RINCON CENTER ASSOCIATES
Balance Sheet
As of March 31, 1994
ASSETS
3/31/94 12/31/93
CASH $ 366,825 $ 120,129
ACCOUNTS RECEIVABLE 402,363 44,399
DEFERRED RENT RECEIVABLE 7,430,165 7,882,208
NOTES RECEIVABLE 15,751,844 15,828,196
REAL ESTATE PROPERTIES USED IN OPERATIONS, Net 116,802,510 118,021,303
LEASEHOLD IMPROVEMENTS, Net 2,235,690 1,854,719
OTHER ASSETS 2,195,626 2,855,012
------------ ------------
Total Assets $145,185,023 $146,605,966
============ ============
LIABILITIES
CONSTRUCTION NOTES PAYABLE $ 62,182,500 $ 62,370,000
ACCOUNTS PAYABLE AND ACCRUED LIABILITIES 3,036,584 3,415,936
DEFERRED GROUND RENT, Net 7,197,194 7,306,810
DEFERRED LEASE EXPENSE, Net 1,609,927 3,101,814
DEFERRED INCOME 1,540,311 1,540,311
ACCRUED INTEREST DUE GENERAL PARTNERS 35,326,625 33,900,724
DUE TO PERINI LAND AND DEVELOPMENT COMPANY 69,759,693 68,499,293
DUE TO PACIFIC GATEWAY PROPERTIES, INC. 17,428,051 16,988,451
------------ ------------
Total Liabilities $198,080,885 $197,123,339
PARTNERS' DEFICIT (52,895,862) (50,517,373)
------------- -------------
Liabilities and Partners' Deficit $145,185,023 $146,605,966
============= =============
RINCON CENTER ASSOCIATES
Income Statement
For Period 1/1/93 thru 3/31/94
Current Year-To-Date Year-To-Date
Period 3/31/94 3/31/93
REVENUE:
Rental Income $ 1,448,804 $ 4,328,191 $ 4,284,069
Parking Income 112,890 316,517 341,329
Interest Income 140,897 404,456 259,104
----------- ----------- -----------
Total Revenue $ 1,702,591 $ 5,049,164 $ 4,884.502
OPERATIONS EXPENSE:
Operating Expense $ 794,219 $ 2,181,212 $ 2,058,734
Ground Rent Expense 233,306 754,664 850,152
----------- ----------- -----------
Total Operating Expense $ 1,027,525 $ 2,935,876 $ 2,908,886
----------- ----------- -----------
NET OPERATING INCOME $ 675,066 $ 2,113,288 $ 1,975,616
DEBT SERVICE:
Sale Lease Back Basic Rent 442,468 1,327,405 873,358
Interest Expense 217,945 581,225 630,971
LC Fees 44,601 133,802 215,818
----------- ----------- -----------
Total Debt Service $ 705,014 $ 2,042,432 $ 1,720,327
INCOME OR (LOSS) B/F PARTNER EXPENSES & DEPRECIATION (29,948) 70,856 255,289
PARTNER EXPENSES:
General Partner Loan Interest Expense $ 595,982 $ 1,709,665 1,524,815
General Partner LC Fees 43,400 (285,257) 215,753
Other 94 96 1,800
----------- ----------- ---------
Total Partner Expenses $ 639,476 $ 1,424,504 1,742,368
DEPRECIATION:
Amortization $ 26,394 $ 69,421 $ 49,265
Depreciation 324,916 955,421 946,259
----------- ----------- -----------
Total Amortization/Depreciation $ 351,310 $ 1,024,842 $ 995,524
----------- ----------- -----------
NET INCOME OR (LOSS) $(1,020,734) $(2,378,490) $(2,482,603)
============ ============ ============
RINCON CENTER ASSOCIATES,
A CALIFORNIA LIMITED PARTNERSHIP
FINANCIAL STATEMENTS
AS OF DECEMBER 31, 1993, 1992 AND 1991
TOGETHER WITH AUDITORS' REPORT
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Partners of Rincon Center Associates,
A California Limited Partnership:
We have audited the accompanying balance sheets of Rincon Center Associates,
A California Limited Partnership as of December 31, 1993 and 1992, and the
related statements of operations, changes in partners' deficit and cash flows
for the three years in the period ended December 31, 1993. These financial
statements are the responsibility of the Partnership's management. 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 management, 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 financial position of Rincon Center Associates, A
California Limited Partnership as of December 31, 1993 and 1992, and the
results of its operations and its cash flows for the three years in the
period ended December 31, 1993, in conformity with generally accepted
accounting principles.
Boston, Massachusetts
February 11, 1994
RINCON CENTER ASSOCIATES
A CALIFORNIA LIMITED PARTNERSHIP
BALANCE SHEETS - DECEMBER 31, 1993 AND 1992
1993 1992
ASSETS
CASH $ 120,000 $ 272,000
ACCOUNTS RECEIVABLE, net of reserves
of $239,000 and $95,000 at
December 31, 1993 and 1992,
respectively 44,000 2,074,000
DEFERRED RENT RECEIVABLE 7,883,000 7,626,000
NOTES RECEIVABLE 15,828,000 10,140,000
REAL ESTATE USED IN OPERATIONS, net 118,021,000 121,505,000
LEASEHOLD IMPROVEMENTS, net 1,855,000 1,894,000
OTHER ASSETS, net 2,855,000 2,368,000
------------ ------------
Total assets $146,606,000 $145,879,000
============ ============
LIABILITIES AND PARTNERS' DEFICIT
CONSTRUCTION NOTES PAYABLE $ 62,370,000 $ 64,224,000
ACCOUNTS PAYABLE AND ACCURED
LIABILITIES 3,416,000 3,607,000
ACCRUED GROUND RENT LIABILITY, net 7,307,000 7,636,000
ACCRUED LEASE LIABILITY, net 3,102,000 3,030,000
DEFERRED INCOME 1,540,000 1,540,000
ACCRUED INTEREST DUE GENERAL
PARTNERS 33,901,000 27,432,000
DUE TO PERINI LAND AND DEVELOPMENT
COMPANY 68,399,000 61,592,000
DUE TO PACIFIC GATEWAY PROPERTIES,
INC. 17,089,000 15,390,000
------------ ------------
Total liabilities $197,124,000 $184,451,000
COMMITMENTS (NOTE 3)
PARTNERS' DEFICIT (50,518,000) (38,572,000)
------------- ------------
Total liabilities and
partners'deficit $146,606,000 $145,879,000
============ ============
The accompanying notes are an integral part of these financial
statements.
RINCON CENTER ASSOCIATES
A CALIFORNIA LIMITED PARTNERSHIP
STATEMENTS OF OPERATIONS
FOR THE THREE YEARS IN THE PERIOD ENDED DECEMBER 31, 1993
1993 1992 1991
REVENUE:
Rental income $ 17,083,000 $ 17,583,000 $ 16,814,000
Parking and other
income 1,260,000 1,150,000 1,195,000
------------ ------------ ------------
Total revenue 18,343,000 18,733,000 18,009,000
------------ ------------ ------------
EXPENSES:
Operating 5,132,000 5,448,000 4,824,000
Administrative and
other 1,556,000 1,313,000 1,437,000
Property taxes and
insurance 2,438,000 3,200,000 1,835,000
Leases 4,515,000 3,775,000 4,755,000
Ground rent 3,391,000 3,407,000 3,437,000
Interest and letter
of credit fees 10,582,000 10,862,000 12,802,000
Depreciation and
amortization 4,040,000 4,726,000 3,487,000
------------ ------------ ------------
Total expenses 31,654,000 32,731,000 32,577,000
INTEREST INCOME 1,365,000 1,062,000 1,023,000
------------- ------------- -------------
Net loss $(11,946,000) $(12,936,000) $(13,545,000)
============= ============= =============
The accompanying notes are an integral part of these financial
statements.
RINCON CENTER ASSOCIATES
A CALIFORNIA LIMITED PARTNERSHIP
STATEMENT OF CHANGES IN PARTNERS' DEFICIT
FOR THE THREE YEARS IN THE PERIOD ENDED DECEMBER 31, 1993
General Limited
Partners Partners Total
BALANCE,
DECEMBER 31, 1990 $ (5,923,000) $ (6,168,000) $(12,091,000)
Net loss (6,786,000) (6,759,000) (13,545,000)
------------- ------------- -------------
BALANCE,
DECEMBER 31, 1991 (12,709,000) (12,927,000) (25,636,000)
Net loss (6,481,000) (6,455,000) (12,936,000)
------------- ------------- -------------
BALANCE,
DECEMBER 31, 1992 (19,190,000) (19,382,000) (38,572,000)
Net loss (5,985,000) (5,961,000) (11,946,000)
------------- ------------- -------------
BALANCE,
DECEMBER 31, 1993 $(25,175,000) $(25,343,000) $(50,518,000)
------------- ------------- -------------
PARTNERS' PERCENTAGE
INTEREST 50.10 49.90 100.00
====== ===== ======
The accompanying notes are an integral part of these financial
statements.
RINCON CENTER ASSOCIATES
A CALIFORNIA LIMITED PARTNERSHIP
STATEMENTS OF CASH FLOWS
FOR THE THREE YEARS IN THE PERIOD ENDED DECEMBER 31, 1993
1993 1992 1991
CASH FLOW FROM OPERATING ACTIVITIES:
Net loss $(11,946,000) $(12,936,000) $(13,545,000)
Adjustments to reconcile net loss to net
cash used in operating activities -
Depreciation and amortization 4,040,000 4,726,000 3,487,000
(Increase) decrease in accounts receivable 2,030,000 (1,620,000) (102,000)
(Increase) decrease in deferred rent
receivable (257,000) (479,000) (2,170,000)
(Increase) decrease in other assets (214,000) (598,000) (467,000)
Increase (decrease) in accounts payable and
accrued liabilities (191,000) 61,000 (1,072,000)
(Decrease) in accrued ground rent
liabilities (329,000) (329,000) (329,000)
Increase (decrease) in accrued lease
liability 72,000 (500,000) (946,000)
Increase in accrued interest due general
partners 6,469,000 5,271,000 7,918,000
------------- ------------- -------------
Net cash used in operating activities (326,000) (6,404,000) (7,226,000)
CASH FLOW FROM INVESTING ACTIVITIES:
Expenditure on real estate used in
operations (642,000) (369,000) (5,133,000)
Additions to leasehold improvements (118,000) - (18,000)
Additions to fixed assets (30,000) (73,000) (10,000)
Increase in notes receivable (6,000,000) (32,000) (138,000)
Payments on notes receivable 312,000 440,000 277,000
------------- ------------- -------------
Net cash used in investing activities (6,478,000) (34,000) (5,022,000)
------------- ------------- -------------
CASH FLOW FROM FINANCING ACTIVITIES:
Proceeds from construction notes payable - 858,000 2,787,000
Payments on notes payable (1,854,000) - -
Proceeds from advances from general 8,506,000 5,634,000 8,505,000
partners ------------- ------------- -------------
Net cash provided by financing
activities 6,652,000 6,492,000 11,292,000
------------- ------------- -------------
INCREASE (DECREASE) IN CASH (152,000) 54,000 (956,000)
CASH AT BEGINNING OF YEAR 272,000 218,000 1,174,000
------------- ------------ -------------
CASH AT END OF YEAR $ 120,000 $ 272,000 $ 218,000
============ ============ ============
The accompanying notes are an integral part of these financial statements.
RINCON CENTER ASSOCIATES
A CALIFORNIA LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1993
1. PARTNERSHIP ORGANIZATION:
Rincon Center Associates, A California Limited Partnership (the Partnership)
was formed on September 18, 1984, to lease and develop land and buildings
located in the Rincon Point-South Beach Redevelopment Project Area in the
City and County of San Francisco, California. The Rincon Center Project (the
Project) comprises commercial and retail space, 320 rental housing units and
associated off-street parking. The Project was developed in two distinct
segments: Rincon One and Rincon Two.
Profits and losses are shared by the partners in accordance with their
percentage interest as provided in the partnership agreement and as shown in
the statements of changes in partners' deficit. Cash profits, as determined
by the managing general partner, are distributed to the partners in the same
percentage interest.
Perini Land and Development Company (PL&D) is the managing general partner of
the
Partnership and has the responsibility for general management, administration
and control of the Partnership's property, business
addition, PL&D provides project and general accounting services to the
Partnership (Note 7). Pacific Gateway Properties, Inc. (PGP), formerly
Perini Investment Properties, Inc., is the other general partner.
2. SIGNIFICANT ACCOUNTING POLICIES:
The accompanying financial statements have been prepared using the accrual
basis of accounting.
Real Estate Used in Operations
Real estate used in operations includes all costs capitalized during the
development of the project. These costs include interest and financing
costs, ground rent expense during construction, property taxes, tenant
improvements and other capitalizable overhead costs.
Depreciation and Amortization
The Partnership uses the straight-line method of depreciation. The
significant asset groups and their estimated useful lives are:
Structural components of buildings 60 years
Nonstructural components of buildings 25 years
All other depreciable assets 5-30 years
Leasehold improvements are amortized using the straight-line method over the
lesser of their useful lives or the lease terms.
Income Taxes
In accordance with federal and state income tax regulations, no income taxes
are levied on the Partnership; rather, such taxes are levied on the
individual partners. Consequently, no provision or liability for federal or
state income taxes is reflected in the accompanying financial statements.
Rental Income
Certain lease agreements provide for periods of free rent or stepped
increases in rent over the lease term. In such cases, revenue is recognized
at a constant rate over the term of the lease. Amounts recognized as income
but not yet due under the terms of the leases are shown in the accompanying
balance sheets as deferred rent receivable.
Statements of Cash Flows
Cash paid for interest was $2,414,000, $3,199,000 and $4,015,000 in 1993,1992
and 1991, respectively.
Accrued Lease Liability
The Partnership is leasing Rincon One from Chrysler McNally (Chrysler) over a
25-year lease term (Note 3). In connection with this lease, the Partnership
was granted a free rent concession for one year. The intent of Chrysler's
free rent provision was to match a similar provision granted by the
Partnership to an anchor sublease tenant of Rincon One, whose lease is for 10
years. The Partnership expensed rent in the first year of the lease and is
amortizing the accrued lease liability related to Rincon One over 10 years to
match the expense with the revenue recorded on the sublease.
Three amendments to the master lease agreement were made in 1993 in
connection with the extending of Chrysler's existing financing on the
property (Note 3). The rent schedule was revised which resulted in an
increase to the accrued lease liability during 1993 in order to normalize the
rent expense over the remaining lease term.
Other Assets
Other assets include prepaid expenses, deferred lease commissions and fixed
assets. Deferred lease commissions are amortized over the life of the lease.
Fixed assets are amortized over the life of the asset, which is generally
five years.
Reclassification of Prior Year Amounts
Certain prior year amounts have been reclassified to conform with the current
year presentation.
3. OPERATING LEASE, RINCON ONE:
On June 24, 1988, the Partnership sold Rincon One to Chrysler and
subsequently leased the property back under a master lease with a basic term
of 25 years and four 5-year renewal options at the Partnership's discretion.
The transaction was accounted for as a sale and operating leaseback and the
gain on the sale of $1,540,000 has been deferred.
In connection with the sale and operating leaseback of Rincon One, Chrysler
assumed and agreed to perform the Partnership's financing obligations. The
Partnership, in accordance with the master lease and several amendments in
1993, obtained a financial commitment on behalf of Chrysler to replace at
least $43,000,000 of long-term financing by July 1, 1993. To satisfy this
obligation, the Partnership successfully extended existing financing to July
1, 1998. To complete the extension, the Partnership had to advance funds
sufficient to reduce the financing from $46,500,000 to $40,500,000. The
Partnership received a 10% secured note in the principal amount of $6,000,000
from Chrysler upon the Partnership's advance of funds to reduce the
financing. If by January 1, 1998, the Partnership has not received a further
extension or new commitment for financing on the property for at least
$33,000,000, Chrysler will have the right
under the lease to require the Partnership to purchase the property for a
stipulated amount significantly in excess of the debt. The Partnership
intends to obtain financing meeting the conditions of the lease prior to
January 1, 1998.
The master lease was amended several times in 1993 in connection with the
extending of Chrysler's existing financing on the property through July 1,
1998.
Payments under the master lease agreement may be adjusted to reflect
adjustments in the rate of interest payable by Chrysler on the Rincon One
debt. Future minimum lease payments based on scheduled payments under the
master lease agreement are as follows:
1994 $ 6,565,000
1995 6,570,000
1996 6,550,000
1997 5,952,000
1998 5,634,000
Thereafter 85,120,000
4. NOTES RECEIVABLE:
At December 31, 1993 and 1992, the Partnership had the following notes
receivable:
1993 1992
Due from Chrysler secured by second deed
on trust on Rincon One, bearing interest
at 10 percent, with monthly principal
and interest payments of $150,285 in
1993 and $92,383 in 1992; unpaid balance
due July 2013 $15,469,000 $ 9,739,000
Notes from tenants secured by tenant
improvements, bearing interest at 8
percent to 11 percent, with maturities
from 1994 to 2001, due in monthly
installments 359,000 401,000
----------- -----------
$15,828,000 $10,140,000
=========== ===========
In 1993, the Partnership received a 10% secured note in the principal amount
of $6,000,000 from Chrysler upon the Partnership's advance of funds (Note 3).
5. GROUND LEASE:
The Partnership entered into a 65-year ground lease with the United States
Postal Service for the Project property on April 19, 1985. On June 24, 1988,
this lease was bifurcated into two leases (Rincon One and Rincon Two). The
terms of the original lease did not change; the dollar amounts were simply
split between the two properties. Under the terms of the leases, the
Partnership must make monthly lease payments (Basic Rent) of $101,750 and
$173,250 for Rincon One and Rincon Two, respectively. In April, 1994 and
every six years thereafter, the monthly base payments can be increased based
on the increase in the Consumer Price Index subject to a minimum of 5 percent
per year and a maximum of 8 percent per year. In addition, the Basic Rent
can be increased based on reappraisal of the underlying property on the
occurrence of certain events if those events occur prior to the regular
reappraisal dates of April 19, 2019, and each twelfth year thereafter for the
remainder of the lease term.
The lease agreement calls for the payment of certain percentage rents based
on revenues received from the subleasing of the Rincon One building.
Percentage rents paid in 1993, 1992 and 1991 were $259,000, $267,000 and
$271,000, respectively.
This lease has been accounted for as an operating lease, with minimum future
lease payments of:
1994 $ 4,120,000
1995 4,410,000
1996 4,410,000
1997 4,410,000
1998 4,290,000
Thereafter 894,853,000
During 1993, 1992 and 1991, Basic Rent was not capitalized because the entire
project was placed in service. At December 31, 1990, ground rent of
$10,407,312 was capitalized. Under the provisions of the original lease, no
lease payments were to be made from the inception of the lease (April 19,
1985) until April 18, 1987, and one-half of the regular monthly payment was
due for the period from April 19, 1987 to April 18, 1988. However, as
allowed by the lease agreement, the Partnership deferred the payment of Basic
Rent until the initial occupancy date, February 8, 1988. At December 31,
1993 and 1992, the deferred Basic Rent
and interest for the period April 19, 1987 to April 18, 1988, amount to
$552,000 and $685,000, respectively, and are being paid in 120 monthly
installments together with interest at a rate based on the average discount
rates of 90-day U.S. Treasury bills, which was approximately 3.88 percent for
the year ended December 31, 1993. The rate will be adjusted every 90 days as
long as a balance is due on the deferred rent. The remaining deferred ground
rent related to the
free rent period amounted to $6,754,000 and $6,951,000 at December 31, 1993
and 1992, respectively, and is being amortized over the lease term.
6. CONSTRUCTION NOTES PAYABLE:
Residential
The residential portion of the Project is being financed with a $36,000,000
loan from the Redevelopment Agency of the City and County of San Francisco
(the Agency), of which $34,100,000 and $34,600,000 was outstanding at
December 31, 1993 and 1992, respectively. The Agency raised these funds
through the issuance of Variable Rate Demand Multifamily Housing Revenue
Bonds (Rincon Center Project) 1985 Issue B (the Bonds).
The interest rate on the Bonds is variable at the rate required to produce a
market value for the Bonds equal to their par value. At December 31, 1993,
1992 and 1991, the effective interest rate on the bonds was 3.00 percent,
3.13 percent and 4.20 percent, respectively. Interest payments are to be
made on the first business day of each March, June, September and December.
The Partnership has the option to convert the Bonds to a fixed interest rate
at any of the above interest payment dates. The fixed rate will be the rate
required to produce a market value for the Bonds equal to their par value.
After conversion to a fixed rate, interest payments must be made on each June
1 and December 1.
The Partnership must repay the residential loan as the Bonds become due. The
Bonds shall be redeemed in at least the minimum amounts set forth below:
1994 $ 600,000
1995 600,000
1996 600,000
1997 700,000
1998 900,000
Thereafter 30,700,000
The Bonds are due December 1, 2006. The Bonds are secured by an irrevocable
letter of credit issued by Citibank in the name of the Partnership in the
amount of approximately $36,200,000. In the event that drawings are made on
the letter of credit, the Partnership has agreed to reimburse Citibank for
such drawings pursuant to the terms of a Reimbursement Agreement. The
Partnership obligations under the Reimbursement Agreement are secured by a
deed of trust on the Project and the equity letters of credit and guarantees
described below.
Commercial
The development and construction of the commercial portion of the Project was
financed pursuant to a Construction Loan Agreement between the Partnership
and Citibank of which $28,270,000 and $28,849,000 was outstanding at December
1993 and 1992, respectively. The loan, as is the irrevocable letter of
credit supporting the residential bond, is secured by a deed of trust on the
Project and equity letters of credit currently in the aggregate amount of
$9,000,000, issued to Citibank by Bank of America, N.T. & S.A. on behalf of
the general partners. PL&D has also provided a $3.5 million corporate
guarantee to support the project financing. PGP and Perini Corporation, the
parent company of PL&D, have agreed to reimburse Bank of America for any
drawings under these letters of credit. An annual fee equal to prime plus 1
percent of the aggregate amount is due to PGP and PL&D for the use of these
letters of credit. The loan is also secured by the guarantees described in
Note 7. As of December 31, 1993 and 1992, $751,000 and $0, respectively, of
accrued letter of credit fees were included in accrued interest due general
partners in the accompanying balance sheets. The total fee in 1993, 1992 and
1991 was $751,000, $909,000 and $1,180,000, respectively.
In 1993, the Partnership extended the loan to October 1, 1998, that required
a $600,000 up front paydown and an additional fee of $105,000. The loan
requires the Partnership to amortize $13,000,000 over the next five years.
Amounts are payable as follows: $1,475,000 in 1994; $2,192,000 in 1995;
$2,708,000 in 1996; $3,150,000 in 1997 and the remainder in 1998. The
Partnership obtained a swap agreement with interest rates stepping up from
3.61% to 5.96% over the loan term. At December 31, 1993 the rate on the loan
was 3.61%.
At December 31, 1992, the Partnership has purchased an option to acquire an
interest rate hedge for principal amounts totaling $46,500,000 at 11.5% until
December 1993. The total fee paid of $51,000 is included in interest and
letter of credit fees in 1992.
Additionally, the Partnership obtained short-term financing to fund tenant
improvements. The amount outstanding at December 31, 1993 and 1992, was $0
and $775,000, respectively. The loan was paid on March 31, 1993 by the
Partnership.
7. TRANSACTIONS WITH GENERAL PARTNERS:
PL&D has guaranteed the payment of both interest on the financing of the
Project and operating deficit, if any. It has also guaranteed the master
lease under the sale and operating lease-back transaction (Note 3).
In accordance with the construction loan agreement (Note 6), the general
partners have advanced monies to the Partnership to fund project costs. At
December 31, 1993 and 1992, the general partners had advanced $85,488,000 and
$76,982,000, respectively. The advances accrue interest at a rate of prime
plus 2 percent. The related accrued interest liability of $33,901,000 and
$27,432,000 as of December 31, 1993 and 1992, respectively, is reflected in
the accompanying balance sheets. For the years ended December 31, 1993, 1992
and 1991, interest expense on partner advances was $6,469,000, $6,141,000 and
$7,048,000, respectively.
Effective January 1, 1988, PL&D retained Pacific Gateway Properties
Management Corporation (PGPMC), a wholly owned subsidiary of PGP, to provide
management and leasing services for the Project. As compensation for
managing the facilities, the Partnership paid PGPMC a base management fee of
$222,000 annually until leasing the residential portion of the Project was
completed. At such time, the compensation increased to $319,200 per year or,
if greater, the sum of 3 percent of the first $13,000,000 of the annual gross
receipts plus 2 percent of receipts
in excess of the $13,000,000. The fees incurred for the years ended December
31, 1993, 1992 and 1991 were $497,000, $485,000 and $514,000, respectively,
and were included in administrative and other expenses in the accompanying
statements of operations. At December 31, 1993 and 1992, $27,000 and
$96,000, respectively, related to this fee had not been paid and is included
in accounts payable and accrued liabilities. Additionally, the Partnership
reimburses PGPMC for certain payroll costs.
RINCON CENTER ASSOCIATES,
A CALIFORNIA LIMITED PARTNERSHIP
FINANCIAL STATEMENTS
AS OF DECEMBER 31, 1992, 1991 AND 1990
TOGETHER WITH AUDITORS' REPORT
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Partners of Rincon Center Associates,
A California Limited Partnership:
We have audited the accompanying balance sheets of Rincon Center Associates,
A California Limited Partnership as of December 31, 1992 and 1991, and the
related statements of operations, changes in partners' deficit and cash flows
for the three years ended December 31, 1992, 1991 and 1990. These financial
statements are the responsibility of the Partnership's management. 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 management, 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 financial position of Rincon Center Associates, A
California Limited Partnership as of December 31, 1992 and 1991, and the
results of its operations and its cash flows for the three years ended
December 31, 1992, 1991 and 1990, in conformity with generally accepted
accounting principles.
San Francisco, California,
February 2, 1993
RINCON CENTER ASSOCIATES,
A CALIFORNIA LIMITED PARTNERSHIP
BALANCE SHEETS--DECEMBER 31, 1992 AND 1991
1992 1991
ASSETS
CASH $ 272,450 $ 217,525
ACCOUNTS RECEIVABLE, net of
reserves of $94,969 and $60,213
at December 31, 1992 and 1991,
respectively 2,073,326 452,754
DEFERRED RENT RECEIVABLE 7,626,401 7,147,821
NOTES RECEIVABLE 10,140,144 10,486,680
REAL ESTATE USED IN OPERATIONS,
net 121,505,397 124,827,339
LEASEHOLD IMPROVEMENTS, net 1,894,035 2,151,027
OTHER ASSETS, net 2,367,087 2,536,882
------------ ------------
Total assets $145,878,840 $147,820,028
============ ============
LIABILITIES AND PARTNERS' DEFICIT
CONSTRUCTION NOTES PAYABLE $ 64,223,609 $ 63,366,870
ACCOUNTS PAYABLE AND ACCRUED
LIABILITIES 3,606,324 3,545,690
ACCRUED GROUND RENT LIABILITY,
net 7,635,657 7,964,505
ACCRUED LEASE LIABILITY, net 3,029,494 3,529,855
DEFERRED INCOME 1,540,311 1,540,311
ACCRUED INTEREST DUE GENERAL
PARTNERS 27,432,444 22,161,596
DUE TO PERINI LAND AND
DEVELOPMENT COMPANY 61,592,314 57,132,226
DUE TO PACIFIC GATEWAY
PROPERTIES, INC. 15,390,273 14,215,189
------------ ------------
Total liabilities 184,450,426 173,456,242
PARTNERS' DEFICIT (38,571,586) (25,636,214)
------------ ------------
Liabilities and partners'
deficit $145,878,840 $147,820,028
============ ============
The accompanying notes are an integral part of these statements.
RINCON CENTER ASSOCIATES,
A CALIFORNIA LIMITED PARTNERSHIP
STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1992, 1991 AND 1990
1992 1991 1990
REVENUE:
Rental income $ 17,583,217 $ 16,814,229 $10,657,413
Parking and other
income 1,149,377 1,194,601 1,170,619
------------ ------------ -----------
Total revenue 18,732,594 18,008,830 11,828,032
------------ ------------ -----------
EXPENSES:
Operating 5,146,334 4,315,732 3,395,729
Administrative and
other 1,614,502 1,944,545 1,334,475
Property taxes and
insurance 3,200,377 1,835,409 949,078
Leases 3,774,793 4,755,463 4,957,081
Ground rent 3,406,939 3,436,746 2,255,221
Interest and letter of
credit fees 10,861,967 12,802,374 7,210,713
Depreciation and
amortization 4,726,039 3,487,034 1,800,615
------------ ------------ ------------
Total expenses 32,730,951 32,577,303 21,902,912
------------ ------------ ------------
OTHER INCOME- Interest
income 1,062,985 1,023,517 1,062,782
------------ ------------ ------------
Net loss $(12,935,372) $(13,544,956) $(9,012,098)
============ ============ ============
The accompanying notes are an integral part of these statements.
RINCON CENTER ASSOCIATES,
A CALIFORNIA LIMITED PARTNERSHIP
STATEMENTS OF CHANGES IN PARTNERS' DEFICIT
FOR THE YEARS ENDED DECEMBER 31, 1992, 1991 AND 1990
General Limited
Partners Partners Total
BALANCE, DECEMBER 31, 1989 $ (1,408,133) $ (1,671,027) $ (3,079,160)
Net loss (4,515,061) (4,497,037) (9,012,098)
------------ ------------ ------------
BALANCE, DECEMBER 31, 1990 (5,923,194) (6,168,064) (12,091,258)
Net loss (6,786,023) (6,758,933) (13,544,956)
------------ ------------ ------------
BALANCE, DECEMBER 31, 1991 (12,709,217) (12,926,997) (25,636,214)
Net loss (6,480,621) (6,454,751) (12,935,372)
------------ ------------ ------------
BALANCE, DECEMBER 31, 1992 $(19,189,838) $(19,381,748) $(38,571,586)
============ ============ ============
PARTNERS' PERCENTAGE
INTEREST 50.10% 49.90% 100.00%
===== ===== ======
The accompanying notes are an integral part of these statements.
RINCON CENTER ASSOCIATES,
A CALIFORNIA LIMITED PARTNERSHIP
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1992, 1991 AND 1990
1992 1991 1990
CASH FLOW FROM OPERATING
ACTIVITIES:
Net loss $(12,935,372) $(13,544,956) $(9,012,098)
Adjustments to
reconcile net loss
to net cash used in
operating
activities-
Depreciation and
amortization 4,726,039 3,487,034 1,800,615
Increase in accounts
receivable (1,620,572) (102,469) (210,746)
Increase in deferred
rent receivable (478,580) (2,169,965) (190,527)
Increase in other
assets (597,550) (465,927) (638,700)
Decrease in other
receivable - - 1,006,810
Increase (decrease) in
accounts payable and
accrued liabilities 60,634 (1,071,547) (4,685,396)
Decrease in accrued
ground rent
liability (328,848) (328,848) (328,847)
Decrease in accrued
lease liability (500,361) (945,808) (1,716,176)
Recognition of
deferred income - (1,374) (67,996)
Increase in accrued
interest due general
partners 5,270,848 7,918,261 6,701,884
------------ ------------ ------------
Net cash used in
operating
activities (6,403,762) (7,225,599) (7,341,177)
------------ ------------ ------------
CASH FLOW FROM INVESTING
ACTIVITIES:
Expenditure on real
estate used in
operations (367,631) (5,133,601) (10,334,901)
Additions to leasehold
improvements - (17,782) (2,447,205)
Additions to fixed
assets (73,392) (10,676) (111,060)
Issuance of notes
receivable (32,206) (138,669) (346,830)
Payments on notes
receivable 440,005 277,301 221,562
------------ ------------ ------------
Net cash used in
investing
activities (33,224) (5,023,427) (13,018,434)
------------ ------------ ------------
CASH FLOW FROM FINANCING
ACTIVITIES:
Proceeds from
construction
notes payable 856,739 2,787,284 2,942,807
Proceeds from advances
from general
partners 5,635,172 8,504,998 18,012,417
------------ ------------ ------------
Net cash provided by
financing
activities 6,491,911 11,292,282 20,955,224
------------ ------------ ------------
INCREASE (DECREASE) IN
CASH 54,925 (956,744) 595,613
CASH AT BEGINNING OF
YEAR 217,525 1,174,269 578,656
------------ ------------ ------------
CASH AT END OF YEAR $ 272,450 $ 217,525 $ 1,174,269
============ ============ ============
The accompanying notes are an integral part of these statements.
RINCON CENTER ASSOCIATES,
A CALIFORNIA LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1992
1. PARTNERSHIP ORGANIZATION:
Rincon Center Associates, A California Limited Partnership (the Partnership)
was formed on September 18, 1984, to lease and develop land and buildings
located in the Rincon Point-South Beach Redevelopment Project Area in the
City and County of San Francisco, California. The Rincon Center Project (the
Project) comprises commercial and retail space, 320 rental housing units and
associated off-street parking. The Project was developed in two distinct
segments: Rincon One and Rincon Two.
Profits and losses are shared by the partners in accordance with their
percentage interests as provided in the partnership agreement and as shown in
the statement of changes in partners' deficit. Cash profits, as determined
by the managing general partner, shall be distributed to the partners in the
same percentage interest.
Perini Land and Development Company (PL&D) is the managing general partner of
the Partnership and has the responsibility for general management,
administration and control of the Partnership's property, business and
affairs. In addition, PL&D provides project and general accounting services
to the Partnership (Note 7). Pacific Gateway Properties, Inc. (PGP),
formerly Perini Investment Properties, Inc. is the other general partner.
2. SIGNIFICANT ACCOUNTING POLICIES:
The accompanying financial statements have been prepared using the accrual
basis of accounting.
Real Estate Used in Operations
Real estate used in operations includes all costs capitalized during the
development of the project. These costs include interest and financing
costs, ground rent expense during construction, property taxes, tenant
improvements and other capitalizable overhead costs. In 1990, $5,935,541 of
interest was capitalized.
Depreciation and Amortization
The Partnership uses the straight-line method of depreciation. The
significant asset groups and their estimated useful lives are:
Structural components of buildings 60 years
Nonstructural components of 25 years
buildings
All other depreciable assets 5-30
years
Leasehold improvements are amortized on the straight-line method over the
lesser of their useful lives or the lease terms.
Income Taxes
In accordance with federal and state income tax regulations, no income taxes
are levied on the Partnership; rather, such taxes are levied on the
individual partners. Consequently, no provision or liability for federal or
state income taxes is reflected in the accompanying financial statements.
Rental Income
Certain lease agreements provide for free rent or stepped increases in rent
over the lease term. In such cases, revenue is recognized at a constant rate
over the term of the lease. Amounts recognized as income but not yet due
under the terms of the leases are shown on the balance sheets as deferred
rent receivable.
Statements of Cash Flows
Cash paid for interest was $3,198,881 and $4,015,315 in 1992 and 1991,
respectively. Cash paid for interest, net of capitalized interest and
interest income paid on funds held in escrow and invested, was $3,190,246 in
1990.
Accrued Lease Liability
The Partnership is leasing Rincon One from Chrysler McNally (Chrysler) over a
25-year lease term (Note 3). In connection with this lease, the Partnership
was granted a free rent concession for one year. The intent of Chrysler's
free rent provision was to match a similar provision granted by the
Partnership to an anchor sublease tenant of Rincon One, whose lease is for 10
years. The Partnership expensed rent in the first year of the lease and is
amortizing the accrued lease liability related to Rincon One over 10 years to
match the expense with the revenue recorded on the sublease.
Other Assets
Other assets include prepaid expenses, deferred lease commissions and fixed
assets. Deferred lease commissions are amortized over the life of the lease.
Fixed assets are amortized over the life of the asset, which is generally
five years.
Reclassification of Prior Year Amounts
Certain prior year amounts have been reclassified to conform with the current
year presentation.
3. OPERATING LEASE, RINCON ONE:
On June 24, 1988, the Partnership sold Rincon One to Chrysler and
subsequently leased the property back under a master lease with a basic term
of 25 years and four 5-year renewal options at the Partnership's discretion.
The transaction was accounted for as a sale and operating leaseback and the
gain on the sale of $1,540,311 has been deferred.
Payments under the master lease agreement may be adjusted to reflect
adjustments in the rate of interest payable by Chrysler on the Rincon One
debt. Future minimum lease payments based on scheduled payments under the
master lease agreement are as follows:
1993 $ 6,639,000
1994 5,929,000
1995 5,929,000
1996 5,891,000
1997 5,906,000
Thereafter 106,405,000
The lease also permits the lessor to put the property back to the Partnership
at stipulated prices beginning January 1, 1993, if long-term financing
meeting certain conditions is not obtained. Financing has been arranged with
the current lender which meets the conditions of the lease through April 1,
1998, subsequent to year-end.
4. NOTES RECEIVABLE:
At December 31, 1992 and 1991, the Partnership had the following notes
receivable:
1992 1991
Due from Chrysler secured by second
deed of trust on Rincon One,
bearing interest at 10 percent,
with monthly principal and interest
payments of $92,383 in 1992, 1991
and 1990; unpaid balance due July
2013 $ 9,739,079 $ 9,875,504
Notes from tenants secured by
tenant improvements, bearing
interest at 10 percent to
12 percent, with maturities from
1994 to 1998, due in monthly
installments 629,179 611,176
----------- -----------
$10,368,258 $10,486,680
=========== ===========
5. GROUND LEASE:
The Partnership entered into a 65-year ground lease with the United States
Postal Service for the Project property on April 19, 1985. On June 24, 1988,
this lease was bifurcated into two leases (Rincon One and Rincon Two). The
terms of the original lease did not change; the dollar amounts were simply
split between the two properties. Under the terms of the leases, the
Partnership must make monthly lease payments (Basic Rent) of $101,750 and
$173,250 for Rincon One and Rincon Two, respectively. In February 1995 and
every six years thereafter, the monthly base payments can be increased based
on the increase in the Consumer Price Index subject to a minimum of 5 percent
per year and a maximum of 8 percent per year. In addition, the Basic Rent
can be increased based on reappraisal of the underlying property on the
occurrence of certain events if those events occur prior to the regular
reappraisal dates of April 19, 2020, and each twelfth year thereafter for the
remainder of the lease term.
The lease agreement calls for the payment of certain percentage rents based
on revenues received from the subleasing of the Rincon One building.
Percentage rents paid in 1992, 1991 and 1990 were $267,474, $271,388 and
$221,454, respectively, and are included in ground rent expense.
This lease has been accounted for as an operating lease, with minimum future
lease payments of:
1993 $ 3,436,260
1994 3,436,260
1995 3,436,260
1996 3,436,260
1997 3,436,260
Thereafter 175,036,260
During 1990, Basic Rent relating only to those portions of Rincon Two under
construction was capitalized. During 1992 and 1991, Basic Rent was not
capitalized because the entire project was placed in service. At
December 31, 1990, ground rent of $10,407,312 was capitalized.
Under the provisions of the original lease, no lease payments were to be made
from the inception of the lease (April 19, 1985) until April 18, 1987, and
one-half of the regular monthly payment was due for the period from April 19,
1987, to April 18, 1988. However, as allowed by the lease agreement, the
Partnership deferred the payment of Basic Rent until the initial occupancy
date, February 8, 1988. At December 31, 1992 and 1991, the deferred Basic
Rent and interest for the period April 19, 1987, to April 18, 1988, amount to
$684,881 and $817,439, respectively, and are being paid in 120 monthly
installments together with interest at a rate based on the average discount
rates of 90-day U.S. Treasury bills, which was approximately 4.125 percent
for the year ended December 31, 1992. The rate will be adjusted every 90
days as long as a balance is due on the deferred rent. The remaining
deferred ground rent related to the free rent period amounted to $6,950,776
and $7,047,066 at December 31, 1992 and 1991, respectively, and is being
amortized over the lease term.
6. CONSTRUCTION NOTES PAYABLE:
Residential
The residential portion of the Project is being financed with a $36,000,000
loan from the Redevelopment Agency of the City and County of San Francisco
(the Agency), of which $34,600,000 and $35,100,000 was outstanding at
December 31, 1992 and 1991, respectively. The Agency raised these funds
through the issuance of Variable Rate Demand Multifamily Housing Revenue
Bonds (Rincon Center Project) 1985 Issue B (the Bonds).
The interest rate on the Bonds is variable at the rate required to produce a
market value for the Bonds equal to their par value. At December 31, 1992,
1991 and 1990, the effective interest rate on the Bonds was 3.13 percent,
4.2 percent and 5.5 percent, respectively. Interest payments are to be made
on the first business day of each March, June, September and December.
The Partnership has the option to convert the Bonds to a fixed interest rate
at any of the above interest payment dates. The fixed rate will be the rate
required to produce a market value for the Bonds equal to their par value.
After conversion to a fixed rate, interest payments must be made on each
June 1 and December 1.
The Partnership must repay the residential loan as the Bonds become due. The
Bonds shall be redeemed in at least the minimum amounts set forth below:
1993 $ 500,000
1994 600,000
1995 600,000
1996 600,000
1997 700,000
Thereafter 31,600,000
The Bonds are due December 1, 2006. The Bonds are secured by an irrevocable
letter of credit issued by Citibank in the name of the Partnership in the
amount of approximately $36,200,000. In the event that drawings are made on
the letter of credit, the Partnership has agreed to reimburse Citibank for
such drawings pursuant to the terms of a Reimbursement Agreement. The
Partnership obligations under the Reimbursement Agreement are secured by a
deed of trust on the Project and the equity letters of credit and guarantees
described below.
Commercial
The development and construction of the commercial portion of the Project is
being financed pursuant to a Construction Loan Agreement between the
Partnership and Citibank of which $28,849,475 and $27,990,000 was outstanding
at December 31, 1992 and 1991, respectively. The loan, as is the irrevocable
letter of credit supporting the residential bond, is secured by a deed of
trust on the Project and equity letters of credit currently in the aggregate
amount of $9,000,000, issued to Citibank by Bank of America, N.T. & S.A. on
behalf of the general partners. PL&D has also provided a $3.5 million
corporate guarantee to support the project financing. PGP and Perini
Corporation, the parent company of PL&D, have agreed to reimburse Bank of
America for any drawings under these letters of credit. An annual fee equal
to prime plus 1 percent of the aggregate amount is due to PGP and PL&D for
the use of these letters of credit. The loan is also secured by the
guarantees described in Note 7. As of December 31, 1992 and 1991, $0 and
$870,033, respectively, of accrued letter of credit fees were included in
accrued interest due general partners in the accompanying balance sheet. The
total fee in 1992, 1991 and 1990 was $908,733, $1,180,394 and $1,376,199,
respectively.
The loan matured on May 31, 1988, but was extended until May 31, 1993, for an
additional fee of .5 percent of the maximum loan amount. The lender has
indicated a willingness to renegotiate the loan at its maturity. Interest on
the loan is generally at Citibank's base rate plus 1 percent, payable
monthly. The Partnership has the option to convert the loan to a fixed rate
of interest for a set period of time based upon the London Interbank Offered
Rate (LIBOR) plus 1.5 percent at the time of the conversion. The interest
rate shall be increased by .125 percent each year after the first two years
of the extension period.
At December 31, 1992, the Partnership had purchased an option to acquire an
interest rate hedge for principal amounts totaling $46,500,000 at
11.5 percent until December 1993. The total fee paid of $51,000 is included
in interest and letter of credit fees.
Additionally, the Partnership obtained short-term financing to fund tenant
improvements. The amount outstanding at December 31, 1992, was $774,134.
This amount was due at December 31, 1992, but the bank agreed to extend the
date to March 31, 1992, while the Partnership collected from the respective
tenant.
7. RELATED PARTY TRANSACTIONS:
PL&D has guaranteed the payment of both interest on the financing of the
Project and operating deficits, if any. It has also guaranteed the master
lease under the sale and operating lease-back transaction (Note 3).
In accordance with the construction loan agreement (Note 6), the general
partners have advanced monies to the Partnership to fund project costs. At
December 31, 1992 and 1991, the general partners had advanced $76,982,587 and
$71,347,415, respectively. The advances and accrued interest accrue interest
at a rate of prime plus 2 percent. The related accrued interest liability of
$27,432,445 and $21,291,563 as of December 31, 1992 and 1991, respectively is
reflected in the accompanying balance sheet. For the years ended
December 31, 1992, 1991 and 1990, interest expensed on partner advances was
$6,140,883, $7,048,277 and $3,658,993, respectively.
Effective January 1, 1988, PL&D retained Pacific Gateway Properties
Management Corporation (PGPMC), a wholly owned subsidiary of PGP, to provide
management and leasing services for the Project. As compensation for
managing the facilities, the Partnership paid PGPMC a base management fee of
$222,000 annually until leasing the residential portion of the Project was
completed. At such time, the compensation increased to $319,200 per year or,
if greater, the sum of 3 percent of the first $13,000,000 of the annual gross
receipts plus 2 percent of receipts in excess of the $13,000,000. The fees
incurred for the years ended December 31, 1992, 1991 and 1990, were $485,306,
$513,950 and $346,241, respectively, and were included in administrative and
other expense in the accompanying statement of operations. At December 31,
1992 and 1991, $96,294 and $100,353, respectively, related to this fee had
not been paid and is included in accounts payable and accrued liabilities.
Additionally, the partnership reimburses PGPMC for certain payroll costs.
SQUAW CREEK ASSOCIATES
BALANCE SHEET
MARCH 31, 1994
ALL DEPARTMENTS CONSOLIDATED
ASSETS
CURRENT ASSETS:
CASH $ 327,581.84
ACCOUNTS RECEIVABLE 2,371,634.21
INVENTORIES 1,078,549.79
PREPAID ASSETS 886,886.38
LAND HELD FOR SALE 314,457.01
--------------
TOTAL CURRENT ASSETS 4,979,109.23
PROPERTIES AND EQUIPMENT - COST:
LAND 2,001,823.54
LAND IMPROVEMENTS 39,701,908.32
BUILDINGS AND IMPROVEMENTS 63,591,248.32
FURN., FIXT. & EQUIP. - COST 23,314,880.13
PROPERTIES UNDER CONSTRUCTION 421,160.40
--------------
TOTAL PROP. AND EQUIP. - COST 129,033.020.71
ACCUMULATED DEPRECIATION:
ACC. DEP. - LAND IMPROVEMENTS (4,440,773.62)
ACC. DEP. BUILDINGS & IMPROV. (3,764,788.21)
ACC. DEP. - F, F, & E. (7,081,718.68)
--------------
TOTAL ACCUMULATED DEPRECIATION (15,287.280.51)
OTHER ASSETS - NET:
OTHER ASSETS - GROSS 6,780,624.90
ACC. AMORT. - OTHER ASSETS (4,587,036.54)
--------------
TOTAL OTHER ASSETS - NET 2,193,588.36
---------------
TOTAL ASSETS $120,916,437.79
===============
LIABILITIES AND CAPITAL
CURRENT LIABILITIES:
ACCOUNTS PAYABLE AND ACCRUALS $ 4,727,353.48
OTHER LIABILITIES - CURRENT 451,223.25
INTEREST PAYABLE - CURRENT 226,593.36
---------------
TOTAL CURRENT LIABILITIES 5,405,170.09
NON-CURRENT LIABILITIES:
N/P - BANK OF AMERICA LOAN 48,013,422.86
N/P - GPH JUNIOR LOAN 14,931,327.00
I/P - GPH JUNIOR LOAN 4,921,622.52
---------------
TOTAL NON-CURRENT LIABILITIES 67,866,372.38
---------------
TOTAL LIABILITIES 73,271,542.47
PARTNERS CAPITAL
CAPITAL ACCOUNTS:
GLENCO - PERINI - HCV 63,090,864.86
PACIFIC SQUAW CREEK, INC. 33,270,026.85
---------------
CAPITAL ACCOUNTS 96,360,891.71
RETAINED EARNINGS - PRIOR YEAR (47,613,634.12)
CURRENT YEAR P&L (1,102,362.27)
----------------
RETAINED EARNINGS (48,715,996.39)
----------------
PARTNERS CAPITAL 47,644,895.32
---------------
TOTAL LIABILITIES AND CAPITAL $120,916,437.79
===============
SQUAW CREEK ASSOCIATES
INCOME STATEMENT
ALL DEPARTMENTS CONSOLIDATED
THREE MONTHS ENDED MARCH 31, 1994
--THIS YEAR-- --LAST YEAR-- --VARIANCE--
AMOUNT AMOUNT AMOUNT
REVENUES:
RESORT OPERATIONS $8,909,303.00 $9,032,880.00 $(123,577.00)
HOMESITE SALES 0.00 175.000.00 (175,000.00)
OTHER REVENUE 445.60 848.03 (402.43)
------------- ------------- -------------
TOTAL REVENUES 8,909,748.60 9,208,728.03 (298,979.43)
------------- ------------- -------------
COSTS AND EXPENSES
RESORT OPERATIONS:
DIR. COSTS AND EXP'S - 5,326,096.34 5,563,532.80 237,436.66
HOTEL
SELLING, GENERAL & ADMIN. 1,673,116.50 1,791,269.00 118,152.50
FIXED HOTEL EXPENSES 385,470.38 21,526.00 (363,944.38)
------------- ------------- -------------
TOTAL RESORT 7,384,683.02 7,376,327.80 (8,355.22)
OPERATIONS
COST OF HOMESITES SOLD:
COST OF HOMESITES SOLD 1,095.00 107,899.52 106,804.52
------------- ------------- ------------
COST OF HOMESITES SOLD 1,095.00 107,899.52 106,804.52
OTHER GENERAL AND ADMIN.:
OTHER GENERAL AND ADMIN. 135,394.01 111,168.33 (24,225.68)
------------- ------------- -------------
OTHER GENERAL AND 135,394.01 111,168.33 (24,225.68)
ADMIN. ------------- ------------- -------------
NET OPERATING INCOME 1,388,576.57 1,613,332.38 (224,755.81)
DEPRECIATION AND
AMORTIZATION:
DEPRECIATION EXPENSE 1,065,663.33 1,065,663.30 (0.03)
AMORTIZATION EXPENSE 470,417.34 451,023.33 (19,394.01)
------------- -------------- -------------
TOTAL DEPRECIATION AND 1,536,080.67 1,516,686.63 (19,394.04)
AMORT.
INTEREST EXPENSE:
INTEREST EXPENSE - B OF A 728,353.20 721,180.80 (7,172.40)
LOAN
INTEREST EXPENSE - GPW 226,504.97 224,275.00 (2,229.97)
LOAN ------------- ------------- -------------
TOTAL INTEREST EXPENSE 954,858.17 945,455.80 (9,402.37)
------------- ------------- -------------
TOTAL COSTS AND 10,012,110.87 10,057,538.08 45,427.21
EXPENSES ------------- ------------- -------------
TOTAL INCOME/(LOSS) (1,102,362.27) (848,810.05) (253,552.22)
============== ============== =============
Squaw Creek Associates
(a California general partnership)
Financial Statements
and Additional Information
December 31, 1993 and 1992
Squaw Creek Associates
(a California general partnership)
Index to Financial Statements
December 31, 1993 and 1992
Page
Financial Statements with Standard Report
Report of Independent Accountants 1
Financial Statements 2-6
Notes to Financial Statements 7-13
Additional Information
Report of Independent Accountants on Additional Information14
Details of Cumulative Preferred Returns 15
Comparison of Resort Operations Revenues and Expenses to Annual
Operating Plan 16-19
Schedule of Cash Flows Used in Operating Activities - Excluding
Homesite Operations 20
Schedule of Changes in Partners' Capital 21
Report of Independent Accountants
February 22, 1994
To the General Partners
of Squaw Creek Associates
In our opinion, the accompanying balance sheet and the related statements of
operations, of changes in partners' capital and of cash flows present fairly,
in all material respects, the financial position of Squaw Creek Associates (a
California general partnership) at December 31, 1993 and 1992, and the
results of its operations and its cash flows for the years then ended in
conformity with generally accepted accounting principles. These financial
statements are the responsibility of the Partnership's management; our
responsibility is to express an opinion on these financial statements based
on our audits. We conducted our audits of these statements in accordance
with generally accepted auditing standards which require that we plan and
perform the audits 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, assessing the accounting principles used and
significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for the opinion expressed above.
The Partnership has in the past relied upon, and will continue to rely upon,
cash provided by partner contributions to service operating cash shortfalls.
Squaw Creek Associates
(a California general partnership)
Balance Sheet
December 31,
1993 1992
Assets
Current assets:
Cash $ 454,395 $ 441,170
Accounts receivable - trade 838,554 1,038,319
Accounts receivable - other 660,821 375,649
Inventories 1,159,113 1,153,658
Prepaid expenses 652,009 486,347
Land held for sale 314,457 399,775
------------ ------------
Total current assets 4,079,349 3,894,918
Property and equipment, net 114,117,662 117,699,950
Deferred expenses, net 2,552,040 3,985,846
Deposit for land purchase 375,000 -
------------ ------------
Total assets $121,124,051 $125,580,714
Liabilities and partners' capital
Current liabilities:
Trade and other accounts payable $ 3,399,876 $ 4,078,590
Construction payables 65,974 101,547
Due to affiliates 10,818 101,813
Customer advance deposits 730,187 850,827
Current portion of obligations under
capital leases 470,970 348,452
------------ ------------
Total current liabilities 4,677,825 5,481,229
Notes payable 48,013,423 48,013,423
Partner loan 14,931,327 14,931,327
Accrued interest on partner loan 4,695,118 3,783,235
Obligations under capital leases, less current
portion 589,848 951,806
------------ ------------
Total liabilities 72,907,541 73,161,020
Commitments (Note 8)
Partners' capital 48,216,510 52,419,694
------------ ------------
Total liabities and partners' capital $121,124,051 $125,580,714
============ ============
See accompanying notes to financial statements.
Squaw Creek Associates
(a California general partnership)
Statement of Operations
For the Year Ended
December 31
1993 1992
Revenue
Resort operations $29,038,722 $ 22,126,014
Sales of homesites 177,967 3,718,690
----------- ------------
29,216,689 25,844,704
----------- ------------
Expenses
Resort operations 20,919,792 19,741,176
Resort selling, general and administrative 6,224,580 6,826,032
Partnership selling, general and
administrative 473,006 546,929
Cost of homesites sold, including selling
and other expenses 111,696 2,215,547
Legal settlement - 1,723,158
----------- ------------
27,729,074 31,052,842
----------- ------------
Income (loss) before depreciation,
amortization and interest expense 1,487,615 (5,208,138)
Depreciation and amortization 6,326,004 6,248,185
Interest expense 3,844,144 4,501,357
------------ ------------
Net loss $(8,682,533) $(15,957,680)
See accompanying notes to financial statements.
Squaw Creek Associates
(a California general partnership
Statement of Changes in Partners' Capital
Balance at December 31, 1991 $ 61,568,115
Contributions 14,657,060
Distributions (4,416,474)
Reclassification (Note 1) (3,431,327)
Net loss (15,957,680)
-------------
Balance at December 31, 1992 52,419,694
Contributions 6,630,348
Distributions (2,150,999)
Net loss (8,682,533)
-------------
Balance at December 31, 1993 $ 48,216,510
============
See accompanying notes to financial statements.
Squaw Creek Associates
(a California general partnership)
Statement of Cash Flows
For the year ended
December 31,
1993 1992
Cash flows from operating activities
Net loss $(8,682,533) $(15,957,680)
Adjustments to reconcile net loss to net
cash used in operating activities:
Depreciation and amortization 6,326,004 6,248,185
Non-cash costs of homesites sold 85,318 1,796,487
Note receivable, homesites sold (87,500) -
Changes in operating assets and
liabilities:
Accounts receivable and prepaid
expenses (251,069) (529,593)
Inventories (5,455) 410,349
Accounts payable and other
liabilities (834,927) 1,367,535
Due to affiliates (90,995) (324,138)
Accrued interest on partner loan 911,883 1,036,956
------------ -------------
Net cash used in operating activities (2,629,274) (5,951,899)
------------ -------------
Cash flows from investing activities
Additions to property and equipment (1,132,867) (1,848,602)
Deposit for land purchase (375,000) -
Deferred expenses - (662,149)
------------ -------------
Net cash used in investing activities (1,507,867) (2,510,751)
------------ -------------
Cash flows from financing activities
Partner contributions 6,630,348 14,657,060
Partner distributions (2,063,499) (4,416,474)
Repayment of note payable and obligations
under capital leases (416,483) (1,996,238)
------------ -------------
Net cash provided by financing activities 4,150,366 8,244,348
----------- ------------
Net increase (decrease) in cash 13,225 (218,302)
Cash at beginning of year 441,170 659,472
----------- -------------
Cash at end of year $ 454,395 $ 441,170
=========== ============
Supplemental disclosure of cash flow
information
Cash paid during the year for interest $ 3,141,989 $ 3,698,599
=========== ============
Supplemental disclosure of noncash investing and financing activities
Pursuant to the second amendment to the Partnership agreement, during the
year ended December 31, 1992, $3,431,327 was reclassified from partners'
capital to partner loan (Notes 1 and 5).
During the years ended December 31, 1993 and 1992, the Partnership executed
lease arrangements which qualify for treatment as capital leases.
Accordingly, the Partnership has recorded an asset under capital lease and
related capital lease obligation of $177,043 and $311,060, respectively, for
the year ended December 31, 1993 and 1992.
During the year ended December 31, 1993, the Partnership distributed a note
receivable worth $87,500 to one of its partners.
1. Organization
Nature of Business
Squaw Creek Associates, a California general partnership (the Partnership),
was formed under the provisions of a partnership agreement dated June 3, 1988
(the Agreement) to own, develop and manage The Resort at Squaw Creek, a 405
room resort facility located in Olympic Valley, California (the Resort). The
Resort was substantially complete on December 19, 1990 and commenced
operations on that date. In addition, the Partnership has developed for sale
48 single family homesites on land surrounding the Resort. At December 31,
1993, 3 homesites remain unsold.
Ownership
During the year ended December 31, 1992, one of the general partnership
interests was sold, and the Agreement was amended. Subsequent to and in
connection with this transaction, the Partnership successfully extended the
maturity date of its note payable (Note 4). Currently, the Partnership is
owned by Glenco-Perini-HCV (GPH), a California limited partnership (40%), and
Pacific Squaw Creek, Inc. (PSC), a California corporation (60%). PSC serves
as the managing partner and receives a management fee for services rendered
to the Partnership based upon the results of operations, as defined in the
amended Agreement.
In conjunction with the change in ownership mentioned above, and under the
provisions of the amended Agreement, certain modifications were made to the
partners' capital accounts and the partner loan. As a result, the partner
loan was increased by $3,431,327, the GPH capital account was decreased by
the same amount and certain components of equity used to determine preferred
returns were adjusted.
2. Accounting Policies
Development costs
Land acquisition costs and certain other development costs were incurred by
affiliates of the partners prior to the formation of the Partnership. These
costs were assumed by GPH ($3,254,063) and contributed to the Partnership as
the initial capital contribution. The Partnership used the cost basis of the
previous owners to record the land and other development costs contributed.
The Agreement assigned a value of $13,500,000 to the GPH contributions
($4,000,000 in cash and $9,500,000 attributable to the land) for the purpose
of calculating certain preferred returns, as defined.
Land development costs contributed to the Partnership and the cost incurred
in connection with development of the Resort (including amenities) were
capitalized and allocated to the related project components. Real estate
taxes, insurance, general and administrative, marketing and interest expense
were capitalized during the development period. No interest costs were
capitalized during 1993 and 1992.
Depreciation
Depreciation is computed using the straight-line method over the estimated
useful lives of the respective property (25 to 60 years) and equipment (5 to
12 years). For assets under capital lease, amortization is provided over the
lesser of the estimated useful life of the asset or the lease term.
Contributions
The Agreement provides that funds required to support operation of the Resort
in excess of funds available from operations must be provided by PSC and GPH
in the form of additional capital contributions (Shortfall Contributions).
The first $2,500,000 of Shortfall Contributions was the responsibility of
GPH; all additional Shortfall Contributions require a 60% capital
contribution by PSC and a 40% capital contribution by GPH. In addition, as
defined in the Agreement, GPH is required to contribute cash necessary for
the Partnership to make certain preferred return distributions to PSC.
Allocation of profits and losses
The Agreement provides that net profits of the Partnership are allocated to
the partners in accordance with their respective percentage interests, after
special allocations are made for depreciation and certain preferred returns,
as defined. Net losses of the Partnership are allocated so as to entirely
offset previous allocations of net profits and then as follows: $13,500,000
to GPH, to the extent of GPH's additional capital contributions (excluding
Shortfall Contributions), then to GPH and PSC to the extent of their
Shortfall Contributions and, thereafter, in accordance with the partners'
respective interests.
Distribution of cash flow
Cash flow from operations and capital transactions are distributed to the
partners in accordance with the Agreement. The Agreement provides that each
of the partners are entitled to various preferred returns based upon
specifically defined capital amounts. At December 31, 1993, PSC and GPH had
cumulative preferred returns totaling $13,415,843 and $28,001,419,
respectively.
Inventories
Inventories consist of food and beverage, apparel and other consumer products
for retail sale at the Resort, and provisions (food and beverage and other
incidentals) for use in Resort operations. Inventories are accounted for on
a first-in, first-out basis and are stated at the lower of cost or market.
Inventories also include hotel supplies such as china, glassware, silver and
other reusable items which are valued at original cost of the par stock
purchased less a provision for normal use, damage and loss. All subsequent
purchases of these items are expensed in the period purchased.
Deferred expenses
Costs incurred which relate to activities having future benefit to the
Partnership are deferred. Deferred expenses principally include costs
incurred in connection with bringing the Resort to full operational capacity.
Such amounts are being amortized over a period of 60 months beginning at the
date Resort operations commenced. Also included are deferred financing fees,
which are amortized over the life of the related loan agreement.
At December 31, 1993 and 1992, accumulated amortization totals $4,228,585 and
$2,794,779, respectively.
Land held for sale
The Partnership has developed residential homesites on land adjacent to the
Resort. Revenue from parcels sold is recognized at the time title passes to
the buyer and full funding is received. Costs of parcels sold are based on
an allocation of the cost of developing the parcels, determined using the
ratio of each parcel's sales proceeds to the total expected sales proceeds
for all parcels. The cost of developing the parcels includes certain
marketing, selling, general and administrative and interest costs that were
incurred during the development period. The Agreement provides that net
proceeds from homesite sales be used to reduce the outstanding note payable
balance and for remaining development costs.
Deposit for land purchase
The Partnership has cash that is held in escrow for the purchase of land
located adjacent to the Resort (Note 8).
Income taxes
Consideration of income taxes is not necessary in the financial statements of
the Partnership because, as a partnership, it is not subject to income tax
and the tax effect of its activities accrues to the partners.
3. Property and Equipment
Property and equipment consist of the following:
1993 1992
Land $ 1,574,202 $ 1,574,202
Land improvements 39,763,047 39,658,830
Buildings and improvement 63,376,837 62,935,293
Furniture, fixtures and equipment 21,211,236 20,765,426
Furniture, fixtures and equipment
under capital lease 1,985,982 1,808,939
Construction in progress 507,546 381,075
------------ ------------
128,418,850 127,123,765
(14,301,188) (9,423,815)
------------- -------------
$114,117,662 $117,699,950
============ ============
Certain of the above assets are pledged as security for the construction loan
and the partner loan (Notes 4 and 5).
Accumulated amortization on assets under capital lease totaled $1,060,923 and
$639,286 at December 31, 1993 and 1992, respectively, and is included above.
Related amortization expense for the years ended December 31, 1993 and 1992
totaled $421,637 and $332,985, respectively.
4. Note Payable
The Partnership has outstanding a note payable relating to construction of
the Resort and development of the homesites. Depending upon the form of the
borrowing, interest is payable monthly at the applicable rate plus a margin
of 1.25% for borrowings based on prime rate; a margin of 2.5% for borrowings
based on the Eurodollar rate; or a margin of 2.625% for borrowings based upon
the CD rate. The interest rate at December 31, 1993 and 1992 was 6%. During
1992, the note agreement was modified and extended through May 1, 1995.
The note payable is secured by the Resort and remaining homesites, and by the
assignment of certain agreements related principally to operation of the
Resort. The terms of the loan agreement prohibit capital distributions from
net operating cash flows of the Partnership until it is retired. Perini Land
and Development Corporation (Perini), an affiliate of GPH, has provided a
guarantee for $10,000,000 in outstanding principal and payment of unpaid
interest on this loan. In addition, the partners have provided the lender
with letters of credit totaling $4,000,000 at December 31, 1993 as guarantee
of the related debt service obligation.
5. Partner Loan
The Partnership has outstanding $14,931,327 in the form of a loan from GPH at
December 31, 1993 and 1992. Under the terms of the Agreement, during the
construction period the Partnership had the ability to borrow funds from GPH
as necessary to pay for obligations arising from construction. The loan
bears interest at the same rate of interest as due under the note payable
discussed at Note 4. The loan and any accrued interest payable, except in
certain circumstances described in the Agreement, will be repaid from
positive cash flows from operations and has priority over other Partnership
distributions of positive cash flows. The loan is secured by a second deed
of trust on the Resort. Management has classified this loan and the related
accrued interest as non-current liabilities since repayment of these amounts
will not occur in 1994.
Interest expense under the partner loan totaled $911,883 and $1,036,956 in
1993 and 1992, respectively.
6. Related Party Transactions
The Partnership paid approximately $53,256 and $439,000 to Perini and its
affiliates during 1993 and 1992, respectively, for administrative services
provided.
During 1993, the Partnership incurred costs totalling $306,525 in connection
with management services provided by PSC under the terms of the Agreement and
the related amendment. In 1992, the Partnership incurred costs totaling
$130,000 and $99,962 in connection with management services provided by GPH
and PSC, respectively.
During 1992, the Partnership entered into certain subleases for equipment
with Perini and its parent corporation, Perini Corporation. Under the
sublease arrangements, the Partnership pays approximately $102,000 annually
relating to leases which expire in 1996.
7. Resort Management Agreement
The Resort is managed by Benchmark Management Company (BMC) under an
agreement that provides for fees based upon the Resort's operating results.
A total of $651,648 and $648,700 was paid to BMC for management services in
1993 and 1992, respectively. During 1992 the agreement with BMC was amended
to allow for certain reductions in the management fee based on specified
performance factors. As a result, the Partnership is owed approximately
$555,200 and $325,000 by BMC for fee reductions at December 31, 1993 and
1992, respectively.
8. Commitments
The Partnership has entered into various lease agreements for land, buildings
and equipment. The lease terms are primarily for one or two year periods
except as follows:
- - - At December 31, 1993 the Partnership had two separate ground lease
agreements for approximately 24 acres of land in Olympic Valley,
California. The primary use of the land is for the Resort's golf course.
These agreements include escalation clauses that will increase the
scheduled rents due beginning in 1992 based on increases in the Consumer
Price Index. Subsequent to December 31, 1993, the Partnership completed
the purchase, for $350,000, of the land subject to one of these ground
leases (Note 2). Accordingly, this lease is not included in the schedule
of future minimum lease payments below.
- - - An operating lease through May 1996 for storage facilities.
- - - Various capital and operating leases for equipment.
Rent expense for land, building and equipment was approximately $311,000
and $497,000 for 1993 and 1992, respectively. The future minimum lease
payments for all leases existing at December 31, 1993 are as follows:
Capital Operating
Leases Leases
1994 $ 601,128 $ 217,644
1995 585,478 215,311
1996 59,524 183,342
1997 2,576 158,696
1998 - 126,546
Thereafter - 3,818,327
----------- ----------
1,248,706 $4,719,866
==========
Less amounts representing interest (187,888)
-----------
Present value of obligations 1,060,818
Less current portion of obligations under
capital leases (470,970)
-----------
$ 589,848
===========
9. Legal Settlement
The Partnership, together with its partners and several affiliated entities,
was a defendant in a lawsuit seeking damages for alleged malicious
prosecution in connection with a lawsuit the Partnership brought against the
Institute for Conservation Education, the Sierra Club and several individuals
alleging breach of contract, among other things, relating to agreements
between the parties. During 1992 and prior to the scheduled court date, the
Partnership agreed to a settlement of this matter. The aggregate settlement
amount was $2,250,000; legal and related costs incurred by the Partnership
relating to this matter totaled $1,075,890. Of the total costs, $1,325,890
was covered by the insurance carriers of the Partnership and its legal
counsel. The remaining amounts are the direct responsibility of the
Partnership, and have been properly recorded in the accompanying financial
statements. As of December 31, 1993, all amounts have been paid.
Audited Financial Statements
and Other Financial Information
Squaw Creek Associates
(a California general partnership)
(dba The Resort at Squaw Creek)
Years ended December 31, 1991 and 1990
with Report of Independent Auditors
Squaw Creek Associates
(a California general partnership)
(dba The Resort at Squaw Creek)
Audited Financial Statements
and Other Financial Information
Years ended December 31, 1991 and 1990
CONTENTS
Report of Independent Auditors 1
Audited Financial Statements
Balance Sheets 2
Statements of Revenue and Expenses 4
Statements of Changes in Partners' Capital 5
Statement of Cash Flows 6
Notes to Financial Statements 7
Other Financial Information
Report of Independent Auditors on Other Financial
Information 16
Details of Cumulative Preferred Return 17
Comparison of Resort Operations Revenue and Expenses to
Annual Operating Plan 18
Schedules of Cash Flows used by Operating Activities
Excluding Homesite Operations, Accrued Interest Payable -
Affiliate and Initial Purchase of Provisions Inventories 22
Schedule of Changes in Partners' Capital 23
Report of Independent Auditors
The General Partners
Squaw Creek Associates
We have audited the accompanying balance sheets of Squaw Creek Associates (a
California general partnership) (dba The Resort at Squaw Creek) as of
December 31, 1991 and 1990 and the related statements of revenue and
expenses, changes in partners' capital and cash flows for the years then
ended. These financial statements are the responsibility of the
Partnership's management. Our responsibility is to express an opinion on
these financial statements based on our audits.
We conduct 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 management, 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 financial position of Squaw Creek Associates at
December 31, 1991 and 1990, and the results of its operations and cash flows
for the years then ended in conformity with generally accepted accounting
principles.
The accompanying financial statements have been prepared assuming that Squaw
Creek Associates will continue as a going concern. As discussed in Note 1 to
the financial statements, the Partnership has sustained operating cash flow
deficits and operating losses and has been unable to reach agreement with its
lender regarding terms of an extension of its note payable that was due on
August 1, 1991. These conditions raise substantial doubt about the
Partnership's ability to continue as a going concern. Management's plans in
regard to these matters are also described in Note 1 to the financial
statements. The financial statements do not include any adjustments that
might result from the outcome of this uncertainty. In addition, recovery of
the Partnership's investment in the Resort is dependent upon the Resort's
ability to generate profits from operations and/or from disposition of the
property, the achievement of which cannot be determined at this time.
As discussed in Note 4 to the financial statements, in December 1990 the
Partnership became a defendant in a lawsuit alleging malicious prosecution,
among other claims, in connection with a lawsuit brought by the Partnership
against a third party. The Partnership denies all liability and is
vigorously defending against these claims. The ultimate outcome of this
litigation cannot be determined. Accordingly, no provision for any liability
that may result has been made in the financial statements.
February 22, 1992
Squaw Creek Associates
(a California general partnership)
(dba The Resort at Squaw Creek)
Balance Sheets
December 31
1991 1990
Assets
Current assets:
Cash $ 659,472 $ 1,244,128
Accounts receivable:
Trade 754,559 433,237
Other 202,971 177,688
------------ ------------
957,530 610,925
Inventories:
Inventories - retail 676,214 397,170
Inventories - provisions 383,543 268,023
Hotel supplies 504,250 759,000
------------ ------------
1,564,007 1,424,193
Prepaid expenses 413,192 215,205
Land held for sale 2,196,262 3,528,103
------------ ------------
Total current assets 5,790,463 7,022,554
Property and equipment, at cost:
Land 925,397 925,397
Land improvements 29,696,458 24,188,117
Buildings and improvements 66,014,868 64,541,702
Furniture, fixtures and equipment 28,877,507 27,416,383
------------ ------------
125,514,230 117,071,599
Accumulated depreciation 4,690,428 80,640
------------ ------------
120,823,802 116,990,959
Deferred expenses (net of accumulated
amortization of $1,518,154 and $0 at
December 31, 1991 and 1990, respectively) 4,649,505 80,640
------------ ------------
Total assets $131,263,770 $130,205,714
============ ============
December 31
1991 1990
Liabilities and Partners' Capital
Current Liabilities:
Accounts payable:
Construction $ 204,762 $ 10,274,938
Trade or other 3,561,882 2,220,323
Retainage payable 100,332 1,836,654
Due to affiliates 425,951 396,305
------------ ------------
4,292,927 14,728,220
Current portion of obligations under
capital leases 457,619 256,000
Note payable 49,715,159 43,766,924
------------ ------------
Total current liabilities 54,465,705 58,751,144
Obligations under capital leases, net
of current portion 983,671 1,193,497
Accrued interest payable - affiliate 2,746,279 1,653,072
Loan payable - affiliate 11,500,000 11,500,000
------------ ------------
Total liabilities 69,695,655 73,097,713
Partners' capital 61,568,115 57,108,001
------------ ------------
Total liabilities and partners' $131,263,770 $130,205,714
capital ============ ============
See accompanying notes.
Squaw Creek Associates
(a California general partnership)
(dba The Resort at Squaw Creek)
Statements of Revenue and Expenses
Year ended December 31
1991 1990
Revenue:
Resort operations $ 13,055,986 $ 787,800
Sales of homesites 2,742,833 2,305,000
------------ ----------
15,798,819 3,092,800
Costs and expenses:
Resort operations:
Direct costs and expenses 13,042,821 916,052
Selling, general and administrative
expenses 10,288,443 646,168
Fixed expenses 817,661 62,814
Cost of homesites sold, including selling 2,246,386 1,369,708
and other expenses
Depreciation and amortization 6,180,161 10,320
Interest expense 6,264,624 200,628
------------ ----------
38,840,096 3,205,690
------------ ----------
Net loss $(23,041,277) $ (112,890)
============= ===========
See accompanying notes.
Squaw Creek Associates
(a California general partnership)
(dba The Resort at Squaw Creek)
Statements of Changes in Partners' Capital
Partners' capital at December 31, 1989 $34,054,063
Additional capital contributions 23,166,828
Net loss (112,890)
------------
Partners' capital at December 31, 1990 57,108,001
Additional capital contributions 27,501,391
Net loss (23,041,277)
------------
Partners' capital at December 31, 1991 $61,568,115
===========
See accompanying notes.
Squaw Creek Associates
(a California general partnership)
(dba The Resort at Squaw Creek)
Statements of Cash Flows
Year ended December 31,
1991 1990
Operating activities
Net loss $(23,041,277) $ (112,890)
Adjustments to reconcile net loss to net
cash (used in) provided by operating
activities:
Depreciation and amortization expense 6,180,161 10,320
Cost of homesites sold related to land and
development costs 1,455,933 1,020,701
Increase in accrued interest payable to
affiliate 1,093,207 1,173,252
Changes in operating assets and
liabilities:
Accounts receivable and prepaid expenses (544,592) (826,130)
Inventories - retail (279,044) (397,170)
Inventories - provisions (115,520) (268,023)
Hotel supplies 254,750 (759,000)
Accounts payable - trade and other 1,341,559 2,220,323
Due to affiliates - current 29,646 79,272
------------ ------------
Net cash (used in) provided by operating
activities (13,625,177) 2,140,655
Investing activities
Additions to property, equipment and
deferred expenses (8,307,348) (72,496,868)
(Decrease) increase in construction accounts
and retainage payable (11,806,498) 2,706,647
------------- -----------
Net cash used in investing activities (20,113,846) (69,790,221)
Financing activities
Proceeds from loan payable - affiliate - 2,504,357
Proceeds from partners' capital
contributions 27,501,391 23,166,828
Proceeds from note payable 7,068,806 44,053,145
Repayment of note payable and obligations
under capital leases (1,415,830) (873,161)
------------- ------------
Net cash provided by financing activities 33,154,367 68,851,169
------------- -----------
Net (decrease) increase in cash (584,656) 1,201,603
Cash at beginning of year 1,244,128 42,525
------------- -----------
Cash at end of year $ 659,472 $ 1,244,128
============ ===========
Supplemental cash flow disclosures:
Cash paid for interest $ 4,862,870 $ 159,000
============ ===========
See accompanying notes.
Squaw Creek Associates
(a California general partnership)
(dba The Resort at Squaw Creek)
Notes to Financial Statements
December 31, 1991 and 1990
1. Accounting Policies
Nature of Business
Squaw Creek Associates (the Partnership) is a California general partnership
formed through the Partnership Agreement (Agreement) dated June 3, 1988 to
own, develop and manage a resort located in Placer County, California (the
Resort). The Resort was substantially complete on December 19, 1990 and
commenced operations on that date. Homesite sales activities commenced in
1990, with the first title closing occurring in September 1990. Revenue and
expenses for the year ended December 31, 1990 are presented for the period
subsequent to August 1990 for homesite sales and for the period subsequent to
December 18, 1990 for Resort operations. The Partnership is owned by Glenco-
Perini-HCV Partners (GPH), a California limited partnership, and Squaw Creek
Investors Corporation (SCIC). GPH, a partnership owned by Glenco-Squaw
Associates, Perini Resorts, Inc., and HCV Pacific Investors III, serves as a
managing partner through its general partner, Perini Resorts, Inc., a wholly
owned subsidiary of Perini Land & Development Company (Perini) which is a
wholly owned subsidiary of Perini Corporation. GPH receives a management fee
for services rendered to the Partnership based upon the results of operations
as defined in the Agreement.
The Partnership experienced operating cash flow deficits and operating losses
in 1991. Additionally, the Partnership has been unable to reach agreement
with its lender regarding terms of an extension of its note payable that was
due on August 1, 1991. The Partnership has been unable to obtain other
permanent financing and could be required to repay the outstanding loan if
called by the lender. The Partnership has implemented plans to improve
operating performance and has had ongoing discussions with its lender
regarding its capital situation. The Partnership's financial condition and
its inability to extend or to secure permanent financing raise substantial
doubt regarding the Partnership's ability to continue as a going concern.
These financial statements do not include any adjustments that might result
from the outcome of this uncertainty. In addition, recovery of the
Partnership's investment in the Resort is dependent upon its ability to
generate profits from operations and/or from disposition of the property, the
achievement of which cannot be determined at this time.
Squaw Creek Associates
(a California general partnership)
(dba The Resort at Squaw Creek)
Notes to Financial Statements (continued)
1. Accounting Policies (continued)
Development Costs
Land acquisition costs and certain other development costs were incurred by
Glenco-Squaw Associates and Perini prior to the formation of the Partnership.
These costs were assumed by GPH ($3,254,063) and contributed to the
Partnership as the initial capital contribution. The Partnership used the
cost basis of the previous owners to record the land and other development
costs contributed. The Agreement assigned to contribution value to the GPH
contributions of $13,500,000 (consisting of $4,000,000 in cash equity and
$9,500,000 in land equity) for the purpose of calculating certain preferred
returns (see Note 2 for further discussion). SCIC's initial contribution was
$8,312,981. Land development costs contributed to the Partnership and the
cost incurred by the Partnership for developing the Resort (including
amenities) are allocated to the related Project components. Real estate
taxes, insurance, general and administrative, marketing and interest expense
were capitalized during the development period. Interest cost capitalized
amounted to $3,025,994 in 1990. No interest costs were capitalized in 1991.
Contributions
The Agreement provides that funds needed to operate the Resort in excess of
funds available from the Resort's operations (cash shortfall) must be
provided by SCIC and GPH in the form of additional capital contributions.
The first $2,500,000 of cash shortfall was the responsibility of GPH with all
additional cash shortfall contributions requiring a 60% capital contribution
by SCIC and a 40% capital contribution by GPH.
Starting in November 1991, SCIC has not made its required contributions under
the cash shortfall provisions of the Agreement. Consequently, GPH has made
the necessary contributions to fund all operating cash shortfalls, including
amounts not funded by SCIC, under the default contribution provisions of the
Agreement. The Agreement provides that in the event of default, the
defaulting partner loses certain partnership rights, authorities and other
distribution priorities. SCIC disputes that its actions and failure to fund
its share of the cash shortfalls has resulted in its default.
Squaw Creek Associates
(a California general partnership)
(dba The Resort at Squaw Creek)
Notes to Financial Statements (continued)
1. Accounting Policies (continued)
Distribution of Cash Flows and Profits and Losses
Operating cash flow, as defined by the Agreement, principally consists of net
cash generated from operations of the Resort less interest and principal paid
by the Partnership for indebtedness (excluding indebtedness and interest due
to affiliate). Distributable cash flow, as defined by the Agreement,
principally consists of operating cash flow and proceeds from capital
transactions; however, if the operating cash flow after December 31, 1991 is
insufficient to permit the payment of SCIC's 9% preferred return, GPH is to
contribute the deficiency to the Partnership, thereby increasing
distributable cash flow.
The Agreement generally provides that distributable cash flows are shared by
the partners in accordance with their respective percentage interests after
repayment of: default contributions; the outstanding interest and principal
of GPH's (affiliate) loans to the Partnership; the unpaid SCIC 9% preferred
returns (see Note 2 for further discussion); and, the partners' additional
capital contributions resulting from operating cash shortfalls and after
repayment of certain other preferred returns and related contributions to
capital by the partners (see Note 2 for further discussion).
The Agreement generally provides that the net profits of the Partnership are
allocated to the partners in accordance with their respective percentage
interests after allocations are made for certain preferred returns (see Note
2 for further discussion). Net losses of the Partnership are generally
allocated so as to entirely offset previous allocations of allocated net
profits and then as follows: $13,500,000 to GPH, to the extent of GPH's
additional capital contributions (excluding operating shortfall contribution
amounts), to the extent of GPH's and SCIC's operating shortfall contribution
amounts, and thereafter, in accordance with the partners' respective
interests.
Squaw Creek Associates
(a California general partnership)
(dba The Resort at Squaw Creek)
Notes to Financial Statements (continued)
1. Accounting Policies (continued)
Capital Transactions
Capital transactions, as defined by the Agreement, principally consist of
dispositions of any of the Partnership assets other than through the ordinary
course of business of the Resort and the net proceeds from refinancing or
financing the indebtedness of the Partnership. The Agreement generally
provides that the proceeds from capital transactions are distributed as other
cash proceeds except that the distributions for the partners' unpaid
preferred returns and related capital contribution amounts are performed in a
different priority.
Inventories
Inventories consist of food and beverage, apparel and other consumer products
for retail sale or rental to the Resort's patrons and provisions (food and
beverage and other incidentals) for use in the Resort's operations. Retail,
rental and provisions inventories are stated at the lower of cost (first-in,
first-out method) or market.
Hotel supplies consist of china, glassware, silver and other reusable items
and are valued at the original cost of the par stock purchased less a
provision for normal use, damage and loss. All subsequent purchases of hotel
supplies are expensed in the period purchased.
Deferred Expenses
Costs which are incurred and which relate to activities having future benefit
to the Partnership are deferred. Deferred expenses principally include costs
associated with bringing the Resort to full operational capacity. Deferred
expenses are being amortized over 60 months beginning in January 1991, the
first full month subsequent to the date that Resort operations commenced.
Squaw Creek Associates
(a California general partnership)
(dba The Resort at Squaw Creek)
Notes to Financial Statements (continued)
1. Accounting Policies (continued)
Land Held for Sale
The Partnership has developed residential homesites in conjunction with the
development of the Resort. Revenue from the parcels sold is recognized at
the time title passes to the buyer and full funding is received. The costs
for parcels sold are based on the allocation of the costs of developing the
parcels as determined using the ratio of each parcel's sales proceeds to the
total expected sales proceeds for all parcels. The cost of developing the
parcels includes certain marketing, selling, general and administrative and
interest costs that were incurred during the development period. The
Agreement calls for the net proceeds from the homesite sales to be used to
reduce the outstanding note payable balance and the development costs.
Depreciation and amortization are computed using the straight-line method
over the estimated useful lives of the respective property (25 to 60 years)
and equipment (5 to 12 years). For leased equipment, amortization is
provided using the lesser of the estimated useful life or the lease term.
The Partnership uses the mid-month convention whereby property and equipment
placed in service on or before the fifteenth day of the month will be
depreciated for the full month with no depreciation provided for property and
equipment placed in service after the fifteenth day of the month.
Income Taxes
The Partnership is not subject to taxes on its income. Federal and state
income tax regulations provide that the items of income, gain, loss,
deduction, credit and tax preference of the Partnership are reportable by the
partners in their income tax returns. Accordingly, no provision for income
taxes has been made in these financial statements.
Squaw Creek Associates
(a California general partnership)
(dba The Resort at Squaw Creek)
Notes to Financial Statements (continued)
2. Cumulative Preferred Return
Under the terms of the Agreement, SCIC and GPH will receive cumulative
preferred returns. SCIC's return is based upon 9% and 3% (noncompounded)
returns on its adjusted contribution amount and a 12% return on its adjusted
shortfall contribution amount, as defined in the Agreement. The total
cumulative preferred return of SCIC amounted to approximately $7,950,000 for
the period July 25, 1988 through December 31, 1991. GPH's return is based
upon 12% and 9% (noncompounded) of its adjusted cash equity and adjusted
phase I and phase II land equity amounts, respectively, 12% of the first
$2,500,000 of its adjusted shortfall contribution amount and 24% of its
adjusted default contribution amount as defined in the Agreement. The total
cumulative preferred return of GPH amounted to approximately $12,104,000 for
the period July 25, 1988 through December 31, 1991. Because there has been
no net positive cash flows from operations, these amounts are unpaid at
December 31, 1991.
3. Note Payable and Loan Payable - Affiliate
The Partnership has a note payable relating to a construction loan agreement
(loan agreement) that permits the Partnership to borrow funds as necessary to
pay for project costs up to a maximum of $53,000,000. Depending upon the
form of the borrowing, interest is payable monthly at the applicable rate
plus: a margin of 1.25% for borrowings based on prime rate; a margin of 2.5%
for borrowings based on the Eurodollar rate; or a margin of 2.625% for
borrowings based upon the CD rate. The interest rate at December 31, 1991
was 7.75% (10.72% at December 31, 1990).
The loan is secured by the Project and the assignment of certain agreements
related to, among other things, the operation of the Project. Perini has
guaranteed $10,000,000 of any outstanding principal balance, payment of
unpaid interest and the lien free completion of the project.
The loan was originally payable on August 1, 1991. The loan agreement
permits the Partnership to extend the agreement through August 1, 1996.
However, the Partnership has been unable to reach agreement with the lender
as to the terms of extension. The Partnership is currently negotiating an
extension to the loan agreement, and management believes it has performed its
obligations under the loan agreement as if the loan had been extended.
Squaw Creek Associates
(a California general partnership)
(dba The Resort at Squaw Creek)
Notes to Financial Statements (continued)
3. Notes Payable and Loan Payable - Affiliate (continued)
The Partnership has an $11,500,000 loan payable to GPH, an affiliate, at
December 31, 1991 and 1990. The Partnership, under the Agreement, has the
ability to borrow funds from GPH as necessary (to the extent other funds are
not available, as discussed in Note 1) to pay for obligations arising from
construction. The loan bears interest at the same rate of interest as due
under the note payable. The loan and any accrued interest payable, except in
certain circumstances as described in the Agreement, will be repaid from
positive cash flows from operations and has priority over the Partnership
distributions of positive cash flows. Management has classified the note
payable to affiliate (and related interest) as a long-term liability, as
repayment of these amounts will not occur in 1992.
4. Commitments and Contingencies
The partnership has entered into various lease agreements for land, buildings
and equipment. The lease terms are primarily for one or two year periods
except as follows:
- - - The Partnership has two separate ground lease agreements for approximately
24 acres of land in Olympic Valley, California. The primary use of the
land is for construction of the Resort's golf course. Under these
agreements, the Partnership also leases ski lift equipment, two buildings
and also receives certain rights to conduct snow skiing activities. These
agreements contain rent escalation clauses that will increase the
scheduled rents due beginning in 1992 based on increases in the consumer
price index. An option under one of the lease agreements permits the
Partnership to acquire a ten acre parcel for $2,900,000 before May 31,
1992, with a scheduled purchase price increase thereafter.
- - - An operating lease through May 1996 for storage facilities.
- - - Various capital and operating leases for equipment. Equipment accounted
for as capital leases is recorded at the present value of future minimum
rental payments and is included in the net book value of equipment at
December 31, 1991 and 1990 in the amount of approximately $1,783,000 and
$1,496,000, respectively. During 1991 and 1990, the Company acquired
approximately $287,000 and $1,263,000, respectively, in equipment through
lease financing.
Squaw Creek Associates
(a California general partnership)
(dba The Resort at Squaw Creek)
Notes to Financial Statements (continued)
4. Commitments and Contingencies (continued
Rent expense for land, building and equipment was approximately $305,000 and
$7,000 for 1991 and 1990, respectively. The future minimum lease payments
for all leases are as follows:
Capital Operating
Leases Leases
1992 $ 504,824 $ 226,802
1993 474,283 206,833
1994 468,845 181,357
1995 442,132 177,773
1996 5,397 171,874
Thereafter - 3,295,145
----------- ----------
1,895,481 $4,259,784
==========
Amounts representing interest (454,191)
-----------
Present value of obligations under capital 1,441,290
leases
Less current portion of obligations under
capital leases (457,619)
-----------
$ 983,671
===========
The Partnership has recorded various other commitments under agreements with
both third and related parties including the following:
- - - An agreement to pay various amounts to a management company for services
received based upon the results of Resort operations (approximately
$376,000 in 1991 and $23,000 in 1990).
- - - An agreement to pay various amounts to GPH for services received based
upon the results of Resort operations and the gross sales of homesites
(approximately $227,000 in 1991 and $79,000 in 1990).
Squaw Creek Associates
(a California general partnership)
(dba The Resort at Squaw Creek)
Notes to Financial Statements (continued)
4. Commitments and Contingencies (continued
The Partnership is involved in litigation and various other legal matters
which are being defended and handled in the ordinary course of business.
Specifically, in December 1990, the Partnership, along with a number of
related entities, including the partners of the Partnership, was named as a
defendant in a lawsuit seeking damages for alleged malicious prosecution in
connection with a lawsuit it brought against the Sierra Club alleging breach
of contract, among other things, relating to certain agreements between the
parties. The Partnership denies all liability and is vigorously defending
against these claims.
5. Related Party Transactions
The Partnership incurred approximately $1,111,000 and $1,774,000 in 1991 and
1990, respectively, for administrative, occupancy and management fees related
to services provided by Perini.
Perini has guaranteed to the Partnership, and to SCIC, the obligations of
Perini Resorts, Inc., as the General Partner of GPH, including contributions
of cash, under the shortfall contributions provision of the Agreement, and
provision of certain services.