SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
[ X ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the Fiscal Year Ended December 31, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from __________________ to ________________
Commission File No. 0-13556
Cluster Housing Properties (A California Limited Partnership)
(formerly Berry and Boyle Cluster Housing Properties)
(Exact name of registrant as specified in its charter)
California 04-2817478
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(State or other jurisdiction of (I.R.S.
Employer incorporation or organization)
Identification No.)
5110 Langdale Way, Colorado Springs CO 80906
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(Address of principal executive offices) (Zip Code)
(719) 527-0544
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(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act: Units of Limited
Partnership Interests
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Sections 13 and 15(d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes _X_ No ___
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ X ]
Aggregate market value of voting securities held by non-affiliates: Not
applicable, since securities are not actively traded on any exchange.
Documents incorporated by reference: None
The Exhibit Index is located on page F-20
PART I
ITEM 1. BUSINESS
This form 10-K contains forward-looking statements within the meaning of Section
27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act
of 1934. Actual results could differ materially from those projected in the
forward-looking statements as a result of a number of factors, including those
identified herein.
Cluster Housing Properties (the "Partnership"), formerly Berry and Boyle Cluster
Housing Properties, is a California limited partnership formed on August 8,
1983. The General Partners are Stephen B. Boyle and GP L'Auberge Communities,
L.P., a California limited partnership, formerly Berry and Boyle Management.
The primary business of the Partnership is to operate and ultimately dispose of
a diversified portfolio of income-producing residential real properties directly
or through its joint venture interest in joint venturers which own such
properties. The Partnership currently owns one property, Pinecliff, having sold
two of its properties during 1997. Descriptions of such properties are included
below in "Item 2. Properties" as well as in note 5 of Notes to Consolidated
Financial Statements included in this report and incorporated herein by
reference thereto.
As further discussed in Item 2 below and in Note 9 of the Notes to the
Consolidated Financial Statements, after taking into consideration such factors
as the price to be realized, the possible risks of continued ownership and the
anticipated advantages to be gained for the partners, the General Partners
determined during 1997 that it would be in the best interests of the Partnership
and the partners to dissolve the Partnership and liquidate its assets in 1998
(the "Dissolution"). Under the provisions of the Partnership's Partnership
Agreement, the Dissolution of the Partnership requires the consent of a majority
in interest of the limited partners. In March 1998, the General Partners
requested the consent of the limited partners to the Dissolution pursuant to a
Consent Solicitation Statement first mailed to the limited partners on or about
March 18, 1998. Such consents will be solicited until April 15, 1998, which date
may be extended by the General Partners until not later than June 1, 1998. The
property owned by the Partnership is under contract to be sold to a purchaser
unaffiliated with the General Partners. Net proceeds from the sales will not be
reinvested by the Partnership, but will be distributed to the partners so that
the Partnership will, in effect, be self-liquidating.
The Partnership sold the Villas Sin Vacas and Villa Antigua properties during
1997 (see Item 2. Properties and Note 5 of Notes to Consolidated Financial
Statements) and distributed the net proceeds from such sales. In addition, the
Partnership has entered into a Purchase and Sales Agreement to sell the
Partnership's remaining property, Pinecliff, to an unaffiliated third party (see
Note 9 of Notes to Consolidated Financial Statements). Proceeds from the sale
will not be reinvested by the Partnership, but will be distributed to the
partners, so that the Partnership will, in effect, be self-liquidating.
On-site management of the Partnership's property, Pinecliff, is currently
provided by an affiliate of the General Partners. The terms of such property
management services between the Partnership and property manager are embodied in
a written management agreement. Property management fees equal 4% of the gross
revenues from the property, plus reimbursement for allocable expenses. The
property manager is responsible for on-site operations and maintenance,
generation and collection of rental income and payment of operating expenses.
The difference between rental income and expenses related to operations,
including items such as local taxes and assessments, utilities, insurance
premiums, maintenance, repairs and improvements (and reserves therefor),
bookkeeping and payroll expenses, legal and accounting fees, property management
fees and other expenses incurred, constitute the properties' operating cash
flow. The Partnership's administrative expenses are paid out of the
Partnership's share of such cash flow from the various properties.
The success of the Partnership will depend upon factors which are difficult to
predict and many of which are beyond the control of the Partnership. Such
factors include, among others, general economic and real estate market
conditions, both on a national basis and in those areas where the Partnership's
investments are located, competitive factors, the availability and cost of
borrowed funds, real estate tax rates, federal and state income tax laws,
operating expenses (including maintenance and insurance), energy costs,
government regulations, and potential liability under and changes in
environmental and other laws, as well as the successful management of the
properties.
The Partnership's investment in real estate is also subject to certain
additional risks including, but not limited to, (i) competition from existing
and future projects held by other owners in the areas of the Partnership's
property, (ii) possible reduction in rental income due to an inability to
maintain high occupancy levels, (iii) adverse changes in mortgage interest
rates, (iv) possible adverse changes in general economic conditions and adverse
local conditions, such as competitive overbuilding, or a decrease in employment
or adverse changes in real estate zoning laws, (v) the possible future adoption
of rent control legislation which would not permit the full amount of increased
costs to be passed on to tenants in the form of rent increases, and (vi) other
circumstances over which the Partnership may have little or no control.
The Partnership's investment is subject to competition in the rental, lease and
sale of similar types of properties in the locality in which the Partnership's
real property investment is located. Furthermore, the General Partners of the
Partnership are affiliated with other partnerships owning similar properties in
the vicinity in which the Partnership's property is located.
The Partnership considers itself to be engaged in only one industry segment,
real estate investment.
ITEM 2. PROPERTIES
In 1997, the Partnership owned and operated three properties: (1) Villas at Sin
Vacas, a 72-unit multifamily rental property in Tucson, Arizona, which was sold
in November 1997; (2) L'Auberge Pinecliff, formerly Autumn Ridge ("Pinecliff"),
a 96-unit multifamily rental property in Colorado Springs, Colorado, subject to
first mortgage financing in the original principal amount of $3,072,739; and,
(3) Villa Antigua, an 88-unit multifamily rental property in Scottsdale,
Arizona, which was sold in October 1997. The ownership of each property was
formerly structured as a Joint Venture in which the Partnership owned a majority
interest. With regard to the termination of the Joint Ventures and the sales of
properties, see Note 5 of Notes to Consolidated Financial Statements.
Villas at Sin Vacas
On October 25, 1985, the Partnership acquired a majority joint venture interest
in the Sin Vacas Joint Venture, which owned and operated Villas Sin Vacas. The
Partnership contributed $2,520,954 to the Sin Vacas Joint Venture which was used
to repay a portion of the construction loan on the property. The balance of the
construction loan was repaid through the proceeds of a $2,575,000 permanent loan
from a third party lender. In accordance with the terms of the Partnership
Agreement, the Partnership paid an acquisition fee of $250,000 to GP L'Auberge
Communities, L.P. for its services in structuring and negotiating the
acquisition. The Partnership also incurred acquisition expenses relating to the
acquisition which totaled $168,686.
On November 25, 1997, Villas Sin Vacas was sold pursuant to the terms of a Sale
Agreement and Escrow Instruction dated May 6, 1997, as amended. Villas Sin Vacas
was sold to Villas Sin Vacas Townhome Ventures Limited Partnership, an Arizona
Limited Partnership unaffiliated with the Partnership. The net selling price for
Villas Sin Vacas was $4,952,091 subject to certain customary adjustments. The
Partnership repaid first mortgage financing in the amount of $2,396,000 at
closing utilizing a portion of proceeds from the sale. The Partnership recorded
a gain on sale of approximately $975,000.
Pinecliff
On July 16, 1986, the Partnership assigned its right to acquire Pinecliff, the
Autumn Ridge Joint Venture, which acquired the property for a purchase price of
$7,320,760. The Partnership simultaneously contributed to the Autumn Ridge Joint
Venture an amount equal to the total purchase price less the proceeds of a
$3,300,000 permanent loan. In accordance with the terms of the Partnership
Agreement, the Partnership paid an acquisition fee of $400,000 to GP L'Auberge
Communities, L.P. for its services in structuring and negotiating this
acquisition. The Partnership also incurred acquisition expenses relating to the
acquisition which totaled $97,475.
As of January 27, 1998, the property was 87% occupied, compared to 86%
approximately one year ago. At December 31, 1997 and 1996, the market rents for
the various unit types were as follows:
Market Rents
December 31,
Unit Type ........................................... 1997 1996
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One bedroom one bath ....................................... $ 930 $ 921
Two bedroom two bath ....................................... 1,155 1,125
As discussed in Note 9 of the Notes to the Consolidated Financial Statements, on
January 15, 1998, the Partnership entered into a purchase and sale agreement
(the "Agreement") to sell Pinecliff to an unaffiliated third party. The selling
price for Pinecliff is approximately $6,700,000. The Agreement is subject to
completion of customary due diligence to the satisfaction of the purchaser, and
the purchaser obtaining a financing commitment on commercially reasonable terms
and conditions. The Partnership expects to consummate this sale in the second
quarter of 1998. The sale is contingent on the consent of the Limited partners
to the dissolution. If closing of the sale were to occur, any proceeds from sale
will be allocated to the Partners in accordance with the terms of the
Partnership Agreement and the Partnership will be liquidated.
Villa Antigua
On June 11, 1987, the Partnership acquired a majority joint venture interest in
the Villa Antigua Joint Venture which owned and operated Villa Antigua. The
Partnership contributed $2,494,677 to the Villa Antigua Joint Venture which was
used to repay a portion of the construction loan on the property. The balance of
the construction loan was repaid through the proceeds of a $3,200,000 permanent
loan from a third party lender. In accordance with the terms of the Partnership
Agreement, the Partnership paid an acquisition fee of $350,000 to GP L'Auberge
Communities, L.P. for its services in structuring and negotiating the
acquisition. The Partnership also incurred acquisition expenses relating to the
acquisition which totaled $31,729.
On October 10, 1997, Villa Antigua was sold pursuant to the terms of a Sale
Agreement and Escrow Instructions dated May 6, 1997, as amended. Villa Antigua
was sold to Villa Sin Antigua Condominium Ventures Limited Partnership, an
Arizona Limited Partnership unaffiliated with the Partnership. The net selling
price for Villa Antigua was $6,141,526 subject to certain customary adjustments.
The Partnership repaid first mortgage financing in the amount of $3,010,362 at
closing utilizing a portion of proceeds from the sale. The Partnership recorded
a gain on sale of approximately $1,307,000.
ITEM 3. LEGAL PROCEEDINGS
There are no material pending legal proceedings to which the Partnership or of
which any of the properties is the subject.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders during the fourth
quarter of 1997.
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED
SHAREHOLDER MATTERS
The transfer of Units is subject to certain limitations contained in the
Partnership Agreement. There is no public market for the Units and it is not
anticipated that any such public market will develop.
The number of holders of Units as of December 31, 1997 was 1,903.
Distributions are made to the Partners on a quarterly basis based upon Net Cash
from Operations, as calculated under Section 10 of the Partnership Agreement.
Total cash distributions to the Limited Partners for 1997 and 1996, as well as
the Distributions from Proceeds of Sale were paid as follows:
Date of
Quarter Ended ................................ Payment Amount
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March 31, 1996 .............................. May 15, 1996 $ 97,263
June 30, 1996 ............................... August 15, 1996 $ 97,263
September 30, 1996 .......................... December 11, 1996 $ 97,263
December 31, 1996 ........................... February 28, 1997 $ 97,263
March 31, 1997 .............................. May 15, 1997 $ 97,263
June 30, 1997 ............................... August 15, 1997 $ 97,263
September 30, 1997 .......................... $ 0
December 31, 1997 ........................... December 31, 1997 $5,349,465
ITEM 6. SELECTED FINANCIAL DATA
The following selected financial data of the Partnership and consolidated
subsidiaries has been derived from consolidated financial statements audited by
Coopers & Lybrand, L.L.P., whose reports for the periods ended December 31,
1997, 1996 and 1995 are included elsewhere in the Form 10K and should be read in
conjunction with the full consolidated financial statements of the Partnership
including the Notes thereto.
Year Ended
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12/31/97 12/31/96 12/31/95 12/31/94 12/31/93
Rental income $2,255,625 $2,615,350 $2,725,119 $2,572,947 $2,391,911
Net income (loss) $2,009,610 ($167,778) $309,115 $260,976 $141,982
Net income (loss) allocated to Partners:
Limited Partners - Per Unit- Basic and diluted:
Aggregate 32,421 Units $59.52 ($5.12) $9.06 $7.65 $4.16
General Partners $79,805 ($1,678) $15,456 $13,049 $7,099
Cash distributions to Partners:
Limited Partners:
Weighted average per Unit $174.00 $12.00 $15.50 $17.75 $9.50
General Partners $15,358 $20,476 $26,449 $30,288 $16,211
Total assets $6,383,338 $15,644,667 $16,274,801 $16,587,271 $17,032,336
Long term obligations $3,058,800 $8,559,930 $8,695,278 $8,818,891 $8,931,713
Long term obligations become due in 1998. The Partnership intends to sell the
property or refinance this note prior to the due date.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
This Management's Discussion and Analysis of Financial Condition and Results of
Operations contains forward-looking statements including those concerning the
General Partners' expectations regarding future financial performance and future
events. These forward-looking statements involve significant risks and
uncertainties, including those described herein. Actual results may differ
materially from those anticipated by such forward-looking statements.
Liquidity; Capital Resources
In connection with its capitalization, the Partnership admitted investors who
purchased a total of 32,421 Units aggregating $16,210,500. These offering
proceeds, net of organizational and offering costs of $2,431,575, provided
$13,778,925 of net proceeds to be used for the purchase of income-producing
residential properties, including related fees and expenses, and working capital
reserves. The Partnership expended $10,410,263 to (i) acquire its joint venture
interests in the Sin Vacas Joint Venture, the Villa Antigua Joint Venture, and
the Autumn Ridge Joint Venture, (ii) to pay acquisition expenses, including
acquisition fees to one of the General Partners, and (iii) to pay certain costs
associated with the refinancing of the Pinecliff permanent loan. The Partnership
distributed $1,731,681 to the Limited Partners as a return of capital resulting
from construction cost savings with respect to the Sin Vacas, Pinecliff and
Villa Antigua projects and other excess offering proceeds. The remaining net
proceeds of $1,636,981 were used to establish initial working capital reserves.
These reserves have been used periodically to enable the Partnership to meet its
various financial obligations including contributions to the various Joint
Ventures that may be required. Cumulatively through December 31, 1997, $513,611
was contributed to the Joint Ventures for this purpose.
In addition to the proceeds generated from the public offering, the Partnership
utilized external sources of financing at the joint venture level to purchase
properties. The Partnership Agreement limits the aggregate mortgage indebtedness
which may be incurred in connection with the acquisition of Partnership
properties to 80% of the purchase price of such properties.
The working capital reserves of the Partnership consist of cash and cash
equivalents and short-term investments. Together these amounts provide the
Partnership with the necessary liquidity to carry on its day-to-day operations
and to make necessary contributions to the various Joint Ventures. In 1997, the
aggregate net decrease in working capital reserves was $644,275. This decrease
resulted primarily from cash provided by operations of $60,516 and proceeds from
the sale of property of $11,093,617, offset by distributions to partners of
$5,656,612 and $5,501,130 of principal payments on mortgage notes payable,
$490,710 of fixed asset additions, $131,413 funds held in escrow in connection
with the sale of the properties and $21,025 for loan refinancing costs.
In 1996, the aggregate net increase in working capital reserves was $585,466.
This increase resulted primarily from cash provided by operations of $349,757
and maturities of short-term investments of $1,043,580 offset by $281,346 of
fixed asset additions, distributions to partners of $389,052 and $135,348 of
principal payments on mortgage notes payable.
On October 10, 1997, Villa Antigua was sold pursuant to the terms of a Sale
Agreement and Escrow Instructions dated May 6, 1997, as amended. Villa Antigua
was sold to Villa Sin Antigua Condominium Ventures Limited Partnership, an
Arizona Limited Partnership unaffiliated with the Partnership. The net selling
price for Villa Antigua was $6,141,526 subject to certain customary adjustments.
The Partnership repaid first mortgage financing in the amount of $3,010,362 at
closing utilizing a portion of proceeds from the sale. The Partnership recorded
a gain on sale of approximately $1,307,000.
On November 25, 1997, Villas Sin Vacas was sold pursuant to the terms of a Sale
Agreement and Escrow Instructions dated May 6, 1997, as amended. Villas Sin
Vacas was sold to Villas Sin Vacas Townhome Ventures Limited Partnership, an
Arizona Limited Partnership unaffiliated with the Partnership. The net selling
price for Villas Sin Vacas was $4,952,091 subject to certain customary
adjustments. The Partnership repaid first mortgage financing in the amount of
$2,396,000 at closing utilizing a portion of proceeds from the sale. The
Partnership recorded a gain on sale of approximately $975,000.
With regard to a certain balloon payment on existing first mortgage debt (see
Note 6 of the Notes to Consolidated Financial Statements) on the Partnership's
property which is due and payable in 1998, the General Partners anticipate
repaying the loan utilizing a portion of the sales proceeds from the pending
sale of the property. See Item 2 above. In the event the pending sale is not
consummated, the General Partners will seek to renegotiate this mortgage note
with its existing lender or seek new sources of financing for this property. To
date, the General Partners have neither sought to extend or renegotiate the
existing mortgage debt nor have they sought new financing for the property and
there can be no assurance that they would be successful in doing so. The General
Partners believe that existing cash flow from the property will be sufficient to
support a level of borrowing that is at least equal to the amount outstanding as
of December 31, 1997. If the general economic climate for real estate in this
location were to deteriorate resulting in an increase in interest rates for
mortgage financing or a reduction in the availability of real estate mortgage
financing or a decline in the market values of real estate it may affect the
Partnership's ability to complete this refinancing. See also projected 1998
operating results.
In the event that Pinecliff is not sold pursuant to the Purchase Agreement, the
Partnership would continue to operate the property until a substitute sale could
be negotiated and consummated. The Partnership's ability to generate cash
adequate to meet its needs is dependent primarily on the successful operation of
its real estate investment. Such ability may also be dependent upon the future
availability of bank borrowings, and upon the future refinancing and sale of the
Partnership's real estate investment and the collection of any mortgage
receivable which may result from such a sale. These sources of liquidity will be
used by the Partnership for payment of expenses related to real estate
operation, debt service and professional and management fees and expenses. Net
Cash From Operations and Net Proceeds, if any, as defined in the Partnership
Agreement, will then be available for distribution to the Partners in accordance
with Section 10 of the Partnership Agreement. The General Partners believe that
the current working capital reserves together with projected cash flow for 1998
are adequate to meet the Partnership's operating cash needs in the coming year
if the Partnership is required to continue to own and operate its property
assuming the existing mortgage debt can be extended, renegotiated or refinanced.
Results of Operations
For the year ended December 31, 1997, the Partnership's operating results were
comprised of its share of the income and expenses from the Villas Sin Vacas
(through date of sale), Pinecliff and Villa Antigua properties (through date of
sale), as well as Partnership level interest income earned on short-term
investments, reduced by administrative expenses. A summary of these operating
results (unaudited) appears below:
Sin Villa Investment Consolidated
Vacas Pinecliff Antigua Partnership Total
Total revenue $1,617,267 $952,750 $1,973,680 $73,177 $4,616,874
Expenses:
General and administrative - - - 227,785 227,785
Operations 364,115 469,256 370,078 - 1,203,449
Depreciation and 126,222 200,626 98,092 - 424,940
Amortization
Interest 220,852 284,112 246,126 - 751,090
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711,189 953,994 714,296 227,785 2,607,264
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------------ -------------- --------------- ------------ --------------
Net income (loss) $906,078 ($1,244) $1,259,384 ($154,608) $2,009,610
============ ============== =============== ============ ==============
For the year ended December 31, 1996, the Partnership's operating results were
comprised of its share of the income and expenses from the Sin Vacas, Autumn
Ridge and Villa Antigua Joint Ventures, as well as partnership level interest
income earned on short term investments, reduced by administrative expenses. A
summary of these operating results (unaudited) appears below:
Sin Villa Investment Consolidated
Vacas Pinecliff Antigua Total Total
Total revenue $694,550 $1,022,283 $901,463 $53,445 $2,671,741
Expenses:
General and administrative 1,686 - 259 381,328 383,273
Operations 410,622 437,646 363,192 26,368 1,237,828
Depreciation and 126,677 181,804 122,636 - 431,117
amortization
Interest 223,411 286,313 277,577 - 787,301
------------- -------------- -------------- ------------- -------------
762,396 905,763 763,664 407,696 2,839,519
------------- -------------- -------------- -------------- ------------
Net income (loss) ($67,846) $116,520 $137,799 ($354,251) ($167,778)
============= ============== ============== ============= =============
For the year ended December 31, 1995, the Partnership's operating results were
comprised of its share of the income and expenses from the Sin Vacas, Autumn
Ridge and Villa Antigua Joint Ventures, as well as partnership level interest
income earned on short term investments, reduced by administrative expenses. A
summary of these operating results (unaudited) appears below:
Sin Villa Investment Consolidated
Vacas Pinecliff Antigua Total Total
Total revenue $755,680 $1,041,402 $930,236 $81,023 $2,808,341
Expenses:
General and administrative 7,200 7,244 7,200 183,245 204,889
Operations 353,533 420,726 310,611 - 1,084,870
Depreciation and 118,909 173,174 118,217 - 410,300
amortization
Interest 226,761 290,606 281,800 - 799,167
------------- -------------- -------------- ------------- -------------
706,403 891,750 717,828 183,245 2,499,226
------------- -------------- -------------- ------------ ------------
Net income (loss) $49,277 $149,652 $212,408 ($102,222) $309,115
============= ============== ============== ============= =============
Comparison of 1997 and 1996 Operating Results:
Total revenue increased by $1,945,133 or 73%, primarily due to gains recorded on
the sale of Villas Sin Vacas and Villa Antigua on November 25, 1997 and October
10, 1997, respectively. The total gain on both sales was approximately
$2,300,000. Operating expenses decreased by $34,379 or 3% primarily due to the
sale of those properties, as such reflecting only a portion of the years
expenses in 1997. This was offset by one-time costs of preparing the properties
for disposition, including an increase in repairs and maintenance of $77,779.
General and administrative expenses have decreased by $155,488 or 41%, of which
$73,775 was due to the Evans Withycombe termination fee in 1996. A contributing
factor to the additional reduction of $81,713 was due to the re-stabilization of
costs associated with Partnership administrative, financial and investor
services functions following the office relocation to Colorado Springs,
Colorado.
Comparison of 1996 and 1995 Operating Results:
In accordance with its dispositions strategy, the Partnership incurred one time
costs associated with the Evans Withycombe termination ($73,775), the Highland
termination (($7,718) and their related legal costs. (Refer to Note 5 of Notes
to Consolidated Financial Statements.) In addition, the Partnership incurred
one-time costs associated with its property interior and exterior refurbishment
program, the change in on-site management following the Evans Withycombe
termination, the outsourcing of much of the Partnership's administration work to
an administrative agent and the relocation of the remaining administration,
financial and investor services functions to a more cost efficient location in
Colorado Springs, Colorado. Consequently, competitive pressures and
disposition-related activities led to rental operating expenses (including
advertising, promotion, apartment locator and concession costs) to increase by
$152,958 or 14% over the prior year and total general and administrative
expenses of the Partnership increased $178,384 (87%) over the prior year. Fixed
asset purchases increased $281,346 from $141,735 in the prior year and consisted
of such items as carpet, appliances, equipment for fitness and business centers
facilities, and remodeling features. As a result of the factors described above,
distributions to partners decreased $119,446, or 23%, from $528,974 in 1995 to
$409,528 in 1996.
Projected 1998 Operating Results:
As further discussed in Item 2 above and in Note 9 of the Notes to the
Consolidated Financial Statements, the property owned by the Partnership is
under contract to be sold to a purchaser unaffiliated with the General Partners.
Under the terms of the Purchase Agreement, it is anticipated that the closing
would occur during the second quarter of 1998. If the sale does occur as
anticipated, the Partnership will likely be liquidated in 1998. Although there
can be no assurance the Partnership will dispose of its property during 1998
pursuant to the Purchase Agreement or otherwise, if the Dissolution is approved
by the Limited Partners, the Partnership will continue to seek to dispose of its
property. In the event that the Partnership were to dispose of its property
during 1998, operating results of the Partnership would vary significantly from
those achieved in prior periods.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
See Appendix A to this Report.
ITEM 9. DISAGREEMENTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The Partnership is a limited partnership and, as such, has no executive officers
or directors. The General Partners of the Partnership are Stephen B, Boyle and
GP L'Auberge Communities, L.P., a California limited partnership, of which
L'Auberge Communities Inc. (formerly known as Berry and Boyle Inc.)
("L'Auberge") is the general partner.
Individual General Partners
Stephen B. Boyle, age 57, is President, Executive Officer and Director of
L'Auberge Communities, Inc. and a general partner and co-founder of LP L'Auberge
Communities, a California Limited Partnership (formerly Berry and Boyle), a
limited partnership formed in 1983 to provide funds to various affiliated
general partners of real estate limited partnerships, one of which is GP
L'Auberge Communities, L.P.
In September 1995, with the consent of Limited Partners holding a majority of
the outstanding Units, as well as the consent of the mortgage lenders for the
Partnership's three properties, Richard G. Berry resigned as a general partner
of the Partnership.
GP L'Auberge Communities, L.P.
GP L'Auberge Communities, L.P. was formed in 1983 for the purpose of acting as a
general partner in partnerships formed to invest directly or indirectly in real
property. L'Auberge is the sole general partner of GP L'Auberge Communities,
L.P. The following sets forth certain biographical information with respect to
the executive officers and directors of L'Auberge other than Stephen B. Boyle
who is discussed above. There are no familial relationships between or among any
officer or director and any other officer or director.
Name Position
Stephen B. Boyle President, Executive Officer and Director
Earl C. Robertson Executive Vice President and Chief Financial Officer
Donna Popke Vice President and Secretary
Earl C. Robertson, age 50, has been Executive Vice President of L'Auberge since
April 1995 and its Chief Financial Officer of L'Auberge since May 1996. Mr.
Robertson joined L'Auberge in April 1995 as Executive Vice President. Prior to
joining L'Auberge, Mr. Robertson had over 20 years experience as a senior
development officer, partner and consultant in several prominent real estate
development companies, including Potomac Investment Associates, a developer of
planned golf course communities nationwide, where he was employed from 1989 to
June 1993. He also served as a consultant to Potomac Sports Properties from July
1993 to April 1995. Mr. Robertson was also a key member of the management team
that developed the nationally acclaimed Inn at the Market in Seattle.
Donna Popke, age 38, has been Vice President of L'Auberge since November 1995.
Ms. Popke joined L'Auberge in June 1994 as Accounting Manager. Prior to joining
L'Auberge, Ms. Popke was Accounting Manager for David R. Sellon & Company, a
Colorado Springs land development company, from August 1989 to June 1994 and for
Intermec of the Rockies from September 1985 to July 1989.
ITEM 11. EXECUTIVE COMPENSATION
None of the General Partners or any of their officers or directors received any
compensation from the Partnership. See Item 13 below with respect to a
description of certain transactions of the General Partners and their affiliates
with the Partnership.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
As of March 21, 1998, no person of record owned or was known by the General
Partners to own beneficially more than 5% of the Partnership's outstanding
Units. Neither of the General Partners nor any of their directors and officers
owns Units.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
During the year ended December 31, 1997, the Partnership paid or accrued
remuneration to the General Partners or their affiliates as set forth below. In
addition to the information provided herein, certain transactions are described
in notes 7 and 8 in the Notes to Financial Statements appearing in Appendix A,
which are included in this report and are incorporated herein by reference
thereto.
Net Cash from Operations distributed in 1997
to the General Partners ...................... $15,358
Allocation of Income
to the General Partners ....................... $79,805
Property management fees paid to an affiliate of
the General Partners ........................... $87,724
Reimbursements to General Partners ............. $64,209
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON
FORM 8-K
(a) 1,2 See Page F-2
3 See Exhibit Index contained herein
(b) Reports on Form 8-K
The Partnership reported the sale of Villa Antigua on Form 8-K filed
October 23, 1997 and the sale of Villa Sin Vacas on Form 8-K filed
December 8, 1997.
(c) See Exhibit Index contained herein
(d) See Page F-2.
SIGNATURES
Pursuant to the requirements of Section 13 or 15 (d) of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
CLUSTER HOUSING PROPERTIES
By: GP L'Auberge Communities, L.P., a California
Limited Partnership, General Partner
By: L'Auberge Communities, Inc., its General Partner
By: __/s/ Earl C. Robertson_________________________________
Earl C. Robertson, Executive Vice President
and Chief Financial Officer
Date: March 26, 1998
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the registrant and
in the capacities and on the dates indicated.
Signature Title Date
__/s/ Stephen B. Boyle________ Director, President and March 26, 1998
STEPHEN B. BOYLE Principal Executive
Officer of L'Auberge
Communities, Inc.
__/s/ Earl C. Robertson_____ Executive Vice President and March 26, 1998
EARL C. ROBERTSON Principal Financial Officer of
L'Auberge Communities, Inc.
F-8
APPENDIX A
CLUSTER HOUSING PROPERTIES
(A California Limited Partnership)
AND SUBSIDIARIES
---------
CONSOLIDATED FINANCIAL STATEMENTS
ANNUAL REPORT TO THE SECURITIES AND EXCHANGE
COMMISSION For the Years Ended December 31, 1997 and
December 31, 1996
CLUSTER HOUSING PROPERTIES
(A California Limited Partnership)
AND SUBSIDIARIES
---------
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Report of Independent Accountants F-3
Consolidated Balance Sheets at December 31, 1997 and 1996 F-4
Consolidated Statements of Operations for the years
ended December 31, 1997, 1996 and 1995 F-5
Consolidated Statements of Partners' Equity (Deficit)
for the years ended December 31, 1997, 1996 and 1995 F-6
Consolidated Statements of Cash Flows for the years
ended December 31, 1997, 1996 and 1995 F-7 -- F-8
Notes to Consolidated Financial Statements F-9 -- F-19
All Schedules are omitted, as they are not applicable, not required, or the
information is provided in the financial statements or the notes thereto.
Report of Independent Accountants
To the Partners of
Cluster Housing Properties
(a California Limited Partnership):
We have audited the accompanying consolidated balance sheets of Cluster
Housing Properties (a California Limited Partnership) and subsidiaries as of
December 31, 1997 and 1996, and the related consolidated statements of
operations, partners' equity (deficit) and cash flows for each of the three
years in the period ended December 31, 1997. These financial statements are the
responsibility of the General Partners of the Partnership. Our responsibility is
to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by the
General Partners of the Partnership, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the consolidated financial position of Cluster
Housing Properties (a California Limited Partnership) and subsidiaries as of
December 31, 1997 and 1996 and the consolidated results of their operations and
their cash flows for each of the three years in the period ended December 31,
1997 in conformity with generally accepted accounting principles.
As discussed in Note 9, the General Partners of the Partnership have
entered into a sales agreement to sell the remaining property of the
Partnership. If closing of this sale were to occur, any proceeds from sale will
be allocated to the Partners in accordance with the terms of the Partnership
Agreement and the Partnership will likely be liquidated.
Coopers & Lybrand, L.L.P.
Denver, Colorado
February 27, 1998
CLUSTER HOUSING PROPERTIES
(a California Limited Partnership)
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
December 31, 1997 and 1996
---------------
ASSETS
1997 1996
------------ ------------
Assets held for sale/Property, at cost (Notes 3, 9)
Land ......................................................................... $ 1,242,061 $ 3,677,028
Buildings and improvements ................................................... 6,063,055 14,067,757
Equipment, furnishings and fixtures .......................................... 642,239 1,576,836
------------ ------------
7,947,355 19,321,621
Less accumulated depreciation ................................................ (2,152,207) (4,810,314)
------------ ------------
5,795,148 14,511,307
Cash and cash equivalents ...................................................... 421,580 1,065,855
Real estate tax escrows ........................................................ 24,037 41,632
Deposits and prepaid expenses .................................................. 133,285 3,818
Accounts receivable ............................................................ 1,400 2,605
Deferred expenses, net of accumulated
amortization of $205,147 and $175,041 ........................................ 7,888 19,450
------------ ------------
Total assets .......................................................... $ 6,383,338 $ 15,644,667
============ ============
LIABILITIES AND PARTNERS' EQUITY (DEFICIT)
Mortgage notes payable ......................................................... $ 3,058,800 $ 8,559,930
Accounts payable ............................................................... 83,637 115,410
Accrued expenses ............................................................... 131,588 195,794
Due to affiliates (Note 8) ..................................................... 16,076 8,975
Rents received in advance ...................................................... 1,984 4,538
Tenant security deposits ....................................................... 33,555 55,320
------------ ------------
Total liabilities ..................................................... 3,325,640 8,939,967
General Partners' deficit ...................................................... (127,847) (192,294)
Limited Partners' equity ....................................................... 3,185,545 6,896,994
------------ ------------
Total liabilities and partners' equity ................................. $ 6,383,338 $ 15,644,667
============ ============
CLUSTER HOUSING PROPERTIES
(a California Limited Partnership)
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
For the years ended December 31, 1997, 1996, and 1995
-------------
1997 1996 1995
----------- ----------- -----------
Revenue:
Rental income ............................................................... $ 2,255,625 $ 2,615,350 $ 2,725,119
Interest income ............................................................. 79,666 56,391 83,222
Gain from sale of properties ................................................ 2,281,583 -- --
----------- ----------- -----------
Total Revenue .................................................................. 4,616,874 2,671,741 2,808,341
Expenses:
Operations .................................................................. 1,203,449 1,237,828 1,084,870
Interest expense ............................................................ 751,090 787,301 799,167
Depreciation and amortization ............................................... 424,940 431,117 410,300
General and administrative .................................................. 227,785 383,273 204,889
----------- ----------- -----------
Total Expenses ................................................................. 2,607,264 2,839,519 2,499,226
----------- ----------- -----------
Net income (loss) .............................................................. $ 2,009,610 ($ 167,778) $ 309,115
=========== =========== ===========
Net income (loss) allocated to:
General Partners ............................................................. $ 79,805 ($ 1,678) $ 15,456
Basic and diluted per unit Net income (loss) allocated to Investor Limited
Partner interest:
32,421 units issued ..................................................... $ 59.52 ($ 5.12) $ 9.06
CLUSTER HOUSING PROPERTIES
(a California Limited Partnership)
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF PARTNERS' EQUITY (DEFICIT)
For the years ended December 31, 1997, 1996, and 1995
-------------
Investor Total
General Limited Partners'
Partners Partners Equity
Balance at December 31, 1994 (159,147) 7,669,907 7,510,760
Cash distributions (26,449) (502,525) (528,974)
Net income 15,456 293,659 309,115
-------------- --------------- ---------------
Balance at December 31, 1995 ($170,140) $7,461,041 $7,290,901
Minority interest - (8,895) (8,895)
absorbed
Cash distributions (20,476) (389,052) (409,528)
Net loss (1,678) (166,100) (167,778)
-------------- --------------- ---------------
Balance at December 31, 1996 (192,294) 6,896,994 6,704,700
Cash distributions (15,358) (5,641,254) (5,656,612)
Net income 79,805 1,929,805 2,009,610
-------------- --------------- ---------------
Balance at December 31, 1997 ($127,847) $3,185,545 $3,057,698
============== =============== ===============
CLUSTER HOUSING PROPERTIES
(a California Limited Partnership)
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
for the years ended December 31, 1997, 1996, 1995
-------------
Cash flows from operating activities: ............... 1997 1996 1995
------------ ------------ ------------
Interest received ................................. $ 79,666 $ 80,257 $ 82,408
Cash received from rental income .................. 2,231,306 2,607,383 2,716,163
General and administrative expenses ............... (243,185) (370,245) (201,143)
Operations expense ................................ (1,235,265) (1,179,822) (1,039,036)
Interest paid ..................................... (772,006) (787,816) (799,636)
------------ ------------ ------------
Net cash provided by operating activities ........... 60,516 349,757 758,756
Cash flows from investing activities:
Proceeds from sale of properties .................. 11,093,617 -- --
Capital improvements .............................. (490,710) (281,346) (148,127)
Deposit with escrow agent ......................... (131,413) -- --
Cash received from short-term investments ......... -- 1,043,580 327,298
------------ ------------ ------------
Net cash provided by investing activities ........... 10,471,494 762,234 179,171
Cash flows from financing activities:
Distributions to partners ......................... (5,656,612) (389,052) (528,974)
Deposits .......................................... 2,482 (2,125) (358)
Cash paid for loan refinancing .................... (21,025) -- --
Principal payments on mortgage notes payable ...... (5,501,130) (135,348) (123,613)
------------ ------------ ------------
Net cash used by financing activities ............... (11,176,285) (526,525) (652,945)
------------ ------------ ------------
Net increase (decrease) in cash and cash equivalents (644,275) 585,466 284,982
Cash and cash equivalents at beginning of the period 1,065,855 480,389 195,407
------------ ------------ ------------
Cash and cash equivalents at end of the period ...... $ 421,580 $ 1,065,855 $ 480,389
============ ============ ============
Non cash financing activities:
Accrual of distributions to partners ............. $ 0 $ 20,476 $ 0
CLUSTER HOUSING PROPERTIES
(a California Limited Partnership)
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
for the years ended December 31, 1997, 1996, 1995
-------------
Reconciliation of net income (loss) to net cash provided by operating
activities:
1997 1996 1995
----------- ----------- -----------
Net income (loss) .............................................................. $ 2,009,610 ($ 167,778) $ 309,115
Adjustments to reconcile net income (loss) to net cash provided by operating
activities:
Depreciation and amortization ................................................ 424,940 431,117 410,300
Gain from sale of property ................................................... (2,281,583) -- --
Change in assets and liabilities net of effects of investing and financing
activities:
Decrease in real estate tax escrows ........................................ 17,595 2,423 7,750
Decrease in deposits and prepaid expenses .................................. 1,946 -- 2,033
(Increase) decrease in accounts receivable ................................. 1,205 21,951 (1,445)
(Decrease) increase in accounts payable and accrued expenses ............... (95,979) 84,185 35,871
(Decrease) increase in due to affiliates ................................... 7,101 (14,198) 4,088
Decrease in rent received in advance ....................................... (2,554) (5,957) (3,526)
Decrease in tenant security deposits ....................................... (21,765) (1,986) (5,430)
----------- ----------- -----------
Net cash provided by operating activities ...................................... $ 60,516 $ 349,757 $ 758,756
============ =========== ===========
CLUSTER HOUSING PROPERTIES
(A California Limited Partnership)
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
----------
1. Organization of Partnership:
Cluster Housing Properties (a California Limited Partnership) (the
"Partnership"), formerly Berry and Boyle Cluster Housing Properties, was formed
on August 8, 1983. The Partnership issued all of the General Partnership
Interests to three General Partners in exchange for capital contributions
aggregating $2,000. Stephen B. Boyle and GP L'Auberge Communities, L.P., (a
California Limited Partnership), formerly Berry and Boyle Management, are the
General Partners. In September, 1995, with the consent of Limited Partners
holding a majority of the outstanding Units, as well as the consent of the
mortgage lenders for the Partnership's three properties, Richard G. Berry
resigned as a general partner of the Partnership.
A total of 2,000 individual Limited Partners owning 32,421 units have
contributed $16,210,500 of capital to the Partnership. At December 31, 1997, the
total number of Limited Partners was 1,903. Except under certain limited
circumstances, as defined in the Partnership Agreement, the General Partners are
not required to make any additional capital contributions. The General Partners
or their affiliates will receive various fees for services and reimbursement for
various organizational and selling costs incurred on behalf of the Partnership.
The Partnership will continue until December 31, 2010, unless terminated earlier
by the sale of all, or substantially all, of the assets of the Partnership, or
otherwise in accordance with the provisions of Section 16 of the Partnership
Agreement (See Note 9.)
2. Significant Accounting Policies:
A. Basis of Presentation
The consolidated financial statements include the accounts of the
Partnership and its subsidiaries: Sin Vacas Joint Venture (Sin Vacas),
Autumn Ridge Joint Venture (Autumn Ridge) and Villa Antigua Joint
Venture (Villa Antigua). All intercompany accounts and transactions
have been eliminated in consolidation. The Partnership follows the
accrual basis of accounting. Refer to Note 5 regarding the termination
of the Joint Ventures and the sale of Villas Sin Vacas and Villa
Antigua.
B. Cash and Cash Equivalents
The Partnership considers all highly liquid debt instruments purchased
with a maturity of three months or less to be cash equivalents. The
carrying value of cash and cash equivalents approximates fair value. It
is the Partnership's policy to invest cash in income-producing
temporary cash investments. The Partnership mitigates any potential
risk from such concentration of credit by placing investments with high
quality financial institutions.
C. Significant Risks and Uncertainties
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the
date of the financial statements and the reported amounts of revenues
and expenses during the reporting period. Actual results could differ
from those estimates.
D. Depreciation
Depreciation is provided for by the use of the straight-line method
over estimated useful lives as follows:
Buildings and improvements 39-40 years
Equipment, furnishings and fixtures 5-15 years
E. Deferred Expenses
Costs of obtaining or extending mortgages on the properties are being
amortized over the mortgage term using the straight-line method, which
approximates the effective interest method. Fees paid to certain of the
property developers were amortized over the term of the services
provided using the straight-line method. Any unamortized costs
remaining at the date of a refinancing are expensed in the year of
refinancing.
F. Income Taxes
The Partnership is not liable for Federal or state income taxes because
Partnership income or loss is allocated to the Partners for income tax
purposes. If the Partnership's tax returns are examined by the Internal
Revenue Service or state taxing authority and such an examination
results in a change in Partnership taxable income (loss), such change
will be reported to the Partners.
G. Rental Income
Leases require the payment of rent in advance; however, rental income
is recorded as earned.
H. Long-Lived Assets
In 1996, the Partnership adopted Statement of Financial Accounting
Standards No. 121 (SFAS 121), "Accounting for the Impairment of
Long-Lived Assets to be Disposed of." SFAS 121 requires that long-lived
assets be reviewed for impairment whenever events or changes in
circumstances indicate that their carrying value may not be
recoverable. The adoption of SFAS 121 had no effect on reported results
in 1996. As further discussed in Note 9, for the year ended December
31, 1997, the Partnership recorded the assets at the lower of carrying
value or net realizable value and has included these amounts as Assets
Held for Sale.
For the years ended December 31, 1997 and 1996, permanent impairment
conditions did not exist at any of the Partnership's properties.
I. Reclassification
Certain items in the financial statements for the years ended December
31, 1996 and 1995 have been reclassified to conform to the 1997
presentation.
J. New Accounting Standards
In 1997, the Partnership adopted Statement of Financial Accounting
Standards No. 128 (SFAS 128), "Earnings Per Share." This accounting
standard specifies new computation, presentation, and disclosure
requirements for earnings per share to be applied retroactively. Among
other things, SFAS 128 requires presentation of basic and diluted
earnings per share on the face of the income statement. The computation
of basic and diluted earnings per share was based on income available
to the Limited Partners divided by the weighted average number of units
outstanding during the period. The Partnership has no dilutive type
securities. The adoption of SFAS 128 had no effect on the per unit
results previously reported.
3. Assets held for sale:
Assets held for sale consisted of the following at December 31, 1997:
Initial Cost Costs Capitalized Gross Amount
At Which
Carried
to Subsequent to Acquisition at Close of
Partnership Period
---------------------------------- ------------------------- ---------------------------------- ------- ----------
Buildings Equipment Buildings Equipment Buildings Equipment
Property and Furniture and Furniture and Furniture Accum.
Description Land Improvements & Fixtures Land Imprvments & Fixtures Land Improvements & Fixtures Depre. Total
- ------------------------------------------------- -------------------------- ---------------------------------- ------- ----------
Pinecliff,
a 96-unit residential rental
complex located in
Colo. Springs,
Colorado
$1,242,061 $5,981,166 $380,288 - $81,889 $261,951 $1,242,061 $6,063,055 $642,239 ($2,152,207) $5,795,148
---------------------------------- --------------------------- -------------------------------- ----------- ----------
$1,242,061 $5,981,166 $380,288 - $81,889 $261,951 $1,242,061 $6,063,055 $642,239 ($2,152,207) $5,795,148
=================================== ========================== =============================== ============ ==========
Pinecliff is encumbered by a nonrecourse mortgage note payable (see Note 6).
Villas at Sin Vacas and Villa Antigua were sold in 1997.
The changes in total real estate assets for the years ended The change in accumulated depreciation for the
December 31, 1997, 1996, and 1995 are as follows: years ended December 31, 1997, 1996, and 1995
are as follows:
1997 1996 1995 1997 1996 1995
----- ----- ----- ----- ----- ----
Balance, beginning of year $19,321,621 $19,040,329 $18,892,202 Bal., beg. of year $4,810,314 $4,418,093 $4,046,690
Additions during the period:
Improvements $490,710 $281,292 $148,127 Depr for the period $394,834 $392,221 $371,403
Deductions during the period:
Sale of Sin Vacas ($5,593,045) - - Disposition of Sin Vacas ($1,615,565) - -
Sale of Villa Antigua ($6,271,931) - - Disposition of
Villa Antigua ($1,437,376) - -
========================================== ===========================================
Balance at end of $7,947,355 $19,321,621 $19,040,329 Bal. at end of year $2,152,207 $4,810,314 $4,418,093
year ========================================== ===========================================
4. Cash and Cash Equivalents:
Cash and cash equivalents at December 31, 1997 and 1996 consisted of the
following:
1997 1996
---------- ----------
Cash on hand .......... $ 132,330 $ 854,769
Certificate of deposits -- 211,086
Money market accounts . 289,250 -
---------- ----------
$ 421,580 $1,065,855
5. Joint Venture and Property Acquisitions:
The Partnership has invested in three properties located in Scottsdale and
Tucson, Arizona and Colorado Springs, Colorado. The success of the Partnership
will depend upon factors which are difficult to predict including general
economic and real estate market conditions, both on a national basis and in the
areas where the Partnership's investments are located. The Partnership holds a
majority interest in these properties and controls the operations of the joint
ventures.
Villas Sin Vacas
On October 25, 1985, the Partnership acquired a majority interest in the Sin
Vacas Joint Venture, which owns and operates the Villas at Sin Vacas, a 72-unit
residential property located in Tucson, Arizona. Since the Partnership owns a
majority interest in the Sin Vacas Joint Venture, the accounts and operations of
the Sin Vacas Joint Venture have been consolidated into the Partnership.
The co-venture partner was an affiliate of Evans Withycombe, Inc. ("EWI"), a
Phoenix based residential development, construction and management firm. EWI is
also the developer of the Villas Sin Vacas property.
The Partnership made initial cash payments in the form of capital contributions
totaling $2,458,507 and funded $398,949 of property acquisition costs which were
treated as a capital contribution to the joint venture. Since completion of
construction, the Partnership has made additional contributions totaling
$275,167. At December 31, 1997, the total capital contributions and acquisition
costs incurred were $2,713,937 and $418,686, respectively.
JANUARY 1, 1996 THROUGH MAY 13, 1996
Net cash from operations (as defined in the joint venture agreement) was to be
distributed as available to each joint venture partner quarterly as follows:
First, to the Partnership, an amount equal to 8.75% per annum,
noncumulative (computed daily on a simple noncompounded basis from the
date of completion funding) of the Partnership's capital investment, as
defined in the joint venture agreement;
Second, the balance 70% to the Partnership and 30% to the co-venturer.
All losses from operations and depreciation for the Sin Vacas Joint Venture were
allocated 99% to the Partnership and 1% to the co-venturer.
All profits from operations, to the extent of cash distributions were allocated
to the Partnership and co-venturer in the same proportion as the cash
distribution. Any remaining profits are allocated 70% to the Partnership and 30%
to the co-venturer.
In the case of certain capital transactions and distributions as defined in the
joint venture agreement, the allocation of related profits, losses and cash
distributions, if any, would be different than as described above and would be
effected by the relative balances in the individual partners' capital accounts.
For the years ended December 31, 1997, 1996 and 1995 the Sin Vacas Joint Venture
had net income, including gain on sale of $906,078, net loss of $67,846 and net
income of $49,277, respectively.
Villa Antigua
On June 11, 1987, the Partnership acquired a majority interest in the Villa
Antigua Joint Venture, which owns and operates Villa Antigua, an 88-unit
residential property located in Scottsdale, Arizona. Since the Partnership owns
a majority interest in the Villa Antigua Joint Venture, the accounts and
operations of the Villa Antigua Joint Venture have been consolidated into the
Partnership.
The co-venture partner was an affiliate of Evans Withycombe, Inc. ("EWI"), a
Phoenix based residential development, construction and management firm. EWI is
also the developer of the Villa Antigua property.
The Partnership made initial cash payments in the form of capital contributions
totaling $2,494,677 and funded $381,729 of property acquisition costs which were
treated as a capital contribution to the Villa Antigua Joint Venture. Since
completion of construction, the Partnership has made additional contributions
totaling $85,440. At December 31, 1997, the total capital contributions and
acquisition costs incurred were $2,580,117 and $381,729, respectively.
JANUARY 1, 1996 THROUGH MAY 13, 1996
Net cash from operations (as defined in the joint venture agreement) was to be
distributed as available to each joint venture partner quarterly as follows:
First, to the Partnership, an amount equal to 10% per annum,
noncumulative (computed daily on a simple noncompounded basis from the
date of completion funding) of the Partnership's adjusted capital
investment, as defined in the joint venture agreement;
Second, the balance 70% to the Partnership and 30% to the co-venturer.
All losses from operations and depreciation for the Villa Antigua Joint Venture
were allocated 99% to the Partnership and 1% to the co-venturer.
All profits from operations, to the extent of cash distributions, were allocated
to the Partnership and co-venturer in the same proportion as the cash
distributions; however, if for any taxable year there are no cash distributions,
profits are allocated 99% to the Partnership and 1% to the co-venturer.
In the case of certain capital transactions and distributions as defined in the
joint venture agreement, the allocation of related profits, losses and cash
distributions, if any, would be different than as described above and would be
affected by the relative balances in the individual partners' capital accounts.
The Villa Antigua Joint Venture had net income including gain on sale of
$1,259,384, and net income of $137,799 and $212,408 for the years ended December
31, 1997, 1996 and 1995, respectively.
Sin Vacas and Villa Antigua
MAY 14, 1996 THROUGH DECEMBER 31, 1997
On May 14, 1996, the Partnership and certain affiliates consummated an agreement
with Evans Withycombe Management, Inc. and certain of its affiliates ("EWI")
which separated the interests of EWI and the Partnership, thus affording the
Partnership greater flexibility in the operation and disposition of the
properties. In consideration of a payment by the Partnership to EWI of $73,775
and delivery of certain mutual releases, EWI (i) relinquished its contract to
manage Sin Vacas and Villa Antigua and its option to exercise its rights of
first refusal with regard to the sale of those properties and (ii) assigned all
of its interest in the Sin Vacas Joint Venture and the Villa Antigua Joint
Venture to the Partnership (while preserving the economic interests of the
venturer in these Joint Ventures), which resulted in the dissolution of the Sin
Vacas Joint Venture and the Villa Antigua Joint Venture. EWI may still share in
the cash flow distributions or proceeds from sale of the properties if certain
performance levels are met.
On November 25, 1997, Villa Sin Vacas was sold pursuant to the terms of a Sale
Agreement and escrow Instructions (the "Agreement") dated May 6, 1997, as
amended. Villas Sin Vacas was sold to Villas Sin Vacas Townhome Ventures Limited
Partnership, an Arizona Limited Partnership unaffiliated with the Partnership,
the assignee of Capital Management Systems, Inc., a Pennsylvania Corporation.
The net selling price for Villas Sin Vacas was $4,952,091 subject to certain
customary adjustments. The Partnership repaid first mortgage financing in the
amount of $2,396,000 at closing utilizing a portion of proceeds from the sale.
The Partnership recorded a gain on sale of approximately $975,000.
On October 10, 1997, Villa Antigua was sold pursuant to the terms of a Sale
Agreement and escrow Instructions (the "Agreement") dated May 6, 1997, as
amended. Villa Antigua was sold to Villa Sin Antigua Condominium Ventures
Limited Partnership, an Arizona Limited Partnership unaffiliated with the
Partnership, the assignee of Capital Management Systems, Inc., a Pennsylvania
Corporation. The net selling price for Villa Antigua was $6,141,526 subject to
certain customary adjustments. The Partnership repaid first mortgage financing
in the amount of $3,010,362 at closing utilizing a portion of proceeds from the
sale. The Partnership recorded a gain on sale of approximately $1,307,000.
Pinecliff
On July 16, 1986, the Partnership acquired Pinecliff (formerly Autumn Ridge), a
96-unit residential property located in Colorado Springs, Colorado and
simultaneously contributed the property to the Autumn Ridge Joint Venture
comprised of the Partnership and an affiliate of the property developer. Since
the Partnership owns a majority interest in the Autumn Ridge Joint Venture, the
accounts and operations of the Autumn Ridge Joint Venture have been consolidated
into the Partnership.
The co-venture partner was Highland Properties, Inc. ("Highland") a Colorado
based residential development,construction and management firm. Highland
developed the property known as L'Auberge Pinecliff.
The Partnership made initial cash payments in the form of capital contributions
totaling $3,819,397 and funded $546,576 of property acquisition costs which were
treated as a capital contribution to the Autumn Ridge Joint Venture. Since
completion of construction, the Partnership has made additional contributions
totaling $318,811.
December 31, 1997 the total capital contributions and acquisition costs incurred
were $4,192,309 and $497,475, respectively.
JANUARY 1, 1996 THROUGH JULY 2, 1996:
Net cash from operations (as defined in the joint venture agreement) was to be
distributed as available to each joint venture partner quarterly as follows:
First, to the Partnership, an amount equal to 8% per annum,
noncumulative (computed daily on a simple noncompounded basis from the
date of completion funding) of the Partnership's capital investment, as
defined in the joint venture agreement;
Second, the balance 82% to the Partnership and 18% to the co-venturer.
All losses from operations and depreciation for the Autumn Ridge Joint Venture
were allocated 100% to the Partnership.
All profits from operations, to the extent of cash distributions, were allocated
to the Partnership and co-venturer in the same proportion as the cash
distribution. Any remaining profits are allocated 82% to the Partnership and 18%
to the co-venturer.
In the case of certain capital transactions and distributions as defined in the
joint venture agreement, the allocation of related profits, losses and cash
distributions, if any, would be different than as described above and would be
affected by the relative balances in the individual partners' capital accounts.
JULY 3, 1996 THROUGH DECEMBER 31, 1996
On July 3, 1996, the Partnership and certain affiliates consummated an agreement
with Highland Properties, Inc. ("Highland") which separated the interests of
Highland and the Partnership, thus affording the Partnership greater flexibility
in the operation and disposition of the property. In consideration of a payment
by the Partnership to Highland totaling $7,718, and delivery of certain mutual
releases, Highland (i) relinquished its option to exercise its rights of first
refusal with regard to the sale of the property and (ii) assigned all of its
interest in the L'Auberge Pinecliff Joint Venture to the Partnership, (while
preserving the economic interests of the venturer in these Joint Ventures),
which resulted in the dissolution of the L'Auberge Pinecliff Joint Venture.
Highland may still share in the cash flow distributions or proceeds from sale of
the properties if certain performance levels are met.
The Sin Vacas Joint Venture, the Autumn Ridge Joint Venture and the Villa
Antigua Joint Venture are sometimes collectively referred to as the "Joint
Ventures". These joint ventures were effectively terminated on December 31,
1996. The Partnership has eliminated various minority interests related to these
joint ventures, as such, the Partnership owned 100% of the underlying assets as
of December 31, 1996.
For the years ended December 31, 1997, 1996 and 1995 the Autumn Ridge Joint
Venture had net loss of $1,244 and net income of $116,520 and $149,652,
respectively.
6. Mortgage Notes Payable:
All of the property owned by the Partnership is pledged as collateral for the
nonrecourse mortgage notes payable outstanding at December 31, 1997 and 1996
which consisted of the following:
1997 1996
---------- ----------
Villas at Sin Vacas $ 0 $2,428,851
Pinecliff ......... 3,058,800 3,112,702
Villa Antigua ..... 0 3,018,377
---------- ----------
$3,058,800 $8,559,930
========== ==========
Sin Vacas and Villa Antigua
The original maturity date for these notes was July 15, 1997. On July 10, 1997
the lender extended the terms of these mortgage notes for a period of one year.
The monthly principal and interest payments for Sin Vacas and Villa Antigua of
$21,830 and $27,128, respectively, and the fixed interest rate of 9.125% for
each remained unchanged. The terms of the agreement provided for a prepayment
schedule of 0.5% of the outstanding loan balance if the notes were paid prior to
60 days before the maturity date. As discussed in Note 5, during 1997 the
Partnership sold Sin Vacas and Villa Antigua. In connection with this sale, the
outstanding mortgage debt for the properties was paid off. The Partnership
incurred prepayment penalty fees of $11,952 and $14,898, respectively, for Sin
Vacas and Villa Antigua, which amounts are included in interest expense in the
Consolidated Statement of Operations for the year ended December 31, 1997.
Pinecliff
The original maturity date for these notes was July 15, 1997. On July 10, 1997,
the lender extended the terms of the mortgage note for a period of one year.
Under the modification agreement, the monthly principal and interest payment of
$27,976 and the original interest rate of 9.125% remained unchanged. The terms
of the agreement provide for a prepayment penalty of 0.5% of the outstanding
loan amount in the event the note is paid prior to 60 days before it becomes
due. The balance of the note will be due on July 15, 1998.
As discussed in Note 9, the Partnership entered into a Sale Agreement for this
property with an unaffiliated third party. The estimated sales price is
sufficient to cover the mortgage note balance. However, there can be no
assurance that the sale of the property will occur.
In the event that the sale of Pinecliff does not occur, the Partnership will
seek new sources of financing for the property on a long-term basis or seek to
renegotiate the mortgage note with its existing lender. If the general economic
climate for real estate in this location were to deteriorate resulting in an
increase in interest rates for mortgage refinancing or a reduction in the
availability of real estate mortgage financing or a decline in the market values
of real estate, it may affect the Partnership's ability to complete the
refinancing or sell the property.
As discussed in Note 9, the Partnership entered into a Sale Agreement for this
property with an unaffiliated third party. The estimated sales price is
sufficient to cover the mortgage note balance. However, there can be no
assurance that the sale of the property will occur.
Interest included in Accrued expenses in the Consolidated Balance Sheets at
December 31, 1997 and 1996 consisted of the following:
1997 1996
------- -------
Villas at Sin Vacas $ 0 $ 9,235
Pinecliff ......... $11,630 11,835
Villa Antigua ..... 0 11,476
------- -------
$11,630 $32,546
======= =======
The principal balance of the mortgage notes payable appearing on the
consolidated balance sheets at December 31, 1997 and 1996 approximates the fair
value of such notes.
7. Partners' Equity:
Under the terms of the Partnership Agreement profits are allocated 95% to the
Limited Partners and 5% to the General Partners; losses are allocated 99% to the
Limited Partners and 1% to the General Partners.
Cash distributions to the partners are governed by the Partnership Agreement and
are made, to the extent available, 95% to the Limited Partners and 5% to the
General Partners.
Gain from the sale of properties is to be allocated as defined in the
Partnership Agreement. The net proceeds on the sale of both Villas Sin Vacas and
Villa Antigua of $5.3 million were allocated as follows. The Limited Partners
received 100% of the cash distribution from sale. The total gain on sale of both
Villas Sin Vacas and Villa Antigua of $2.3 million was allocated as follows. The
General Partner received a gain on sale allocation of approximately $70,000 and
the Limited Partners received a gain on sale allocation of approximately $2.2
million. These distributions/allocations were in accordance with the terms of
the Partnership Agreement.
8. Related-Party Transactions:
L'Auberge Communities, Inc. is a General Partner of L'Auberge Communities,
which owns a 99% interest in GP L'Auberge Communities, L.P. (formerly Berry and
Boyle Management). Due to affiliates at December 31, 1997 and
1996 consisted of reimbursable costs payable to L'Auberge Communities, Inc., an
affiliate of the General Partners, in the amounts of $16,076 and $8,975,
respectively.
For the years ended December 31, 1997, 1996 and 1995, general and administrative
expenses included $64,209, $82,881 and $84,643, respectively, of salary
reimbursements paid to the General Partners for certain administrative and
accounting personnel who perform services for the Partnership.
The officers and principal shareholders of EWI, the developer of the Villas at
Sin Vacas and Villa Antigua properties and an affiliate of the co-venturers of
those joint ventures, together hold a two and one half percent cumulative profit
or partnership voting interest in LP L'Auberge Communities, a California Limited
Partnership, formerly Berry and Boyle, which is the principal limited partner of
GP L'Auberge Communities, L.P.
During the years ended December 31, 1996 and 1995, EWI received property
management fees of $32,475 and $84,187, respectively. These fees were 5% of
rental revenue in each time period. In addition, for the years ended December
31, 1997, 1996 and 1995, $87,724, $64,954 and $51,715, respectively, of property
management fees were paid or accrued to Residential Services - L'Auberge, an
affiliate of the General Partners. These fees were 4% of rental revenue in 1997
and 1996 and 5% of rental revenue in 1995.
Villa Antigua reimbursed $35,885 and $34,707, respectively, for its
proportionate share of the 1996 and 1995 real estate taxes to Villa Antigua
Phase II, which is an affiliate of the General Partners. For the year ended
December 31, 1997, real estate taxes were settled as part of the closing of the
sale.
9. Assets held for Sale
During the fourth quarter of 1997, the General Partners of the Partnership
committed to a plan to dispose of Pinecliff in Colorado Springs, Colorado. On
January 15, 1998, the Partnership entered into a Sale Agreement (the
"Agreement") to sell Pinecliff to an unaffiliated third party. The selling price
for Pinecliff is approximately $6,700,000. The Agreement is subject to
completion of customary due diligence to the satisfaction of the purchaser, and
the purchaser obtaining a financing commitment on commercially reasonable terms
and conditions. The Partnership expects to consummate this sale in 1998. Under
certain conditions, the sale is contingent upon the approval by the Limited
Partners.
As it is the intent of the General Partners to pursue the sale of this property,
the Partnership has recorded the assets at the lower of carrying value or net
realizable value and has included these amounts as Assets Held for Sale on the
Consolidated Balance Sheets at December 31, 1997. In accordance with SFAS 121,
the Partnership has stopped depreciating these assets effective January 1, 1998.
If closing of the sale were to occur, any proceeds from sale will be allocated
to the Partners in accordance with the terms of the Partnership Agreement and
the Partnership will likely be liquidated.
CASABELLA ASSOCIATES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS,
INFORMATION WITH RESPECT TO THE YEARS ENDED
DECEMBER 31, 1996 AND 1995 IS UNAUDITED
--------------
CASABELLA ASSOCIATES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS,
INFORMATION WITH RESPECT TO THE YEARS ENDED
DECEMBER 31, 1996 AND 1995 IS UNAUDITED
1. Organization of Partnership
Casabella Associates, a general partnership (the "Partnership") was formed on
July 1, 1998. Development Partners (A Massachusetts Limited Partnership),
("DPI"), formerly Berry and Boyle Development Partners, and Development Partners
II (A Massachusetts Limited Partnership), ("DPII"), formerly Berry and Boyle
Development Partners II, and Development Partners III (A Massachusetts Limited
Partnership), ("DPIII"), formerly Berry and Boyle Development Partners III are
the General Partners. DPI, DPII and DPIII own an 8.5%, 38.3%, and 53.2%
interest, respectively in the Partnership.
Casabella Associates was formed to acquire a majority interest in the Casabella
Joint Venture, which owns Casabella, a 154-unit residential property, located in
Scottsdale, Arizona. Since the Partnership owns a majority interest in Casabella
Joint Venture, the accounts and operations of Casabella Joint Venture have been
consolidated into the Partnership.
The co-venture partner was an affiliate of Evans Withycombe, Inc. ("EWI"), a
Phoenix based residential development, construction and management firm. EWI
also developed the property known as Casabella.
The Partnership will continue until December 31, 2018, unless earlier terminated
by the sale of all or substantially all of the assets of the Partnership, or as
otherwise provided in the Partnership Agreement (See Note 9).
2. Significant Accounting Policies
A. Basis of Presentation
The consolidated financial statements include the accounts of the
Partnership and its subsidiary Casabella Joint Venture. All
intercompany accounts and transactions have been eliminated in
consolidation. The Partnership follows the accrual basis of accounting.
Refer to Note 5 regarding the termination of the Casabella Joint
Venture.
B. Cash and Cash Equivalents
The Partnership considers all highly liquid debt instruments purchased
with a maturity of three months or less to be cash equivalents. The
carrying value of cash and cash equivalents approximates fair value. It
is the Partnership's policy to invest cash in income-producing
temporary cash investments. The Partnership mitigates any potential
risk from such concentration of credit by placing investments with high
quality financial institutions.
C. Significant Risks and Uncertainties
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the
date of the financial statements and the reported amounts of revenues
and expenses during the reporting period. Actual results could differ
from those estimates.
D. Depreciation
Depreciation is provided for by the use of the straight-line method
over the estimated useful lives as follows:
Buildings and improvements 39-40 years
Equipment, furnishings and fixtures 5-15 years
E. Deferred Expenses
Costs of obtaining or extending the mortgage on Casabella are being
amortized over the mortgage term using the straight-line method, which
approximates the effective interest method. Any unamortized costs
remaining at the date of refinancing are expensed in the year of
refinancing.
F. Income Taxes
The Partnership is not liable for Federal or state income taxes because
Partnership income or loss is allocated to the Partners for income tax
purposes. If the Partnership's tax returns are examined by the Internal
Revenue Service or state taxing authority and such an examination
results in a change in Partnership taxable income (loss), such change
will be reported to the Partners.
G. Rental Income
Leases require the payment of rent in advance, however, rental income
is recorded as earned.
H. Reclassification
Certain items in the financial statements for the years ended December
31, 1996 and 1995 have been reclassified to conform to the 1997
presentation.
I. Long-Lived Assets
In 1996, the Partnership adopted Statement of Financial Accounting
Standards No. 121 (SFAS 121), "Accounting for the Impairment of
Long-Lived Assets and Assets to be Disposed of." SFAS 121 requires that
long-lived assets be reviewed for impairment whenever events or changes
in circumstances indicate that their carrying value may not be
recoverable. The adoption of SFAS 121 had no effect on reported results
in 1996. As further discussed in Note 9, for the year ended December
31, 1997 the Partnership recorded its property at the lower of carrying
value or net realizable value and has included these amounts as Assets
Held for Sale.
For the years ended December 31, 1997 and 1996, permanent impairment
conditions did not exist at the Partnership's property.
Note 3 Depreciation
4. Cash and cash equivalents
Cash and cash equivalents December 31, 1997 and 1996 consisted of the following:
1997 1996
-------- --------
Cash on hand .......... $ 49,163 $ 46,194
Money market accounts . 33,769 --
Certificates of Deposit ______- 208,201
--------
$ 82,932 $254,395
======== ========
5. Joint Venture and Property Acquisitions
At December 31, 1997, DPI, DPII and DPIII had contributed $400,000, $1,800,000
and $2,500,000, respectively, to the Partnership. Of the total contributions,
$3,845,154 was used to purchase the majority interest in the Casabella Joint
Venture and $500,000 was used to fund an escrow account maintained by the
permanent lender. In addition to the $4,700,000 of cash contributions referred
to above, DPI, DPII and DPIII collectively incurred $280,930 of acquisition
costs which have been recorded as additional capital contributions to Casabella
Associates.
The Partnership has invested in a single property located in Scottsdale,
Arizona. The success of the Partnership will depend upon factors which are
difficult to predict including general economic and real estate market
conditions, both on a national basis and in the area where the Partnership's
investment is located.
PRIOR TO MAY 13, 1996:
Net cash from operations of the Casabella Joint Venture, to the extent
available, shall be distributed not less often than quarterly with respect to
each fiscal year, as follows:
(A) First, to Associates, an amount equal to a 10.6% per annum
(computed on a simple noncompounded daily basis from the date
of the closing) of their capital investment;
(B) Second, the balance 70% to Associates and 30% to the property
developer.
All losses from operations and depreciation for the Casabella Joint Venture were
allocated 99.5% to Associates and 0.5% to the property developer.
All profits from operations of the Casabella Joint Venture were allocated in
accordance with distributions of net cash from operations; provided, however,
that if any fiscal year has no distributable net cash from operations, profits
will be allocated 99.5% to Associates and 0.5% to the property developer.
In the case of certain capital transactions and distributions as defined in the
Casabella joint venture agreement, the allocation of related profits, losses and
cash distributions, if any, would be different than as described above and would
be affected by the relative balance in the individual partners' capital
accounts.
MAY 14, 1996 THROUGH DECEMBER 31, 1997:
On May 14, 1996, the Partnership and certain affiliates consummated an agreement
with Evans Withycombe Management, Inc. and certain of its affiliates ("EWI")
which separated the interests of EWI and the Partnership, thus affording the
Partnership greater flexibility in the operation and disposition of Casabella.
In consideration of a total
5. Joint Venture and Property Acquisitions, continued
payment by DPI, DPII, and DPIII of $71,009 to EWI and delivery of certain mutual
releases, EWI (i) relinquished its contract to manage Casabella and its option
to exercise its rights to first refusal with regard to the sale of the property
and (ii) assigned all of its interest in the Casabella Joint Venture to the
Partnership (while preserving the economic interest of the venture in these
Joint Ventures), which resulted in the dissolution of the Casabella Joint
Venture. EWI may still share in the cash flow distributions or the proceeds from
sale of the properties if certain performance levels are met.
6. Mortgage Note Payable
All of the property owned by the Partnership is pledged as collateral for the
nonrecourse mortgage note payable pertaining to Casabella in the original
principal amount of $7,320,000. The original maturity date for this note was
July 15, 1997. On July 10, 1997 the lender extended the terms of the mortgage
note for a period of one year. Under the modification agreement, monthly
principal and interest payments of $61,887 and a fixed interest rate of 9.125%
remain unchanged. The terms of the agreement provide for a pre-payment penalty
of 0.5% of the outstanding loan amount in the event the note is paid prior to 60
days before the note becomes due. The balance of the note will be due on July
15, 1998.
As discussed in Note 9, the Partnership entered into a Sales Agreement for
Casabella. The estimated sales price is sufficient to cover the mortgage loan
balance. However, there can be no assurance that the sale of the property will
occur.
In the event the sale of the property does not occur, the Partnership will seek
new sources of financing for the property on a long-term basis or seek to
renegotiate the mortgage note with its existing lender. If the general economic
climate for real estate in these respective locations were to deteriorate
resulting in an increase in interest rates for mortgage financing or a reduction
in the availability of real estate mortgage financing or a decline in the market
values of real estate it may affect the Partnership's ability to complete the
refinancing or sell the property.
Accrued interest included in accounts payable and accrued expenses on the
Balance Sheet of the Consolidated Financial Statements at December 31, 1997 and
1996, consisted of $25,727 and $26,180, respectively.
The principal balance of the mortgage note payable appearing on the consolidated
balance sheets approximates the fair value of such note at December 31, 1997 and
1996.
7. Partners' Equity
Cash distributions and allocations of income and loss from Casabella Associates
are governed by the partnership agreement and are generally based on the ratio
of capital contributed by each of the joint venture partners, DPI, DPII and
DPIII.
In the case of certain events as defined in the Partnership Agreement, such as
the sale of an investment property or an interest in a joint venture
partnership, the allocation of the related profits, losses, and distributions,
if any, would be different than described above.
8. Related Party Transactions
L'Auberge Communities, Inc.(formerly Berry and Boyle, Inc.) is a General Partner
of L'Auberge Communities, which owns a 99% interest in GP L'Auberge Communities,
L.P. (formerly Berry and Boyle Management).
The officers and principal shareholders of Evans Withycombe, Inc., the developer
of Casabella, together hold a two and one half percent cumulative profit or
partnership voting interest in LP L'Auberge Communities, formerly Berry and
Boyle, an affiliate of the General Partners.
During the years ended December 31, 1996 and 1995, property management fees of
$37,735 and $78,663, respectively, were paid to Evans Withycombe, Inc. This
represents 5% of the rental revenues. During the years ended December 31, 1997
and 1996, property management fees of $59,244 and $6,612, respectively, were
paid to Residential Services-L'Auberge, an affiliate of the General Partner.
This represents 4% of the rental revenues.
9. Asset Held for Sale
During the fourth quarter of 1997, the General Partners of the Partnership
committed to a plan to dispose of Casabella in Scottsdale, Arizona. On February
4, 1998, the Partnership entered into a Sales Agreement (the "Agreement") to
sell Casabella to an unaffiliated third party. The selling price for Casabella
is approximately $11,700,000. The Agreement is subject to completion of
customary due diligence to the satisfaction of the purchaser, and the purchaser
obtaining a financing commitment for the purchase of the property on
commercially reasonable terms and conditions. The Partnership expects to
consummate this sale in 1998.
As it is the intent of the General Partners to pursue the sale of this Property,
the Partnership has recorded the assets at the lower of carrying value or net
realizable value and has included these amounts as Assets held for Sale on the
Consolidated Balance Sheets at December 31, 1997. In accordance with SFAS 121,
the Partnership has stopped depreciating these assets effective January 1, 1998.
If closing of the sale were to occur, any proceeds from the sale will be
allocated to the Partners in accordance with the terms of the Partnership
Agreement and the Partnership will likely be liquidated.
CASABELLA ASSOCIATES
FINANCIAL STATEMENTS
for the years ended December 31, 1997, 1996, and 1995
CASABELLA ASSOCIATES
CONSOLIDATED BALANCE SHEETS
December 31, 1997 and 1996
1997 1996
(unaudited)
ASSETS
Assets held for sale/Property, at cost (Notes 3, 9)
Land $2,809,851 $2,809,851
Buildings and improvements 7,648,060 7,648,060
Equipment, furnishings and fixtures 1,122,596 995,909
------------- ------------
11,580,507 11,453,820
Less accumulated depreciation (2,228,967) (1,996,504)
------------- ------------
9,351,540 9,457,316
Cash and cash equivalents 82,932 254,395
Accounts and interest receivable 5,907 3,015
Real estate tax escrow and prepaid 25,821 24,268
expenses
Deposits 1,950 1,950
Deferred expenses, net of accumulated
amortization of $123,914 and 13,927 11,212
$100,918
------------- ------------
Total assets $9,482,077 $9,752,156
============= ============
LIABILITIES AND PARTNERS' EQUITY
Mortgage note payable 6,766,437 $6,885,673
Accounts payable and accrued expenses 144,493 173,500
Due to affiliates (Note 8) 2,195 646
Tenant security deposits 23,090 24,834
Rents received in advance 3,507
-
------------- ------------
Total liabilities 6,936,215 7,088,160
Partners' equity 2,545,862 2,663,996
------------- ------------
Total liabilities and $9,482,077 $9,752,156
partners' equity
============= ============
CASABELLA ASSOCIATES
CONSOLIDATED STATEMENTS OF OPERATIONS
For the years ended December 31, 1997, 1996 and 1995
1997 1996 1995
(unaudited) (unaudited)
Revenue:
Rental income $1,507,910 $1,361,622 $1,579,782
Interest Income 8,651 30,226 44,533
------------- ------------- ------------
$1,516,561 $1,391,848 $1,624,315
Expenses:
Operating Expenses 747,479 665,878 561,516
Interest 625,459 633,360 642,857
Depreciation and amortization 255,643 266,730 375,234
General and administrative 6,114 6,223 10,200
------------- ------------- ------------
1,634,695 1,572,191 1,589,807
------------- ------------- ------------
Net loss (118,134) (180,343) $34,508
============= ============= ============
Net income (loss) allocated to:
General Partners ($118,134) ($180,343) $34,508
CASABELLA ASSOCIATES
CONSOLIDATED STATEMENTS OF PARTNERS' EQUITY
For the years ended December 31, 1997, 1996 and 1995
Total
Partners'
Equity
Balance at December 31, 1994 3,464,618
(unaudited)
Cash distributions (184,000)
Net income 34,508
-------------
Balance at December 31, 1995 3,315,126
(unaudited)
Cash distributions (470,787)
Net loss (180,343)
-------------
Balance at December 31, 1996 2,663,996
(unaudited)
Cash distributions -
Net loss (118,134)
-------------
Balance at December 31, 1997 $2,545,862
=============
CASABELLA ASSOCIATES
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the years ended December 31, 1997, 1996 and 1995
1997 1996 1995
(unaudited) (unaudited)
Cash flows from operating activities:
Interest received $11,666 $41,626 $42,047
Cash received from rents 1,502,659 1,356,103 1,579,281
Administrative expenses (7,472) (11,916) (18,901)
Rental operations expenses (780,586) (577,518) (549,753)
Interest paid (625,912) (633,774) (643,235)
------------- ------------- ------------
Net cash provided by operating 100,355 174,521 409,439
activities
Cash flows from investing activities:
Capital Improvements (126,687) (156,015) (47,771)
Cash received from short-term investments - 581,813 107,147
------------- ------------- ------------
Net cash provided (used) by investing (126,687) 425,798 59,376
activities
Cash flows from financing activities:
Distributions to partners - (470,787) (184,000)
Payments on mortgage note payable (119,236) (108,873) (99,414)
Cash paid for deposits - (1,950) -
Cash paid for loan refinancing (25,895) - -
------------- ------------- ------------
Net cash provided (used) by financing (145,131) (581,610) (283,414)
activities
------------- ------------- ------------
Net increase (decrease) in cash and cash (171,463) 18,709 185,401
equivalents
Cash and cash equivalents at beginning of 254,395 235,686 50,285
year
------------- ------------- ------------
Cash and cash equivalents at end of $82,932 $254,395 $235,686
year
============= ============= ============
CASABELLA ASSOCIATES
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the years ended December 31, 1997, 1996 and 1995
Reconciliation of net income (loss) to net cash provided by
operating activities:
1997 1996 1995
(unaudited) (unaudited)
Net income (loss) ($118,134) ($180,343) $34,508
Adjustments to reconcile net income (loss) to
net cash
provided by operating activities:
Depreciation and amortization 255,643 266,730 375,234
Change in assets and liabilities net of
effects
from investing and financing
activities:
(Increase) decrease in accounts and (2,892) 11,400 (2,486)
interest receivable
(Increase) decrease in real estate tax (1,553) (583) 3,748
escrow and prepaid expenses
(Decrease) increase in accounts
payable and accrued expenses (29,007) 82,150 8,515
(Decrease) increase in due to 1,549 686 (9,579)
affiliates
(Decrease) increase in rents received in (3,507) 3,507 (101)
advance
Decrease in tenant security (1,744) (9,026) (400)
deposits
------------- ------------- ------------
Net cash provided by operating $100,355 $174,521 $409,439
activities
============= ============= ============
F-21
EXHIBIT INDEX
Exhibit
No.
(4)(a)(1) Amended and Restated Certificate and Agreement of Limited Partnership
(included in Partnership's Registration Statement No. 2-86262,
declared effective on March 22, 1984 (the "Registration Statement")
and incorporated herein by reference).
(4)(a)(2) Seventeenth Amendment to Amended and Restated Certificate and
Agreement of Limited Partnership dated May 31, 1990 (included as an
exhibit to the Partnership's Form 10-K for the fiscal year ended
December 31, 1990 and incorporated herein by reference).
(4)(b) Subscription Agreement (included as an Exhibit in the Registration
Statement and incorporated herein by reference).
(10)(a) Property management agreement between Autumn Ridge Joint Venture and
Berry and Boyle Residential Services.(included as an exhibit to the
Partnership's Form 10-K for the fiscal year ended December 31, 1990
and incorporated herein by reference).
(10)(b) Property management agreement regarding Sin Vacas between Cluster
Housing Properties and L'Auberge Communities Inc. dated May 15, 1996.
(10)(c) Property management agreement regarding Villa Antigua between Cluster
Housing Properties and L'Auberge Communities Inc. dated November 30, 1996.
(10)(d) Documents pertaining to the permanent loan refinancing for the Sin
Vacas Joint Venture (included as an exhibit to the Partnership's Form
10-K for the fiscal year ended December 31, 1992 and incorporated
herein by reference).
(10)(e) Documents pertaining to the permanent loan refinancing for the Autumn
Ridge Joint Venture (included as an exhibit to the Partnership's Form
10-K for the fiscal year ended December 31, 1992 and incorporated
herein by reference).
(10)(f) Documents pertaining to the permanent loan refinancing for the Villa
Antigua Joint Venture (included as an exhibit to the Partnership's
Form 10-K for the fiscal year ended December 31, 1992 and
incorporated herein by reference).
(10)(g) First Amendment to Joint Venture Agreement of L'Auberge Pinecliff
Joint Venture and Related Assignment of Joint Venture Interest.
(10)(h) Agreement regarding Villa Sin Vacas Joint Venture
(10)(i) Agreement regarding Villa Antigua Joint Venture
(10)(j) Purchase and Sale Agreement and Escrow Instructions between Cluster
Housing Properties and DRA Advisors, Inc. related to the sale of
Pinecliff dated January 15, 1998.
(27) Financial Data Schedule