Item 1. Business
North by Northeast, Ltd. (the "Registrant"), is a Tennessee limited partnership organized on June 27, 1988, pursuant to the provisions of the Tennessee Uniform Limited Partnership Act, Chapter 2, Title 61, Tennessee Code Annotated, as amended. The general partner of Registrant is 222 North, Ltd., whose general partners are 222 Partners, Inc., Steven D. Ezell, and Michael A. Hartley.
The Registrant's primary business is to participate as a general partner in North By Northeast Land Partners (the "Land Partnership"), a general partnership formed with Reveille Industrial #3 Limited Partnership ("Reveille"), a Trammell Crow entity. The Land Partnership acquires, develops and disposes of certain real properties near Indianapolis, Indiana (the "Property"). In 1994, the Registrant also acquired a limited partnership interest in Northeast Building IV, L.P., an unaffiliated Indiana limited partnership. Northeast Building IV purchased land and constructed, leased and sold a warehouse building in 1995.
The Registrants' investment objectives are preservation of capital and capital appreciation through investing in partnerships that invest in real estate which will appreciate through the passage of time, growth in the surrounding areas and the development of the Properties prior to resale.
Financial Information About Industry Segment
The Registrant's activity, investment in partnerships that invest in land, is within one industry segment and geographical area. Therefore, financial data relating to the industry segment and geographical area is included in Item 6 - Selected Financial Data.
Narrative Description of Business
Due to the nature of the Registrant's business, the activity of the Registrant revolves around the operations of the Land Partnership.
North by Northeast Land Partners
As of December 31, 1997, the Land Partnership owned approximately 8 acres of land (the "Property") in the Town of Fishers, Hamilton County, Indiana, just outside the Indianapolis city limits. The majority of the development of the Property was completed in 1993. All other development on the Property pertained to sales and included grading and other sitework and extending roads and utilities.
Approximately 5 acres of the property are zoned for small business use or warehouse use and 3 acres are zoned for commercial use. The portion zoned for small business or warehouse use continues to be surrounded by a significant amount of competition. The largest competition for land sales and build-to-suit type sales is Crosspointe, a 300 acre business park at the northwest corner of Interstate 69 and 96th Street. In addition, Exit 5 Business Park, two miles north of the Property has competitive land. Castleton Business Park, one-half mile south of the Property, is the largest competitor for leased space. The Land Partnership's Property offers better access to purchasers and pricing is similar.
Wal-Mart and Sam's Wholesale continue to bring heavy traffic to the area. The widening of 96th Street to five lanes by the Town of Fishers has also attracted many potential buyers to the area. There is little competition within the Castleton area for the approximately 3 acres zoned for commercial use at North By Northeast. While a few smaller parcels are available in the vicinity of the Castleton Square Mall, approximately 1.5 miles southeast of the property, the majority of the undeveloped land has been absorbed by strip center development that has occurred over the last ten years. Hence, large, zoned parcels of vacant land are scarce. Approximately 30 acres across 96th Street are under development for retail use and will be competition for the Land Partnership.
The majority of the proceeds used to invest in the Land Partnership were from a $4,719,375 participating mortgage note (the "Lender Financing") from North Lenders, L.P. (the "Lender"), an affiliated partnership sharing the same General Partner. The principal balance accrued interest at a simple interest rate of 10% per annum. The loan was retired in full on 12-31-97. The Registrant was not required to make any payments with respect to the Lender Financing, except upon the sale, exchange or condemnation of all or any portion of the Property. From sale proceeds, the Lender received a priority return of interest and principal, and 50% of the "Net Revenues", if any. Net revenues, as defined by the participating loan agreement, represent the difference between cash proceeds earned and the following, in this order: 1) accrued but unpaid interest and applicable principal balances; 2) accrued preferred return (12%) on the net offering proceeds of the Registrant; and 3) the applicable equity balance.
The Registrant has no employees. The Registrant's and the Land Partnership's administration services are being provided under a contractual agreement with Landmark Realty Services Corporation, an affiliate of the general partner.
Item 2.
Item 2. Properties
As of December 31, 1997, the Land Partnership owned approximately 8 acres of land in the Town of Fishers, Hamilton County, Indiana, just outside the Indianapolis city limits. The property lies at the intersection of Interstate 69 and 96th Street.
During 1989, the Property was annexed by the Town of Fishers and zoned for interstate business allowing for the intended development.
Item 3.
Item 3. Legal Proceedings
Registrant is not a party to, nor is any of Land Partnership's property the subject of, any material legal proceedings.
Item 4.
Item 4. Submission of Matters to a Vote of Security Holders
The security holders of Registrant did not vote on any matter during the fiscal year covered by this report.
PART II
Item 5.
Item 5. Market for Registrant's Units of Limited Partnership Interest and Related Security Holder Matters
There is no established market for the units and it is not anticipated that any will exist in the future. As of February 28, 1998, there were 154 holders of record of the 1,875 units of limited partnership interest.
In 1997, 1996, and 1995, $221,386, $199,999 and $1.6 million respectively, were paid to the Lender as accrued interest and applicable principal in accordance with the Lender Financing. In 1995, $988,870 was distributed to the partners of the Registrant. In 1996 and 1997, there were no distributions.
There are no material restrictions upon Registrant's present or future ability to make distributions in accordance with the provisions of Registrant's Limited Partnership Agreement, other than available resources.
Item 6.
Item 6. Selected Financial Data
For the Year Ended December 31,
1997 1996 1995 1994 1993
Total revenues $ 59,936 4,775 687,924 1,242,420 602,688 Net earnings(loss) 20,583 (30,822) 11,477 748,885 267,559 Net earnings (loss) per limited partner unit - (16.44) - 370.15 142.70 Total assets 223,849 303,741 503,952 2,467,183 4,995,825 Notes payable to affiliate - 183,889 346,678 1,325,513 2,863,565 Distributions - - 988,870 1,451,734 189,394
Distributions per limited partner unit - - 385 745 -
Item 7.
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations
Results of Operations
Due to the nature of the Registrant, the majority of its activity on a regular basis is to accrue interest payable on the Lender Financing and to reflect the activity of the investments in the Land Partnership and Northeast Building IV.
Sales
In 1997, the Land Partnership sold approximately 2 acres for $250,000. The Land Partnership distributed $110,000 to The Registrant. The Registrant then made a $100,000 principal payment on the Lender Financing and paid all accrued interest through the sale date. An additional principal payment of $83,889 was paid at year end from borrowed funds, therefore retiring the loan in full.
There were no land sales at the Land Partnership in 1996.
In 1995, the Land Partnership sold approximately 20 acres for $3,209,564. Approximately $300,000 was retained for development and operating expenses and the remaining $2.5 million in net proceeds were distributed to the partners. Also in 1995, Northeast Building IV sold its land and building, and the Registrant received approximately $485,000, resulting in a $174,000 gain on its original $310,000 investment.
These Land and Building partnership distributions enabled the Registrant to make interest and principal payments on the Lender Financing of $1.6 million and to distribute approximately $1 million to its partners in 1995.
Analysis of Operations
Overall operations of the Registrant remained comparable to prior years except for the fluctuations in equity in income of partnerships and interest expense. The equity in income of partnerships is directly related to land sales at the Land Partnership and the involvement in 1995 of Northeast Building IV. Please refer to Item 14 and the separate Financial Statements of the Land Partnership.
Interest expense includes interest accrued on the principal balance and additional interest, if any, as defined in Item 1. The Registrant paid additional interest of $17,835 and $622,696 in 1997 and 1995 respectively. No additional interest was paid in 1996. Accrued interest expense has declined through the years due to the reduction in principal balances.
Financial Position and Liquidity
At February 28, 1998, the Registrant had $32,279 in cash and cash equivalents to meet its 1998 operational needs which are expected to remain comparable to 1997. Therefore, the General Partner believes that the present cash balance will be sufficient to cover the operating expenses for 1998.
We have considered the impact of the Year 2000 issues on our computer systems and applications and developed a remediation plan. We expect the cost of upgrading computers and software to be immaterial to the Partnership.
Item 8.
Item 8. Financial Statements and Supplementary Data
The Financial Statements required by Item 8 are filed at the end of this Report.
Item 9.
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.
None.
PART III
Item 10.
Item 10. Directors and Executive Officers of the Registrant
Registrant does not have any directors or officers. 222 North, Ltd. is the general partner. Steven D. Ezell, Michael A. Hartley and 222 Partners, Inc. are the general partners of the general partner and as such have general responsibility and ultimate authority in matters affecting Registrant's business.
The General Partners of 222 North, Ltd. are as follows:
Steven D. Ezell
Steven D. Ezell, age 45, is a general partner of 222 North, Ltd. He is the President and sole shareholder of 222 Partners, Inc. He has been an officer of 222 Partners, Inc. from September 17, 1986 through the current period. Mr. Ezell is President and 50% owner of Landmark Realty Services Corporation. For the prior four years, Mr. Ezell was involved in property acquisitions for Dean Witter Realty Inc. in New York City, most recently as Senior Vice President. Steven D. Ezell is the son of W. Gerald Ezell.
Michael A. Hartley
Michael A. Hartley, age 38, is a general partner of 222 North, Ltd. He is the Secretary/Treasurer and a Vice President of 222 Partners, Inc. He has been an officer of 222 Partners, Inc. from September 17, 1986 through the current period. Mr. Hartley is Vice President and 50% owner of Landmark Realty Services Corporation. Prior to joining Landmark in 1986, Mr. Hartley was Vice President of Dean Witter Realty Inc., a New York- based real estate investment firm.
222 Partners Inc.
222 Partners, Inc. was formed in September, 1986 and serves as general partner for several other real estate investment limited partnerships. Steven D. Ezell is the sole shareholder of 222 Partners, Inc. The directors of 222 Partners, Inc. are W. Gerald Ezell, Steven D. Ezell, and Michael A. Hartley. All officers are elected by the Board of Directors and serve until their successors are elected and qualified.
Other directors of 222 Partners, Inc. are as follows:
W. Gerald Ezell, age 67, serves on the Board of Directors of 222 Partners, Inc. Until November, 1985, Mr. Ezell had been, for over 20 years, an agency manager for Fidelity Mutual Life Insurance Company and a registered securities principal of Capital Analysts Incorporated, a wholly owned subsidiary of Fidelity Mutual Life Insurance Company.
Item 11.
Item 11. Executive Compensation
During 1997, Registrant was not required to and did not pay remuneration to any executives, partners of the general partner or any affiliates, except as set forth in Item 13 of this report, "Certain Relationships and Related Transactions."
The general partner does participate in the profits, losses and distributions of the Registrant as set forth in the Partnership Agreement.
Item 12.
Item 12. Security Ownership of Certain Beneficial Owners and Management
As of February 28, 1998 no person or "group" (as that term is used in Section 13(d) (3) of the Securities Exchange Act of 1934) was known by the Registrant to beneficially own more than five percent of the units of Registrant.
As of the above date, the Registrant knew of no officers or directors of 222 Partners, Inc. that beneficially owned any of the units of the Registrant.
There are no arrangements known by the Registrant, the operation of which may, at a subsequent date, result in a change in control of the Registrant.
Item 13.
Item 13. Certain Relationships and Related Transactions
No affiliated entities have, for the year ended December 31, 1997, earned or received compensation or payments for services from the Registrant in excess of $60,000. For a list of all transactions paid to affiliates for the Registrant and the Land Partnership see Note 2 to the Financial Statements.
PART IV
Item 14.
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K (a) (1) Financial Statements Independent Auditors' Report Financial Statements Balance Sheets Statements of Operations Statements of Partners' Equity Statements of Cash Flows Notes to Financial Statements
(3) Exhibits 3 Amended and Restated Certificate and Agreement of Limited Partnership, incorporated by reference to Exhibit A1 to the Prospectus of Registrant dated September 1, 1988 filed pursuant to Rule 424 (b) of the Securities and Exchange Commission.
10A Loan Agreement by and among North By Northeast, Ltd. and North Lenders, L.P., incorporated by reference to Exhibit 10.1 to Registrant's Form S- 18 Registration Statement as filed on July 19, 1988.
10B Deed of Trust and Security Agreement by and among North Lenders, L.P. and the Registrant, incorporated by reference to exhibit 10.2 of the Registrant's Form S-18 Registration Statement as filed on July 19, 1988.
10C Participating Mortgage Note of North By Northeast, Ltd. to North Lenders, L.P., incorporated by reference to Exhibit 10.3 to Registrant's Form S- 18 Registration Statement as filed on July 19, 1988.
22 Subsidiaries-Registrant has no subsidiaries.
27 Financial Data Schedule
(b) No reports on Form 8-K have been filed during the last quarter of 1997.
(c) See Exhibits listed in Item 14(a) (3) above.
(d) Financial Statements of subsidiaries not consolidated.
North By Northeast Land Partners Independent Auditors' Report M-1 Balance Sheets M-2 Statements of Earnings M-3 Statements in Partners' Equity M-4 Statements of Cash Flows M-5 Notes to Financial Statements M-6
All other Schedules have been omitted because they are inapplicable, not required or the information is included in the Financial Statements or notes thereto.
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.
NORTH BY NORTHEAST, LTD. By: 222 North, Ltd. General Partner
DATE: March 31, 1998 By: /s/ Steven D. Ezell General Partner
DATE: March 31, 1998 By: /s/ Michael A. Hartley General Partner
By: 222 Partners, Inc. General Partner
DATE: March 31, 1998 By: /s/ Michael A. Hartley Secretary/Treasurer
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.
NORTH BY NORTHEAST, LTD. By: 222 North, Ltd. General Partner
DATE: March 31, 1998 By: /s/ Steven D. Ezell General Partner
DATE: March 31, 1998 By: /s/ Michael A. Hartley General Partner
By: 222 Partners, Inc. General Partner
DATE: March 31, 1998 By: /s/ Michael A. Hartley Secretary/Treasurer
Supplement Information to be Furnished with Reports filed Pursuant to Section 15(d) of the Act by Registrant Which Have Not Registered Securities Pursuant to Section 12 of the Act:
No annual report or proxy material has been sent to security holders.
Independent Auditors' Report
The Partners North By Northeast, Ltd.:
We have audited the accompanying balance sheets of North By Northeast, Ltd. (a limited partnership) as of December 31, 1997 and 1996, and the related statements of operations, partners' equity, and cash flows for each of the years in the three-year period ended December 31, 1997. These financial statements are the responsibility of the Partnership's management. Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of North By Northeast, Ltd. at December 31, 1997 and 1996, and the results of its operations and its cash flows for each of the years in the three-year period ended December 31, 1997, in conformity with generally accepted accounting principles.
KPMG Peat Marwick LLP
Nashville, Tennessee January 30, 1998
NORTH BY NORTHEAST, LTD. (A Limited Partnership)
Balance Sheets
December 31, 1997 and 1996
Assets 1997 1996
Cash and cash equivalents (note 4) $ 279 29,358
Investment in land partnership (note 3) 223,570 274,383
Total assets $ 223,849 303,741
Liabilities and Partners' Equity Liabilities: Note payable to affiliate (note 4) $ - 183,889 Accounts payable to affiliate(note 2) 88,000 - Accrued interest payable to affiliate (note 4) - 4,586
Total liabilities 88,000 188,475
Partners' equity: Limited partners (1,875 units outstanding) 370,784 370,784 General partner (234,935) (255,518) Total Partners' equity 135,849 115,266
Commitment(note 3)
Total liabilities and partners' equity $ 223,849 303,741
See accompanying notes to financial statements.
NORTH BY NORTHEAST, LTD. (A Limited Partnership)
Statements of Operations
Years ended December 31, 1997, 1996 and 1995
1997 1996 1995 Revenues: Equity in income of partnerships (note 3) $ 59,187 2,909 509,134 Gain on sale of partnership (note 3) - - 174,382 Interest income 749 1,866 4,408 Other income - - -
Total revenues 59,936 4,775 687,924
Expenses: Legal and accounting (note 2) 5,975 4,467 8,186 General and administrative 467 520 1,598 Interest expense (note 4) 32,911 30,610 666,663
Total expenses 39,353 35,597 676,447 Net earnings (loss) $ 20,583 (30,822) 11,477
Net earnings (loss) allocated to:
General partner $ 20,583 - 11,477
Limited partners $ - (30,822) -
Net loss per limited partner unit $ - (16.44) -
Weighted average units outstanding 1,875 1,875 1,875
See accompanying notes to financial statements.
NORTH BY NORTHEAST, LTD. (A Limited Partnership)
Statements of Partners' Equity
Years ended December 31, 1997, 1996 and 1995
Limited General partners partner Total Units Amounts
Balance at December 31, 1994 1,875 $ 1,123,481 - 1,123,481
Distributions to partners (note 5) - (721,875) (266,995) (988,870)
Net earnings - - 11,477 11,477 _______ _______ _______ _______ Balance at December 31, 1995 1,875 401,606 (255,518) 146,088
Net loss - (30,822) - (30,822) _______ _______ _______ _______ Balance at December 31, 1996 1, 875 370,784 (255,518) 115,266
Net earnings - - 20,583 20,583 ------- ------- ------- -------- Balance at December 31, 1997 1,875 $ 370,784 (234,935) 135,849
See accompanying notes to financial statements.
NORTH BY NORTHEAST, LTD. (A Limited Partnership)
Statements of Cash Flows
Years ended December 31, 1997, 1996 and 1995
1997 1996 1995
Cash flows from operating activities: Net earnings (loss) $ 20,583 (30,822) 11,477 Adjustments to reconcile net earnings (loss) to net cash provided (used) by operating activities: Equity in income of partnerships (59,187) (2,909) (509,134) Gain on sale of partnership - - (174,382) Decrease in accrued interest payable to affiliate (4,586) (6,601) (6,972) Increase (decrease) in accounts payable to affiliates 88,000 - (31)
Net cash provided (used) by operating activities 44,810 (40,332) (679,042)
Cash flows from investing activities - distributions from partnerships 110,000 190,000 2,636,018
Cash flows from financing activities: Distributions to partners - - (988,870) Payment of notes payable to affiliates (183,889) (162,789) (978,835) Net cash used by financing activities (183,889) (162,789) (1,967,705)
Net decrease in cash and cash equivalents (29,079) (13,121) (10,729)
Cash and cash equivalents at beginning of year 29,358 42,479 53,208
Cash and cash equivalents at end of year $ 279 29,358 42,479
See accompanying notes to financial statements.
NORTH BY NORTHEAST, LTD. (A Limited Partnership)
Statements of Cash Flows, Continued
Years ended December 31, 1997, 1996 and 1995
Supplemental Disclosures of Cash Flow Information:
1997 1996 1995 Cash paid during the year for interest $ 37,497 37,210 673,635
NORTH BY NORTHEAST, LTD. (A Limited Partnership)
Notes to Financial Statements
December 31, 1997 and 1996
(1) Summary of Significant Accounting Policies
(a) Organization
North by Northeast, Ltd. (the Partnership) was organized on June 27, 1988 to participate as a general partner in North By Northeast Land Partners (the Land Partnership) and other affiliated partnerships. On October 18, 1988, the Land Partnership acquired an undeveloped tract of land in Indianapolis, Indiana for the purpose of developing and selling parcels of real estate. The general partner is 222 North, Ltd., whose general partners are 222 Partners, Inc., Steven D. Ezell and Michael A. Hartley. The Partnership prepares financial statements and Federal income tax returns on the accrual method and includes only those assets, liabilities and results of operations which relate to the business of the Partnership. In the event that the Partnership has short-term cash deficiencies, the General Partner can defer the collection of fees for certain related party expenses or grant interest- free loans from related parties until cash becomes available.
(b) Estimates
Management of the Partnership has made estimates and assumptions to prepare these financial statements in accordance with generally accepted accounting principles. Actual results could differ from those estimates.
(c) Cash and Cash Equivalents
The Partnership considers all short-term investments with original maturities of three months or less at the date of purchase to be cash equivalents.
Cash belonging to the Partnership is combined in an account with funds from other partnerships related to the general partner.
(d) Investment in Partnerships
Investment in North by Northeast Land Partners (Land Partnership) is accounted for using the equity method. Accordingly, the Partnership's investment has been adjusted to reflect its proportionate share of profits, losses, and distributions. Interest incurred on notes payable attributable to investment in the Land Partnership was capitalized when the Land Partnership was actively developing its land. Subsequent interest is
NORTH BY NORTHEAST, LTD. (A Limited Partnership)
Notes to Financial Statements
(1) Summary of Significant Accounting Policies (continued)
expensed as the development project is substantially complete. Capitalized interest is amortized as land parcels are sold on the basis of the relative sales value of the parcels.
Investment in Northeast Building IV, L.P. was accounted for using the cost method and was sold in 1995.
(e) Income Taxes
No provision has or will be made for Federal or state income taxes since such taxes are the personal responsibility of the partners. Annually, the partners receive, from the Partnership, IRS Form K-1's which provide them with their share of taxable income or losses, deductions, and other tax information. There are no differences in the book and tax basis of the Partnership's assets and liabilities.
(f) Partnership Allocations
Net profits, losses and distributions of cash flow of the Partnership are allocated to the partners in accordance with the Partnership agreement as follows:
Net profits are allocated first to any partner with a negative balance in their capital account, determined at the end of the taxable year as if the Partnership had distributed cash flow, in proportion to the negative capital balance account of all partners until no partner's capital account is negative. Net profit allocations are then made to the limited partners up to the difference between their capital account balances and the sum of their adjusted capital contributions (capital balance, net of cumulative cash distributions in excess of preferred returns - 12% annual cumulative return on capital contributed). Any remaining net profit allocations are then made to the limited partners until the taxable year in which cumulative profits to the limited partners equal their adjusted capital contribution plus an unpaid preferred return (12% annual cumulative return on capital contributed). Net profits are then allocated to the general partner until the ratio of the general partner's capital account balance to the capital account balances, in
NORTH BY NORTHEAST, LTD. (A Limited Partnership)
Notes to Financial Statements
(1) Summary of Significant Accounting Policies (continued)
excess of adjusted capital contributions and unpaid preferred return, of all limited partners is 27% to 73%. Thereafter, profits are generally allocated 27% to the general partner and 73% to the limited partners. Net losses are allocated to the partners in proportion to their positive capital accounts.
Partnership distributions are allocated 99% to the limited partners and 1% to the general partner in an amount equal to their preferred return (12% annual cumulative return on capital contributed), 99% to the limited partners and 1% to the general partner until the limited partners have received an amount equal to their adjusted capital contributions, and then 73% to the limited partners and 27% to the general partner.
(2) Related Party Transactions
The general partner and its affiliates have been actively involved in managing the investments in partnerships. Affiliates of the general partner receive fees or commissions for performing certain services. Compensation paid for these services during 1997, 1996 and 1995 is as follows:
1997 1996 1995
Accounting fees $ - 1,600 1,500
The accounts payable to affiliates at December 31, 1997 represents two demand notes payable to North by Northeast Land Partners, and 222 North, L.P. in the amounts of $35,000 and $53,000, respectively. Both notes are non-interest bearing and are payable on demand.
(3) Investment in Land Partnership
The Partnership has a 50% ownership interest in North By Northeast Land Partners, a general partnership. The remaining 50% is owned by an unrelated affiliate of Trammell Crow Company. Pursuant to the partnership agreement, the Trammell Crow affiliate will provide development supervision for the acquisition of land and construction of improvements. At December 31, 1997, development on the land is substantially complete.
NORTH BY NORTHEAST, LTD. (A Limited Partnership)
Notes to Financial Statements
(3) Investment in Land Partnership (continued)
Summarized information at December 31, 1997 and 1996 and for the years ended December 31, 1997, 1996, and 1995, is presented below (in thousands):
Assets 1997 1996
Cash and cash equivalents $ 41 231 Restricted cash 1 1 Accounts receivable affiliate 35 - Land and improvements held for investment 499 642
Total assets $ 576 874
Liabilities and Partners' Equity
Accounts payable $ - 7 Partners' equity 576 867
Total liabilities and partners' equity $ 576 874
Operations for the Year
1997 1996 1995 Revenues: Gain on sale of land and improvements $ 88 - 1,097 Other 76 83 363
Total revenues 164 83 1,460
Operating expenses 46 77 97
Net earnings $ 118 6 1,363
Cash Flows for the Year
1997 1996 1995 Cash provided (used) by: Operating activities $ 220 (65) 2,816 Investing activities - 54 (4) Financing activities (410) (190) (2,561)
Net (decrease) increase in cash and cash equivalents $ (190) (201) 251
NORTH BY NORTHEAST, LTD. (A Limited Partnership)
Notes to Financial Statements
(3) Investment in Land Partnership (continued)
A summary of activity in the Partnership's investment account and a reconciliation of the partner's equity account on the books of the Land Partnership and the Partnership's investment account follows (in thousands):
1997 1996 1995
Balances, beginning of year $ 224 411 1,862 Net earnings allocated to Partnership 60 3 687 Distributions (110) (190) (2,138)
Balance end of year $ 174 224 411 Capitalized construction period interest at year end 50 50 50
Investment in North by Northeast Land Partners $ 224 274 461
The Partnership is committed to contribute an additional $254,862 to the Land Partnership. However, due to retained proceeds from property sales, management of the Land Partnership does not anticipate a need for these funds.
In 1995, the Partnership's interest in Northeast Building IV, L.P. was sold for net proceeds of $485,330 resulting in a gain of $174,382.
NORTH BY NORTHEAST, LTD. (A Limited Partnership)
Notes to Financial Statements
(4) Note Payable to Affiliate
The note payable to affiliate at December 31, 1996, represents a long-term note payable to North Lenders, L.P., an affiliate sharing the same general partner. The note was repaid in 1997.
(5) Distributions
For the year ended December 31, 1995, the Partnership made distributions totaling $988,870. Of this amount, $721,875 ($385 per unit) was allocated to the limited partners. Distributions to the general partner were $266,995 for the year ended December 31, 1995. There were no distributions in 1997 or 1996.
(6) Fair Value of Financial Instruments
At December 31, 1997 and 1996, the Partnership had financial instruments including cash and cash equivalents, accrued interest payable, accounts payable to affiliate, and a note payable. The carrying amounts of cash and cash equivalents, accrued interest payable, and accounts payable to affiliate approximate their estimated fair value because of the short maturity of those financial instruments.
The determination of the estimated fair value of the note payable to affiliate was not practicable as the note agreement does not provide for a predictable cash payment stream. Independent Auditors' Report
The Partners North By Northeast Land Partners:
We have audited the accompanying balance sheets of North By Northeast Land Partners (a general partnership) as of December 31, 1997 and 1996, and the related statements of earnings, partners' equity, and cash flows for each of the years in the three-year period ended December 31, 1997. These financial statements are the responsibility of the Partnership's management. Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of North By Northeast Land Partners at December 31, 1997 and 1996, and the results of its operations and its cash flows for each of the years in the three-year period ended December 31, 1997, in conformity with generally accepted accounting principles.
As discussed in Note 1, the Partnership adopted the provisions of Statement of Financial Accounting Standards (SFAS) No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long- Lived Assets to be Disposed of" on January 1, 1996.
KPMG Peat Marwick LLP
Nashville, Tennessee January 30, 1998
M-1
NORTH BY NORTHEAST LAND PARTNERS (A General Partnership)
Balance Sheets
December 31, 1997 and 1996
Assets 1997 1996
Cash and cash equivalents (note 3) $ 41,168 230,840 Restricted cash (note 1) 1,000 1,000 Accounts receivable-affiliate (note 2) 35,000 - Land and improvements held for investment (note 3) 499,079 642,533
Total Assets $ 576,247 874,373
Liabilities and Partners' equity Liabilities: Accounts payable (note 2) $ 400 6,900
Total liabilities 400 6,900
Partners' equity: North by Northeast, Ltd. 173,079 223,892 Reveille Industrial #3, L.P. 402,768 643,581
Total partners' equity 575,847 867,473
Commitments (note 2)
Total liabilities and partners' equity $ 576,247 874,373
See accompanying notes to financial statements.
M-2
NORTH BY NORTHEAST LAND PARTNERS (A General Partnership)
Statements of Earnings
Years ended December 31, 1997, 1996 and 1995
1997 1996 1995 Revenues: Sales of land and improvements $ 250,000 - 3,209,564 Cost of land and improvements sold (132,297) - (1,759,379) Selling expenses (note 2) (29,557) - (353,843)
Gain on sale of land and improvements 88,146 - 1,096,342 Other income: Inducement fee (note 3) - - 253,805 Common area maintenance income 10,923 50,628 73,650 Interest 2,992 20,209 28,262 Miscellaneous 61,699 12,355 7,714
Total other income 75,614 83,192 363,431
Total revenues 163,760 83,192 1,459,773
Expenses: Partnership administration fee (note 2) 6,000 6,000 6,000 Legal and accounting (note 2) 19,166 29,606 19,418 Property management fees (note 2) 6,000 6,000 6,000 Other land management fees (note 2) 6,973 26,187 51,927 General and administrative expenses 501 885 5,914 Property taxes 6,746 8,695 7,630
Total expenses 45,386 77,373 96,889
Net earnings $ 118,374 5,819 1,362,884
Net earnings allocated to: North by Northeast, Ltd. $ 59,187 2,910 687,284 Reveille Industrial #3, L.P. $ 59,187 2,909 675,600
See accompanying notes to financial statements. M-3
NORTH BY NORTHEAST LAND PARTNERS (A General Partnership)
Statements of Partners' Equity
Years ended December 31, 1997, 1996 and 1995
North By Reveille Northeast, Industrial Ltd. #3,L.P. Total
Balance at December 31, 1994 $ 1,861,781 388,372 2,250,153
Distributions to partners (2,138,083) (423,300) (2,561,383)
Net earnings 687,284 675,600 1,362,884
Balance at December 31, 1995 410,982 640,672 1,051,654
Distributions to partners (190,000) - (190,000)
Net earnings 2,910 2,909 5,819
Balance at December 31, 1996 223,892 643,581 867,473
Distributions to partners (110,000) (300,000) (410,000)
Net earnings 59,187 59,187 118,374 --------- -------- ------- Balance at December 31, 1997 $ 173,079 402,768 575,847
See accompanying notes to financial statements.
M-4
NORTH BY NORTHEAST LAND PARTNERS (A General Partnership)
Statements of Cash Flows
Years ended December 31, 1997, 1996 and 1995
1997 1996 1995 Cash flows from operating activities: Net earnings $ 118,374 5,819 1,362,884 Adjustments to reconcile net earnings to net cash provided (used) by operating activities: Cost of land and improvements sold 132,297 - 1,759,379 Cost of land improvements - (44,610) (247,599) Refund of escrow deposits 11,157 - - Decrease (increase) in restricted cash - 26,539 (27,539) (Increase) decrease in accounts receivable (35,000) - 2,769 Decrease in accounts payable (6,500) (52,360) (33,683) Net cash provided (used) by operating activities 220,328 (64,612) 2,816,211
Cash flows from investing activities- decrease (increase) in certificate of deposit - 53,576 (4,152) Cash flows from financing activities - distributions to partners (410,000) (190,000) (2,561,383)
Net (decrease) increase in cash and cash equivalents (189,672) (201,036) 250,676
Cash and cash equivalents at beginning of year 230,840 431,876 181,200 Cash and cash equivalents at end of year $ 41,168 230,840 431,876
Supplemental Disclosure of Noncash Financing and Investing Activities:
During 1995, the Partnership distributed to North by Northeast, Ltd. an interest in a limited partnership investment received in a sale of land and improvements held for investment. The limited partnership had an estimated value of $310,948 which was the partnership's basis in the investment.
See accompanying notes to financial statements. M-5
NORTH BY NORTHEAST LAND PARTNERS (A General Partnership)
Notes to Financial Statements
December 31, 1997 and 1996
(1) Summary of Significant Accounting Policies
(a) Organization
North by Northeast Land Partners (the Partnership) was organized by North by Northeast, Ltd. and Reveille Industrial #3 Limited Partnership (RILP), an affiliate of Trammell Crow Company (Trammell Crow), each acting as general partners and each owning 50% of the partnership. The Partnership was organized on October 18, 1988 for the purpose of acquiring, developing and selling parcels of real estate near Indianapolis, Indiana. The Partnership prepares financial statements and Federal income tax returns on the accrual method and includes only those assets, liabilities, and results of operations which relate to the Partnership.
(b) Estimates
Management of the Partnership has made estimates and assumptions to prepare these financial statements in accordance with generally accepted accounting principles. Actual results could differ from those estimates.
(c) Cash and Cash Equivalents
The Partnership considers all short-term investments with original maturities of three months or less at the date of purchase to be cash equivalents.
Cash belonging to the Partnership is combined in an account with funds from other partnerships related to the general partner.
(d) Restricted Cash
At December 31, 1997 and 1996, the partnership has restricted cash balances of $1,000, representing retainage on land improvements made to land sold.
M-6
NORTH BY NORTHEAST LAND PARTNERS (A General Partnership)
Notes to Financial Statements
(1) Summary of Significant Accounting Policies (continued)
(e) Land and Improvements Held for Investment
The Partnership acquired a tract of undeveloped land representing approximately 169 acres. Land and improvements held for investment is recorded at acquisition cost plus certain carrying costs. Insurance and property taxes are capitalized as carrying costs of the property during the development stage of the property. Insurance and property taxes are charged to expense once development is complete. Approximately 8 and 10 acres remain at December 31, 1997 and 1996, respectively.
The Partnership adopted the provisions of Statement of Financial Accounting Standards (SFAS) No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of" on January 1, 1996. SFAS No. 121 requires that long-lived assets to be disposed of be reported at the lower of the carrying amount or fair value less estimated costs to sell. The fair value of the assets can be determined externally, using appraisals, or internally using discounted future net cash flows. If such assets are considered impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the assets exceeds the fair value of the assets less estimated costs to sell. Impairment is recognized through the establishment of an allowance for impairment with a corresponding charge to operations. Losses upon the sale of the assets are charged to the allowance. Based upon management's analysis, the Partnership's land and improvements held for investment does not meet the definition of impairment under SFAS No. 121. Accordingly, land and improvements held for investment is recorded at cost with no allowance for impairment necessary. The adoption of SFAS No. 121 did not have an impact on the Partnership's financial position, results of operation, or liquidity.
NORTH BY NORTHEAST LAND PARTNERS (A General Partnership)
Notes to Financial Statements
(1) Summary of Significant Accounting Policies (continued)
(f) Income Recognition
Income from sales of land and improvements held for investment is generally recorded on the accrual basis when the buyer's financial commitment is sufficient to provide economic substance to the transaction, and when other criteria of SFAS No. 66 "Accounting for Sales of Real Estate" are satisfied. For sales of real estate where both cost recovery is reasonably certain and the collectibility of the contract price is reasonably assured, but the transaction does not meet the remaining requirements to be recorded on the accrual basis, profit is deferred and recognized under the installment method, which recognizes profit as collections of principal are received. If developments subsequent to the adoption of the installment method occur which cause the transaction to meet the requirements of the full accrual method, the remaining deferred profit is recognized at that time. Any losses on sales of real estate are recognized at the time of the sale.
(g) Income Taxes
No provision has been made in the financial statements for Federal income taxes, since such taxes are the responsibility of the partners. The partnership is subject to a 6% state tax on certain interest income. For the years ended December 31, 1997, 1996, and 1995, the Partnership had no state income tax expense. Annually, the partners receive, from the partnership, IRS Form K-1's which provides them with their respective share of taxable income (or losses), deductions, and other tax related information. At December 31, 1997 and 1996, there were no differences in the book and tax bases of the Partnership's assets and liabilities.
(h) Partnership Allocations
Net profits, losses and distributions of cash flow of the Partnership are allocated in accordance with the Partnership agreement as follows:
Net profits are first allocated to the partners to offset any cumulative net losses allocated to the partners, then to offset any reductions to capital account balances caused by
NORTH BY NORTHEAST LAND PARTNERS (A General Partnership)
Notes to Financial Statements
(1) Summary of Significant Accounting Policies (continued)
prior allocations of losses. Any remaining profits are then allocated to North by Northeast, Ltd. until the cumulative net profits allocated to North by Northeast, Ltd. are equal to the sum of its Preferred Return (11% of the outstanding balances of Phase I development contributions), 10% of Phase I development contributions, and any amounts distributed to North by Northeast, Ltd. commencing on the date hereof and ending on a date 90 days following the close of the fiscal year. Any remaining profits are allocated to the partners in proportion to their ownership interests.
Net losses are allocated first among the partners until the cumulative losses allocated are equal to the cumulative profits allocated to date, then among the partners in proportion to their positive account balances. Any remaining losses are allocated among the partners in proportion to their ownership interests.
Partnership distributions from the cash proceeds from sales to an affiliated venture are allocated first to pay any currently required installments or payments of outstanding liabilities and expenses of the Partnership which are not assumed by a single partner or a purchaser of the project, if applicable, and upon which either the Partnership or any partner has personal liability, excluding capital loans, then to repay capital loans, then to fund the construction reserve fund with 25% of cash proceeds from such sale until such fund is equal to the total amount designated for the construction reserve fund. Then distributions are allocated to North by Northeast, Ltd. until North by Northeast, Ltd. has received an amount equal to its preferred return, to the extent unpaid, then to North by Northeast, Ltd. until North by Northeast, Ltd. has received 110% of the sum of the then outstanding Phase I Development Contribution. Any remaining cash distribution is to be used to fund construction shortfall loans, together with any interest thereon. Any remaining proceeds shall then be divided between the partners in proportion to their ownership interests.
Partnership distributions from the cash proceeds from sales to a third-party venture are allocated as follows: 1)Out of the portion of the proceeds of such sale equivalent to the purchase price which would have been received had such
NORTH BY NORTHEAST LAND PARTNERS (A General Partnership)
Notes to Financial Statements
(1) Summary of Significant Accounting Policies (continued)
installments or payments of outstanding liabilities and expenses of the Partnership which are not assumed by a single partner or a purchaser of the project, if applicable, and upon which either the Partnership or any partner has personal liability, excluding capital loans, then to repay capital loans, then to fund the construction reserve fund with the 25% of cash proceeds from such sale until such fund is equal to the total amount designated for the construction reserve fund. Then distributions are allocated to North by Northeast, Ltd. until North by Northeast, Ltd. has received an amount equal to its preferred return, to the extent unpaid, then to North by Northeast, Ltd. until North by Northeast, Ltd. has received 110% of the sum of the then outstanding Phase I Development Contribution. Any remaining cash distribution is to be used to fund construction shortfall loans, together with any interest thereon. Any remaining proceeds shall then be divided between the partners in proportion to their ownership interests. 2) That portion of the proceeds from a sale to a third-party venture which is equal to the third-party price differential shall be distributed to North by Northeast, Ltd. (and shall not apply toward the reduction of any preferred return or return of Phase I Development Contribution). 3) That portion of the proceeds from a sale to a third-party venture which is in excess of the minimum purchase price for the parcel sold as set forth in the closing schedule shall be divided between the partners in proportion to their ownership interests (and shall not apply toward the reduction of any capital loan, preferred return, return of Phase I Development Contribution, or Construction Shortfall loan).
(i) Reclassifications
Certain prior year amounts have been reclassified to conform with the current year presentation.
NORTH BY NORTHEAST LAND PARTNERS (A General Partnership)
Notes to Financial Statements
(2) Related Party Transactions
The general partners and their affiliates have been actively involved in managing the Partnership. Affiliates of the general partners receive fees and commissions for performing certain services. Expenses incurred for these services during 1997, 1996 and 1995 are as follows:
Payee Nature of Compensation 1997 1996 1995
Landmark Realty Services Corp. Administration fees $ 6,000 6,000 6,000
Property management fees 6,000 6,000 6,000 Sales commissions 2,500 - 45,852 Accounting fees 2,900 - 800 Year-end accounts payable 400 400 400
Trammell Crow Company RILP) Sales commissions 7,500 - 98,556 Development fees 1,786 6,780 7,270 Management fees - - 56,387
The Partnership has a receivable from North by Northeast, Ltd. for $35,000 as of December 31, 1997. The receivable is non-interest bearing and is payable on demand.
(3) Land and Improvements Held for Investment
The components of land and improvements held for investment at December 31, are as follows: 1997 1996
Land and carrying costs $ 267,258 342,370 Land improvements 231,821 300,163
$ 499,079 642,533
The aggregate cost for Federal income tax purposes for land and improvements held for investment was $499,079 and $642,533 at December 31, 1997 and 1996, respectively.
(Continued)
NORTH BY NORTHEAST LAND PARTNERS (A General Partnership)
Notes to Financial Statements
(3) Land and Improvements Held for Investment (continued)
During the year ended December 31, 1995, one of the landowners in the Partnership's development requested a change in its land purchase contract to allow for additional outparcels. Management of the Partnership negotiated and the Partnership received a fee of $253,805 as consideration for allowing this change.
(4) Fair Value of Financial Instruments
At December 31, 1997 and 1996, the Partnership had financial instruments including cash and cash equivalents, restricted cash, accounts receivable and accounts payable. The carrying amounts of these financial instruments approximate their fair value because of the short maturity of such instruments.
(5) Subsequent Event
On January 23, 1998, the Partnership sold 2.17 acres of land for gross sales proceeds of $255,000. These proceeds will be retained to meet operating expenses.
Exhibits filed to Item 14(a) (3):
NORTH BY NORTHEAST, LTD. (A Tennessee Limited Partnership)
Exhibit Index
Exhibit
3 Amended and Restated Certificate and Agreement of Limited Partnership, incorporated by reference to Exhibit A1 to the Prospectus of Registrant dated September 1, 1988 filed pursuant to Rule 424 (b) of the Securities and Exchange Commission.
10A Loan Agreement by and among North By Northeast, Ltd. and North Lenders, L.P., incorporated by reference to Exhibit 10.1 to Registrant's Form S-18 Registration Statement as filed on July 19, 1988.
10B Deed of Trust and Security Agreement by and among North Lenders, L.P. and the Registrant, incorporated by reference to Exhibit 10.2 of the Registrant's Form S-18 Registration Statement as filed on July 19, 1988.
10C Participating Mortgage Note of North By Northeast, Ltd. to North Lenders, L.P., incorporated by reference to Exhibit 10.3 to Registrant's Form S-18 Registration Statement as filed on July 19, 1988.
22 Subsidiaries-Registrant has no subsidiaries.
27 Financial Data Schedule