage of the improved local economy of Phoenix and Scottsdale. The General
Partners have reviewed comparable sales and have determined that the accepted
offer for Casabella is fair and reasonable. Moreover, the General Partners
believe that the terms of the proposed sale of Casabella described herein are
advantageous to the Partnership because of the price, the purchase of the
property for all cash without a financing contingency and the strength and
reliability of the purchaser.
For the foregoing reasons, the General Partners believe that it is in
the best interests of the Partnership and the Limited Partners to dissolve and
wind up the Partnership and for Casabella Associates to seek to sell and
liquidate Casabella at this time rather than to continue to hold and operate the
property for later sale.
EFFECTS OF THE DISSOLUTION
Under the Massachusetts Revised Uniform Limited Partnership Act, a
limited partnership may be dissolved at the time or upon the happening of events
specified in its partnership agreement. The Amended and Restated Certificate and
Agreement of Limited Partnership of the Partnership (the "Partnership
Agreement") provides that the Partnership shall be dissolved upon the vote or
written consent of a majority in interest of the Limited Partners. Under the
terms of the Partnership Agreement and applicable law, upon dissolution of the
Partnership the General Partners are to take full account of the Partnership's
assets and liabilities, liquidate the Partnership's remaining assets and apply
and distribute the liquidation proceeds in the order specified in the
Partnership Agreement. See "Liquidation and Winding Up" below. During the
winding up process, the Partnership's legal existence would continue solely for
purposes relating to the liquidation and winding up and the Limited Partners
would continue to have the voting and economic rights provided in the
Partnership Agreement.
Neither the Partnership Agreement nor Massachusetts law provides for a
specified period of time for completing the liquidation and winding up of the
Partnership. If the Dissolution is consented to by a majority in interest of the
Limited Partners, the General Partners would be authorized and directed to
settle and close the Partnership's business and dispose of and convey the
Partnership's property as soon as practicable, consistent with obtaining
reasonable value for the property. In the event that the sale of Casabella
pursuant to the Purchase Agreement is not consummated (see "Liquidation
Strategy; Pending Sale" below), the General Partners would continue to have
broad discretion to manage the business and affairs of the Partnership and the
winding up process and to determine the timing, terms and conditions of the sale
of property and other dispositions. Upon the dissolution and completion of the
winding up process, the Partnership will file a certificate of cancellation with
the Massachusetts Office of the Secretary of State and will be terminated. There
are no federal or state regulatory requirements that must be complied with or
approvals that must be obtained in connection with the Dissolution.
LIQUIDATION STRATEGY; PENDING SALE
The following table sets forth certain information regarding Casabella
and the Purchase Agreement.
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<TABLE>
<CAPTION>
Projected Purchase Agreement
Mortgage -------------------------------------
Property Name and Number of Indebtedness at Purchase Closing
Location Units 6/01/98 Price Purchaser Date(1)
- ----------------- --------- --------------- ----------- ----------- -------
<S> <C> <C> <C> <C> <C>
Casabella, 154 $6,713,465 $11,700,000 JPR Capital (3)
Scottsdale, AZ(2) LLC
</TABLE>
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(1) Subject to the consent of the Limited Partners to the Dissolution
proposed herein.
(2) The Partnership holds an approximate 54% interest in Casabella
Associates, a general partnership which holds fee simple title to the
property. The Partnership's partners in Casabella Associates are two
public limited partnerships of which the General Partners or their
affiliates are the general partners. Accordingly, the sale of Casabella
is also conditioned upon the consent of the limited partners of the
affiliated partnerships to the dissolution of such partnerships.
Casabella Associates' former joint venture partner in the joint venture
which previously held title to the property retained an economic
interest in the property's cash flow and sales proceeds under certain
circumstances. The former joint venture partner will not be entitled to
receive any portion of the proceeds of the sale of Casabella.
(3) Approximately 90 days after the Limited Partner consents described in
note (2) above are received, but not later than June 15, 1998.
The Purchase Agreement provides that the purchaser has a period of 45
days to conduct its "due diligence" review of the property. This review
includes, but is not limited to, a physical inspection and examination of title
and environmental matters. During the due diligence period, the purchaser has
the customary right to withdraw its offer for any reason. Because the sale of
Casabella is subject to the purchaser's due diligence review of the property,
there can be no assurance that the proposed sale described above will actually
occur. Alternatively, as is customary in similar real estate transactions, if,
during the due diligence period, the purchaser identifies conditions which are
unacceptable to it, the purchaser may seek a purchase price adjustment, which
the General Partners would consider and negotiate as they deem appropriate. The
Purchase Agreement provides that in the event that the purchaser defaults by
failing to close following the end of the due diligence period, Casabella
Associates will be entitled to retain the purchaser's deposit as liquidated
damages.
Assuming, for purposes of illustration, that Casabella were sold for a
purchase price of $11,700,000 (the purchase price under the Purchase Agreement),
the General Partners believe that, after (i) repayment of mortgage indebtedness
in the amount of approximately $6,713,465, (ii) deducting estimated fees and
expenses of the sales, which currently are anticipated to total approximately
$159,400, including a real estate brokerage commission payable to the
Unaffiliated Broker in an amount equal to 1.25% of the sales price of the
property, (iii) giving effect to the interests of the other partners in
Casabella Associates, and (iv) including the Partnerships' estimated cash
balance of $125,000, approximately $2,693,033 (the "Dissolution Proceeds") would
be available to the Partnership.
The Dissolution Proceeds, less a $185,000 wind-up reserve which the
General Partners intend to establish to cover various expenses of winding up and
liquidating the Partnership, would be distributed to the Limited Partners as
promptly as possible following the sale of Casabella. Assuming Dissolution
Proceeds of $2,693,033 , for each $500 invested in the Partnership, the Limited
Partners would receive out of the Dissolution Proceeds approximately $339 (the
"Distribution Per Unit"). When added together with the $68.25 per Unit that has
been distributed from operations, Limited Partners will have received
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aggregate distributions of approximately $407 per $500 Unit over the term of the
investment.1 In addition, upon final winding up of the Partnership, any
unexpended funds in the wind-up reserve will be distributed to the Limited
Partners.
The foregoing estimates are presented for the Limited Partners'
reference only and should not be relied upon in determining whether to consent
to the Dissolution. The estimates assume that sale of Casabella is consummated
pursuant to the terms of the Purchase Agreement. There can be no assurance that
such sale will occur. If the proposed sale does not occur, the General Partners
would seek a substitute purchaser, although there can be no assurance as to when
such a purchaser would be located or the terms on which such purchaser would
agree to purchase the property. The Limited Partners would have no right to
approve the terms of any substituted sale. The estimates do not give effect to
the operating expenses or net income or net loss of the Partnership for any
period prior to the time the property is sold, which could affect the amount of
Dissolution Proceeds available for distribution. Additionally, the estimates do
not give effect to customary closing adjustments, credits and prorations, the
amounts of which are not known at this time. For these reasons, the actual
proceeds to be received by the Limited Partners may vary materially from the
Distribution Per Unit, and therefore possibly be substantially less.
The timing of the Limited Partners' receipt of any Dissolution Proceeds
will depend on when a sale or other disposition of Casabella can be completed.
If Casabella is sold pursuant to the terms of the Purchase Agreement, the
General Partners expect that the sale will be consummated during the second
quarter of 1998. The General Partners will endeavor to distribute funds as
expeditiously as possible after the sale.
LIQUIDATION AND WINDING UP
Pursuant to the Partnership Agreement, if the Dissolution is consented
to by a majority in interest of the Limited Partners, the General Partners are
to take full account of the Partnership's assets and liabilities, liquidate the
Partnership's assets and discharge or make adequate provision for the
liabilities of the Partnership in the following order:
(a) First, to creditors, in the order of priority provided by law;
(b) Second, to the setting up of any reserve for contingencies
which the General Partners may consider necessary; and
(c) After all such liabilities have been either discharged or
adequately provided for, to the partners, in accordance with Section 10 of the
Partnership Agreement.
It is not anticipated that the General Partners will receive any of the
proceeds from the Dissolution. The General Partners are not aware of any
liabilities or obligations of the Partnership, contingent or otherwise, except
as set forth on the Partnership's balance sheet included as part of its
Quarterly Report on Form 10-Q for the quarter ended September 30, 1997 (a copy
of which accompanies this Consent Solicitation and is incorporated herein by
reference) and liabilities and obligations incurred since September 30, 1997 in
the ordinary course of the Partnership's business.
CERTAIN CONSIDERATIONS
The General Partners cannot predict when Casabella will actually be
sold or disposed of, or when the eventual liquidation will occur, nor can the
General Partners estimate with certainty the amount of Dissolution Proceeds that
will be available to distribute to the Limited Partners upon the sale or other
disposition of Casabella and completion of the liquidation. Moreover, there can
be no assurance that
- --------
1 Exhibit A attached to this Consent Solicitation sets forth certain
information regarding Partnership distributions on a quarterly basis
for the past three years and in the aggregate since inception.
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Casabella will be sold or disposed of at a price equal to the purchase price
contained in the Purchase Agreement described herein or that its value will not
increase after it is sold or disposed of by Casabella Associates.
In considering whether to approve the Dissolution, the Limited Partners
should bear in mind that the General Partners have broad discretion to manage
the business and affairs of the Partnership. If the Dissolution is not approved,
the General Partners intend to continue to manage the Partnership and its
investment in Casabella Associates substantially as they are currently being
managed and to continue to entertain and consider indications of interest from
third parties to acquire Casabella. There can be no assurance that the
Dissolution will result in greater returns to the Limited Partners than a
continuation of the Partnership and eventual sale or disposition of Casabella at
a later time.
Although no agreements or understandings currently exist, because of
the General Partners long-standing experience with Casabella, the property
management affiliate of the General Partners may be considered among other
independent property management companies, to manage Casabella following its
sale. If the Limited Partners consent to the Dissolution, they also will be
deemed to have consented to any transaction that may be undertaken to accomplish
the liquidation and winding up of the Partnership and will not be entitled to
approve or disapprove of any such transaction, including transactions which may
involve the General Partners' management affiliates continuing as property
manager.
Neither Massachusetts law nor the Partnership Agreement provides the
Limited Partners with any dissenter's rights, or the right to seek an
independent appraisal of the value of the Partnership or its assets. Thus, the
Limited Partners will be bound to accept the consideration upon the sale of the
Partnership's properties if the Dissolution is consented to by the Limited
Partners.
RECOMMENDATION OF THE GENERAL PARTNERS
THE GENERAL PARTNERS BELIEVE THAT THE DISSOLUTION IS IN THE BEST
INTERESTS OF THE LIMITED PARTNERS AND RECOMMEND THAT THE LIMITED PARTNERS VOTE
"FOR" AND CONSENT TO THE DISSOLUTION.
CERTAIN FEDERAL INCOME TAX CONSIDERATIONS
If a majority of the Limited Partners consent to the Dissolution, the
General Partners intend to cause Casabella Associates to sell Casabella
(assuming the consent of the limited partners of the other partnerships which
are partners of Casabella Associates is obtained) and, after payment of certain
expenses and priority items as described above under "Description of Dissolution
- -- Liquidation and Winding Up," distribute the Partnership's share of the
proceeds of such sale to the Partners in liquidation of the Partnership. Such a
sale and distribution will result in certain federal income tax consequences to
a Limited Partner as described below. Section references below are to the
Internal Revenue Code of 1986, as amended (the "Code").
IN GENERAL
As a partnership for federal income tax purposes, the Partnership is
not subject to federal income tax as a separate taxable entity. Instead, each
Partner is required to report on its own federal income tax return such
Partner's distributive share of the Partnership's items of income, gain, loss,
deduction and credit, including the Partnership's distributive share of any gain
or loss recognized by Casabella Associates on the sale of Casabella.
Accordingly, a Limited Partner may be subject to tax on such Limited Partner's
distributive share of Partnership income irrespective of whether such Limited
Partner receives any cash distribution from the Partnership. A Limited Partner's
adjusted basis in its Units is increased by such Limited Partner's distributive
share of income and gain of the Partnership for each taxable year, is reduced by
its distributive share of loss for such taxable year and is reduced by the
amount of any actual or deemed distributions made to such Limited Partner during
such year. A reduction in a Limited Partner's allocable share of Partnership
liabilities (Partnership liabilities include the Partnership's allocable share
of liabilities of Casabella Associates) that were included in such Limited
Partner's adjusted basis in its Units (e.g., as a result of the repayment of a
nonrecourse mortgage secured by Casabella) is treated as a deemed distribution
of cash for this purpose.
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GAIN OR LOSS ON SALE OF CASABELLA
The Partnership expects to realize a gain of approximately $1,179,715,
of which approximately $1,128,764, or $152.52 per Unit, will be allocated to the
Limited Partners, in connection with a sale of Casabella by Casabella Associates
pursuant to the Purchase Agreement. Under Section 702(a)(3) of the Code, the
Partnership is required to separately state, and each Partner is required to
account separately for, such Partner's distributive share of any Section 1245
gain (depreciation recapture), Section 1231 gain or loss and net taxable income
or loss from Partnership operations for any taxable year in which Partnership
property is sold. Section 1231 gain or loss is gain or loss (apart from
depreciation recapture, if any) resulting from the sale or exchange of "Section
1231 property," which is defined generally as depreciable property used in the
trade or business and held for more than one year and real property used in the
trade or business and held for more than one year which is not inventory or
other property held for sale to customers in the ordinary course of the trade or
business.
Except for gain attributable to depreciation recapture under Section
1245 of the Code, any gain or loss on the sale of Casabella is expected to be
Section 1231 gain or loss. To the extent that for any taxable year Section 1231
loss exceeds Section 1231 gain, such net Section 1231 loss will be treated as an
ordinary loss, subject to any applicable passive activity loss limitations under
Code Section 465. Passive activity losses generally can only offset passive
activity income; however, upon completion of the liquidation of the Partnership,
a Limited Partner's share of passive activity losses of the Partnership,
including suspended passive activity losses, may be utilized in the taxable year
in which such liquidation occurs to offset non-passive income from other
sources.
To the extent that for any taxable year Section 1231 gain exceeds
Section 1231 loss, such net Section 1231 gain will be treated as long-term
capital gain. However, Section 1231 gain will be treated as ordinary income to
the extent of prior Section 1231 losses from any source that were treated as
ordinary in any of the previous five years.
A Limited Partner will also realize gain or loss on the final
liquidation of the Partnership pursuant to the Dissolution to the extent that
the amount of any actual or deemed distribution to such Limited Partner differs
from such Limited Partner's adjusted basis for its Units. Any such loss (or
gain) will be long-term or short-term capital loss (or gain), depending on the
holding period of its Units. It is anticipated that a Limited Partner who
acquired its Units in the public offering will realize a capital loss of
approximately $73.11 per Unit in connection with the liquidation of the
Partnership.
CAPITAL GAINS AND LOSSES
Individuals, trusts and estates are generally subject to tax on net
long-term capital gain with respect to property held for more than 18 months at
a maximum rate of 20% (28% in the case of property held for more than one year
but not more than 18 months), except that long-term capital gain from the sale
of real property that would otherwise qualify for the 20% maximum rate will
instead be subject to a 25% maximum rate to the extent of prior depreciation
deductions allowed with respect to such real property. Capital losses generally
may be utilized in any taxable year only to the extent of capital gains plus, in
the case of a non-corporate taxpayer, up to $3,000 of ordinary income ($1,500 in
the case of a married individual filing a separate return). Unused capital
losses may be carried forward and utilized in subsequent years subject to the
same limitations.
THE FOREGOING IS A SUMMARY ONLY, AND SPECIAL CONSIDERATIONS MAY BE
APPLICABLE TO PARTICULAR TYPES OF LIMITED PARTNERS. EACH LIMITED PARTNER IS
ADVISED TO CONSULT ITS OWN TAX ADVISOR REGARDING THE SPECIFIC TAX CONSEQUENCES
OF THE DISSOLUTION, UNDER THE FEDERAL INCOME TAX LAWS, AS WELL APPLICABLE STATE,
LOCAL, FOREIGN OR OTHER TAX LAWS NOT DISCUSSED HEREIN.
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CONSENT REQUIREMENTS AND WRITTEN CONSENTS
RECORD DATE
The General Partners have fixed 5:00 P.M. Central Time on March 12,
1998, as the record date (the "Record Date") for determining the Limited
Partners entitled to notice of and to act on the Dissolution. As of the close of
business on the Record Date, the General Partners anticipate that there will be
approximately 315 Limited Partners of record.
COMPLETION OF CONSENTS; DEADLINE FOR CONSENTING
A form of written consent (the "Consent") accompanies this Consent
Solicitation. EACH LIMITED PARTNER IS URGED TO COMPLETE, SIGN, DATE AND RETURN
THE CONSENT BY NOT LATER THAN APRIL 15, 1998 (THE "CONSENT DEADLINE"). This date
may be extended from time to time by the General Partners in its discretion
until not later than June 1, 1998, subject to applicable requirements to update
this Consent Solicitation.
A postage-paid, pre-addressed envelope has been provided for the
Limited Partners' convenience in returning Consents. Completed Consents should
be returned as soon as possible to GP L'Auberge Communities, L.P., c/o Gemisys,
7103 South Revere Parkway, Englewood, Colorado 80112. Limited Partners may also
return their Consents to GP L'Auberge Communities, L.P., c/o Gemisys, via
facsimile at (303) 705-6171; Attention: Development Partners III. Consents may
be marked either "FOR," "AGAINST," or "ABSTAIN" with respect to the Dissolution.
If a Limited Partner fails to return a Consent, or returns a Consent marked
"ABSTAIN," it will have the same effect as a disapproval of the Dissolution. If
a Consent is returned signed, but not marked "AGAINST" or "ABSTAIN," the Limited
Partner will be deemed to have consented to the Dissolution. THE GENERAL
PARTNERS RECOMMEND THAT THE LIMITED PARTNERS VOTE "FOR" AND CONSENT TO THE
DISSOLUTION.
APPROVAL OF DISSOLUTION
The Dissolution will be approved if consented to by the Consent
Deadline by a majority in interest of the Limited Partners as determined based
upon the total number of Units outstanding. Each Unit is entitled to one vote.
Accordingly, the Dissolution requires the approval of Limited Partners holding
of record not less than 3,701 of the total 7,401 Units outstanding.
REVOCATION OF CONSENTS
A Consent may be revoked by a Limited Partner by delivery to the
General Partners of a subsequent writing revoking the Consent. The writing must
bear a later date than the previously executed Consent and must be signed by the
Limited Partner. To be effective, any such revocation must be received by
Gemisys Corporation or the General Partners, as described above, on or before
the Consent Deadline or such earlier date as of which the Dissolution shall have
been consented to by the requisite number of Limited Partners.
EXPENSES OF SOLICITATION
The Partnership will bear all expenses of the solicitation of Consents,
whether or not the Dissolution is approved. After this Consent Solicitation is
mailed to the Limited Partners, Consents may be solicited by means of the mails,
facsimile transmissions, telephone or telegraph by the General Partners and
their respective regular employees and affiliates, none of whom will receive any
special or additional compensation for their services. The Partnership has
retained Gemisys Corporation, an independent firm, to aid in the solicitation of
Consents. The cost to the Partnership of doing so is currently estimated to be
$1,500. The Partnership will also be required to reimburse Gemisys Corporation
for its mailing services, postage, printing and similar pass-through costs.
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The General Partners will request brokers, nominees and other
fiduciaries and custodians who hold Units in their names to furnish this Consent
Solicitation and any accompanying materials to the beneficial owners of such
Units.
IF YOU ARE A LIMITED PARTNER ON THE RECORD DATE, YOU ARE RESPECTFULLY
REQUESTED TO COMPLETE, DATE, SIGN AND RETURN THE ACCOMPANYING CONSENT IN THE
ENCLOSED ENVELOPE AT YOUR EARLIEST CONVENIENCE, BUT IN ANY EVENT PRIOR TO THE
CONSENT DEADLINE.
INTEREST OF THE GENERAL PARTNERS IN THE DISSOLUTION
Neither the General Partners nor any affiliate of a General Partner
will be entitled to receive any distribution, real estate brokerage or other fee
or compensation upon disposition of the Partnership's properties.
POTENTIAL CONFLICT OF INTEREST
The General Partners believe that neither they nor any of their
affiliates have any conflict of interest with the Limited Partners regarding the
recommendation to approve the Dissolution. In fact, if the Dissolution is not
approved, the General Partners would continue to receive 10% of all
distributions of net cash from operations and the General Partners' property
management affiliate would be entitled to continue to earn property management
fees for its services in managing Casabella.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT
According to information available from the Partnership's transfer
agent and public records, as of the date of the Record Date, no person or entity
owned beneficially 5% or more of the outstanding Units. The Partnership has not
issued any options, warrants or other rights to purchase securities of the
Partnership, nor has either General Partner loaned money to the Partnership.
As of the Record Date, neither of the General Partners nor any director
or officer of L'Auberge owned beneficially any Units.
MANAGEMENT
The Partnership is a limited partnership and, as such, has no executive
officers or directors. The General Partners of the Partnership are Stephen B,
Boyle and GP L'Auberge Communities, L.P., a California limited partnership, of
which L'Auberge Communities Inc. (formerly known as Berry and Boyle Inc.)
("L'Auberge") is the general partner.
STEPHEN B. BOYLE
Stephen B. Boyle, age 57, is President, Executive Officer and Director
of L'Auberge and a general partner and co-founder of LP L'Auberge Communities, a
California limited partnership (formerly Berry and Boyle), a limited partnership
formed in 1983 to provide funds to various affiliated general partners of real
estate limited partnerships, one of which is GP L'Auberge Communities, L.P.
GP L'AUBERGE COMMUNITIES, L.P.
GP L'Auberge Communities, L.P. was formed in 1983 for the purpose of
acting as a general partner in partnerships formed to invest directly or
indirectly in real property. L'Auberge is the sole general partner of GP
L'Auberge Communities, L.P. The following sets forth certain biographical
information with respect to the executive officers and directors of L'Auberge.
There are no familial relationships between or among any officer or director and
any other officer or director.
-8-
<PAGE> 11
<TABLE>
<CAPTION>
Name Position
-------------------- ----------------------------------------------------
<S> <C>
Stephen B. Boyle President, Executive Officer and Director
Earl C. Robertson Executive Vice President and Chief Financial Officer
Donna Popke Vice President and Secretary
</TABLE>
Earl C. Robertson, age 50, has been Executive Vice President of
L'Auberge since April 1995 and its Chief Financial Officer since May 1996. Mr.
Robertson joined L'Auberge in April 1995 as Executive Vice President. Prior to
joining L'Auberge, Mr. Robertson had over 20 years experience as a senior
development officer, partner and consultant in several prominent real estate
development companies, including Potomac Investment Associates, a developer of
planned golf course communities nationwide, where he was employed from 1989 to
June 1993. He also served as a consultant to Potomac Sports Properties from July
1993 to April 1995. Mr. Robertson was also a key member of the management team
that developed the nationally acclaimed Inn at the Market in Seattle.
Donna Popke, age 37, has been Vice President of L'Auberge since
November 1995. Ms. Popke joined L'Auberge in June 1994 as Accounting Manager.
Prior to joining L'Auberge, Ms. Popke was Accounting Manager for David R. Sellon
& Company, a Colorado Springs land development company, from August 1989 to June
1994 and for Intermec of the Rockies from September 1985 to July 1989.
TERMINATION AND CHANGE IN CONTROL ARRANGEMENTS
The General Partners know of no termination or change-in-control
arrangement affecting the Partnership, except as contemplated by the Partnership
Agreement. The Partnership Agreement provides generally that the bankruptcy or
dissolution of a General Partner will cause a dissolution of the Partnership
unless there is a remaining general partner that elects to continue the business
of the Partnership. In the event there is no remaining general partner, the
Partnership may nonetheless be continued by vote of a majority in interest of
the Limited Partners. The Partnership Agreement also permits the General
Partners to withdraw from the Partnership subject to certain conditions. In such
event, the withdrawing General Partner is obligated to resell its interest in
the Partnership to the Partnership.
ADDITIONAL INFORMATION
This Consent Solicitation is accompanied by copies of the Partnership's
Annual Report on Form 10-K for the fiscal year ended December 31, 1996 and its
Quarterly Report on Form 10-Q for the quarter ended September 30, 1997, as filed
with the Securities and Exchange Commission. The information in these reports is
incorporated herein by reference. The exhibits to such reports are not included
with this Consent Solicitation, but are available without charge to any person
entitled to receive this Consent Solicitation, upon written request, from the
General Partners, 5110 Langdale Way, Colorado Springs, Colorado 80906,
Attention: Development Partners III. A requested exhibit will be furnished by
first-class mail, or other equally prompt means, within one business day of such
request.
STEPHEN B. BOYLE, GP L'AUBERGE COMMUNITIES, L.P.,
General Partner General Partner
By: L'Auberge Communities, Inc.,
its general partner
By: Stephen B. Boyle,
President
-9-
<PAGE> 12
EXHIBIT A
DISTRIBUTIONS TO LIMITED PARTNERS
Following is a summary of distributions to the Limited Partners of net
cash from operations for the periods shown. The Partnership has made no
distributions from any other source.
<TABLE>
<CAPTION>
Quarter Ended Per $500 Unit Aggregate Amount
------------- ------------- ----------------
<S> <C> <C>
March 31, 1995 $4.50 $33,305
June 30, 1995 $4.50 $33,305
September 30, 1995 $4.50 $33,305
December 31, 1995 $4.50 $33,305
March 31, 1996 $4.50 $33,305
June 30, 1996 $4.50 $33,305
September 30, 1996 $4.50 $33,305
December 31, 1996 $4.50 $33,305
March 31, 1997 -- --
June 30, 1997 -- --
September 30, 1997 -- --
December 31, 1997 -- --
Since Inception $68.25 $505,118
</TABLE>
- -----
(1) The amounts set forth above representing Per $500 Unit distributions
may vary slightly among Limited Partners depending on a Limited
Partner's date of admission to the Partnership. Distributions for the
first four quarters following the initial admission of Limited Partners
were prorated based on a Limited Partner's date of admission to the
Partnership. The amount set forth for the calculation of total Per $500
Unit distributions since inception is based on average distributions
for those first four quarters.
<PAGE> 13
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
[ X ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 [FEE REQUIRED]
For the Fiscal Year Ended December 31, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the transition period from __________________ to ________________
Commission File No. 0-18531
Development Partners III
(A Massachusetts Limited Partnership)
(Exact name of registrant as specified in its charter)
Massachusetts 04-3017036
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
5110 Langdale Way, Colorado Springs, CO 80906
(Address of principal executive offices) (Zip Code)
(719) 527-0544
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act: Units of Limited
Partnership Interests
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Sections 13 and 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 ___
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ X ]
Aggregate market value of voting securities held by non-affiliates: Not
applicable, since securities are not actively traded on any exchange.
Documents incorporated by reference: None
The Exhibit Index is located on page ____
<PAGE> 14
PART I
ITEM 1. BUSINESS
This form 10-K contains forward-looking statements within the meaning of Section
27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act
of 1934. Actual results could differ materially from those projected in the
forward-looking statements as a result of a number of factors, including those
identified herein.
Development Partners III (A Massachusetts Limited Partnership) (the
"Partnership"), formerly Berry and Boyle Development Partners III, was formed on
July 11, 1988. The General Partners are Stephen B. Boyle and GP L'Auberge
Communities, L.P., a California Limited Partnership, formerly Berry and Boyle
Management.
On January 13, 1989, the Partnership commenced an offering of $30,000,000 of
Units of Limited Partnership Interests at $500 each. The initial closing took
place on December 28, 1989, upon the filing of an amended and restated
partnership agreement (the "Partnership Agreement"), at which time investors
acquiring 3,048 Units totaling $1,524,000 were admitted to the Partnership. The
Partnership continued to admit subscribers monthly thereafter until December 27,
1991, its last closing date. The Partnership terminated the offering on January
13, 1992 having admitted 289 investors acquiring 7,401 Units totaling
$3,700,500. Of this amount $3,145,425 was available for investment, including
related fees and expenses, and working capital reserves, after deducting
organization and offering costs. To the extent such available funds have not
been expended for the purchase of properties (see Item 2 below) and related fees
and expenses, the Partnership has invested such funds in money market funds or
other highly liquid short-term investments.
On May 14, 1996, the Partnership and certain affiliates consummated an agreement
with Evans Withycombe Management, Inc. and certain of its affiliates ("EWI"), a
Phoenix based residential development, construction and management firm and
developer of the property known as Casabella, which separated the interests of
EWI and the Partnership, thus affording the Partnership greater flexibility in
the operation and disposition of Casabella. In consideration of a payment by the
Partnership, Development Partners (A Massachusetts Limited Partnership) ("DPI"),
and Development Partners II (A Massachusetts Limited Partnership) ("DPII"), to
EWI totaling $109,741 ($38,345 of which was the partnership's portion) and the
delivery of certain mutual releases, EWI (i) relinquished its contract to manage
Casabella and its option to exercise its rights to first refusal with regard to
the sale of the property and (ii) assigned all of its interest in the Casabella
Joint Venture to the Partnership, DPI and DPII (while preserving the economic
interest of the venture in these Joint Ventures), which resulting in the
dissolution of the Casabella Joint Venture. EWI may share in the cash flow
distributions or proceeds for sale if certain performance levels are met.
The primary business of the Partnership is to invest in, operate, and ultimately
dispose of a 154-unit residential property known as Casabella through its joint
venture interest. The Partnership's acquisition is described below in Item 2.
Properties as well as in Note 5 of the Notes to Consolidated Financial
Statements included in this report and incorporated herein by reference thereto.
The Partnership expects to sell Casabella at some future time, taking into
consideration such factors as the price to be realized, the possible risks of
continued ownership and the anticipated advantages to be gained for the
partners. Proceeds from the sale, financing or refinancing of Casabella will not
be reinvested by the Partnership, but will be distributed to the partners, so
that the Partnership will, in effect, be self-liquidating.
The success of the Partnership will depend upon factors which are difficult to
predict and many of which are beyond the control of the Partnership. Such
factors include, among other things, general economic and real estate market
conditions, both on a national basis and in the area where the Partnership's
investment is located, competitive factors, the availability and cost of
borrowed funds, real estate tax rates, federal and state income tax laws,
operating expenses (including maintenance and insurance), energy costs,
government regulations, and potential liability under and changes in
environmental and other laws, as well as the successful management of the
property.
On-site management of Casabella, is currently provided by an affiliate of the
General Partner. The terms of such property management services between the
Partnership and the property manager are embodied in a written management
agreement. The property manager receives management fees which are competitive
with those obtainable in arm's-length negotiations with independent parties
providing comparable services in the locality in which the property is located.
Such fees will not exceed 4% of the gross revenues from the property. It is the
responsibility of the General Partners to select or approve the property manager
and to supervise its performance. The property manager is responsible for
on-site operations and maintenance, generation and collection of rental income,
and payment of operating expenses.
The difference between rental income and expenses related to operations,
including items such as local taxes and assessments, utilities, insurance
premiums, maintenance, repairs and improvements (and reserves therefor),
bookkeeping and payroll expenses, legal and accounting fees, property management
fees and other expenses incurred, will constitute the property's operating cash
flow. The Partnership's internal administrative expenses will be paid out of the
Partnership's share of such cash flow from the property and from interest income
which the Partnership earns on its short-term investments.
The Partnership's investment in real estate is also subject to certain
additional risks including, but not limited to, (i) competition from existing
and future projects held by other owners in the area of the Partnership's
property, (ii) possible reduction in rental income due to an inability to
maintain high occupancy levels, (iii) adverse changes in mortgage interest
rates, (iv) possible adverse changes in general economic conditions and adverse
local conditions, such as competitive overbuilding, or a decrease in employment
or adverse changes in real estate zoning laws, (v) the possible future adoption
of rent control legislation which would not permit the full amount of increased
costs to be passed on to tenants in the form of rent increases, and (vi) other
circumstances over which the Partnership may have little or no control.
The Partnership's investment is also subject to competition from similar types
of properties in the locality in which the Partnership's real property
investment is located, and the Partnership will compete with other real property
owners and developers in the rental, lease and sale of such property.
Furthermore, the General Partners of the Partnership are affiliated with other
partnerships owning similar properties in the vicinity in which the
Partnership's property is located. In addition, other limited partnerships may
be formed by affiliates of the General Partners which could compete with the
Partnership.
The Partnership considers itself to be engaged in only one industry segment,
real estate investment.
ITEM 2. PROPERTIES
On September 28, 1990, the Partnership purchased an approximate 53% interest in
Casabella Associates ("Associates"), a general partnership consisting of the
Partnership and two other affiliated partnerships. Under the terms of the
purchase, the Partnership contributed $2,500,000 to Associates. Associates owns
and operates a 154-unit multifamily rental property located in Scottsdale,
Arizona, known as Casabella. The ownership was formerly structured as a Joint
Venture of which Associates owned a majority interest. With regard to the
termination of the Casabella Joint Venture see Note 5 of Notes to Consolidated
Financial Statements.
Associates has been designated as the managing joint venture partner of
Casabella and will control all decisions regarding the operation and sale of the
property. In addition to its $2,500,000 contribution to Associates, the
Partnership incurred $280,930 of acquisition expenses as of December 31, 1996.
As of February 28, 1997, the property was 99% occupied, compared to 98%
approximately one year ago. At December 31, 1996 and 1995, the market rents for
the various unit types were as follows:
<TABLE>
<CAPTION>
Unit Type 1996 1995
- ---------------------------------------------- ------ ------
<S> <C> <C>
One bedroom two bath w/den ................... $ 820 $ 820
Two bedroom two bath ......................... 950 943
Two bedroom two bath w/den ................... 1,185 1,170
</TABLE>
ITEM 3. LEGAL PROCEEDINGS
There are no material pending legal proceedings to which the Partnership or the
joint venture in which it owns an interest is a party, or of which the property
is the subject.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders during the fourth
quarter of 1996.
<PAGE> 15
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED
SHAREHOLDER MATTERS
The transfer of Units is subject to certain limitations contained in the
Partnership Agreement. There is no public market for the Units and it is not
anticipated that any such public market will develop.
The number of holders of Units as of December 31, 1996 was 317.
Distributions will be made to the Partners on a quarterly basis based upon Net
Cash from Operations, as calculated under Section 10 of the Partnership
Agreement. Total cash distributions to the Limited Partners for 1996 and 1995
were paid as follows:
<TABLE>
<CAPTION>
Quarter Ended Payment Date Amount
- -------------------------------------- ----------------- -------
<S> <C> <C>
March 31, 1995 ....................... May 15, 1995 $33,305
June 30, 1995 ........................ August 15, 1995 $33,305
September 30, 1995 ................... November 15, 1995 $33,305
December 31, 1995 .................... February 15, 1996 $33,305
March 31, 1996 ....................... May 15, 1996 $33,305
June 30, 1996 ........................ August 15, 1996 $33,305
September 30, 1996 ................... November 15, 1996 $33,305
December 31, 1996 .................... February 28, 1997 $33,305
</TABLE>
ITEM 6. SELECTED FINANCIAL DATA
The following selected financial data of the Partnership and consolidated
subsidiaries has been derived from consolidated financial statements audited by
Coopers & Lybrand, LLP, whose reports for the periods ended December 31, 1996,
1995 and 1994 are included elsewhere in the Form 10K and should be read in
conjunction with the full consolidated financial statements of the Partnership
including the Notes thereto.
<TABLE>
<CAPTION>
Year Ended
-------------------------------------------------------------------------
12/31/96 12/31/95 12/31/94 12/31/93 12/31/92
<S> <C> <C> <C> <C> <C>
Rental income $1,361,622 $1,579,782 $1,544,449 $1,462,062 $1,370,005
Net loss ($229,558) ($27,479) ($25,059) ($52,046) ($142,453)
Net loss allocated to Partners:
Limited Partners - Per Unit
Aggregate 7,401 Units ($30.71) ($3.68) ($3.35) ($6.96) ($19.06)
General Partners ($2,296) ($275) ($251) ($520) ($1,425)
Cash distributions to Partners:
Limited Partners:
Weighted average per Unit $18.00 $19.10 $16.40 $7.00 $3.25
General Partners $11,584 $12,115 $10,554 $4,505 $2,092
Total assets $10,192,774 $10,882,925 $11,229,315 $11,632,967 $11,961,537
Long term obligations $6,885,673 $6,994,549 $7,093,963 $7,184,739 $7,267,626
</TABLE>
Long term obligations become due in 1997. The Partnership intends to refinance
this note prior to the due date, although there can be no assurance that the
Partnership will be able to do so.. See Note 6 in Notes to Consolidated
Financial Statements.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
This Management's Discussion and Analysis of Financial Condition and Results of
Operations contains forward-looking statements including those concerning
Management's expectations regarding future financial performance and future
events. These forward-looking statements involve significant risk and
uncertainties, including those described herein. Actual results may differ
materially from those anticipated by such forward-looking statements.
Liquidity; Capital Resources
The Partnership admitted 289 investors who purchased a total of 7,401 Units
aggregating $3,700,500. These offering proceeds, net of organizational and
offering costs of $555,075, provided $3,145,425 of net proceeds to be used for
the purchase of income-producing residential properties, including related fees
and expenses, and working capital reserves. The Partnership expended (1)
$2,780,930 to acquire its interest in Casabella Associates and to pay
acquisition expenses, including an acquisition fee to the General Partners and
(2) $52,768 to cover costs associated with discontinued acquisitions. The
remaining net proceeds of $311,727 were used to establish working capital
reserves sufficient to meet the needs of the Partnership, including
contributions that may be required at the joint venture level, as determined by
the General Partners.
In addition to the proceeds generated from the public offering, the Partnership
has utilized external sources of financing at the joint venture level to
purchase Casabella. The Partnership Agreement limits the aggregate mortgage
indebtedness which may be incurred in connection with the acquisition of
Partnership properties to 80% of the purchase price of such properties.
The working capital reserves of the Partnership consist of cash and cash
equivalents and short-term investments. These reserves provide the Partnership
with the necessary liquidity to carry on its day-to-day operations and to make
necessary contributions to Casabella. In 1996, the aggregate net decrease in
working capital reserves was $581,967. This decrease resulted primarily from
cash provided by operations of $54,292, offset by fixed asset purchases of
$156,015, distributions to the minority partners with respect to their interest
in Associates of $220,331, distributions to partners of $133,218 and $108,873 of
principal payments on mortgage notes payable.
In 1995, the aggregate net decrease in working capital reserves was $15,179.
This decrease resulted primarily from cash provided by operations of $369,025,
offset by fixed asset purchases of $47,771, distributions to the minority
partners with respect to their interest in Associates of $86,112, distributions
to partners of $153,474 and $99,414 of principal payments on mortgage notes
payable.
The Partnership's future ability to generate cash adequate to meet its needs is
dependent primarily on the successful operations of Casabella. Such ability may
also be dependent upon the future availability of bank borrowings, and upon the
future refinancing or sale of Casabella and the collection of any mortgage
receivable which may result from such sale. These sources of liquidity will be
used by the Partnership for payment of expenses related to real estate
operations, debt service and professional and management fees and expenses. Net
Cash From Operations and Net Proceeds, if any, as defined in the Partnership
Agreement, will then be available for distribution to the Partners in accordance
with Section 10 of the Partnership Agreement. The General Partners believe that
the current working capital reserves together with projected cash flows for 1997
are adequate to meet the Partnership's operating cash needs in the coming year.
With regard to certain balloon payments on existing first mortgage debt on the
Partnership's property, the General Partners do not anticipate having sufficient
cash from operations in 1997 to retire this mortgage note payable. As these
mortgage notes payable are due in fiscal 1997, the partnership will seek to
renegotiate these mortgage notes with its existing lenders or seek new sources
of financing for these properties on a long term basis, although there can be no
assurance that the Partnership will be able to do so. The General Partners
believe that existing cash flows from the properties will be sufficient to
support a level of borrowing that is at least equal to amounts outstanding as of
December 31, 1996. If the general economic climate for real estate in these
respective locations were to deteriorate resulting in an increase in interest
rates for mortgage financing or a reduction in the availability of real estate
mortgage financing or a decline in the market values of real estate it may
affect the Partnership's ability to complete these refinancings.
<PAGE> 16
Results of Operations
The Partnership's operating results for the year ended December 31, 1996
consisted of interest earned on short-term investments, general and
administrative expenses, amortization expense and its share of the income (loss)
from Casabella Associates and Casabella. A summary of these operating results
appears below:
<TABLE>
<CAPTION>
Casabella Partnership Consolidated
Casabella Associates Level Totals
<S> <C> <C> <C> <C>
Revenue $1,362,677 $29,171 $10,822 $1,402,670
Expenses:
General and administrative 383 5,840 141,151 147,374
Operating expenses 656,435 9,443 3,000 668,878
Depreciation and amortization 266,730 - - 266,730
Interest 633,360 - - 633,360
-------------- ------------- -------------- ----------------
1,556,908 15,283 144,151 1,716,342
-------------- ------------- -------------- ----------------
Net income (loss) before minority (194,231) 13,888 (133,329) (313,672)
interest
Minority Interests' share of
net loss - 84,114 - 84,114
-------------- ------------- -------------- ----------------
Net income (loss) ($194,231) $98,002 ($133,329) ($229,558)
============== ============= ============== ================
</TABLE>
The Partnership's operating results for the year ended December 31, 1995
consisted of interest earned on short-term investments, general and
administrative expenses, amortization expense, and its share of the income
(loss) from Casabella Associates and Casabella Joint Venture. A summary of these
operating results appears below:
<TABLE>
<CAPTION>
Casabella Partnership Consolidated
Casabella Associates Level Totals
<S> <C> <C> <C> <C>
Revenue $1,581,184 $43,131 $17,883 $1,642,198
Expenses:
General and administrative 7,200 3,000 62,895 73,095
Operating expenses 561,516 - - 561,516
Depreciation and amortization 375,234 - - 375,234
Interest 642,857 - - 642,857
-------------- --------------- -------------- ---------------
1,586,807 3,000 62,895 1,652,702
-------------- --------------- -------------- ---------------
Net income (loss) before minority (5,623) 40,131 (45,012) (10,504)
interest
Minority Interests' share of
net income - (16,975) - (16,975)
-------------- --------------- -------------- ---------------
Net income (loss) ($5,623) $23,156 ($45,012) ($27,479)
============== =============== ============== ===============
</TABLE>
<PAGE> 17
The Partnership's operating results for the year ended December 31, 1994
consisted of interest earned on short-term investments, general and
administrative expenses, amortization expense and its share of the income (loss)
from Casabella Associates and Casabella Joint Venture. A summary of these
operating results appears below:
<TABLE>
<CAPTION>
Casabella Partnership Consolidated
Casabella Associates Level Totals
<S> <C> <C> <C> <C>
Revenue $1,545,625 $29,480 $12,207 $1,587,312
Expenses:
General and administrative 7,494 2,558 44,675 54,727
Operations 521,969 - - 521,969
Depreciation and amortization 371,172 - 2,567 373,739
Interest 651,528 - - 651,528
------------ -------------- --------------- ---------------
1,552,163 2,558 47,242 1,601,963
------------ -------------- --------------- ---------------
Net income (loss) before minority (6,538) 26,922 (35,035) (14,651)
interest
Minority Interests' share of
net income - (10,408) - (10,408)
------------ -------------- --------------- ---------------
Net income (loss) ($6,538) $16,514 ($35,035) ($25,059)
============ ============== =============== ===============
</TABLE>
Comparison of 1996 and 1995 Operating Results
In accordance with its dispositions strategy, the Partnership incurred one time
costs associated with the Evans Withycombe termination ($38,345) and the related
legal costs. (Refer to Note 5 of the Consolidated Financial Statement.) In
addition, the Partnership incurred one-time costs associated with its property
interior and exterior refurbishment program, the change in on-site management
following the Evans Withycombe termination, the outsourcing of much of the
Partnership's administration work to an administrative agent and the relocation
of the remaining administration, financial and investor services functions to a
more cost efficient location in Colorado Springs, Colorado. Consequently,
competitive pressures and disposition-related activities led to a decrease in
total revenue of $239,528 (15%), rental operating expenses (including
advertising, promotion, apartment locator and concession costs) to increase by
$107,362 or 19% over the prior year and total general and administrative
expenses of the Partnership increased $74,279 (102%) over the prior year. Fixed
asset purchases increased $156,015, consisting of such items as carpet,
appliances, equipment for fitness center facilities, and remodeling features.
However, distributions to partners remained the same as 1995.
Comparison of 1995 and 1994 Operating Results
Total revenue increased $54,886 or 3% due primarily to higher rental rates
resulting in increased rental income of $35,333. In addition, interest income
increased $19,553 or 46% in 1995, as a result of higher interest rates earned on
money market accounts and short-term investments. Rental operating expenses
increased $39,547, or 8% over the prior year due primarily to increased real
estate taxes and maintenance and advertising and promotion costs.. General and
administrative expenses increased $18,368 or 34%, due primarily to increased
salary expense allocations and legal costs and printing and mailing costs
associated with the voluntary withdrawal of a general partner of the
Partnership. Fixed asset purchases increased $38,993. Distributions to partners
increased $21,544, or 16% from 1994.
<PAGE> 18
Projected 1997 Operating Results
Although there can be no assurance that the Partnership will dispose of any or
all of its properties during 1997, consistent with the Partnership's disposition
strategy the Partnership will continue to seek to do so. In the event that the
Partnership were to dispose of any property during 1997, operating results of
the Partnership would vary significantly from those achieved in prior periods.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
See Appendix A to this Report.
ITEM 9. DISAGREEMENTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None
<PAGE> 19
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The Partnership has no directors or executive officers. Information as to the
individual general partners of the Partnership and directors and executive
officers of L'Auberge Communities, Inc. (formerly Berry and Boyle Inc.), the
general partner of GP L'Auberge Communities, L.P., is set forth below.
Individual General Partners
Stephen B. Boyle, age 56, is President, Executive Officer and Director of
L'Auberge Communities, Inc. and a general partner and co-founder of LP L'Auberge
Communities, a California Limited Partnership (formerly Berry and Boyle), a
limited partnership formed in 1983 to provide funds to various affiliated
general partners of real estate limited partnerships, one of which is GP
L'Auberge Communities, L.P.
In September 1995, with the consent of Limited Partners holding a majority of
the outstanding Units, as well as the consent of the mortgage lenders for the
Partnership's three properties, Richard G. Berry resigned as a general partner
of the Partnership.
GP L'Auberge Communities, L.P.
Information as to the directors and executive officers of L'Auberge Communities,
Inc., a general partner of GP L'Auberge Communities, L.P., which is a general
partner of the Partnership, and its affiliates, is set forth below. There are no
familial relationships between or among any officer and any other officer or
director.
Name Position
Stephen B. Boyle See above
Earl C. Robertson Executive Vice President and Chief Financial
Officer
Donna Popke Vice President and Secretary
Earl C. Robertson, age 48, has been a senior development officer, partner and
consultant in several prominent real estate development companies for over
twenty years, including Potomac Investment Associates, developers of planned
golf course communities nationwide. Mr. Robertson was also a key member of the
management team that developed the nationally acclaimed Inn at the Market in
Seattle. He joined L'Auberge Communities, Inc. in June 1995.
Donna Popke, age 37, joined L'Auberge Communities, Inc. in July, 1995 and holds
the title of Vice President and Secretary. Prior to joining L'Auberge
Communities, Inc., Ms. Popke was employed by Olive & Associates in the field of
public accounting for six years and later from 1989 to 1995 with David R. Sellon
& Company, a Colorado Springs land development company.
ITEM 11. EXECUTIVE COMPENSATION
None of the General Partners or any of their officers or directors received any
compensation from the Partnership. See Item 13 below with respect to a
description of certain transactions of the General Partners and their affiliates
with the Partnership.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
As of March 21, 1997, no person of record owned or was known by the General
Partners to own beneficially more than 5% of the Partnership's outstanding
Units. None of the General Partners nor any of their directors and officers owns
Units.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
During the year ended December 31, 1996, the Partnership paid or accrued
remuneration to the General Partners or their affiliates as set forth below. In
addition to the information provided herein, certain transactions are described
in Notes 7 and 8 in the Notes to Consolidated Financial Statements appearing in
Appendix A, which are included in this report and are incorporated herein by
reference thereto.
Net Cash From 1996 Operations to be distributed
to the General Partners $11,584
Allocation of Loss to the General Partners ($2,296)
Property management fees paid to an affiliate of
the General Partners $37,735
Reimbursements to General Partners $35,441
<PAGE> 20
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) 1,2 See Page F-2
3 See Exhibit Index contained herein
(b) Reports on Form 8-K
The Partnership has not filed, and was not required to
file, any reports on Form 8-K during the last quarter of
1996
(c) See Exhibit Index contained herein
(d) See Page F-2.
<PAGE> 21
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.
DEVELOPMENT PARTNERS III
(A Massachusetts Limited Partnership)
By: GP L'Auberge Communities, L.P., A California Limited Partnership,
General Partner
By: L'Auberge Communities, Inc., its General Partner
By: ____/s/ Earl C. Robertson________________
Earl C. Robertson, Executive Vice President and
Chief Financial Officer
Date: March 26, 1997
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the registrant and
in the capacities and on the dates indicated.
Signature Title Date
___/s/ Stephen B. Boyle _____ Director, President and March 26, 1997
--------------------
STEPHEN B. BOYLE Principal Executive
Officer of L'Auberge
Communities, Inc.
___/s/ Earl C. Robertson _ Executive Vice President and March 26, 1997
---------------------
EARL C. ROBERTSON Principal Financial Officer of
L'Auberge Communities, Inc.
<PAGE> 22
APPENDIX A
DEVELOPMENT PARTNERS III
(A Massachusetts Limited Partnership)
AND SUBSIDIARY
---------
CONSOLIDATED FINANCIAL STATEMENTS
ANNUAL REPORT TO THE SECURITIES AND EXCHANGE COMMISSION
For the year ended December 31, 1996
<PAGE> 23
DEVELOPMENT PARTNERS III
(A Massachusetts Limited Partnership)
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Report of Independent Accountants F-3
Consolidated Balance Sheets at December 31, 1996 and 1995 ............... F-4
Consolidated Statements of Operations for the years ended
December 31, 1996, 1995 and 1994 ........................................ F-5
Consolidated Statements of Partners' Equity (Deficit) for the years ended
December 31, 1996, 1995 and 1994 ........................................ F-6
Consolidated Statements of Cash Flows for the years ended
December 31, 1996, 1995 and 1994 .................................. F-7 -- F-8
Notes to Consolidated Financial Statements .................... .... F-9 -- F-14
All Schedules are omitted as they are not applicable, not required, or the
information is provided in the financial statements or the notes thereto.
<PAGE> 24
Report of Independent Accountants
To the Partners of
Development Partners III
(A Massachusetts Limited Partnership):
We have audited the accompanying consolidated balance sheets of
Development Partners III (A Massachusetts Limited Partnership) and subsidiaries
as of December 31, 1996 and 1995, the related consolidated statements of
operations, partners' equity (deficit), and cash flows for each of the three
years in the period ended December 31, 1996. These financial statements are the
responsibility of the General Partners of the Partnership. Our responsibility is
to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by the
General Partners of the Partnership, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the consolidated financial position of
Development Partners III (A Massachusetts Limited Partnership) and subsidiaries
as of December 31, 1996 and 1995, and the consolidated results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1996 in conformity with generally accepted accounting principles.
COOPERS & LYBRAND LLP
Denver, Colorado
February 28, 1997
<PAGE> 25
DEVELOPMENT PARTNERS III
(A Massachusetts Limited Partnership)
AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
December 31, 1996 and 1995
---------------
ASSETS
<TABLE>
<CAPTION>
1996 1995
---- ----
Property, at cost
<S> <C> <C>
Land $2,976,101 $2,976,100
Buildings and improvements 7,648,060 7,648,060
Equipment, furnishings and fixtures 995,909 839,894
--------------- ----------------
11,620,070 11,464,054
Less accumulated depreciation (1,996,504) (1,752,197)
--------------- ----------------
9,623,566 9,711,857
Cash and cash equivalents 531,778 367,213
Short-term investments 746,532
-
Real estate tax escrow 24,268 23,685
Deposits 1,950 -
Deferred expenses, net of accumulated
amortization of $100,918 and $78,492 11,212 33,638
=============== ================
Total assets $10,192,774 $10,882,925
=============== ================
LIABILITIES AND PARTNERS' EQUITY
Mortgage note payable $6,885,673 $6,994,549
Accounts payable and accrued expenses 208,425 103,070
Due to affiliates (Note 8) 3,012 5,318
Tenant security deposits 24,834 33,860
Rents received in advance 3,507 -
Minority Interest 1,252,041 1,556,486
--------------- ----------------
Total liabilities 8,377,492 8,693,283
Partners' equity 1,815,282 2,189,642
--------------- ----------------
Total liabilities and $10,192,774 $10,882,925
partners' equity
=============== ================
</TABLE>
The accompanying notes are an integral
part of the consolidated financial statements.
<PAGE> 26
DEVELOPMENT PARTNERS III
(A Massachusetts Limited Partnership)
AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
For the years ended December 31, 1996, 1995 and 1994
-------------
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
Revenue:
<S> <C> <C> <C>
Rental income $1,361,622 $1,579,782 $1,544,449
Interest Income 41,048 62,416 42,863
------------- --------------- ----------------
1,402,670 1,642,198 1,587,312
Expenses:
Operating Expenses 668,878 561,516 521,969
Interest 633,360 642,857 651,528
Depreciation and amortization 266,730 375,234 373,739
General and administrative 147,374 73,095 54,727
------------- --------------- ----------------
1,716,342 1,652,702 1,601,963
------------- --------------- ----------------
Net loss before minority interest (313,672) (10,504) (14,651)
Minority interests' equity in
subsidiary net (income) loss 84,114 (16,975) (10,408)
------------- --------------- ----------------
Net loss ($229,558) ($27,479) ($25,059)
============= =============== ================
Net loss allocated to:
General Partners ($2,296) ($275) ($251)
Per unit net loss of Investor Limited Partner interest:
7,401 Units issued ($30.71) ($3.68) ($3.35)
</TABLE>
The accompanying notes are an integral
part of the consolidated financial statements.
<PAGE> 27
DEVELOPMENT PARTNERS III
(A Massachusetts Limited Partnership)
AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF PARTNERS' EQUITY (DEFICIT)
For the years ended December 31, 1996, 1995 and 1994
-------------
<TABLE>
<CAPTION>
Investor Total
General Limited Partners'
Partners Partners Equity
<S> <C> <C> <C>
Balance at December 31, 1993 ($10,110) $2,537,694 $2,527,584
Cash distributions (10,554) (121,376) (131,930)
Net loss (251) (24,808) (25,059)
------------- --------------- ----------------
Balance at December 31, 1994 (20,915) 2,391,510 2,370,595
Cash distributions (12,115) (141,359) (153,474)
Net loss (275) (27,204) (27,479)
------------- --------------- ----------------
Balance at December 31, 1995 (33,305) 2,222,947 2,189,642
Cash distributions (11,584) (133,218) (144,802)
Net loss (2,296) (227,262) (229,558)
------------- --------------- ----------------
Balance at December 30, 1996 ($47,185) $1,862,467 $1,815,282
============= =============== ================
</TABLE>
The accompanying notes are an integral
part of the consolidated financial statements.
<PAGE> 28
DEVELOPMENT PARTNERS III
(A Massachusetts Limited Partnership)
AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the years ended December 31, 1996, 1995 and 1994
-------------
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
Cash flows from operating activities:
<S> <C> <C> <C>
Interest received $56,920 $59,849 $32,665
Cash received from rents 1,356,103 1,579,281 1,548,035
General and administrative expenses (144,439) (77,117) (42,680)
Operating expense (580,518) (549,753) (522,483)
Interest paid (633,774) (643,235) (651,873)
------------- --------------- ----------------
Net cash provided by operating 54,292 369,025 363,664
activities
Cash flows from investing activities:
Purchase of fixed assets (156,015) (47,771) (8,778)
Cash (paid for) received from short-term investments 730,660 272,724 (52,701)
------------- --------------- ----------------
Net cash provided (used) by investing 574,645 224,953 (61,479)
activities
Cash flows from financing activities:
Distributions to partners (133,218) (153,474) (131,930)
Payments on mortgage note payable (108,873) (99,414) (90,776)
Distributions paid to minority (220,331) (86,112) (173,160)
interest
Cash paid for deposits (1,950) - -
------------- --------------- ----------------
Net cash used by financing activities (464,372) (339,000) (395,866)
------------- --------------- ----------------
Net increase (decrease) in cash and cash equivalents 164,565 254,978 (93,681)
Cash and cash equivalents at beginning of 367,213 112,235 205,916
year
------------- --------------- ----------------
Cash and cash equivalents at end of $531,778 $367,213 $112,235
year
============= =============== ================
Non cash financing activities:
Accrual of distribution to $11,584
Partners
</TABLE>
The accompanying notes are an integral
part of the consolidated financial statements.
<PAGE> 29
DEVELOPMENT PARTNERS III
(A Massachusetts Limited Partnership)
AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the years ended December 31, 1996, 1995 and 1994
-------------
Reconciliation of net loss to net cash provided by operating activities:
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Net loss ($229,558) ($27,479) ($25,059)
Adjustments to reconcile net loss to net
cash
provided by operating activities:
Depreciation and amortization 266,730 375,234 373,739
Minority interests' equity in subsidiary income (loss) (84,114) 16,975 10,408
Change in assets and liabilities net of effects of investing and financing
activities:
Decrease (increase) in interest 15,871 (2,567) (10,198)
receivable
Decrease (increase) in real estate tax (583) 3,748 7,909
escrow
(Decrease) increase in accounts
payable and accrued expenses 93,771 10,168 (7,861)
(Decrease) increase in due to (2,306) (6,553) 11,140
affiliates
(Decrease) increase in rents received in advance 3,507 (101) 101
(Decrease) increase in tenant security deposits (9,026) (400) 3,485
------------- --------------- ----------------
Net cash provided by operating $54,292 $369,025 $363,664
activities
============= =============== ================
</TABLE>
The accompanying notes are an integral
part of the consolidated financial statements.
<PAGE> 30
1. Organization of Partnership
Development Partners III (A Massachusetts Limited Partnership) (the
"Partnership"), formerly Berry and Boyle Development Partners III, was formed on
July 11, 1988. GP L'Auberge Communities, L.P., a California Limited Partnership
(formerly Berry and Boyle Management) and Stephen B. Boyle are the General
Partners. In September, 1995, with the consent of Limited Partners holding a
majority of the outstanding Units, as well as the consent of the mortgage
lenders for the Partnership's three properties, Richard G. Berry resigned as a
general partner of the Partnership. Except under certain limited circumstances
upon termination of the Partnership, the General Partners are not required to
make any additional capital contributions. The General Partners or their
affiliates will receive various fees for services and reimbursement for various
organizational and selling costs incurred on behalf of the Partnership.
On January 13, 1989 the Securities and Exchange Commission declared the
Partnership's public offering (the "Prospectus") of up to 80,000 units of
Limited Partnership Interests at $500 per unit (the "Units") effective and the
marketing and sale of the Units commenced shortly thereafter. The initial
closing of the offering took place on December 28, 1989 at which time the
holders of 3,048 Units were admitted into the Partnership. The Partnership
continued to admit subscribers monthly thereafter until December 27, 1991, its
last closing date. The Partnership terminated the offering on January 13, 1992
having admitted 289 investors acquiring 7,401 Units totaling $3,700,500.
The Partnership will continue until December 31, 2018, unless earlier terminated
by the sale of all, or substantially all, of the assets of the Partnership, or
as otherwise provided in the Partnership Agreement.
2. Significant Accounting Policies
A. Basis of Presentation
The consolidated financial statements include the accounts of the
Partnership and its subsidiary Casabella Associates. All intercompany
accounts and transactions have been eliminated in consolidation. The
Partnership follows the accrual basis of accounting. Refer to Note 5
regarding the termination of the Casabella Joint Venture.
B. Cash and Cash Equivalents
The Partnership considers all highly liquid debt instruments purchased
with a maturity of three months or less to be cash equivalents. The
carrying value of cash and cash equivalents approximates fair value. It
is the Partnership's policy to invest cash in income-producing
temporary cash investments. The Partnership mitigates any potential
risk from such concentration of credit by placing investments with high
quality financial institutions.
C. Short-term Investments
At December 31, 1995, short term investments consisted solely of
various forms of U. S. Government backed securities, with an aggregate
par value of $750,000, which matured in February 1996. As of December
31, 1996 there were no short term investments. Investments are recorded
at amortized cost, which approximates market value
D. Significant Risks and Uncertainties
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the
date of the financial statements and the reported amounts of revenues
and expenses during the reporting period. Actual results could differ
from those estimates.
E. Depreciation
Depreciation is provided for by the use of the straight-line method
over the estimated useful lives as follows:
Buildings and improvements ................. 39-40 years
Equipment, furnishings and fixtures .. ..... 5-15 years
F. Deferred Expenses
Costs of obtaining the mortgage on Casabella are being amortized over
the mortgage term using the straight-line method, which approximates
the effective interest method. Any unamortized costs remaining at the
date of refinancing are expensed in the year of refinancing.
G. Income Taxes
The Partnership is not liable for Federal or state income taxes because
Partnership income or loss is allocated to the Partners for income tax
purposes. If the Partnership's tax returns are examined by the Internal
Revenue Service or state taxing authority and such an examination
results in a change in Partnership taxable income (loss), such change
will be reported to the Partners.
H. Rental Income
Leases require the payment of rent in advance, however, rental income
is recorded as earned.
I. Reclassification
Certain items in the financial statements for the years ended December
31, 1995 and 1994 have been reclassified to conform to the 1996
presentation
J. Long-Lived Assets
The Partnership's long-lived assets include property and equipment. On
a quarterly basis, the Partnership evaluates the recoverability of the
rental property, using undiscounted cash flows from operations.
<PAGE> 31
3. Property, at Cost:
Property, at cost, consisted of the following at December 31, 1996:
<TABLE>
<CAPTION>
Initial Cost Costs Capitalized Amount at Which Carried
to Subsequent to At Close of Period
Partnership Acquisition
------------------------------------ ----------------------------------- -------------------------------
Buildings Equipment, Buildings Equipment, Buildings Equipment,
Property and Furnishings and Furnishings and Furnishings
Description Land Improv. & Fixtures Land Improv. & Fixtures Land Improv. & Fixtures Total
- ---------------------------------------------------- --------------------------------- -----------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Casabella a 154-unit
residential rental
complex
located in
Scottsdale,
Arizona $2,976,101 $7,639,160 $782,784 - $8,900 $213,125 $2,976,101 $7,648,060 $995,909 $11,620,070
Depreciation expense for the years ended December 31, 1996, 1995, and 1994, and accumulated
depreciation at December 31, 1996 and 1995, consisted of the following:
</TABLE>
<TABLE>
<CAPTION>
Accumulated Depreciation
Depreciation Expense December 31,
1996 1995 1994 1996 1995
<S> <C> <C> <C> <C> <C>
Buildings and improvements $190,254 $191,202 $191,202 $1,149,637 $959,383
Equipment, furnishings and fixtures $54,053 161,609 157,547 846,867 792,814
--------------------------------------------------------------
$244,307 $352,811 $348,749 $1,996,504 $1,752,197
==============================================================
</TABLE>
Casabella is encumbered by a nonrecourse mortgage note payable (see Note 6).
<PAGE> 32
4. Cash and cash equivalents
Cash and cash equivalents at December 31, 1996 and 1995 consisted of the
following:
<TABLE>
<CAPTION>
1996 1995
-------- --------
<S> <C> <C>
Cash on hand ............................... $213,574 $ 35,935
Certificates of deposit .................... 318,204 200,000
Money market accounts ...................... -- 131,278
-------- --------
$531,778 $367,213
======== ========
</TABLE>
5. Joint Venture and Partnership Acquisitions
On September 28, 1990, the Partnership acquired a majority interest in Casabella
Associates, a general partnership comprised of the Partnership, Development
Partners (A Massachusetts Limited Partnership) ("DPI"), formerly Berry and Boyle
Development Partners, and Development Partners II (A Massachusetts Limited
Partnership) ("DPII"), formerly Berry and Boyle Development Partners II.
Casabella Associates was formed to acquire a majority interest in the Casabella
Joint Venture which owns Casabella, a 154-unit residential property located in
Scottsdale, Arizona. Since the Partnership owns a majority interest in Casabella
Associates, the accounts and operations of Casabella Associates (including the
accounts and operations relating to Casabella Associates' majority interest in
the Casabella Joint Venture) have been consolidated into the Partnership.
The co-venture partner was an affiliate of Evans Withycombe, Inc. ("EWI"), a
Phoenix based residential development, construction and management firm. EWI
also the developed the property known as Casabella.
At December 31, 1996, the Partnership, DPI and DPII had contributed $2,500,000,
$400,000 and $1,800,000, respectively to Casabella Associates. Of the total
contributions, $3,845,154 was used to purchase the majority interest in the
Casabella Joint Venture referred to in the preceding paragraph and $500,000 was
used to fund an escrow account maintained by the permanent lender. In addition
to the $4,700,000 of cash contributions referred to above, the Partnership, DPI
and DPII collectively incurred $280,930 of acquisition costs which have been
recorded as additional capital contributions to Casabella Associates.
The Partnership has invested in a single property located in Scottsdale,
Arizona. The success of the Partnership will depend upon factors which are
difficult to predict including general economic and real estate market
conditions, both on a national basis and in the area where the Partnership's
investment is located.
JANUARY 1, 1996 THROUGH MAY 13, 1996:
Cash distributions and allocations of income and loss from Casabella Associates
are governed by the partnership agreement and are generally based on the ratio
of capital contributed by each of the joint venture partners.
Net cash from operations of the Casabella Joint Venture, to the extent
available, shall be distributed not less often than quarterly with respect to
each fiscal year, as follows:
(A) First, to Associates, an amount equal to a 10.6% per annum
(computed on a simple noncompounded daily basis from the date
of the closing) of their capital investment;
(B) Second, the balance 70% to Associates and 30% to the property
developer.
All losses from operation and depreciation for the Casabella Joint Venture were
allocated 99.5% to Associates and 0.5% to the property developer.
All profits from operations of the Casabella Joint Venture were allocated in
accordance with distributions of net cash from operations; provided, however,
that if any fiscal year has no distributable net cash from operations, profits
will be allocated 99.5% to Associates and 0.5% to the property developer.
In the case of certain capital transactions and distributions as defined in the
Casabella joint venture agreement, the allocation of related profits, losses and
cash distributions, if any, would be different than as described above and would
be effected by the relative balance in the individual partners' capital
accounts.
MAY 14, 1996 THROUGH DECEMBER 31, 1996:
On May 14, 1996, the Partnership and certain affiliates consummated an agreement
with Evans Withycombe Management, Inc. and certain of its affiliates ("EWI")
which separated the interests of EWI and the Partnership, thus affording the
Partnership greater flexibility in the operation and disposition of Casabella.
The Partnership, DPI, and DPII paid $109,741 to EWI ($38,345 of which was the
partnership's portion) and delivered certain mutual releases. EWI (i)
relinquished its contract to manage Casabella and its option to exercise its
rights to first refusal with regard to the sale of the property and (ii)
assigned all of its interest in the Casabella Joint Venture to the Partnership,
DPII and DPIII (while preserving the economic interest of the venture in these
Joint Ventures), which resulted in the dissolution of the Casabella Joint
Venture. EWI may still share in the cash flow distributions or the proceeds from
sale of the properties if certain performance levels are met.
6. Mortgage Note Payable
All of the property owned by the Partnership is pledged as collateral for the
nonrecourse mortgage note payable pertaining to Casabella in the original
principal amount of $7,320,000. Under the terms of the note, monthly principal
and interest payments of $61,887, based on a fixed interest rate of 9.125%, are
required over the term of the loan. The balance of the note will be due on July
15, 1997. As these mortgage notes payable are due in fiscal 1997, the
partnership will seek to renegotiate these mortgage notes with its existing
lenders or seek new sources of financing for these properties on a long term
basis. The General Partners believe that existing cash flows from the properties
will be sufficient to support a level of borrowing that is at least equal to
amounts outstanding as of December 31, 1996. If the general economic climate for
real estate in these respective locations were to deteriorate resulting in an
increase in interest rates for mortgage financing or a reduction in the
availability of real estate mortgage financing or a decline in the market values
of real estate it may affect the Partnership's ability to complete these
refinancings.
Accrued interest included in accrued expenses on the Balance Sheets of the
Consolidated Financial Statements at December 31, 1996 and 1995, consisted of
$26,180 and $26,594, respectively.
The principal balance of the mortgage note payable appearing on the consolidated
balance sheets approximates the fair value of such note at December 31, 1996 and
1995.
7. Partners' Equity
Under the terms of the Partnership Agreement, as amended, profits are allocated
92% to the Limited Partners and 8% to the General Partners; losses are allocated
99% to the Limited Partners and 1% to the General Partners.
Cash distributions to the partners are governed by the Partnership Agreement and
are made, to the extent available, 92% to the Limited Partners and 8% to the
General Partners.
In the case of certain events as defined in the Partnership Agreement, such as
the sale of an investment property or an interest in a joint venture
partnership, the allocation of the related profits, losses, and distributions,
if any, would be different than described above.
8. Related Party Transactions
Due to affiliates at December 31, 1996 and 1995 consisted of $3,012 and $5,318,
respectively, of reimbursable costs payable to L'Auberge Communities, Inc.,
formerly Berry and Boyle Inc.
In 1996, 1995 and 1994, general and administrative expenses included $35,441,
$29,304, and $22,271, respectively, of salary reimbursements paid to the General
Partners for certain administrative and accounting personnel who performed
services for the Partnership.
The officers and principal shareholders of Evans Withycombe, Inc., the developer
of Casabella, together hold a two and one half percent cumulative profit or
partnership voting interest in LP L'Auberge Communities, formerly Berry and
Boyle.
During the years ended December 31, 1996, 1995 and 1994, property management
fees of $37,735, $78,663, and $77,227, respectively, were paid to Evans
Withycombe, Inc. This represents 5% of the rental revenues. From November 16,
1996 to December 31, 1996, Residential Services-L'Auberge, an affiliate of the
General Partner, was paid 4% of the rental revenue for management fees in the
amount of $6,612.
<PAGE> 33
EXHIBIT INDEX
Exhibit
Number
(4)(a)(1) Amended and Restated Certificate and Agreement of Limited
Partnership (included as an exhibit to the Partnership's Form
10-K for the year ended December 31, 1989, and incorporated
herein by reference).
(4)(a)(2) Fifteenth Amendment to the Amended and Restated Certificate and
Agreement of Limited partnership dated January 13, 1991.
(4)(b) Subscription Agreement included as Exhibit B to Prospectus
contained in Amendment No. 2 to the Partnership's Registration
Statement No. 33-23240 filed and declared effective January 13,
1989, and incorporated herein by reference.
(10)(a) Agreement of Joint Venture of Casabella Associates dated September
27, 1990 (filed as Exhibit (10)(f) to the Form 10-K of Berry and
Boyle Development Partners for the year ended December 31, 1990,
and incorporated herein by reference).
(10)(b) Documents pertaining to the $7,300,000 permanent loan for
Casabella Joint Venture (filed as an exhibit to the Form 10-K of
Berry and Boyle Development Partners for the year ended December
31, 1991, and incorporated herein by reference).
(10)(c) Property Management Agreement between Casabella Associates and
L'Auberge Communities Inc. dated November 1, 1996.
(10)(d) Agreement regarding Casabella Joint Venture
(27) Financial Data Schedule
<PAGE> 34
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the Quarterly period Ended September 30, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from __________________ to ________________
Commission File No. 0-18531
Development Partners III
(A Massachusetts Limited Partnership)
(Exact name of registrant as specified in its charter)
Massachusetts 04-3017036
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
5110 Langdale Way, Colorado Springs, CO 80906
(Address of principal executive offices) (Zip Code)
(719) 576-5122
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Sections 13 and 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
--- ---
<PAGE> 35
PART I. FINANCIAL INFORMATION
Item 1. FINANCIAL STATEMENTS
DEVELOPMENT PARTNERS III
(A Massachusetts Limited Partnership)
AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
September 30
1997 December 31,
(Unaudited) 1996
ASSETS
Property, at cost
<S> <C> <C>
Land $2,976,101 $2,976,101
Buildings and improvements 7,648,060 7,648,060
Equipment, furnishings and fixtures 1,086,269 995,909
--------------- ---------------
11,710,430 11,620,070
Less accumulated depreciation (2,181,859) (1,996,504)
--------------- ---------------
9,528,571 9,623,566
Cash and cash equivalents 339,989 531,778
Real estate tax escrow 49,010 24,268
Deposits 1,950 1,950
Deferred expenses, net of accumulated
amortization of $112,130 and $100,918 - 11,212
=============== ===============
Total assets $9,919,520 $10,192,774
=============== ===============
LIABILITIES AND PARTNERS' EQUITY
<S> <C> <C>
Mortgage note payable 6,797,270 $6,885,673
Accrued expenses 208,321 208,425
Due to affiliates (Note 7) 866 3,012
Tenant security deposits 22,688 24,834
Rents received in advance - 3,507
Minority Interest 1,204,738 1,252,041
--------------- ---------------
Total liabilities 8,233,883 8,377,492
General Partner's equity (48,148) (47,185)
Limited Partner's equity 1,733,785 1,862,467
--------------- ---------------
Total liabilities and partners' equity $9,919,520 $10,192,774
=============== ===============
</TABLE>
The accompanying notes are an integral
part of the consolidated financial statements.
<PAGE> 36
DEVELOPMENT PARTNERS III
(A Massachusetts Limited Partnership)
AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30 September 30
1997 1996 1997 1996
Revenue:
<S> <C> <C> <C> <C>
Rental income $346,078 $277,315 $1,108,036 $1,045,915
Interest Income $3,920 $9,534 $14,869 $35,061
--------------- --------------- --------------- ---------------
$349,998 $286,849 $1,122,905 $1,080,976
Expenses:
Operating Expenses $191,496 $146,241 $543,245 $425,575
Interest 158,022 158,141 471,083 476,265
Depreciation and amortization 63,383 65,389 196,751 196,167
General and administrative 14,650 22,148 55,469 120,323
--------------- --------------- --------------- ---------------
427,551 391,919 1,266,548 1,218,330
--------------- --------------- --------------- ---------------
Net loss before minority interest (77,553) (105,070) (143,643) (137,354)
Minority interests' equity in
subsidiary net (income) loss 31,153 (15,671) 47,302 13,281
--------------- --------------- --------------- ---------------
Net loss ($46,400) ($120,741) ($96,341) ($124,073)
=============== =============== =============== ===============
Net loss allocated to:
General Partners ($464) ($1,207) ($963) ($1,241)
Per unit of Investor Limited
Partner interest:
7,401 Units issued (6.21) (16.15) (12.89) (16.60)
</TABLE>
The accompanying notes are an integral
part of the consolidated financial statements.
<PAGE> 37
DEVELOPMENT PARTNERS III
(A Massachusetts Limited Partnership)
AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF PARTNERS' EQUITY (DEFICIT)
(Unaudited)
-------------
<TABLE>
<CAPTION>
Investor Total
General Limited Partners'
Partners Partners Equity
<S> <C> <C> <C>
Balance at December 31, 1995 (33,305) 2,222,947 2,189,642
Cash distributions (11,584) (133,218) (144,802)
Net loss (2,296) (227,262) (229,558)
--------------- --------------- ---------------
Balance at December 31, 1996 (47,185) 1,862,467 1,815,282
Cash distributions (33,305) (33,305)
-
Net loss (963) (95,378) (96,341)
--------------- --------------- ---------------
Balance at September 30, 1997 ($48,148) $1,733,785 $1,685,636
=============== =============== ===============
</TABLE>
The accompanying notes are an integral
part of the consolidated financial statements.
<PAGE> 38
DEVELOPMENT PARTNERS III
(A Massachusetts Limited Partnership)
AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Increase (decrease) in cash and cash equivalents
-------------
<TABLE>
<CAPTION>
Nine Months Ended
September 30
1997 1996
Cash flows from operating activities:
<S> <C> <C>
Interest received $14,869 $44,868
Cash received from rents 1,102,383 1,037,363
Administrative expenses (64,480) (136,367)
Rental operations expenses (560,748) (416,614)
Interest paid (471,083) (476,265)
--------------- ---------------
Net cash provided by operating activities 20,941 52,985
Cash flows from investing activities:
Purchase of fixed assets (90,360) (48,092)
--------------- ---------------
Net cash provided (used) by investing activities (90,360) 122,561
Cash flows from financing activities:
Distributions to partners (33,305) (99,914)
Payments on mortgage note payable (88,403) (80,722)
Distributions paid to minority interest - (147,791)
Cash paid for deposits - (1,950)
Cash paid for deferred expenses (663) -
--------------- ---------------
Net cash provided (used) by financing activities (122,371) (330,377)
--------------- ---------------
Net increase (decrease) in cash and cash equivalents (191,790) (154,831)
Cash and cash equivalents at beginning of year 531,778 367,213
--------------- ---------------
Cash and cash equivalents at end of year $339,989 $212,382
=================================
</TABLE>
The accompanying notes are an integral
part of the consolidated financial statements.
<PAGE> 39
DEVELOPMENT PARTNERS III
(A Massachusetts Limited Partnership)
AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Increase (decrease) in cash and cash equivalents
-------------
Reconciliation of net loss to net cash provided by operating activities:
<TABLE>
<CAPTION>
Nine Months Ended
September 30
1997 1996
<S> <C> <C>
Net loss ($96,341) ($124,073)
Adjustments to reconcile net loss to net cash
provided by operating activities:
Depreciation and amortization 196,751 196,167
Minority interests' equity in subsidiary income (loss) (47,302) (13,281)
Change in assets and liabilities net of effects from investing and financing
activities:
(Increase) decrease in interest receivable - 9,807
Decrease (increase) in real estate tax escrow (24,266) (72,349)
Increase (decrease) in accounts
payable and accrued expenses (102) 75,510
(Decrease) increase in due to affiliates (2,146) (10,244)
(Decrease) increase in rents received in advance (3,507) -
(Decrease) increase in tenant security deposits (2,146) (8,552)
--------------- ---------------
Net cash provided by operating activities $20,941 $52,985
=============== ===============
</TABLE>
The accompanying notes are an integral
part of the consolidated financial statements.
<PAGE> 40
DEVELOPMENT PARTNERS III
(A Massachusetts Limited Partnership)
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------
1. Organization of Partnership
Development Partners III (A Massachusetts Limited Partnership) (the
"Partnership"), formerly Berry and Boyle Development Partners III, was formed on
July 11, 1988. GP L'Auberge Communities, L.P., a California Limited Partnership
(formerly Berry and Boyle Management) and Stephen B. Boyle are the General
Partners. In September, 1995, with the consent of Limited Partners holding a
majority of the outstanding Units, as well as the consent of the mortgage
lenders for the Partnership's three properties, Richard G. Berry resigned as a
general partner of the Partnership. Except under certain limited circumstances
upon termination of the Partnership, the General Partners are not required to
make any additional capital contributions. The General Partners or their
affiliates will receive various fees for services and reimbursement for various
organizational and selling costs incurred on behalf of the Partnership.
On January 13, 1989, the Securities and Exchange Commission declared the
Partnership's public offering (the "Prospectus") of up to 80,000 units of
Limited Partnership Interests at $500 per unit (the "Units") effective and the
marketing and sale of the Units commenced shortly thereafter. The initial
closing of the offering took place on December 28, 1989, at which time the
holders of 3,048 Units were admitted into the Partnership. The Partnership
continued to admit subscribers monthly thereafter until December 27, 1991, its
last closing date. The Partnership terminated the offering on January 13, 1992,
having admitted 289 investors acquiring 7,401 Units totaling $3,700,500.
The accompanying consolidated financial statements present the activity of the
Partnership for the six months ended September 30, 1997 and 1996.
The Partnership will continue until December 31, 2018, unless earlier terminated
by the sale of all, or substantially all, of the assets of the Partnership, by
the dissolution and liquidation of the joint ventures or as otherwise provided
in the Partnership Agreement.
2. Significant Accounting Policies
A. Basis of Presentation
The consolidated financial statements include the accounts of the
Partnership and its subsidiary Casabella Associates. All intercompany
accounts and transactions have been eliminated in consolidation. The
Partnership follows the accrual basis of accounting.
B. Cash and Cash Equivalents
The Partnership considers all highly liquid debt instruments purchased
with a maturity of three months or less to be cash equivalents. The
carrying value of cash and cash equivalents approximates fair value. It
is the Partnership's policy to invest cash in income-producing
temporary cash investments. The Partnership mitigates any potential
risk from such concentration of credit by placing investments with high
quality financial institutions.
C. Significant Risks and Uncertainties
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the
date of the financial statements and the reported amounts of revenues
and expenses during the reporting period. Actual results could differ
from those estimates.
D. Depreciation
Depreciation is provided for by the use of the straight-line method
over the estimated useful lives as follows:
Buildings and improvements 39-40 years
Equipment, furnishings and fixtures 5-15 years
E. Deferred Expenses
Costs of obtaining the mortgage on Casabella are being amortized over
the term of the related mortgage note payable using the straight-line
method. Any unamortized costs remaining at the date of refinancing are
expensed in the year of refinancing.
F. Income Taxes
The Partnership is not liable for Federal or state income taxes because
Partnership income or loss is allocated to the Partners for income tax
purposes. If the Partnership's tax returns are examined by the Internal
Revenue Service or state taxing authority and such an examination
results in a change in Partnership taxable income (loss), such change
will be reported to the Partners.
G. Rental Income
Leases require the payment of rent in advance; however, rental income
is recorded as earned.
H. Reclassification
I. Long-Lived Assets
The Partnership's long-lived assets include property and equipment and
deferred expenses. The Partnership evaluates rental properties for
impairment when conditions exist which may indicate that it is probable
that the sum of expected future cash flows (undiscounted) from rental
properties is less than its carrying value. Upon determination that a
permanent impairment has occurred, rental properties are reduced to
fair value. For the year ended December 31, 1996, and the quarter ended
September 30, 1997, permanent impairment conditions did not exist at
any of the Partnership's properties.
3. Cash and cash equivalents
Cash and cash equivalents at September 30, 1997, and December 31, 1996,
consisted of the following:
<TABLE>
<CAPTION>
1997 1996
<S> <C> <C>
Cash on hand (Sweep Account) ................. $180,007 $213,574
Certificates of deposit ...................... 318,204
Money market accounts ........................ 159,982 ______
-------- --------
$339,989 $531,778
</TABLE>
<PAGE> 41
4. Joint Venture and Partnership Acquisitions
On September 28, 1990, the Partnership acquired a majority interest in Casabella
Associates, a general partnership comprised of the Partnership, Development
Partners (A Massachusetts Limited Partnership) ("DPI"), formerly Berry and Boyle
Development Partners, and Development Partners II (A Massachusetts Limited
Partnership) ("DPII"), formerly Berry and Boyle Development Partners II.
Casabella Associates was formed to acquire a majority interest in the Casabella
Joint Venture which owns Casabella, a 154-unit residential property located in
Scottsdale, Arizona. Since the Partnership controls and owns a majority interest
in Casabella Associates, the accounts and operations of Casabella Associates
(including the accounts and operations relating to Casabella Associates'
majority interest in the Casabella Joint Venture) have been consolidated into
the Partnership.
The co-venture partner was an affiliate of Evans Withycombe, Inc. ("EWI"), a
Phoenix based residential development, construction and management firm. EWI
also developed the property known as Casabella.
At September 30, 1997, the Partnership, DPI and DPII had contributed $2,500,000,
$400,000 and $1,800,000, respectively to Casabella Associates. Of the total
contributions, $3,845,154 was used to purchase the majority interest in the
Casabella Joint Venture referred to in the preceding paragraph and $500,000 was
used to fund an escrow account maintained by the permanent lender. In addition
to the $4,700,000 of cash contributions referred to above, the Partnership, DPI
and DPII collectively incurred $280,930 of acquisition costs which have been
recorded as additional capital contributions to Casabella Associates.
The Partnership has invested in a single property located in Scottsdale,
Arizona. The success of the Partnership will depend factors which are difficult
to predict including general economic and real estate market conditions, both on
a national basis and in the area where the Partnership's investment is located.
JANUARY 1, 1996, THROUGH MAY 13, 1996:
Cash distributions and allocations of income and loss from Casabella Associates
are governed by the partnership agreement and are generally based on the ratio
of capital contributed by each of the joint venture partners.
Net cash from operations of the Casabella Joint Venture, to the extent
available, shall be distributed not less often than quarterly with respect to
each fiscal year, as follows:
(A) First, to Associates, an amount equal to a 10.6% per annum
(computed on a simple noncompounded daily basis from the date
of the closing) of their capital investment;
(B) Second, the balance 70% to Associates and 30% to the property developer.
All losses from operation and depreciation for the Casabella Joint Venture were
allocated 99.5% to Associates and 0.5% to the property developer.
All profits from operations of the Casabella Joint Venture were allocated in
accordance with distributions of net cash from operations; provided, however,
that if any fiscal year has no distributable net cash from operations, profits
will be allocated 99.5% to Associates and 0.5% to the property developer.
In the case of certain capital transactions and distributions as defined in the
Casabella joint venture agreement, the allocation of related profits, losses and
cash distributions, if any, would be different than as described above and would
be effected by the relative balance in the individual partners' capital
accounts.
<PAGE> 42
MAY 14, 1996, THROUGH SEPTEMBER 30, 1997:
On May 14, 1996, the Partnership and certain affiliates consummated an agreement
with Evans Withycombe Management, Inc. and certain of its affiliates ("EWI")
which separated the interests of EWI and the Partnership, thus affording the
Partnership greater flexibility in the operation and disposition of Casabella.
The Partnership, DPI, and DPII paid $109,741 to EWI ($38,345 of which was the
partnership's portion) and delivered certain mutual releases. EWI (i)
relinquished its contract to manage Casabella and its option to exercise its
rights to first refusal with regard to the sale of the property and (ii)
assigned all of its interest in the Casabella Joint Venture to the Partnership,
DPII and DPIII (while preserving the economic interest of the venture in these
Joint Ventures), which resulted in the dissolution of the Casabella Joint
Venture. EWI may still share in the cash flow distributions or the proceeds from
sale of the properties if certain performance levels are met.
5. Mortgage Note Payable
All of the property owned by the Partnership is pledged as collateral for the
nonrecourse mortgage note payable pertaining to Casabella in the original
principal amount of $7,320,000. Under the terms of the note, monthly principal
and interest payments of $61,887, based on a fixed interest rate of 9.125%, are
required over the term of the loan. The maturity date of the note is July 15,
1998.
Accrued interest at September 30, 1997, and December 31, 1996, consisted of
$26,180 and $26,180, respectively, all pertaining to Casabella.
The $6,797,270 principal balance of the mortgage note payable appearing on the
consolidated balance sheet approximates the fair value of such note.
6. Partners' Equity
Under the terms of the Partnership Agreement, as amended, profits are allocated
92% to the Limited Partners and 8% to the General Partners; losses are allocated
99% to the Limited Partners and 1% to the General Partners.
Cash distributions to the partners are governed by the Partnership Agreement and
are made, to the extent available, 92% to the Limited Partners and 8% to the
General Partners.
In the case of certain events as defined in the Partnership Agreement, such as
the sale of an investment property or an interest in a joint venture
partnership, the allocation of the related profits, losses, and distributions,
if any, would be different than described above.
7. Related Party Transactions
Due to affiliates at September 30, 1997, and December 31, 1996, consisted of
$866 and $3,012 of reimbursable costs payable to L'Auberge Communities, Inc.,
formerly Berry and Boyle Inc. In 1997 and 1996 general and administrative
expenses included $15,560 and $27,550, respectively, of salary reimbursements
paid to the General Partners for certain administrative and accounting personnel
who performed services for the Partnership.
The officers and principal shareholders of Evans Withycombe, Inc., the developer
of Casabella, together hold a two and one half percent cumulative profit or
partnership voting interest in LP L'Auberge Communities, formerly Berry and
Boyle.
During the years ended September 30, 1997 and 1996, $43,810 and $58,365,
respectively, of property management fees were paid.
<PAGE> 43
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Liquidity; Capital Resources
The Partnership admitted 289 investors who purchased a total of 7,401 Units
aggregating $3,700,500. These offering proceeds, net of organizational and
offering costs of $555,075, provided $3,145,425 of net proceeds to be used for
the purchase of income-producing residential properties, including related fees
and expenses, and working capital reserves. The Partnership expended (1)
$2,780,930 to acquire its interest in Casabella Associates and to pay
acquisition expenses, including an acquisition fee to the General Partners and
(2) $52,768 to cover costs associated with discontinued acquisitions. The
remaining net proceeds of $311,727 were used to establish working capital
reserves sufficient to meet the needs of the Partnership, including
contributions that may be required at the joint venture level, as determined by
the General Partners.
In addition to the proceeds generated from the public offering, the Partnership
has utilized external sources of financing at the joint venture level to
purchase Casabella. The Partnership Agreement limits the aggregate mortgage
indebtedness which may be incurred in connection with the acquisition of
Partnership properties to 80% of the purchase price of such properties.
The working capital reserves of the Partnership consist of cash and cash
equivalents and short-term investments. These reserves provide the Partnership
with the necessary liquidity to carry on its day-to-day operations and to make
necessary contributions to Casabella. In 1997, the aggregate net decrease in
working capital reserves was $191,790. This decrease resulted primarily from
cash provided by the operations of $20,941, less distributions to the partners
of $33,305, fixed asset purchases of $90,360, and $88,403 of principal payments
on mortgage notes payable.
The Partnership's future ability to generate cash adequate to meet its needs is
dependent primarily on the successful operations of Casabella. Such ability may
also be dependent upon the future availability of bank borrowings, and upon the
future sale of Casabella and the collection of any mortgage receivable which may
result from such sale. These sources of liquidity will be used by the
Partnership for payment of expenses related to real estate operations, debt
service and professional and management fees and expenses. Net Cash From
Operations and Net Proceeds, if any, as defined in the Partnership Agreement,
will then be available for distribution to the Partners in accordance with
Section 10 of the Partnership Agreement. The General Partners believe that the
current working capital reserves together with projected cash flows for 1997 are
adequate to meet the Partnership's operating cash needs in the coming year. With
regard to the existing first mortgage debt on the Partnership's property, the
maturity of the note is July 15, 1998.
Property Status
Casabella
As of September 30, 1997, the property was 86% occupied, compared to 73%
approximately one year ago. At September 30, 1997 and 1996, the average monthly
rents collected for the various unit types were as follows:
<TABLE>
<CAPTION>
Unit Type 1997 1996
--------- ---- ----
<S> <C> <C>
One bedroom two bath w/den ................... 820 $ 820
Two bedroom two bath ......................... 940 940
Two bedroom two bath w/den ................... 1,160 1,160
</TABLE>
<PAGE> 44
Results of Operations
The Partnership's operating results for the three months ended September 30,
1997, consisted of interest earned on short-term investments, general and
administrative expenses, amortization expense and its share of the income (loss)
from Casabella Associates and Casabella. A summary of these operating results
appears below:
<TABLE>
<CAPTION>
Casabella Partnership Consolidated
Casabella Associates Level Totals
<S> <C> <C> <C> <C>
Revenue $346,078 $1,713 $2,207 $349,998
Expenses:
General and administrative 1,456 13,194 14,650
Operations 191,496 191,496
Depreciation and amortization 63,383 63,383
Interest 158,022 158,022
------------ --------------- --------------- ---------------
412,901 1,456 13,194 427,551
------------ --------------- --------------- ---------------
Net loss before minority interest (66,823) 257 (10,987) (77,553)
Minority Interests' share of
net (income) loss 31,153 31,153
------------ --------------- --------------- ---------------
Net income (loss) ($66,823) $31,410 ($10,987) ($46,400)
============ =============== =============== ===============
</TABLE>
The Partnership's operating results for the three months ended September 30,
1996, consisted of interest earned on short-term investments, general and
administrative expenses, amortization expense and its share of the income (loss)
from Casabella Associates and Casabella. A summary of these operating results
appears below:
<TABLE>
<CAPTION>
Casabella Partnership Consolidated
Casabella Associates Level Totals
<S> <C> <C> <C> <C>
Revenue $277,353 $6,263 $3,233 $286,849
Expenses:
General and administrative 1,092 21,056 22,148
Operations 145,224 1,017 146,241
Depreciation and amortization 65,389 65,389
Interest 158,141 158,141
------------ --------------- ----------------- -------------------
368,754 2,109 21,056 391,919
------------ --------------- ----------------- -------------------
Net loss before minority interest (91,401) 4,154 (17,823) (105,070)
Minority Interests' share of
net (income) loss (15,671) (15,671)
------------ --------------- ----------------- -------------------
Net income (loss) ($91,401) ($11,517) ($17,823) ($120,741)
============ =============== ================= ===================
</TABLE>
<PAGE> 45
The Partnership's operating results for the nine months ended September 30,
1997, consisted of interest earned on short-term investments, general and
administrative expenses, amortization expense and its share of the income (loss)
from Casabella Associates and Casabella. A summary of these operating results
appears below:
<TABLE>
<CAPTION>
Casabella Partnership Consolidated
Casabella Associates Level Totals
<S> <C> <C> <C> <C>
Revenue $1,108,036 $7,333 $7,536 $1,122,905
Expenses:
General and administrative 5,441 50,105 55,546
Operations 543,168 543,168
Depreciation and amortization 196,751 196,751
Interest 471,083 471,083
------------ --------------- --------------- ---------------
1,211,002 5,441 50,105 1,266,548
------------ --------------- --------------- ---------------
Net loss before minority interest (102,966) 1,892 (42,569) (143,643)
Minority Interests' share of
net (income) loss 47,302 47,302
------------ --------------- --------------- ---------------
Net income (loss) ($102,966) $49,194 ($42,569) ($96,341)
============ =============== =============== ===============
</TABLE>
The Partnership's operating results for the nine months ended September 30,
1996, consisted of interest earned on short-term investments, general and
administrative expenses, amortization expense and its share of the income (loss)
from Casabella Associates and Casabella. A summary of these operating results
appears below:
<TABLE>
<CAPTION>
Casabella Partnership Consolidated
Casabella Associates Level Totals
<S> <C> <C> <C> <C>
Revenue $1,046,970 $23,747 $10,259 $1,080,976
Expenses:
General and administrative 383 3,942 115,998 120,323
Operations 421,558 1,017 3,000 425,575
Depreciation and amortization 196,167 196,167
Interest 476,265 476,265
------------ --------------- ----------------- -------------------
1,094,373 4,959 118,998 1,218,330
------------ --------------- ----------------- -------------------
Net loss before minority interest (47,403) 18,788 (108,739) (137,354)
Minority Interests' share of
net (income) loss 13,281 13,281
------------ --------------- ----------------- -------------------
Net income (loss) ($47,403) $32,069 ($108,739) ($124,073)
============ =============== ================= ===================
</TABLE>
<PAGE> 46
Comparison of Operating Results for the Nine Months Ended September 30, 1997 and
1996:
Total revenue increased by $41,929 or 4%, primarily due to an increase of rental
income as a result of higher occupancy levels. Operating expenses increased by
$117,593 or 28% primarily due to one-time costs of preparing Casabella
Apartments for disposition, including an increase of $67,727 in repairs and
maintenance and an increase of $28,043 in advertising and promotion expense.
General and administrative expenses decreased by $64,777 due in part to the
one-time costs associated with the Evans Withycombe termination fee in 1996 and
the related legal costs, as well as the re-stabilization of costs associated
with the Partnership administrative, financial and investor services functions
following the office relocation to Colorado Springs
Thus far in 1997, the Partnership has made the following cash distributions to
its Partners:
Total
Limited Partners $33,305
General Partners -
$33,305
<PAGE> 47
PART II - OTHER INFORMATION
-----------------
ITEM 1. Legal Proceedings
Response: None
ITEM 2. Changes in Securities
Response: None
ITEM 3. Defaults Upon Senior Securities
Response: None
ITEM 4. Submission of Matters to a Vote of Security Holders
Response: None
ITEM 5. Other Information
ITEM 6. Exhibits and Reports on Form 8-K
Response: None
SIGNATURES
Pursuant to the requirements 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.
DEVELOPMENT PARTNERS III
(A Massachusetts Limited Partnership)
By: GP L'Auberge Communities, L.P., A California Limited Partnership,
General Partner
By: L'Auberge Communities, Inc., its General Partner
By: ____/s/ Stephen B. Boyle________________
Stephen B. Boyle, President
Date: November 12, 1997
<PAGE> 48
DEVELOPMENT PARTNERS III
(A MASSACHUSETTS LIMITED PARTNERSHIP)
THIS CONSENT is solicited by and on behalf of the Partnership. The
General Partners recommend a vote "FOR" the Proposal. A vote "FOR" the Proposal
also will constitute your consent to all actions necessary to consummate all
transactions with respect to the Proposal contemplated by the Consent
Solicitation.
THIS CONSENT WILL BE RECORDED IN ACCORDANCE WITH THE INSTRUCTIONS
BELOW. IF NO INSTRUCTIONS ARE INDICATED, BY YOUR SIGNATURE BELOW YOU WILL BE
DEEMED TO HAVE CONSENTED TO THE PROPOSAL AS RECOMMENDED BY THE GENERAL PARTNERS.
PLEASE MARK THE APPROPRIATE BOX:
With the General Partners' recommendation to dissolve the Partnership
and settle and close the Partnership's business and dispose of and convey the
Partnership's property as soon as practicable, consistent with obtaining
reasonable value for the properties, I vote:
[ ] FOR [ ] AGAINST [ ] ABSTAIN
The undersigned acknowledges receipt of the Consent Solicitation dated
March 18, 1998 pertaining to the Proposal.
Dated: _______________________ ________________________________________
Signature
________________________________________
Signature (if held jointly)
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Title
Please sign exactly as name appears hereon. When Units are held by joint
tenants, both should sign. When signing as an attorney, executor, administrator,
trustee or guardian, please give full title as such. If a corporation, please
sign in corporate name by President or other authorized officer. If a
partnership, please sign in partnership name by authorized person.
PLEASE MARK, SIGN, DATE AND RETURN THIS CONSENT PROMPTLY USING THE ENCLOSED
PRE-PAID ENVELOPE TO: GP L'Auberge Communities, L.P., c/o Gemisys, 7103 South
Revere Parkway, Englewood, Colorado 80112. If you have any questions, please
call THE L'AUBERGE INVESTOR SERVICES LINE at (800) 262-7778.
