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 through its joint venture interest in such properties. Descriptions of such properties are included below in "Item 2.
ITEM 2. PROPERTIES
The Partnership owns and operates three properties: (1) Villas at Sin Vacas, a 72-unit multifamily rental property in Tucson, Arizona, subject to first mortgage financing in the original principal amount of $2,575,000; (2) L'Auberge Pinecliff, a 96-unit multifamily rental property in Colorado Springs, Colorado, subject to first mortgage financing in the original principal amount of $3,300,000; and, (3) Villa Antigua, an 88-unit multifamily rental property in Scottsdale, Arizona, subject to first mortgage financing in the original principal amount of $3,200,000. The ownership was formerly structured as Joint Ventures of which the Partnership owned a majority interest. With regard to the termination of the Joint Ventures, see Note 5 of Notes to Consolidated Financial Statements.
Villas at Sin Vacas
As of February 28, 1997, the property was 91% occupied, compared to 86% approximately one year ago. At December 31, 1996 and 1995, the market rents for the various unit types were as follows:
Market Rents December 31, Unit 1996 1995 --------- ---- ---- One bedroom one bath $835 $835 Two bedroom two bath 1,050 1,050 Three bedroom two bath 1,200 1,200
Pinecliff
As of February 28, 1997, the property was 86% occupied, compared to 95% approximately one year ago. At December 31, 1996 and 1995, the market rents for the various unit types were as follows:
Market Rents December 31, Unit Type 1996 1995 - --------- ---- ---- One bedroom one bath $921 $898 Two bedroom two bath 1,125 1,102
Villa Antigua
As of February 28, 1997, the property was 94% occupied, compared to 99% approximately one year ago. At December 31, 1996 and 1995, the market rents for the various unit types were as follows:
Market Rents December 31, Unit Type 1996 1995 --------- ---- ---- One bedroom one bath $843 $760 Two bedroom two bath 1,080 1,028 Three bedroom two bath 1,130 1,090
ITEM 3.
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.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders during the fourth quarter of 1996. PART II
ITEM 5.
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED SHAREHOLDER MATTERS
The transfer of Units is subject to certain limitations contained in the Partnership Agreement. There is no public market for the Units and it is not anticipated that any such public market will develop.
The number of holders of Units as of December 31, 1996 was 1,967.
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 1996 and 1995 were paid as follows:
Date of Quarter Ended Payment Amount - ------------- ------ ------ March 31, 1995 May 15, 1995 $ 121,579 June 30, 1995 August 15, 1995 $ 121,579 September 30, 1995 November 15, 1995 $ 121,579 December 31, 1995 February 15, 1996 $ 97,263 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
ITEM 6.
ITEM 6. SELECTED FINANCIAL DATA
The following selected financial data of the Partnership and consolidated subsidiaries has been derived from consolidated financial statement audited by Coopers & Lybrand, L.L.P., whose reports for the periods ended December 31, 1996, 1995 and 1994 are included elsewhere in the Form 10K and should be read in conjunction with the full consolidated financial statements of the Partnership including the Notes thereto.
Long term obligations become due in 1997. The Partnership intends to refinance these notes prior to the due date, although there can be no assurance that the Partnership will be able to do so. See Note 6 of Notes to Consolidated Financial Statements.
ITEM 7.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
This Management's Discussion and Analysis of Financial Condition and Results of Operations contains forward-looking statements including those concerning Management's expectations regarding future financial performance and future events. These forward-looking statements involve significant risk and uncertainties, including those described herein. Actual results may differ materially from those anticipated by such forward-looking statements.
Liquidity; Capital Resources
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, 1996, $368,990 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 Partnership's future ability to generate cash adequate to meet its needs is dependent primarily on the successful operations of its real estate investments. Such ability is also dependent upon the future availability of bank borrowings, and upon the future refinancing or sale of the Partnership's real estate investments and the collection of any mortgage receivable which may result from such sales. These sources of liquidity will be used by the Partnership for payment of expenses related to real estate operations, debt service and professional and management fees and expenses. Net Cash From Operations and Net Proceeds, if any, as defined in the Partnership Agreement, will then be available for distribution to the Partners in accordance with Section 10 of the Partnership Agreement. The General Partners believe that the current working capital reserves together with projected cash flows for 1997 are adequate to meet the Partnership's operating cash needs in the coming year. With regard to certain balloon payments on existing first mortgage debt on the Partnership's properties, the General partners do not anticipate sufficient cash flow from operations to retire these mortgage notes. As these mortgage notes payable are due in fiscal 1997, the Partnership will seek to renegotiate these mortgage notes with its existing lenders or seek new sources of financing for these properties on a long term basis, although there can be no assurance that the Partnership will be able to do so. The General Partners believe that existing cash flows from the properties will be sufficient to support a level of borrowing that is at least equal to amounts outstanding as of December 31, 1996. If the general economic climate for real estate in these respective locations were to deteriorate resulting in an increase in interest rates for mortgage financing or a reduction in the availability of real estate mortgage financing or a decline in the market values of real estate it may affect the Partnership's ability to complete these refinancings.
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 1996, the aggregate net decrease in working capital reserves was $481,980. This decrease resulted primarily from cash provided by operations of $349,757 offset by $281,346 of fixed asset additions, distributions to partners of $389,052 and $135,348 of principal payments on mortgage notes payable.
In 1995, the aggregate net decrease in working capital reserves was $41,502. This decrease resulted primarily from cash provided by operations of $758,756 offset by $148,127 of fixed asset additions, distributions to partners of $528,974 and $123,613 of principal payments on mortgage notes payable. Results of Operations
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, L'Auberge Pinecliff (formerly Autumn Ridge) and Villa Antigua properties, as well as partnership level interest income earned on short term investments, reduced by administrative expenses. A summary of these operating results appears below:
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 appears below:
For the year ended December 31, 1994, 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 appears below:
Comparison of 1996 and 1995 Operating Results:
In accordance with its dispositions strategy, (see "Projected 1997 Operating Results" below). 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 the Consolidated Financial Statements.) In additions, 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.
Comparison of 1995 and 1994 Operating Results:
Total revenue increased $177,266, or 7% over the prior year, due to increased rental income of $152,172 or 6%, primarily as a result of rental rate increases at the Partnership's properties. Interest income increased $25,094 or 43% in 1995, as a result of higher interest rates earned on money market accounts and short-term investments. Rental operating expenses increased $93,301 or 9% over the prior year primarily as a result of increases in maintenance and advertising costs. General and administrative expenses increased $38,208 or 23%, due primarily to increased salary expense allocations and legal costs and printing and mailing costs associated with the voluntary withdrawal of a general partner of the Partnership. Fixed asset purchases increased $141,735 from $6,392 in the prior year to $148,127 and included such items as carpet, floor tile and other replacements and exterior painting of Sin Vacas. As a result of the factors described above, distributions to partners decreased $76,788, or 13%, from $605,762 in 1994 to $528,974 in 1995
Projected 1997 Operating Results:
While there can be no assurance that the Partnership will dispose of any or all of its properties in 1997, on March 25, 1997, the Partnership entered into letters of intent to sell Villas Sin Vacas in Tucson, Arizona, and Villa Antigua, Phase I, in Scottsdale, Arizona, to an unaffiliated purchaser. The purchase price for Villas Sin Vacas would be $5,040,000 and the purchase price for Villa Antigua, Phase I, would be $9,230,000. Each letter of intent is subject to completion of customary due diligence to the satisfaction of the purchaser, the purchaser obtaining a financing commitment for the purchase of the property on commercially reasonable terms and conditions, the negotiation and execution of a definitive purchase agreement, and certain other conditions. Accordingly, there can be no assurance that the sale of such properties will be consummated in accordance with the terms of the letters of intent or at all. As a result of the foregoing, operating results of the Partnership may vary significantly during 1997.
ITEM 8.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
See Appendix A to this Report.
ITEM 9.
ITEM 9. DISAGREEMENTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None
PART III
ITEM 10.
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The Partnership has no directors or executive officers. Information as to the individual general partners of the Partnership and directors and executive officers of L'Auberge Communities, Inc. (formerly Berry and Boyle Inc.), the general partner of GP L'Auberge Communities, L.P., is set forth below.
Individual General Partners
Stephen B. Boyle, age 56, is President, Executive Officer and Director of L'Auberge Communities, Inc. and a general partner and co-founder of LP L'Auberge Communities, a California Limited Partnership (formerly Berry and Boyle), a limited partnership formed in 1983 to provide funds to various affiliated general partners of real estate limited partnerships, one of which is GP L'Auberge Communities, L.P.
In September 1995, with the consent of Limited Partners holding a majority of the outstanding Units, as well as the consent of the mortgage lenders for the Partnership's three properties, Richard G. Berry resigned as a general partner of the Partnership.
GP L'Auberge Communities, L.P.
Information as to the directors and executive officers of L'Auberge Communities, Inc., a general partner of GP L'Auberge Communities, L.P., which is a general partner of the Partnership, and its affiliates, is set forth below. There are no familial relationships between or among any officer and any other officer or director.
Name Position
Stephen B. Boyle See above
Earl C. Robertson Executive Vice President and Chief Financial Officer
Donna Popke Vice President and Secretary
Earl C. Robertson, age 48, has been a senior development officer, partner and consultant in several prominent real estate development companies for over twenty years, including Potomac Investment Associates, developers of planned golf course communities nationwide. Mr. Robertson was also a key member of the management team that developed the nationally acclaimed Inn at the Market in Seattle. He joined L'Auberge Communities, Inc. in June 1995.
Donna Popke, age 37, joined L'Auberge Communities, Inc. in July, 1995 and holds the title of Vice President and Secretary. Prior to joining L'Auberge Communities, Inc., Ms. Popke was employed by Olive & Associates in Denver, Colorado in the field of public accounting for six years and later from 1989 to 1995 with David R. Sellon & Company, a Colorado Springs land development company.
ITEM 11.
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.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
As March 21, 1997, no person of record owned or was known by the General Partners to own beneficially more than 5% of the Partnership's outstanding Units.
ITEM 13.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
During the year ended December 31, 1996, the Partnership paid or accrued remuneration to the General Partners or their affiliates as set forth below. In addition to the information provided herein, certain transactions are described in notes 7 and 8 in the Notes to 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 1996 to the General Partners $20,476
Allocation of Income and (Loss) to the General Partners ($1,678) Property management fees paid to an affiliate of the General Partners $64,954
Reimbursements to General Partners $82,881
PART IV
ITEM 14.
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) 1,2 See Page 3 See Exhibit Index contained herein
(b) Reports on Form 8-K
The Partnership has not filed and was not required to file any reports on Form 8-K during the last quarter of 1996.
(c) See Exhibit Index contained herein
(d) See Page.
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, 1997
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
Signature Title Date
__/s/ Stephen B. Boyle Director, President and March 26, 1997 -------------------- STEPHEN B. BOYLE Principal Executive Officer of L'Auberge Communities, Inc.
__/s/ Earl C. Roberston Executive Vice President and March 26, 1997 --------------------- EARL C. ROBERTSON Principal Financial Officer of L'Auberge Communities, Inc.
APPENDIX A CLUSTER HOUSING PROPERTIES (A California Limited Partnership) AND SUBSIDIARIES ---------
CONSOLIDATED FINANCIAL STATEMENTS
ANNUAL REPORT TO THE SECURITIES AND EXCHANGE COMMISSION For the Year Ended December 31, 1996
CLUSTER HOUSING PROPERTIES (A California Limited Partnership) AND SUBSIDIARIES --------- INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Report of Independent Accountants
Consolidated Balance Sheets at December 31, 1996 and 1995
Consolidated Statements of Operations for the years ended December 31, 1996, 1995 and 1994
Consolidated Statements of Partners' Equity (Deficit) for the years ended December 31, 1996, 1995 and 1994
Consolidated Statements of Cash Flows for the years ended December 31, 1996, 1995 and 1994 --
Notes to Consolidated Financial Statements --
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, 1996 and 1995, 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, 1996. These financial statements are the responsibility of the General Partners of the Partnership. Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by the General Partners of the Partnership, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Cluster Housing Properties (a California Limited Partnership) and subsidiaries as of December 31, 1996 and 1995 and the consolidated results of their operations and their cash flows for each of the three years in the period ended December 31, 1996 in conformity with generally accepted accounting principles.
Denver , Colorado February 28, 1997
CLUSTER HOUSING PROPERTIES (A California Limited Partnership) AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ----------
CLUSTER HOUSING PROPERTIES (a California Limited Partnership) AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF PARTNERS' EQUITY (DEFICIT) for the years ended December 31, 1996, 1995 and 1994 -------------
CLUSTER HOUSING PROPERTIES (a California Limited Partnership) AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
for the years ended December 31, 1996, 1995, 1994
CLUSTER HOUSING PROPERTIES (a California Limited Partnership) AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
for the years ended December 31, 1996, 1995, 1994
-------------
Reconciliation of net income (loss) to net cash provided by operating activities:
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, 1996, the total number of Limited Partners was 1,967. 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.
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.
B. Cash and Cash Equivalents
The Partnership considers all highly liquid debt instruments purchased with a maturity of three months or less to be cash equivalents. The carrying value of cash and cash equivalents approximates fair value. It is the Partnership's policy to invest cash in income-producing temporary cash investments. The Partnership mitigates any potential risk from such concentration of credit by placing investments with high quality financial institutions.
C. Short-term Investments
At December 31, 1995, short term investments consisted solely of various forms of U. S. Government backed securities, with an aggregate par value of $1,075,000, which matured in February, 1996. As of December 31, 1996, there were no short term investments. Investments are recorded at amortized cost, which approximates market value.
D. Significant Risks and Uncertainties
The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
E. Depreciation
Depreciation is provided for by the use of the straight-line method over estimated useful lives as follows:
Buildings and improvements 39-40 years Equipment, furnishings and fixtures 5-15 years
F. Deferred Expenses
Costs of obtaining 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.
G. Income Taxes
The Partnership is not liable for Federal or state income taxes because Partnership income or loss is allocated to the Partners for income tax purposes. If the Partnership's tax returns are examined by the Internal Revenue Service or state taxing authority and such an examination results in a change in Partnership taxable income (loss), such change will be reported to the Partners.
H. Rental Income
Leases require the payment of rent in advance, however, rental income is recorded as earned.
I. Long-Lived Assets
The Partnership's long-lived assets include property and equipment. On a quarterly basis, the partnership evaluates the recoverability of the rental properties using undiscounted cash flows from operations.
J. Reclassification
Certain items in the financial statements for the years ended December 31, 1995 and 1994 have been reclassified to conform to the 1996 presentation.
3. Property, at Cost
Property, at cost, consisted of the following at December 31, 1996:
Each of the properties is encumbered by a nonrecourse mortgage note payable (see Note 6).
4. Cash and Cash Equivalents:
Cash and cash equivalents at December 31, 1996 and 1995 consisted of the following:
1996 1995 ---- ---- Cash on hand $ 854,769 $ 30,848 Certificate of depo 211,086 100,000 Money market accoun ________ 349,541
$1,065,855 $480,389
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.
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 Villa 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, 1996, the total capital contributions and acquisition costs incurred were $2,713,937 and $418,686, respectively.
For the years ended December 31, 1996, 1995 and 1994 the Sin Vacas Joint Venture had net loss of $67,846 and net income of $49,277, and $65,081, 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, shall first be 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.
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, 1996, the total capital contributions and acquisition costs were $2,580,117 and $381,729, respectively.
The Villa Antigua Joint Venture had net income of $137,799, $212,408, and $130,002 for the years ended December 31,1996, 1995 and 1994.
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, shall first be 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 effected by the relative balances in the individual partners' capital accounts.
Sin Vacas and Villa Antigua
MAY 14, 1996 THROUGH DECEMBER 31, 1996
On May 14, 1996, the Partnership and certain affiliates consummated an agreement with Evans Withycombe Management, Inc. and certain of its affiliates ("EWI") which separated the interests of EWI and the Partnership, thus affording the Partnership greater flexibility in the operation and disposition of 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.
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. At December 31, 1996 the total capital contributions and acquisition costs incurred were $4,187,309 and $497,475, respectively.
For the years ended December 31, 1996, 1995 and 1994 the Autumn Ridge Joint Venture had net income of $116,520, $149,652, and $153,418, 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, shall first be 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 effected 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 owns 100% of the underlying assets at December 31, 1996.
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, 1996 and 1995 which consisted of the following:
1996 1995 ---- ---- Villas at Sin Vacas $2,428,851 $2,467,255 Pinecliff 3,112,702 3,161,919 Villa Antigua 3,018,377 3,066,104 --------- ---------
$8,559,930 $8,695,278 ========= ========= Sin Vacas Under the terms of the note, monthly principal and interest payments of $21,830, based on a fixed interest rate of 9.125%, are required over the term of the loan. The balance of the note will be due on July 15, 1997.
Pinecliff Under the terms of the note, monthly principal and interest payments of $27,976 are required over the term of the loan, based on a fixed interest rate of 9.125%. The balance of the note will be due on July 15, 1997.
Villa Antigua Under the terms of the note, monthly principal and interest payments of $27,128, based on a fixed interest rate of 9.125%, are required over the term of the loan. The balance of the note will be due on July 15, 1997.
As these mortgage notes payable are due in fiscal 1997, the Partnership will seek to renegotiate these mortgage notes with its existing lenders or seek new sources of financing for these properties on a long term basis. The General Partners believe that existing cash flows from the properties will be sufficient to support a level of borrowing that is at least equal to amounts outstanding as of December 31, 1996. If the general economic climate for real estate in these respective locations were to deteriorate resulting in an increase in interest rates for mortgage financing or a reduction in the availability of real estate mortgage financing or a decline in the market values of real estate it may affect the Partnership's ability to complete these refinancings.
Interest included in Accrued expenses in the Consolidated Balance Sheets at December 31, 1996 and 1995 consisted of the following:
1996 1995 ---- ---- Villas at Sin Vacas $9,235 $ 9,381 Pinecliff 11,835 12,022 Villa Antigua 11,476 11,658 ------ --------- $ 32,546 $ 33,061 ======== ========
The principal balance of the mortgage notes payable appearing on the consolidated balance sheets at December 31, 1996 and 1995 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.
The allocation of the related profits, losses, and distributions, if any, would be different than described above 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.
8. Related-Party Transactions:
Due to affiliates at December 31, 1996 and 1995 consisted of reimbursable costs payable to L'Auberge Communities, Inc., an affiliate of the General Partners, in the amounts of $8,975, and $14,278, respectively. In 1995 distributions payable to the Villa Antigua co-venturer totaled $8,895. There was no distribution payable to the co-venturer in 1996.
For the years ended December 31, 1996, 1995 and 1994, general and administrative expenses included $82,881, $84,643, and $68,625, 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 Evans Withycombe, Inc., 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, 1995 and 1994, Evans Withycombe received property management fees of $32,475, $84,187, and $79,692, respectively. These fees were 5% of rental revenue in each time period. In addition, for the years ended December 31, 1996, 1995 and 1994, $64,954, $51,715, and $49,083, 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 1996, and 5% of rental revenue in 1995 and 1994.
Villa Antigua reimbursed $35,885, $34,707 and $34,878, respectively for its proportionate share of the 1996, 1995 and 1994 real estate taxes to Villa Antigua Phase II, which is an affiliate of the General Partners.