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.
Such forward-looking statements involve known and unknown risks, uncertainties and other factors that may cause the actual results, performance or achievements of the Partnership to be materially different from any future results, performance or achievements expressed or implied by the forward-looking statements. Such factors include, among other things, (i) general economic and business conditions; (ii) governmental regulation, including the interpretation of tax, labor and environmental laws; (iii) required accounting changes; and (iv) other factors over which the Partnership has little or no control.
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 Partnership was formed to operate and ultimately dispose of a diversified portfolio of income-producing residential real properties directly or through its joint venture interest in joint venturers which own such properties. On May 28, 1998 the Partnership sold its final property, Pinecliff, having sold two of its properties during 1997. Descriptions of such properties are included below in "Item 2.
Item 2. Properties and Note 5 of Notes to Consolidated Financial Statements). The net proceeds from the sales were not reinvested by the Partnership, but were distributed to the partners. The Partnership has retained approximately $275,000 as a reserve for contingencies and liquidation expenses.
Until its sale, on-site management of the Partnership's property, Pinecliff, was provided by an affiliate of the General Partners. The terms of such property management services between the Partnership and property manager were embodied in a written management agreement. Property management fees were 4% of the gross revenues from the property, plus reimbursement for allocable expenses. The property manager was responsible for on-site operations and maintenance, generation and collection of rental income and payment of operating expenses.
The difference between rental income and expenses related to operations, including items such as local taxes and assessments, utilities, insurance premiums, maintenance, repairs and improvements (and reserves therefor), bookkeeping and payroll expenses, legal and accounting fees, property management fees and other expenses incurred, constituted the property's operating cash flow. The Partnership's administrative expenses are paid out of the Partnership's share of such cash flow or Partnership reserves.
The operations of the Partnership were dependent upon factors which were difficult to predict and many of which were beyond the control of the Partnership. Such factors include, among others, general economic and real estate market conditions, both on a national basis and in those areas where the Partnership's investments were located, competitive factors, the availability and cost of borrowed funds, real estate tax rates, federal and state income tax laws, operating expenses (including maintenance and insurance), energy costs, government regulations, and potential liability under and changes in environmental and other laws, as well as the successful management of the properties.
The Partnership's investment in real estate was also subject to certain additional risks including, but not limited to, (i) competition from existing and future projects held by other owners in the areas of the Partnership's property, (ii) possible reduction in rental income due to an inability to maintain high occupancy levels, (iii) adverse changes in mortgage interest rates, (iv) possible adverse changes in general economic conditions and adverse local conditions, such as competitive overbuilding, or a decrease in employment or adverse changes in real estate zoning laws, (v) the possible future adoption of rent control legislation which would not permit the full amount of increased costs to be passed on to tenants in the form of rent increases, and (vi) other circumstances over which the Partnership may have had little or no control.
The Partnership's investment was subject to competition in the rental, lease and sale of similar types of properties in the locality in which the Partnership's real property investment was located. Furthermore, the General Partners of the Partnership are affiliated with other partnerships owning similar properties in the vicinity in which the Partnership's property was located.
The Partnership considers itself to have been engaged in only one industry segment, real estate investment.
ITEM 2. PROPERTIES
The Partnership owned and operated three properties: (1) L'Auberge Pinecliff, formerly Autumn Ridge ("Pinecliff"), a 96-unit multifamily rental property in Colorado Springs, Colorado, which was sold in May 1998; (2) Villas at Sin Vacas, a 72-unit multifamily rental property in Tucson, Arizona, which was sold in November 1997; (3) Villa Antigua, an 88-unit multifamily rental property in Scottsdale, Arizona, which was sold in October 1997. The ownership of each property was formerly structured as a Joint Venture in which the Partnership owned a majority interest. With regard to the termination of the Joint Ventures and the sales of properties, see Note 5 of Notes to Consolidated Financial Statements.
Pinecliff
On May 28, 1998, Pinecliff was sold pursuant to the terms of the Sale Agreement and Escrow Instruction dated January 1998, as amended. Pinecliff was sold to G&I Pinecliff LLC, a Delaware limited liability company unaffiliated with the Partnership. The net selling price for Pinecliff was $6,248,652, subject to certain customary adjustments, net of a credit to the purchaser of $360,000 for capital improvements. The Partnership repaid mortgage financing in the amount of $3,041,860 at closing utilizing a portion of proceeds from the sale. The Partnership recorded a gain on sale for financial reporting purposes of $452,214.
Villas at Sin Vacas
On November 25, 1997, Villas Sin Vacas was sold pursuant to the terms of a Sale Agreement and Escrow Instruction dated May 6, 1997, as amended. Villas Sin Vacas was sold to Villas Sin Vacas Townhome Ventures Limited Partnership, an Arizona Limited Partnership unaffiliated with the Partnership. The net selling price for Villas Sin Vacas was $4,952,091 subject to certain customary adjustments. The Partnership repaid first mortgage financing in the amount of $2,396,000 at closing utilizing a portion of proceeds from the sale. The Partnership recorded a gain on sale of approximately $975,000.
Villa Antigua
On October 10, 1997, Villa Antigua was sold pursuant to the terms of a Sale Agreement and Escrow Instructions dated May 6, 1997, as amended. Villa Antigua was sold to Villa Sin Antigua Condominium Ventures Limited Partnership, an Arizona Limited Partnership unaffiliated with the Partnership. The net selling price for Villa Antigua was $6,141,526 subject to certain customary adjustments. The Partnership repaid first mortgage financing in the amount of $3,010,362 at closing utilizing a portion of proceeds from the sale. The Partnership recorded a gain on sale of approximately $1,307,000. ITEM 3.
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 1998.
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 Unit holders of as of December 31, 1998 was 1,902.
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 1998 and 1997, as well as the Distributions from Proceeds of Sale were paid as follows:
Date of Quarter Ended Payment Amount - ------------- ------- ------ December 31, 1996 February 28, 1997 $ 97,263 March 31, 1997 May 15, 1997 $ 97,263 June 30, 1997 August 15, 1997 $ 97,263 September 30, 1997 $ - December 31, 1997 December 31, 1997 $5,349,465 May 28, 1998 August 4, 1998 $3,242,100
ITEM 6.
ITEM 6. SELECTED FINANCIAL DATA
The following selected financial data of the Partnership and consolidated subsidiaries has been derived from consolidated financial statements audited by PricewaterhouseCoopers, LLP, whose reports for the periods ended December 31, 1998, 1997 and 1996 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.
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 the General Partners' expectations regarding future financial performance and future events. These forward-looking statements involve significant risks and uncertainties, including those described herein. Actual results may differ materially from those anticipated by such forward-looking statements.
Liquidity; Capital Resources
In connection with its capitalization, the Partnership admitted investors who purchased a total of 32,421 Units aggregating $16,210,500. These offering proceeds, net of organizational and offering costs of $2,431,575, provided $13,778,925 of net proceeds to be used for the purchase of income-producing residential properties, including related fees and expenses, and working capital reserves. The Partnership expended $10,410,263 to (i) acquire its joint venture interests in the Sin Vacas Joint Venture, the Villa Antigua Joint Venture, and the Autumn Ridge Joint Venture, (ii) to pay acquisition expenses, including acquisition fees to one of the General Partners, and (iii) to pay certain costs associated with the refinancing of the Pinecliff permanent loan. The Partnership distributed $1,731,681 to the Limited Partners as a return of capital resulting from construction cost savings with respect to the Sin Vacas, Pinecliff and Villa Antigua projects and other excess offering proceeds. The remaining net proceeds of $1,636,981 were used to establish initial working capital reserves. These reserves have been used periodically to enable the Partnership to meet its various financial obligations including contributions to the various Joint Ventures that may be required. Cumulatively through December 31, 1998, $513,611 was contributed to the Joint Ventures for this purpose.
In addition to the proceeds generated from the public offering, the Partnership utilized external sources of financing at the joint venture level to purchase properties. The Partnership Agreement limited the aggregate mortgage indebtedness which could be incurred in connection with the acquisition of Partnership properties to 80% of the purchase price of such properties.
The working capital reserves of the Partnership consist of cash and cash equivalents and short-term investments. Together these amounts provide the Partnership with the necessary liquidity to carry on its day-to-day operations. At December 31, 1998, the Partnership had cash and cash equivalents of $273,377 compared with $421,580 at December 31, 1997. The aggregate net decrease of $148,203 resulted primarily from proceeds from the sale of Pinecliff of $6,248,652, plus $131,413 received from the escrow agent relating to the sale of Villa Sin Vacas, plus a refund of deposits of $1,335, offset by distributions to the limited partners of $3,242,100, principal payments on the mortgage notes payable of $3,058,800, purchase of fixed assets of $1,290 and the cash needed for operations of $227,413.
Results of Operations
For the year ended December 31, 1998, the Partnership's operating results were comprised of its share of the income and expenses from the Pinecliff (through date of sale, May 28, 1998), as well as Partnership level interest income earned on short-term investments, reduced by administrative expenses. A summary of these operating results (unaudited) appears below:
For the year ended December 31, 1997 the Partnership's operating results were comprised of its share of the income and expenses from the Villas Sin Vacas (through date of sale, November 25, 1997), Pinecliff and Villa Antigua properties (through date of sale October 10, 1997), as well as Partnership level interest income earned on short-term investments, reduced by administrative expenses. A summary of these operating results (unaudited) appears below:
For the year ended December 31, 1996, the Partnership's operating results were comprised of its share of the income and expenses from the Sin Vacas, Autumn Ridge and Villa Antigua Joint Ventures, as well as Partnership level interest income earned on short term investments, reduced by administrative expenses. A summary of these operating results (unaudited) appears below:
Comparison of 1998 and 1997 Operating Results:
Partnership operations for 1998 generated net income of $417,630 compared with net income of $2,009,610 for the corresponding period in 1997. Included in the net income of $417,630 is the gain on the sale of Pinecliff in the amount of $452,214. The loss from operations was $34,584. The total operating revenue decreased by $1,877,995 or 80%, due to the fact that Villa Sin Vacas and Villa Antigua were sold in the fourth quarter of 1997and Pinecliff was sold in May 1998. Likewise, operating expenses decreased in total by $1,022,072 or 85% due to the sales of the properties. General and administrative expenses have decreased by $42,554 or 19%, due primarily to lower legal and accounting expenses.
Comparison of 1997 and 1996 Operating Results:
Partnership operations for 1997 generated net income of $2,009,610 compared with net loss of $167,778 for the corresponding period in 1996. Included in the net income of $2,009,610 is the gain on the sale of Villas Sin Vacas and Villa Antigua in the amount of $2,281,583. The loss from operations was $271,973. Total operating revenue decreased by $336,450 or 13%, primarily due to the sale of Villas Sin Vacas and Villa Antigua on November 25, 1997 and October 10, 1997, respectively. Operating expenses decreased by $34,379 or 3% primarily due to the sale of those properties, as such reflecting only a portion of the year's expenses in 1997. This was offset by one-time costs of preparing the properties for disposition, including an increase in repairs and maintenance of $77,779. General and administrative expenses have decreased by $155,488 or 41%, of which $73,775 was due to the Evans Withycombe termination fee in 1996. A contributing factor to the additional reduction of $81,713 was due to the re-stabilization of costs associated with Partnership administrative, financial and investor services functions following the office relocation to Colorado Springs, Colorado.
Projected 1999 Operating Results:
The Partnership has sold all of its real estate assets and has distributed substantially all of the net cash proceeds from the sales. A final liquidating distribution, which on a per unit basis, is anticipated to be nominal in amount, will be made once all remaining Partnership obligations and contingent liabilities, if any, have been satisfied.
Year 2000 Issues
The Partnership's management has addressed the Year 2000 issue of its financial reporting systems.
The Partnership's only mission critical system is its financial reporting software which is currently maintained on the Platinum accounting software system, which has not been updated to handle the Year 2000 date change. Because the Partnership is in its final liquidation stage and is anticipated to be completely liquidated by the end of 1999, the year 2000 issue will not materially affect the results of operations or financial condition of the Partnership. However, if any financial information for the Partnership needs to be maintained into the year 2000, the Partnership's management has already purchased an accounting system, AMSI, that is Year 2000 compliant. The financial records would be transferred to the AMSI accounting software prior to the end of 1999.
The accounting systems are run on the Novell network, which needs to be upgraded for compliance with the Year 2000. The Partnership's anticipated share of the cost of this upgrade is $450. The upgrade is scheduled to take place by the end of March 1999.
Management anticipates that all essential functions relative to maintaining the Partnership, if any remain at that time, will be operational and the costs associated with Year 2000 compliance will not have a material impact on the Partnership.
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 is a limited partnership and, as such, has no executive officers or directors. The General Partners of the Partnership are Stephen B, Boyle and GP L'Auberge Communities, L.P., a California limited partnership, of which L'Auberge Communities Inc. (formerly known as Berry and Boyle Inc.) ("L'Auberge") is the general partner.
Individual General Partners
Stephen B. Boyle, age 58, is President, Executive Officer and Director of L'Auberge and a general partner and co-founder of LP L'Auberge Communities, a California Limited Partnership (formerly Berry and Boyle), a limited partnership formed in 1983 to provide funds to various affiliated general partners of real estate limited partnerships, one of which is GP L'Auberge Communities, L.P.
GP L'Auberge Communities, L.P.
GP L'Auberge Communities, L.P. was formed in 1983 for the purpose of acting as a general partner in partnerships formed to invest directly or indirectly in real property. L'Auberge is the sole general partner of GP L'Auberge Communities, L.P. The following sets forth certain biographical information with respect to the executive officers and directors of L'Auberge other than Stephen B. Boyle who is discussed above. There are no familial relationships between or among any officer or director and any other officer or director.
Name Position
Stephen B. Boyle President, Executive Officer and Director Earl C. Robertson Executive Vice President and Chief Financial Officer Donna Popke Vice President and Secretary
Earl C. Robertson, age 51, has been Executive Vice President of L'Auberge since April 1995 and its Chief Financial Officer since May 1996. Mr. Robertson joined L'Auberge in April 1995 as Executive Vice President. Prior to joining L'Auberge, Mr. Robertson had over 20 years experience as a senior development officer, partner and consultant in several prominent real estate development companies, including Potomac Investment Associates, a developer of planned golf course communities nationwide, where he was employed from 1989 to June 1993. He also served as a consultant to Potomac Sports Properties from July 1993 to April 1995. Mr. Robertson was also a key member of the management team that developed the nationally acclaimed Inn at the Market in Seattle.
Donna Popke, age 39, has been Vice President of L'Auberge since November 1995. Ms. Popke joined L'Auberge in June 1994 as Accounting Manager. Prior to joining L'Auberge, Ms. Popke was Accounting Manager for David R. Sellon & Company, a Colorado Springs land development company, from August 1989 to June 1994 and for Intermec of the Rockies from September 1985 to July 1989.
ITEM 11.
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 of March 1, 1999, no person of record owned or was known by the General Partners to own beneficially more than 5% of the Partnership's outstanding Units. Neither of the General Partners nor any of their directors and officers owns Units.
ITEM 13.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
During the year ended , 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 1998 to the General Partners $ -
Allocation of Income to the General Partners $125,626
Property management fees paid to an affiliate of the General Partners $ 16,095
Reimbursements to General Partners $ 47,555
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
None
(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 1, 1999
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, 1999 -------------------- Principal Executive STEPHEN B. BOYLE Officer of L'Auberge Communities, Inc.
__/s/ Earl C. Robertson_____ Executive Vice President March 26, 1999 --------------------- and Principal Financial EARL C. ROBERTSON 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 each of the three years in the period ended December 31, 1998
CLUSTER HOUSING PROPERTIES (A California Limited Partnership) AND SUBSIDIARIES ---------
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Report of Independent Accountants
Consolidated Balance Sheets at December 31, 1998 and 1997
Consolidated Statements of Operations for the years ended December 31, 1998, 1997 and 1996
Consolidated Statements of Partners' Equity (Deficit) for the years ended December 31, 1998, 1997 and 1996
Consolidated Statements of Cash Flows for the years ended December 31, 1998, 1997 and 1996 --
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, 1998 and 1997, and related consolidated statements of operations, partner's equity (deficit) and cash flows for each of the three years then ended. 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.
As described in Note 9 of the financial statements, the General and Limited Partners of the Partnership approved a plan of liquidation on May 29, 1998 and the Partnership commenced liquidation shortly thereafter. As a result the Partnership has changed its basis of accounting for the period subsequent to May 29, 1998 from the going concern basis to a liquidation basis.
In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Cluster Housing Properties, (a California Limited Partnership), and subsidiaries as of December 31, 1997, and the consolidated results of their operations and cash flows for each of the two years in the period then ended and for the period from January 1, 1998 to May 29, 1998, in conformity with generally accepted accounting principles; and as of December 31, 1998 and for the period from May 30, 1998 through December 31, 1998 in conformity with generally accepted accounting principles applied on the basis described in the preceding paragraph.
PricewaterhouseCoopers, LLP Denver, Colorado February 26, 1999
CLUSTER HOUSING PROPERTIES (A California Limited Partnership) AND SUBSIDIARIES
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, 1998, the total number of Limited Partners was 1,902. Except under certain limited circumstances, as defined in the Partnerhip 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.
As of December 31, 1998, the Partnership has sold substantially all of the assets and is in its final liquidation. Once all Partnership obligations have been satisfied, the remaining Partnership funds, if any, are anticipated to be distributed to the Limited Partners. Such funds, if any, are expected to be modest in amount. It is anticipated that the Partnership will be liquidated during 1999.
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), Pinecliff (Pinecliff), formerly Autumn Ridge Joint Venture, and Villa Antigua Joint Venture (Villa Antigua). All intercompany accounts and transactions have been eliminated in consolidation. The Partnership follows the accrual basis of accounting. Refer to Note 5 regarding the termination of the Joint Ventures and the sale of Sin Vacas, Villa Antigua and Pinecliff.
The Partnership follows the accrual basis of accounting.
The Partnership considers itself to have been engaged in only one industry segment, real estate.
B. Cash and Cash Equivalents
The Partnership considers all highly liquid debt instruments purchased with a maturity of three months or less to be cash equivalents. The carrying value of cash and cash equivalents approximates fair value. It is the Partnership's policy to invest cash in income-producing temporary cash investments. The Partnership mitigates any potential risk from such concentration of credit by placing investments with high quality financial institutions.
C. Significant Risks and Uncertainties
The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the 2. Significant Accounting Policies, continued:
reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
D. Depreciation
Depreciation is provided for by the use of the straight-line method over estimated useful lives as follows:
Buildings and improvements 39-40 years Equipment, furnishings and fixtures 5-15 years
As discussed further in Note 9, as of December 31, 1997, the Partnership recorded its property as Assets Held for Sale on the consolidated balance sheets. Accordingly the Partnership stopped depreciating these assets effective January 1, 1998.
E. Deferred Expenses
Costs of obtaining or extending mortgages on the properties are being amortized over the mortgage term using the straight-line method, which approximates the effective interest method.
F. Income Taxes
The Partnership is not liable for Federal or state income taxes because Partnership income or loss is allocated to the Partners for income tax purposes. If the Partnership's tax returns are examined by the Internal Revenue Service or state taxing authority and such an examination results in a change in Partnership taxable income (loss), such change will be reported to the Partners.
G. Rental Income
Leases require the payment of rent in advance; however, rental income is recorded as earned.
H. Long-Lived Assets
The Partnership utilizes the provisions of SFAS No. 121, Accounting for the Impairment of Long -Lived Assets and for Long-Lived Assets to be Disposed Of, to review for impairment. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to future net cash flows expected to be generated by the asset. If such assets are considered to be 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. As further discussed in Note 9, assets to be disposed of are reported at the lower of the carrying amount or fair value less costs to sell.
I. Reclassification
Certain items in the financial statements for the years ended December 31, 1996 and 1997 have been reclassified to conform to the 1998 presentation.
4. Cash and Cash Equivalents:
Cash and cash equivalents at December 31, 1998 and 1997 consisted of the following:
1998 1997 ---- ---- Cash on Hand hand $ 273,377 $ 132,330 Money market accounts 289,250 ----------- ----------
$273,377 $421,580
5. Joint Venture and Property Acquisitions:
The Partnership had invested in three properties located in Scottsdale and Tucson, Arizona and Colorado Springs, Colorado. The Partnership held a majority interest in these properties and controlled the operations of the joint ventures.
Sin Vacas
On October 25, 1985, the Partnership acquired a majority interest in the Sin Vacas Joint Venture, which owned and operated the Villas at Sin Vacas, a 72-unit residential property located in Tucson, Arizona. Since the Partnership owned 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 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. The total capital contributions and acquisition costs incurred were $2,713,937 and $418,686, respectively.
JANUARY 1, 1996 THROUGH MAY 13, 1996
Net cash from operations (as defined in the joint venture agreement) was to be distributed as available to each joint venture partner quarterly as follows:
First, to the Partnership, an amount equal to 8.75% per annum, noncumulative (computed daily on a simple noncompounded basis from the date of completion funding) of the Partnership's capital investment, as defined in the joint venture agreement;
Second, the balance 70% to the Partnership and 30% to the co-venturer.
All losses from operations and depreciation for the Sin Vacas Joint Venture were allocated 99% to the Partnership and 1% to the co-venturer.
5. Joint Venture and Property Acquisitions, continued:
All profits from operations, to the extent of cash distributions were allocated to the Partnership and co-venturer in the same proportion as the cash distribution. Any remaining profits are allocated 70% to the Partnership and 30% to the co-venturer.
In the case of certain capital transactions and distributions as defined in the joint venture agreement, the allocation of related profits, losses and cash distributions, if any, would be different than as described above and would be effected by the relative balances in the individual partners' capital accounts.
Villa Antigua
On June 11, 1987, the Partnership acquired a majority interest in the Villa Antigua Joint Venture, which owned and operated 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. The total capital contributions and acquisition costs incurred were $2,580,117 and $381,729, respectively.
JANUARY 1, 1996 THROUGH MAY 13, 1996
Net cash from operations (as defined in the joint venture agreement) was to be distributed as available to each joint venture partner quarterly as follows:
First, to the Partnership, an amount equal to 10% per annum, noncumulative (computed daily on a simple noncompounded basis from the date of completion funding) of the Partnership's adjusted capital investment, as defined in the joint venture agreement;
Second, the balance 70% to the Partnership and 30% to the co-venturer.
All losses from operations and depreciation for the Villa Antigua Joint Venture were allocated 99% to the Partnership and 1% to the co-venturer.
All profits from operations, to the extent of cash distributions, were allocated to the Partnership and co-venturer in the same proportion as the cash distributions; however, if for any taxable year there are no cash distributions, profits are allocated 99% to the Partnership and 1% to the co-venturer.
In the case of certain capital transactions and distributions as defined in the joint venture agreement, the allocation of related profits, losses and cash distributions, if any, would be different than as described above and would be affected by the relative balances in the individual partners' capital accounts.
5. Joint Venture and Property Acquisitions, continued:
Sin Vacas and Villa Antigua
MAY 14, 1996 THROUGH NOVEMBER 25, 1997
On May 14, 1996, the Partnership and certain affiliates consummated an agreement with Evans Withycombe Management, Inc. and certain of its affiliates ("EWI") which separated the interests of EWI and the Partnership, thus affording the Partnership greater flexibility in the operation and disposition of the properties. In consideration of a payment by the Partnership to EWI of $73,775 and delivery of certain mutual releases, EWI (i) relinquished its contract to manage Sin Vacas and Villa Antigua and its option to exercise its rights of first refusal with regard to the sale of those properties and (ii) assigned all of its interest in the Sin Vacas Joint Venture and the Villa Antigua Joint Venture to the Partnership (while preserving the economic interests of the venturer in these Joint Ventures), which resulted in the dissolution of the Sin Vacas Joint Venture and the Villa Antigua Joint Venture. EWI may still share in the cash flow distributions or proceeds from sale of the properties if certain performance levels are met.
On November 25, 1997, Villa Sin Vacas was sold pursuant to the terms of a Sale Agreement and escrow Instructions (the "Agreement") dated May 6, 1997, as amended. Villas Sin Vacas was sold to Villas Sin Vacas Townhome Ventures Limited Partnership, an Arizona Limited Partnership unaffiliated with the Partnership, the assignee of Capital Management Systems, Inc., a Pennsylvania Corporation. The net selling price for Villas Sin Vacas was $4,952,091 subject to certain customary adjustments. The Partnership repaid first mortgage financing in the amount of $2,396,000 at closing utilizing a portion of proceeds from the sale. The Partnership recorded a gain on sale of approximately $975,000 during 1997.
On October 10, 1997, Villa Antigua was sold pursuant to the terms of a Sale Agreement and escrow Instructions (the "Agreement") dated May 6, 1997, as amended. Villa Antigua was sold to Villa Sin Antigua Condominium Ventures Limited Partnership, an Arizona Limited Partnership unaffiliated with the Partnership, the assignee of Capital Management Systems, Inc., a Pennsylvania Corporation. The net selling price for Villa Antigua was $6,141,526 subject to certain customary adjustments. The Partnership repaid first mortgage financing in the amount of $3,010,362 at closing utilizing a portion of proceeds from the sale. The Partnership recorded a gain on sale of approximately $1,307,000 during 1997.
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 owned 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.
5. Joint Venture and Property Acquisitions, continued:
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, 1998, the total capital contributions and acquisition costs incurred were $4,192,309 and $497,475, respectively.
JANUARY 1, 1996 THROUGH JULY 2, 1996:
Net cash from operations (as defined in the joint venture agreement) was to be distributed as available to each joint venture partner quarterly as follows:
First, to the Partnership, an amount equal to 8% per annum, noncumulative (computed daily on a simple noncompounded basis from the date of completion funding) of the Partnership's capital investment, as defined in the joint venture agreement;
Second, the balance 82% to the Partnership and 18% to the co-venturer.
All losses from operations and depreciation for the Autumn Ridge Joint Venture were allocated 100% to the Partnership.
All profits from operations, to the extent of cash distributions, were allocated to the Partnership and co-venturer in the same proportion as the cash distribution. Any remaining profits are allocated 82% to the Partnership and 18% to the co-venturer.
In the case of certain capital transactions and distributions as defined in the joint venture agreement, the allocation of related profits, losses and cash distributions, if any, would be different than as described above and would be affected by the relative balances in the individual partners' capital accounts.
JULY 3, 1996 THROUGH MAY 28, 1998
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.
On May 28, 1998, the Partnership sold Pinecliff, its final real estate asset. Pinecliff was sold to G&I Pinecliff LLC, a Delaware limited liability company unaffiliated with the Partnership. The net sales price for Pinecliff was $6,248,652, subject to certain customary adjustments, net of a credit to the purchaser of $360,000 for capital improvements. The Partnership repaid mortgage financing in the amount of $3,041,860 at closing utilizing a portion of proceeds from the sale. The Partnership recorded a gain on sale of $452,214 during 1998.
6. Mortgage Notes Payable:
Pinecliff The original maturity date for the note was July 15, 1997. On July 10, 1997, the lender extended the terms of the mortgage note for a period of one year. Under the modification agreement, the monthly principal and interest payment of $27,976 and the original interest rate of 9.125% remained unchanged. The terms of the agreement provide for a prepayment penalty of 0.5% of the outstanding loan amount in the event the note is paid prior to 60 days before it becomes due. As discussed in Note 5, the Partnership sold Pinecliff and the outstanding mortgage debt of $3,041,860 was paid. There was no prepayment penalty assessed since the debt was paid within 60 days of maturity.
The property owned by the Partnership was pledged as collateral for the nonrecourse mortgage notes payable outstanding December 31, 1997, which consisted of the following:
Pinecliff $3,058,800
Interest included in accrued expenses in the Consolidated Balance Sheets at December 31, 1997 consisted of the following:
Pinecliff $ 11,630
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 net proceeds on the sale of Pinecliff of $3,145,390 were allocated as follows. The Limited Partners received 100% of the cash distribution from sale. The total gain on sale of Pinecliff of $452,214 was allocated as follows. The General Partner received a gain on sale allocation of $125,972 and the Limited Partners received a gain on sale allocation of $326,242. These distributions/allocations were in accordance with the terms of the Partnership Agreement.
8. Related-Party Transactions:
L'Auberge Communities, Inc. is a General Partner of L'Auberge Communities, which owns a 99% interest in GP L'Auberge Communities, L.P. (formerly Berry and Boyle Management). Due to affiliates at December 31, 1998 and 1997 consisted of reimbursable costs payable to L'Auberge Communities, Inc., an affiliate of the General Partners, in the amounts of $9,884 and $16,076, respectively.
For the years ended December 31, 1998, 1997 and 1996, general and administrative expenses included $47,555, $64,209 and $82,881, respectively, of salary reimbursements paid to the General Partners for certain administrative and accounting personnel who perform services for the Partnership.
The officers and principal shareholders of EWI, the developer of the Villas at Sin Vacas and Villa Antigua properties and an affiliate of the co-venturers of those joint ventures, together hold a two and one half percent cumulative profit or partnership voting interest in LP L'Auberge Communities, a California Limited Partnership, formerly Berry and Boyle, which is the principal limited partner of GP L'Auberge Communities, L.P.
During the years ended December 31, 1996, EWI received property management fees of $32,475. These fees were 5% of rental revenue. In addition, for the years ended December 31, 1998, 1997 and 1996, $16,095, $87,724 and $64,954, 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.
Villa Antigua reimbursed $35,885 for its proportionate share of the 1996 real estate taxes to Villa Antigua Phase II, which is an affiliate of the General Partners. For the year ended December 31, 1997, real estate taxes were settled as part of the closing of the sale.
9. Assets held for Sale
During the fourth quarter of 1997, the General Partners of the Partnership committed to a plan to dispose of Pinecliff in Colorado Springs, Colorado. On January 15, 1998, the Partnership entered into a Sale Agreement (the "Agreement") to sell Pinecliff to an unaffiliated third party. The selling price for Pinecliff was approximately $6,700,000. The Agreement was subject to completion of customary due diligence to the satisfaction of the purchaser, and the purchaser obtaining a financing commitment on commercially reasonable terms and conditions. The Partnership consummated this sale in May 1998. The sale was approved by the Limited Partners.
As it was the intent of the General Partners to pursue the sale of this property, the Partnership had recorded the assets at the lower of carrying value or net realizable value and included these amounts as Assets Held for Sale on the Consolidated Balance Sheets at December 31, 1997. In accordance with SFAS 121, the Partnership stopped depreciating these assets effective January 1, 1998. The proceeds from sale of Pinecliff were allocated to the Partners in accordance with the terms of the Partnership Agreement.
Under the provisions of the Partnership agreement, the dissolution of the Partnership requires a consent of a majority in interest of the limited partners. The consent of a majority in interest of the limited partners to the dissolution was obtained on May 29, 1998. As a result, the Partnership has changed its basis of accounting, for the period subsequent to May 29, 1998, from the going concern basis to the liquidation basis. Under the liquidation basis of accounting, net assets and equity are reported at their net realizable value, which may result in a net write-up or write-down. The adoption of the liquidation basis of accounting had no effect on the financial position or results of operations of the Partnership. As of December 31, 1998, the net assets available for distribution to the partners are approximately $233,230 or $7.19 per unit. In the event future obligations are different than expected as a result of factors unknown at this time, the net assets available for distribution may change. The Partnership will likely be liquidated in 1999.
EXHIBIT INDEX Exhibit No. (4)(a)(1) Amended and Restated Certificate and Agreement of Limited Partnership (included in Partnership's Registration Statement No. 2-86262, declared effective on March 22, 1984 (the "Registration Statement") and incorporated herein by reference).
(4)(a)(2) Seventeenth Amendment to Amended and Restated Certificate and Agreement of Limited Partnership dated May 31, 1990 (included as an exhibit to the Partnership's Form 10-K for the fiscal year ended December 31, 1990 and incorporated herein by reference).
(4)(b) Subscription Agreement (included as an Exhibit in the Registration Statement and incorporated herein by reference).
(10)(a) Property management agreement between Autumn Ridge Joint Venture and Berry and Boyle Residential Services.(included as an exhibit to the Partnership's Form 10-K for the fiscal year ended December 31, 1990 and incorporated herein by reference).
(10)(b) Property management agreement regarding Sin Vacas between Cluster Housing Properties and L'Auberge Communities Inc. dated May 15, 1996.
(10)(c) Property management agreement regarding Villa Antigua between Cluster Housing Properties and L'Auberge Communities Inc. dated November 30, 1996.
(10)(d) Documents pertaining to the permanent loan refinancing for the Sin Vacas Joint Venture (included as an exhibit to the Partnership's Form 10-K for the fiscal year ended December 31, 1992 and incorporated herein by reference).
(10)(e) Documents pertaining to the permanent loan refinancing for the Autumn Ridge Joint Venture (included as an exhibit to the Partnership's Form 10-K for the fiscal year ended December 31, 1992 and incorporated herein by reference).
(10)(f) Documents pertaining to the permanent loan refinancing for the Villa Antigua Joint Venture (included as an exhibit to the Partnership's Form 10-K for the fiscal year ended December 31, 1992 and incorporated herein by reference).
(10)(g) First Amendment to Joint Venture Agreement of L'Auberge Pinecliff Joint Venture and Related Assignment of Joint Venture Interest (included as an exhibit to the Partnership's Form 10-K for the fiscal year ended December 31, 1996 and incorporated herein by reference).
(10)(h) Agreement regarding Villa Sin Vacas Joint Venture (included as an exhibit to the Partnership's Form 10-K for the fiscal year ended December 31, 1997 and incorporated herein by reference).
(10)(i) Agreement regarding Villa Antigua Joint Venture (included as an exhibit to the Partnership's Form 10-K for the fiscal year ended December 31, 1997 and incorporated herein by reference).
(10)(j) Purchase and Sale Agreement and Escrow Instructions between Cluster Housing Properties and DRA Advisors, Inc. related to the sale of Pinecliff dated January 15, 1998(included as an exhibit to the Partnership's Form 10-K for the fiscal year ended December 31, 1997 and incorporated herein by reference).
(27) Financial Data Schedule