Offer to Purchase for Cash
All Outstanding Units of Investor Limited Partnership Interests
of
Xxxxx Realty Fund, Ltd. - III
at
$550 Per Unit
by
KRF3 Acquisition Company, L.L.C.
--------------------------------------------------------------------------------
THE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT MIDNIGHT, NEW YORK CITY TIME, ON
JUNE 11, 1999, UNLESS THE OFFER IS EXTENDED.
--------------------------------------------------------------------------------
KRF3 Acquisition Company, L.L.C. (the "Purchaser"), a Delaware limited
liability company, an affiliate of the general partners of the Partnership (as
defined below), is offering to purchase all of the outstanding investor limited
partnership interests (the "Units") in Xxxxx Realty Fund, Ltd. - III, a
Massachusetts limited partnership (the "Partnership"), at a price of $550 per
Unit (the "Offer Price"), payable to the holder of the Unit (a "Unitholder") in
cash, less the aggregate amount of distributions per unit, if any, made by the
Partnership from and after the date of this Offer, without interest, upon the
terms and subject to the conditions set forth in this Offer to Purchase and in
the related Agreement of Assignment and Transfer and accompanying documents, as
each may be supplemented or amended from time to time (which together constitute
the "Offer"). Unitholders who tender their Units will not be obligated to pay
any brokerage fees, commissions or partnership transfer fees in connection with
the tender of Units. The Purchaser will bear the cost of the $50.00 transfer fee
charged by the Partnership (per transfer, not per Unit) in connection with the
Offer.
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THE OFFER IS CONDITIONED UPON, AMONG OTHER THINGS, (I) THERE BEING VALIDLY
TENDERED AND NOT WITHDRAWN PRIOR TO THE EXPIRATION OF THIS OFFER A MAJORITY OF
THE OUTSTANDING UNITS OF THE PARTNERSHIP ON THE DATE OF PURCHASE (THE "MINIMUM
CONDITION") AND (II) THE SATISFACTION OF THE OTHER CONDITIONS DESCRIBED IN "THE
OFFER--SECTION 8. CONDITIONS OF THE OFFER" HEREIN.
THIS OFFER IS NOT SUBJECT TO ANY FINANCING CONDITION.
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IMPORTANT
Any Unitholder desiring to tender any or all of such person's Units should
complete and sign the Agreement of Assignment and Transfer (a copy of which is
printed on yellow paper and enclosed with this Offer to Purchase) in accordance
with the instructions to the Agreement of Assignment and Transfer and mail or
deliver the executed Agreement of Assignment and Transfer and any other required
documents to the Depository at the address set forth on the back cover of this
Offer to Purchase.
THIS OFFER REPRESENTS A SUBSTANTIAL INCREASE OVER THE $425 PER UNIT OFFER
MADE BY MADISON LIQUIDITY INVESTORS 104, LLC ("MADISON") ON APRIL 21, 1999 (THE
"MADISON OFFER"). UNITS TENDERED TO XXXXXXX MUST BE WITHDRAWN IF THE UNITHOLDER
DESIRES TO TENDER THEM INTO THIS OFFER. FOR THE CONVENIENCE OF UNITHOLDERS
DESIRING TO WITHDRAW FROM THE MADISON OFFER A "NOTICE OF WITHDRAWAL" IS ENCLOSED
WHICH, IF RECEIVED BY XXXXXXX ON OR BEFORE MAY 24, 1999, WILL ENABLE SUCH
UNITHOLDERS TO WITHDRAW THEIR ASSIGNMENT TO MADISON OF THEIR UNITS. UNITHOLDERS
SEEKING ASSISTANCE IN WITHDRAWING UNITS TENDERED PURSUANT TO THE MADISON OFFER
MAY CALL THE INFORMATION AGENTS AT THE PHONE NUMBER LISTED ON THE BACK PAGE OF
THIS OFFER TO PURCHASE.
Questions or requests for assistance or additional copies of this Offer to
Purchase or the Agreement of Assignment and Transfer may be directed to the
Information Agents at the telephone number listed on the back cover of this
Offer to Purchase.
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THIS TRANSACTION HAS NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION PASSED UPON
THE FAIRNESS OR MERITS OF SUCH TRANSACTION NOR UPON THE ACCURACY OR ADEQUACY OF
THE INFORMATION CONTAINED IN THIS DOCUMENT. ANY REPRESENTATION TO THE CONTRARY
IS UNLAWFUL.
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The date of the Offer to Purchase is May 14, 1999
2
TABLE OF CONTENTS
Page
INTRODUCTION..................................................................3
SPECIAL FACTORS...............................................................5
Section 1. Background of the Offer......................................5
Section 2. Determination of Offer Price and Fairness of the Offer.......6
Section 3. Purpose of the Offer and Plans for the Partnership...........9
Section 4. Conflicts of Interest and Transactions with Affiliates......10
Section 5. Financing of the Offer......................................11
Section 6. Certain Effects of the Offer on the Market for the
Units; Unit Quotation; Exchange Act Registration; and
Margin Regulations..........................................11
Section 7. Certain Federal Income Tax Consequences.....................12
THE OFFER ...................................................................13
Section 1. Terms of the Offer..........................................13
Section 2. Procedures for Tendering Units..............................14
Section 3. Acceptance for Payment and Payment for Units................15
Section 4. Withdrawal Rights...........................................16
Section 5. Extension of Tender Period; Termination; and Amendment......16
Section 6. Certain Information Concerning the Partnership..............17
Section 7. Certain Information Concerning the Purchaser and its
Affiliates..................................................20
Section 8. Conditions of the Offer.....................................21
Section 9. Certain Legal Matters.......................................22
Section 10. Fees and Expenses...........................................22
Section 11. Miscellaneous...............................................23
EXHIBIT I Consolidated Financial Statements and Schedule................Ex. I
3
To Unitholders of Xxxxx Realty Fund, Ltd. - III:
INTRODUCTION
KRF3 Acquisition Company, L.L.C. (the "Purchaser"), a Delaware limited
liability company, hereby offers to purchase all outstanding units of investor
limited partnership interests (the "Units") in Xxxxx Realty Fund, Ltd. - III, a
Massachusetts limited partnership (the "Partnership"), at a price of $550 per
Unit (the "Offer Price"), payable to the holder thereof (a "Unitholder") in
cash, less the aggregate amount of distributions per Unit, if any, made by the
Partnership from and after the date of this Offer, without interest, upon the
terms and subject to the conditions set forth in this Offer to Purchase (the
"Offer to Purchase") and in the related Agreement of Assignment and Transfer and
accompanying documents, as each may be supplemented, modified or amended from
time to time (which together constitute the "Offer"). Unitholders who tender
their Units will not be obligated to pay any brokerage fees, commissions or
partnership transfer fees in connection with the tender of Units. The Purchaser
will bear the cost of the $50.00 transfer fee charged by the Partnership (per
transfer not per Unit) in connection with the Offer. The Offer will expire at
midnight New York City time, on June 11, 1999, or such other date to which this
Offer may be extended (the "Expiration Date"). The transfer of all tendered
Units is subject to the approval of the Partnership and/or the General Partners.
The Offer is conditioned upon, among other things, (i) there being validly
tendered and not withdrawn prior to the Expiration Date a majority of the
outstanding Units of the Partnership on the date of Purchase (the "Minimum
Condition") and (ii) the satisfaction of the other conditions set forth in "The
Offer--Section 8. Conditions of the Offer," any of which, the Purchaser reserves
the right to waive without notice to the Unitholders. The Offer is not subject
to any financing condition.
According to the most recent Annual Report on Form 10-K filed by the
Partnership with the Securities and Exchange Commission (the "Commission"), as
of December 31, 1998, there were 25,000 Units outstanding. Accordingly, in order
for the Minimum Condition to be satisfied, at least 12,501 Units must be
tendered to the Purchaser pursuant to the Offer. The purpose of the Offer is to
enable the Purchaser to acquire control of, and the entire equity interest in,
the Partnership. The Offer, as the first step in the acquisition of the
Partnership, is intended to facilitate the acquisition of all the Units as
promptly as practicable. The Purchaser currently intends, as soon as practicable
following the consummation of the Offer, to propose and seek to have the
Partnership consummate a merger or similar business combination with the
Purchaser (the "Proposed Merger"). The purpose of the Proposed Merger is to
enable the Purchaser to acquire all Units not tendered and purchased pursuant to
the Offer or otherwise. Pursuant to the Proposed Merger, each then outstanding
Unit (other than Units owned by the Purchaser) would be converted into the right
to receive an amount in cash equal to the price per Unit paid by Purchaser
pursuant to the Offer, without interest.
The Amended Agreement of Limited Partnership of the Partnership, dated as
of June 1, 1982 (the "Partnership Agreement"), prohibits the General Partners
from entering into certain agreements on behalf of the Partnership with
affiliates of the General Partners. Because the Purchaser is an affiliate of the
General Partners, this prohibition prevents the Partnership from entering into a
merger agreement with the Purchaser to consummate the Proposed Merger without
the consent of the holders of a majority of the Units. Accordingly, the
Purchaser currently intends, as soon as practicable following the consummation
of the Offer and in connection with the Proposed Merger, to propose and seek to
have the Partnership amend the Partnership Agreement to permit the Partnership
to enter into a merger agreement as described above and to consummate the
Proposed Merger (the "Proposed Amendment").
Under the Partnership Agreement and the Massachusetts Revised Uniform
Limited Partnership Act ("MRULPA"), each of the Proposed Amendment and the
Proposed Merger will require the affirmative vote or written consent of the
General Partners and limited partners holding a majority of the outstanding
Units. The General Partners have advised the Purchaser that they presently
intend to approve the Proposed Amendment and the Proposed Merger. Assuming the
General Partners take such actions, if the Purchaser acquires, through the Offer
or otherwise, a majority of the outstanding Units, the Purchaser would have
sufficient voting power to approve the Proposed Amendment and the Proposed
Merger without the consent of any other Unitholder. Moreover, because one of the
General Partners has entered into agreements (the "Standstill Agreements") with
the holders of approximately 2,235 Units which, as of the initial Expiration
Date, would require such Unitholders to vote their Units in proportion to the
votes of all other Unitholders who vote on a matter, the Purchaser may have
sufficient voting power to approve the Proposed Amendment and the Proposed
Merger without the consent of any other Unitholder even if it acquires, pursuant
to the Offer and a waiver of the Minimum Condition, or otherwise, less than a
majority of the Units.
Purchaser intends to solicit the approval of Unitholders to the Proposed
Amendment and the Proposed Xxxxxx as soon as practicable following the
consummation of the Offer.
The Offer does not constitute a solicitation of consents from the
Unitholders. Any such solicitation that Purchaser may make will be made only
pursuant to separate consent materials complying with the requirements of
Section 14(a) of the Securities and Exchange Act of 1934, as amended and the
rules and regulations thereunder (the "Exchange Act").
4
In considering the Offer, Unitholders may wish to consider the following
negative factors relating to the Offer:
o The General Partners are affiliates of the Purchaser, and therefore have
substantial conflicts of interest in connection with the Offer.
o The Purchaser is making the Offer with a view to making a profit.
Accordingly, there is a conflict between the desire of the Purchaser to
purchase Units at a low price and the desire of Unitholders to sell their
Units at a high price.
o The Purchaser established the terms and the price of the Offer based on the
analyses described herein, and not as the result of arm's- length
negotiations with the Partnership or the General Partners. No independent
person has evaluated or rendered any opinion with respect to the fairness
of the Offer.
o The Purchaser will have the right to vote all Units acquired pursuant to
the Offer. If the Minimum Condition is satisfied and the Purchaser
consummates the Offer, the Purchaser will have sufficient voting power to
approve the Proposed Amendment and the Proposed Merger, subject only to the
approval of the General Partners (who have advised Purchaser that they
presently intend to grant such approval). As the holder of a majority of
the Units, the Purchaser would also have the power, pursuant to the
Partnership Agreement, to approve certain actions, including certain
amendments to the Partnership Agreement, termination of the Partnership and
sales of all or substantially all of the Partnership's assets, without the
consent of any other Unitholder and, subject to certain limitations,
without the consent of the General Partners.
o If the Minimum Condition is satisfied and the Purchaser consummates the
Offer, the Partnership will terminate for Federal income tax purposes. Any
such termination will, among other things, cause the Partnership to start
new depreciable lives for its assets. This generally would decrease the
annual average depreciation deductions allocable to Units not tendered
pursuant to the Offer (thereby increasing the taxable income allocable to
such Units in each such year), but would have no effect on the total
depreciation deductions available over the useful lives of the assets of
the Partnership. However, if the Purchaser consummates the Offer, and the
Proposed Merger is consummated, Units held by Unitholders who do not tender
their Units in the Offer will be converted into cash in the Proposed
Merger.
o Unitholders who tender their Units will be giving up the opportunity to
participate in any future distributions of cash or property, whether from
operations, the proceeds of a sale or refinancing of one or more of the
Partnership's properties or in connection with any future liquidation of
the Partnership. The aggregate value of such future distributions may
exceed the price per Unit paid by Purchaser pursuant to the Offer.
o No assurance can be given as to the value of the Partnership's assets on a
per Unit basis, and the Offer Price could differ significantly from the net
proceeds that would be realized on a per Unit basis from a current sale of
the Partnership's properties or that may be realized upon a future
liquidation of the Partnership.
In addition to the above, Unitholders may wish to consider the following
positive factors relating to the Offer:
o Based on the analysis described in this Offer to Purchase, the Purchaser
believes the Offer Price is fair to Unitholders. In determining the Offer
Price, the Purchaser utilized varying assumptions that it believes are
reasonable in light of general economic conditions, condition of the
Partnership's business and properties and the markets in which such
properties are located. This analysis produced a range of values for the
Units of $508 to $640 per Unit.
o The Offer Price is $125 per Unit greater (29% higher) than the price being
offered by Madison Liquidity Investors 104, LLC ("Madison") (a bidder that
is not affiliated with the General Partners or the Partnership) in the
offer to purchase up to five percent of the outstanding Units made by
Xxxxxxx on April 21, 1999 (the "Madison Offer"). In addition, because the
Purchaser (unlike Xxxxxxx) has agreed to bear the cost of the $50
partnership transfer fee (per transfer not per Unit) in connection with the
Offer, the Purchaser is effectively offering each Unitholder an additional
$50 over the total amount such Unitholder would receive in the Madison
Offer.
o The Offer provides Unitholders with an immediate opportunity to liquidate
their investment in the Partnership for cash, without the usual transaction
costs associated with market sales or partnership transfer fees. The Units
are not listed or traded on any exchange or quoted on the National
Association of Securities Dealers Automated Quotation System ("NASDAQ"),
and there is a limited private resale market for the Units.
5
o The decision to accept the Offer eliminates the uncertainties relating to
the amount and timing of any liquidating distributions from the
Partnership, which would depend upon the then-current markets for the
Properties, as well as upon amounts that would be required to be reserved
to satisfy contingent liabilities associated with Property sales.
Furthermore, by selling the Units for cash now, Unitholders will enjoy the
ability to redeploy investment assets into alternative and potentially more
liquid investments.
o The properties comprising the Partnership are facing increased competition
from newly constructed and renovated residential units in their markets. To
meet this challenge, substantial capital improvements may be required for
such properties. Implementation of these improvements would require the
investment of additional equity capital, additional borrowings and/or
discontinuation of future cash distributions from the Partnership, and the
Partnership's ability to finance such improvements given its current
capital structure is uncertain. Consequently, the Offer presents an
opportunity for Unitholders who do not wish to continue to participate in
the risks associated with ownership of multifamily properties, including
the risks associated with these recent developments in the Partnership's
markets.
o For Unitholders who sell their Units in the Offer, 1999 will be the final
year for which they receive a K-1 Tax Form from the Partnership, assuming
that the transfer of their Units is effectuated by the General Partners in
1999. Many investors who have tax professionals prepare their tax returns
find the cost of filing K-1s to be burdensome.
o Unlike the Madison Offer, the Offer is not limited to a specified maximum
number of Units. Accordingly, if the conditions to the Offer are satisfied
and the Purchaser consummates the Offer, each Unitholder that has tendered
Units pursuant to the Offer will receive the Offer Price per Unit and will
not be subject to proration.
o The Offer is not subject to a financing contingency, which increases the
likelihood that the conditions to the Offer will be satisfied and that the
Offer will be consummated.
THIS OFFER TO PURCHASE AND THE RELATED AGREEMENT AND ASSIGNMENT OF TRANSFER
CONTAIN IMPORTANT INFORMATION WHICH SHOULD BE READ CAREFULLY BEFORE ANY DECISION
IS MADE WITH RESPECT TO THE OFFER.
SPECIAL FACTORS
Section 1. Background of the Offer
The Partnership owns and operates one multi-family apartment complex in
Columbus, Ohio (the "Brookeville Apartments") and two multi-family apartment
complexes in Columbia, Maryland (the "Hannibal Grove Apartments" and the
"Xxxxxx'x Forge Apartments.") The Brookeville Apartments, the Hannibal Grove
Apartments and the Xxxxxx'x Forge Apartments (collectively, the "Properties")
were constructed in 1972, 1970 and 1970, respectively, and, except for an
interior renovation of the Brookeville Apartments completed in 1998, have not
undergone significant renovation. For a description of the Properties, see "The
Offer--Section 6. Certain Information Concerning the Partnership."
In the first quarter of 1999, occupancy rates for the Properties declined
from the historically high levels achieved in 1998 of between 99% and 100% as of
December 31, 1998 to approximately 94% (in the case of the Hannibal Grove
Apartments), 97% (in the case of the Brookeville Apartments) and 97.5% (in the
case of the Xxxxxx'x Forge Apartments) as of March 31, 1999. Moreover, the
managing agent for the Properties (an affiliate of the General Partners and the
Purchaser) (the "Property Manager") granted increased rental concessions to
tenants in order to achieve these occupancy rates.
The Property Manager believes that this decline in occupancy rates is
attributable to significantly increased competition resulting from newly
constructed or renovated housing entering the markets served by the Properties,
a trend that the Property Manager believes is expected to continue over the next
several years. In Columbus, Ohio, approximately 8,600 new units have been
constructed in the past eighteen months or are currently under construction, and
in Columbia, Maryland, approximately 961 newly renovated units have entered the
market in the past year, with an additional 974 units currently undergoing
renovation.
In March 1999, the Property Manager prepared a capital improvement plan
(the "Capital Plan") setting forth capital improvements that it believes a third
party purchaser of the Properties would regard as necessary to maintain the
Properties' current occupancy and rent levels (subject to inflationary
increases), in light of the increased competition in the markets served by the
Partnership.
6
These capital improvements include interior rehabilitation, replacement of
windows, roofs, piping and HVAC systems, as well as improvements to parking
lots, landscaping and exterior painting (collectively, the "Improvements"). The
aggregate cost of implementing the Capital Plan is estimated to be approximately
$10,000,000. The Property Manager has advised the Purchaser that in view of the
new or newly renovated housing alternatives in the areas served by the
Properties, the current occupancy rates enjoyed by the Properties may not be
sustained unless the Capital Plan is implemented, particularly since many of the
newer residential units will have amenities such as fitness centers, tennis
courts and swimming pools that the Properties do not.
The General Partners have not yet determined the Partnership's response to
the challenges presented by these market developments. However, the Purchaser
believes that prompt and full implementation of the Capital Plan by the
Partnership may not be practicable because it would require the investment of
additional equity capital, additional borrowings and/or the discontinuation of
future cash distributions from the Partnership.
On April 21, 1999, Xxxxxxx announced its offer to purchase up to five
percent of the outstanding Units for $425 per unit, less a $50 transfer fee
charged by the Partnership (per transfer, not per Unit) and any cash
distributions made after April 21, 1999. The Madison Offer, together with
uncertainties regarding the Properties described above, caused certain
affiliates of the General Partners to decide to seek to acquire the Units at
this time. The Purchaser chose to make the Offer because (i) it was willing to
pay a higher price for the Units than that offered by Xxxxxxx, (ii) it could
offer Unitholders the opportunity to benefit from immediate liquidity for all
Units tendered, (iii) it believed it could offer a price that is fair to
Unitholders and (iv) as noted below, it (through its affiliates) is engaged in
the business of utilizing capital to, among other things, renovate residential
real estate properties.
The Purchaser's affiliates, including the General Partners, regularly
engage in real estate-related activities including acquiring, developing,
renovating and rehabilitating, financing and divesting properties. As part of
these activities, they regularly monitor the real estate market for acquisition
opportunities. The Purchaser believes that the acquisition of the Partnership
presents an opportunity to realize an acceptable return on amounts invested in
acquiring the Units and making the Improvements, while at the same time offering
the Unitholders an opportunity to receive a fair price for their Units within a
short period of time.
In establishing the Offer Price, the Purchaser (which is an affiliate of
the General Partners) reviewed certain publicly available information and
certain information made available to it by the General Partners and their
affiliates (including the Property Manager). Such information included, among
other things: (i) the Partnership Agreement; (ii) the Partnership's Annual
Report on Form 10-K for the years ended December 31, 1998 and December 31, 1997;
(iii) financial information relating to the Partnership for the first quarter of
Partnership's current fiscal year; (iv) the operating budgets prepared by the
Property Manager for the Properties for the year ending December 31, 1999; (v)
the Capital Plan; (vi) mortgages and associated documents relating to the
Properties; and (vii) other information obtained by the Purchaser and from
affiliates of the General Partners in their capacities as providers of property
management and partnership administration services to the Partnership. The
Purchaser's determination of the Offer Price was based on its review and
analysis of the foregoing information and the other financial information and
analyses concerning the Partnership summarized below.
Section 2. Determination of Offer Price and Fairness of the Offer
Determination of the Offer Price. As described below, the Purchaser
developed a valuation range for a Unit of between $508 and $640. Although the
Purchaser believes that any price within such range would be fair to
Unitholders, and was motivated to establish the lowest price within such range
of fairness that might be acceptable to Unitholders, it recognized the
subjective nature of real estate valuation, and determined to offer $550 Unit.
Fairness of the Offer. While the Offer Price is not the result of
arm's-length negotiations between the Purchaser and the Partnership, the
Purchaser believes that the Offer Price and the other terms of the Offer are
fair to Unitholders who tender Units in response to the Offer or whose Units may
be acquired by the Purchaser as part of the Proposed Merger (if consummated).
The Purchaser bases its conclusion on the following factors:
o the fact that the Offer Price falls within a range of values
calculated by the Purchaser to estimate the value of each Unit;
o the fact that the Offer Price is higher than (a) the purchase price
offered by unaffiliated third parties wishing to purchase Units, in
particular the Madison Offer, and (b) the purchase price realized by
Unitholders who sold their Units in recent privately negotiated
transactions as reported by independent, third-party sources whose
reporting may not be accurate or complete and which the Purchaser has not
independently verified;
o the fact that the Offer will provide Unitholders the opportunity to
receive cash for their Units within a short period of time, and that this
opportunity may benefit Unitholders in light of the fact that (a)
Unitholders do not have an established trading market
7
in which to liquidate their Units since the Units are not listed or traded
on any exchange or NASDAQ and (b) some Unitholders may not wish to continue
to participate in the risks associated with ownership of multifamily
properties, including the risks associated with recent developments and
uncertainties in the Properties' markets;
o the Purchaser's belief that changing market conditions may adversely
affect the future cash flows generated by the Properties unless the Capital
Plan is implemented, and that the Partnership may not be able to finance
the Improvements contained in the Capital Plan;
o the fact that in the event the Partnership is liquidated, the amount
and timing of liquidating distributions to Unitholders would be subject to
considerable uncertainties, and would depend upon the then-current markets
for the Properties, as well as upon the amounts that would be required to
be reserved to satisfy contingent liabilities associated with Property
sales;
o the fact that the Offer is not subject to a financing contingency,
which increases the likelihood that Unitholders who desire to tender their
Units and realize liquidity will be able to do so; and
o the fact that the Offer is not limited to a maximum number of Units
that will be accepted by the Purchaser, but rather the Purchaser will
purchase all Units duly tendered pursuant to the Offer.
The Purchaser did not find it practicable to quantify or otherwise attach
relative weights to the specific factors described above.
Based on the liquidation analysis described below (which Xxxxxxxxx believes
is the most appropriate valuation methodology), the Purchaser has determined
that the fair value of each Unit falls within a range of $508 to $640. Because
the determination of the Properties' value requires the utilization of varying
assumptions, upon which knowledgeable, experienced real estate professionals may
take different views, the Purchaser has expressed the value of the Properties as
a range and has described the assumptions utilized to calculate the values
within the range more fully below.
Liquidation Analysis. The Purchaser determined that the fair value of each
Unit falls within a range of $508 to $640 based upon the liquidation analysis
described below. The Purchaser calculated this range on the basis of its
estimate of the proceeds that could be realized from the sale of the Properties
and the Partnership's other assets, less mortgage debt and other liabilities. To
determine the prices at which the Properties could be sold by the Partnership,
the Purchaser applied a capitalization rate of 9% to the net cash flow expected
to be generated by the Properties in 1999, adjusted to reflect factors that a
third party purchaser would consider relevant in evaluating the purchase of the
Properties, and then subtracted amounts related to necessary capital
improvements (i.e., the Capital Plan) and transaction costs associated with the
purchase of the Property.
In deriving the net cash flow attributable to the Properties, the Purchaser
made the following adjustments to 1999 budgeted cash flow: (a) an increase to
current gross rents to reflect varying growth rates of between 1.5% and 3% per
annum, offset by vacancy and bad debt expense at a rate of 7%; and (b)
adjustments to expenses associated with the Properties following a sale to a
third party, including insurance costs, varying levels of replacement reserves,
taxes and management fees. This resulted in estimated aggregate cash flows for
the Properties of between $3,753,000 and $4,065,000, against which the Purchaser
applied a capitalization rate of 9% and deducted (a) estimated closing costs
associated with such sales of 3% and (b) the estimated cost of the Improvements
of $10,000,000 to arrive at an aggregate gross value of the Properties of
between $30,467,000 and $33,828,000. The addition of approximately $1,614,000 of
cash and other assets of the Partnerships, less $19,205,000 of mortgage debt and
other liabilities associated with the Partnership, resulted in a value range for
the Units of between $508 and $640.
Projections are by their nature speculative and no assurance can be given
that a projection will accurately reflect the rental income actually achieved. A
capitalization rate is a rate of return commonly applied by buyers of real
estate to property income to determine the present value of income property. The
choice of capitalization rate is subjective and based on, among other things a
buyer's evaluation of a property's location and condition. The lower the
capitalization rate utilized, the higher the value produced, and the higher the
capitalization rate utilized, the lower the value produced. The Purchaser
utilized a capitalization rate of 9% to determine the value of the Properties.
The Madison Offer utilized a capitalization rate of 12.43%, which Xxxxxxx stated
was within the range of capitalization rates currently employed in the
marketplace for apartment buildings of the Properties' age and quality. In
connection with a third-party tender offer in 1996, the General Partners
estimated the value of a Unit at $661. Such valuation was based on market and
other conditions at the time, and did not reflect the current market conditions
and the expenditures that would be required to implement the Capital Plan.
Although the Purchaser believes that the values calculated utilizing the
method described above fairly represent the value of the Properties and the
value of the Units, an actual sale of the Properties at this time or in the
future might generate a sale price either higher or lower than the range of
values calculated above.
8
Further, the Purchaser believes that the per Unit proceeds which would be
realized by Unitholders upon a liquidation of the Properties would be further
reduced by contingent liabilities associated with the Properties. The range of
values estimated above does not take into account timing considerations, market
uncertainties and legal and other expenses that would be incurred in connection
with a liquidation of the Partnership. An actual liquidation of the Partnership
now, or in the future, might generate a higher or lower value for each Unit.
As noted above, the General Partners have not yet determined how the
Partnership would respond to the market developments described above in the
event the Offer and the transactions contemplated hereby are not consummated.
However, in the event the General Partners determine to sell the Properties in
the future, the proceeds of such a sale would be subject to uncertainties in the
real estate and financing markets at the time, as well as to possible adverse
effects upon the cash flows generated by the Properties by the additions to the
housing base in the markets served by the Properties.
In view of the developments occurring in the markets described above, the
expenditures required by the Capital Plan and the potential inability of the
Partnership to finance the Improvements internally and through additional
borrowings, the Purchaser believes that the liquidation analysis described above
is the most appropriate valuation methodology.
Book Value. Because the Partnership's principal assets, the Properties, are
carried on the Partnership's balance sheet at their historical cost and have
been depreciated over the thirteen years of the Partnership's existence, the net
book value of a Unit is a negative number, and therefore the Purchaser does not
believe net book value is meaningful in determining the fairness of the Offer.
Comparison With Recent Offers to Purchase Units. The Offer Price of $550
per Unit is $235 higher than the $315 per Unit offer made by Krescent Partners
L.L.C. on November 26, 1996 and at least $125 higher than the Madison Offer. The
amount offered to Unitholders in the Madison Offer is reduced by a $50.00
transfer fee (per transfer, not per Unit); accordingly, the actual purchase
price offered by Xxxxxxx is less than $425.00 per Unit (the "Madison Offer
Price") and the price offered by the Purchaser is actually more than $125 higher
than the Madison Offer Price. The actual amount per Unit by which the Offer
Price exceeds the Madison Offer Price will vary based on the number of Units
tendered by a Unitholder to Madison. The Purchaser does not believe that the
Madison Offer reflects an accurate value of the Units. Therefore, while
comparisons with the Madison Offer are informative, in and of themselves they
are not dispositive of the fairness of the Offer Price.
Recent Unit Sales. Although not necessarily an indication of value, the
$550 Offer Price per Unit is higher than the trading prices for the Units during
the past year as reported by the Xxxxxxx Ranking, an independent third-party.
The Purchaser does not know whether the information compiled by the Xxxxxxx
Ranking is accurate or complete. The Xxxxxxx Ranking reports that for the twelve
months ended February 28, 1999 (the last period reported), the Units traded at
prices ranging between $438.50 and $495.00. Trading prices as reported by the
Xxxxxxx Ranking do not necessarily reflect the net sales proceeds received by
sellers of Units, which typically are reduced by commissions and other secondary
market transaction costs. The Purchaser has not independently confirmed the
trading prices referral to above, and believes that such prices are not
necessarily indicative of value. Consequently, the Purchaser believes that the
comparison of the Offer Price with such prices, while informative, is not
dispositive of the fairness of the Offer Price.
Liquidity. Because the Units are not listed or traded on any exchange or
quoted on NASDAQ, privately negotiated sales and sales through intermediaries
are the only regularly available means for a Unitholder to liquidate an
investment in Units. Secondary market sales activity for the Units, including
privately negotiated sales, has been limited and sporadic.
This Offer gives all Unitholders the opportunity to liquidate their
investment for a known, certain cash payment within a relatively short time
frame and without any holdback for contingent liabilities. Because of the
limited opportunities to sell Units, a Unitholder may not achieve liquidity
until the properties are sold and the Partnership is liquidated. Under the
Partnership Agreement, the term of the Partnership will continue until December
31, 2020 unless sooner terminated as provided in the Limited Partnership
Agreement or by law.
Section 3. Purpose of the Offer and Plans for the Partnership
Purpose. The purpose of the Offer, the Proposed Amendment and the Proposed
Merger is to enable the Purchaser to acquire the entire equity interest in the
Partnership. While the Purchaser may have been able to consummate the Proposed
Merger through a proxy solicitation to all Unitholders seeking adoption of the
Proposed Amendment, and approval of the Proposed Merger, the Offer, as the first
step in the acquisition of the Partnership, is intended to facilitate the
acquisition of all the Units and to provide cash to Unitholders for their Units
as promptly as practicable. The Purchaser currently intends, as soon as
practicable following consummation of the Offer, to propose and seek to
consummate the Proposed Amendment and the Proposed Merger.
9
The purpose of the Proposed Amendment is to amend the Partnership Agreement to
permit the Partnership to enter into a merger agreement with the Purchaser to
consummate the Proposed Merger. The purpose of the Proposed Merger is to acquire
all Units not tendered and purchased pursuant to the Offer or otherwise and to
enable the Purchaser to acquire all other equity interests of the Partnership.
Pursuant to the Proposed Merger, each then outstanding Unit (other than Units
owned by the Purchaser), would be converted into the right to receive an amount
in cash equal to the price per Unit paid by the Purchaser pursuant to the Offer,
without interest and the general partnership interests and the original limited
partnership interests, currently owned by affiliates of the Purchaser, would be
canceled.
Under the Partnership Agreement and the MRULPA, approval of the Proposed
Amendment and the Proposed Merger requires the affirmative vote or written
consent of the General Partners and limited partners holding a majority of the
outstanding Units (including any Units owned by the Purchaser). The General
Partners have advised the Purchaser that they presently intend, subject to their
fiduciary duties to the Partnership, (i) to give their written consent to the
transfer of any Units tendered to the Purchaser pursuant to the Offer and, in
connection therewith, to the admission of the Purchaser as a "substitute limited
partner" of the Partnership entitled to voting rights with respect to such
Units, (ii) to approve the Proposed Amendment and the Proposed Xxxxxx and (iii)
subject to the adoption of the Proposed Amendment, to execute a definitive
merger agreement to effectuate the Proposed Merger. Assuming the General
Partners take such actions, if the Purchaser acquires, through the Offer or
otherwise, at least a majority of the outstanding Units, which would be the case
if the Minimum Condition were satisfied (or, as a result of the voting
provisions in the Standstill Agreements, a lesser number of Units), it would
have sufficient voting power to approve the Proposed Amendment and the Proposed
Merger without the consent of any other Unitholder.
No appraisal rights are available to Unitholders as a result of the Offer.
In addition, no appraisal rights will be available to Unitholders in connection
with the Proposed Merger.
The Purchaser intends to solicit (or, pursuant to the Partnership
Agreement, request the General Partners to solicit) the approval of Unitholders
to the Proposed Amendment and the Proposed Merger as soon as practicable
following the consummation of the Offer. The precise timing and other terms of
the Proposed Merger will depend on a variety of factors such as the timing and
extent of the review of the solicitation documents by the Commission, general
economic conditions; the economic conditions, prospects, asset value and
earnings of the Partnership; the number of Units acquired by the Purchaser
pursuant to the Offer or otherwise; and the requirements of the Partnership
Agreement and MRULPA described above. Although the Purchaser presently intends
to seek to effect the Proposed Amendment and the Proposed Merger promptly
following the consummation of the Offer, there is no assurance that they will be
proposed or that, if proposed, they will not be delayed or abandoned. The
Purchaser expressly reserves the right not to propose the Proposed Amendment and
the Proposed Merger, or to propose a merger or other business combination on
terms other than those set forth herein, and its ultimate decision could be
affected by information hereafter obtained by the Purchaser, changes in general
economic or market conditions or in the business of the Partnership or other
factors. If a merger or other business combination other than the Proposed
Merger is consummated, holders of Units at the effective time of such
transaction may or may not have appraisal rights in connection therewith,
depending upon the terms of any such transaction.
If the Proposed Merger is not consummated, the Purchaser or an affiliate of
the Purchaser may, either immediately following the consummation or termination
of the Offer (whether or not the Purchaser purchases Units pursuant to the
Offer), or from time to time thereafter, seek to acquire additional Units
through open market purchases, privately negotiated transactions, a tender offer
or exchange offer or otherwise, upon such terms and at such prices as it may
determine, which may be more or less than the Offer Price. Alternatively, the
Purchaser and its affiliates reserve the right to sell or otherwise dispose of
any or all of the Units acquired by them pursuant to the Offer or otherwise,
upon such terms and at such prices as they shall determine.
The Offer does not constitute a solicitation of consents from the
Unitholders. Any such solicitation that Purchaser may make will be made only
pursuant to separate consent materials complying with the requirements of
Section 14(a) of the Exchange Act and the rules and regulations thereunder.
Plans for the Partnership. Following the consummation of the Offer, the
Proposed Amendment and the Proposed Merger, the Purchaser intends to conduct a
detailed review of the Partnership and its assets, the Capital Plan, its
corporate structure, dividend policy, capitalization, operations, properties,
policies, management and personnel and consider what further changes, if any,
would be desirable in light of the circumstances which then exist. Based on its
evaluation, the Purchaser may finance all or a portion of the Improvements by
the following means, alone or in combination: (i) an equity or capital
contribution to the Partnership, (ii) a refinancing of the Properties or (iii) a
sale of a portion of the Partnership's assets. The Purchaser reserves the right
to accelerate, extend or amend the Capital Plan, and may elect not to implement
the Improvements or any portion thereof. The Purchaser's determinations will
depend on, among other things, general economic conditions, the conditions of
the real estate markets in which the Properties are located, the physical
condition of the Properties at the time the Proposed Merger is consummated, the
Properties' vacancy rates at the time the Proposed Merger is consummated,
prepayment penalties associated with each of the respective loan facilities
encumbering the Properties and the terms available to the Partnership for new
financing arrangements. The Purchaser intends to review the Partnership's policy
with respect to distributions and may, based on its assessment, reduce or
eliminate the distributions paid by the Partnership. The Purchaser expressly
reserves the right to make any changes
10
that it deems necessary or appropriate in light of its review or in light of
future developments. Such changes could include changes in the Partnership's
business, corporate structure, organizational documents, capitalization,
management or dividend policy.
Except as described in this Section and elsewhere in this Offer to
Purchase, following the consummation of the Offer, the Proposed Amendment and
the Proposed Merger, the Purchaser presently intends to conduct the business and
operations of the Partnership substantially as they are currently conducted.
Section 4. Conflicts of Interest and Transactions with Affiliates.
Conflicts of Interest with Respect to the Offer. The General Partners are
affiliates of the Purchaser. The General Partners have conflicts of interest
with respect to the Offer, as a result of their affiliation with the Purchaser
and otherwise, including (i) the desire of the Purchaser (which is an affiliate
of the General Partners) to maximize the value of its ownership of the Units
(including its desire to increase its profit by acquiring Units at a low price
and its present intention to propose the Proposed Merger following the
successful consummation of the Offer), which may result in a conflict for the
General Partners in attempting to reconcile the interests of the Purchaser with
the interests of the Unitholders; (ii) the fact that a sale or liquidation of
the Partnership's assets would result in a decrease or elimination of the
distributions received by the General Partners in respect of their interests in
the Partnership and/or the fees paid to their affiliates in connection with
services provided to the Partnership; and (iii) the fact that, if successful,
the Offer will place the Purchaser (which is an affiliate of the General
Partners) in a position to control all Partnership decisions on which
Unitholders may vote, including removal of the General Partners and, due to its
affiliation with the General Partners, and their affiliates, the Purchaser will
most likely vote the Units owned by it in whatever manner it deems to be in the
best interests of the General Partners and their affiliates but may or may not
be in the interest of the other Unitholders, including voting against the
elimination or a decrease in fees payable to affiliates of the Purchaser or the
General Partners.
Voting Power of the Purchaser. The Purchaser's consummation of the Offer is
conditioned on, among other things, satisfaction of the Minimum Condition (see
"The Offer--Section 8. Conditions of the Offer"). If the Minimum Condition were
satisfied, the Purchaser were to accept for payment the Units tendered pursuant
to the Offer, and the General Partners were to admit the Purchaser as a
substitute limited partner under the Partnership Agreement (which admittance
allows a Unitholder to vote), then the Purchaser would have the power to vote a
majority of the Partnership's Units. As the holder of a majority of the
Partnership's Units, the Purchaser would have certain powers under the
Partnership Agreement, including, subject to certain conditions, the power to
(i) approve certain amendments to the Partnership Agreement, (ii) terminate the
Partnership (iii) remove the General Partners, or (iv) approve or disprove of
the sale of all or substantially all the assets of the Partnership, in each case
in its sole discretion without the consent of any other Unitholder and, subject
to certain limitations, without the consent of the General Partners. Under the
Standstill Agreements, the holders of approximately 2,235 Units as of the
initial Expiration Date, have agreed to vote their Units in proportion to the
votes of all other Unitholders who vote on a matter. As a result, the Purchaser
may be in the same position as a holder of a majority of the Units even if it
acquires less than a majority of the Partnership's Units. The General Partners
have advised the Purchaser that they presently intend, subject to their
fiduciary duties to the Partnership, to take certain actions, including
consenting to the transfer of tendered Units, admitting the Purchaser as a
substitute limited partner and granting their approval and consent to the
Proposed Amendment and the Proposed Merger (see "Special Factors--Section 3.
Purpose of the Offer and Plans for the Partnership"). Assuming the General
Partners take such actions, Purchaser, as the holder of a majority of the Units
(or, by operation of the voting provisions of the Standstill Agreements
described above, a lesser amount), will have sufficient voting power to approve
the Proposed Amendment and the Proposed Merger without the consent of any other
Unitholder.
Transactions with Affiliates. The following describes certain agreements
and transactions between Purchaser and its affiliates (including the General
Partners) and the Partnership.
Pursuant to the Partnership Agreement, the General Partners are entitled to
certain cash distributions in respect of their interests in the Partnership. The
General Partners have received aggregate cash distributions in respect of such
interests of $4,174, $4,174 and $6,261 for the years ended December 31, 1996,
1997 and 1998, respectively.
Pursuant to certain management agreements (the "Management Agreements"),
the Property Manager (an affiliate of the General Partners) receives property
management fees in return for management of the Properties. The Management
Agreements provide for the payment of monthly management fees payable at the
rate of up to 5% of rents and other income actually received by the Partnership.
In addition, although the General Partners and their affiliates do not receive
any fees from the Partnership for the partnership administration services
provided to the Partnership, the Property Manager and other affiliates of the
General Partners are reimbursed by the Partnership for expenses incurred in
connection with the provision of services including accounting, computer,
insurance, travel, payroll, and legal services and the preparation and mailing
of reports and other communication to Unitholders. For the three years ended
December 31, 1996, 1997 and 1998, and for the three months ended March 31, 1999,
the Partnership paid such affiliate property management fees and reimbursement
of expenses aggregating $499,495, $536,798, $540,461 and $138,179, respectively.
11
Pursuant to the Partnership Agreement, the General Partners are entitled to
a brokerage fee in an amount equal to 3% of the contract sales price of any real
estate acquired by the Partnership, subject to certain limitations. No brokerage
fees have been paid to the General Partners or their affiliates during the
three-year period ending December 31, 1998 and the quarter ended March 31, 1999.
The Offer, in and of itself, will not result in any change in the
compensation payable to the General Partners or their affiliates. However, as a
result of the Offer, the Purchaser (which is an affiliate of the General
Partners) will participate, in its capacity as a Unitholder, in any subsequent
distributions to Unitholders to the extent of the number of Units purchased
pursuant to the Offer.
On January 2, 1999, an affiliate of the Purchaser acquired 10 Units at a
price of $1,000 per Unit from a long time employee receiving long term
disability benefits. The employee worked directly or indirectly for many
affiliates of the Purchaser during her tenure. For a description of Units held
by affiliates of the Purchaser see "The Offer--Section 7. Certain Information
Concerning the Purchaser and its Affiliates."
Section 5. Financing of the Offer
The Purchaser expects that approximately $13,750,000 will be required to
purchase all of the outstanding Units, if tendered, and approximately $260,000
will be required to pay related fees and expenses (see "The Offer--Section 10.
Fees and Expenses"). The Purchaser presently anticipates funding the entire
amount of the consideration required to consummate the Offer and all related
expenses through capital contributions to be made by its member, KRF Company,
L.L.C., a Delaware limited liability company ("KRF Company"), which in turn will
finance its capital contributions to the Purchaser through capital contributions
from its member. The sole member of KRF Company is The Xxxxx Family Limited
Partnership-94, a Massachusetts limited partnership ("Family Limited
Partnership"). The Family Limited Partnership has available sufficient amounts
of liquid capital necessary to fund the acquisition of all Units subject to the
Offer, the expenses to be incurred in connection with the Offer, and all other
anticipated costs of the Purchaser (see "The Offer--Section 7. Certain
Information Concerning the Purchaser and its Affiliates"). However, the
Purchaser may, in the alternative, seek to obtain debt financing to facilitate
the purchase of Units pursuant to the Offer. No commitment has been sought or
obtained for any such debt financing.
Section 6. Certain Effects of the Offer on the Market for the Units; Unit
Quotation; Exchange Act Registration; and Margin Regulations
The purchase of Units pursuant to the Offer will reduce the number of Units
that might otherwise trade publicly and the number of Unitholders, and could
adversely affect the liquidity and market value of the remaining Units. However,
because the Units are not traded in any organized market, the purchase of Units
pursuant to the Offer is not expected to affect the market for the Units.
The Units are currently registered under the Exchange Act. Such
registration may be terminated upon application to the Commission if the Units
are not listed on a national securities exchange and there are fewer than 300
record holders. Termination of registration under the Exchange Act would
substantially reduce the information required to be furnished by the Partnership
to its Unitholders and to the Commission and would make inapplicable to the
Partnership certain provisions of the Exchange Act, such as the short-swing
profit recovery provisions of Section 16(b), the requirements to furnish proxy
statements in connection with Unitholders' meetings pursuant to Section 14(a),
and the requirements of Rule 13e-3 under the Exchange Act with respect to "going
private" transactions. Furthermore, if the Purchaser acquires a substantial
number of Units, the ability of "affiliates" of the Partnership and persons
holding "restricted securities" of the Partnership to dispose of such securities
pursuant to Rule 144 or 144A promulgated under the Securities Act of 1933, as
amended, may be impaired or eliminated. The Purchaser presently intends to cause
the Partnership to apply for termination of registration of the Units under the
Exchange Act following the consummation of the Offer, the Proposed Amendment and
the Proposed Merger. The General Partners have advised Purchaser that if, as a
result of the purchase of the Units pursuant to the Offer, the Partnership is no
longer required to maintain registration of the Units under the Exchange Act,
the General Partners presently intend, subject to their fiduciary duties to the
Partnership, to cause the Partnership to apply for termination of such
registration.
The Units are currently not "margin securities" under the regulations of
the Board of Governors of the Federal Reserve System ("Margin Securities"). The
purchase of Units pursuant to the Offer and/or effectuation of the Proposed
Amendment and the Proposed Merger will not cause the Units to become Margin
Securities.
Section 7. Certain Federal Income Tax Consequences.
The following summary is a general discussion of certain federal income tax
consequences of a sale of Units pursuant to the Offer assuming that the
Partnership is a partnership for federal income tax purposes and that it is not
a "publicly traded partnership" as defined in Section 7704 of the Internal
Revenue Code of 1986, as amended (the "Code"). This summary is based on the
Code, applicable Treasury Regulations thereunder, administrative rulings,
practice and procedures and judicial authority as of the date of the Offer. All
of the foregoing
12
are subject to change, and any such change could affect the continuing accuracy
of this summary. This summary does not discuss all aspects of federal income
taxation that may be relevant to a particular Unitholder in light of such
Unitholder's specific circumstances or to certain types of Unitholders subject
to special treatment under the federal income tax laws (for example, foreign
persons, dealers in securities, banks, insurance companies and tax-exempt
organizations), nor does it discuss any aspect of state, local, foreign or other
tax laws. Sales of Units pursuant to the Offer will be taxable transactions for
federal income tax purposes, and may also be taxable transactions under
applicable state, local, foreign and other tax laws.
EACH UNITHOLDER SHOULD CONSULT HIS OR ITS TAX ADVISOR AS TO THE PARTICULAR
TAX CONSEQUENCES TO SUCH UNITHOLDER OF SELLING UNITS PURSUANT TO THE OFFER.
CONSEQUENCES TO TENDERING UNITHOLDER. A Unitholder will recognize gain or
loss on a sale of Units pursuant to the Offer equal to the difference between
(i) the Unitholder's "amount realized" on the sale and (ii) the Unitholder's
adjusted tax basis in the Units sold. The "amount realized" with respect to a
Unit sold pursuant to the Offer will be a sum equal to the amount of cash
received by the Unitholder for the Unit plus the amount of Partnership
liabilities allocable to the Unit (as determined under Code Section 752). The
amount of a Unitholder's adjusted tax basis in Units sold pursuant to the Offer
will vary depending upon the Unitholder's particular circumstances, and will be
affected by both allocations of Partnership income, gain or loss, and any cash
distributions made by the Partnership to a Unitholder with respect to such
Units. In this regard, tendering Unitholders will be allocated a pro rata share
of the Partnership's taxable income or loss with respect to Units sold pursuant
to the Offer through the effective date of the sale.
The amount of a Unitholder's taxable gain may, depending on such
Unitholder's adjusted tax basis in Units, exceed the amount of cash to be
received by the Unitholder.
In general, the character (as capital or ordinary) of a Unitholder's gain
or loss on a sale of a Unit pursuant to the Offer will be determined by
allocating the Unitholder's amount realized on the sale and the Unitholder's
adjusted tax basis in the Units sold between "Section 751 items," which are
"inventory items" and "unrealized receivables" (including depreciation
recapture) as defined in Code Section 751, and non-Section 751 items. The
difference between the portion of the Unitholder's amount realized that is
allocable to Section 751 items and the portion of the Unitholder's adjusted tax
basis in the Units sold that is so allocable will be treated as ordinary income
or loss, and the difference between the Unitholder's remaining amount realized
and remaining adjusted tax basis will be treated as capital gain or loss
assuming the Units were held by the Unitholder as a capital asset. The Purchaser
believes that substantially all of any gain realized on a sale of Units pursuant
to the Offer will be treated as a capital gain under these rules.
A Unitholder's capital gain or loss, if any, on a sale of Units pursuant to
the Offer will be treated as long-term capital gain or loss if the Unitholder's
holding period for the Units exceeds one year. Under current law (which is
subject to change), long-term capital gains of individuals and other
non-corporate taxpayers generally are taxed at a maximum marginal federal income
tax rate of 20% (or 25% on recapture of the amount of accelerated depreciation
on real property), whereas the maximum marginal federal income tax rate for
other income of such persons is 39.6%. Capital losses are deductible only to the
extent of capital gains, except that non-corporate taxpayers may deduct up to
$3,000 of capital losses in excess of the amount of their capital gains against
ordinary income. Excess capital losses generally can be carried forward to
succeeding years (a corporation's carryforward period is five years and a
non-corporate taxpayer can carry forward such losses indefinitely); in addition,
corporations, but not non-corporate taxpayers, are allowed to carry back excess
capital losses to the three preceding taxable years.
Under Code Section 469, a non-corporate taxpayer or personal service
corporation can deduct passive activity losses in any year (other than the year
in which the taxpayer's entire interest in the activity is disposed of) only to
the extent of such person's passive activity income for such year, and closely
held corporations may not offset such losses against so-called "portfolio"
income. A Unitholder with "suspended" passive activity losses (i.e., net tax
losses in excess of statutorily provided "phase-in" amounts) from the
Partnership generally will be entitled to offset such losses against any income
or gain recognized by the Unitholder on a sale of his Units pursuant to the
Offer.
Xxxx realized by a foreign Unitholder on a sale of a Unit pursuant to the
Offer will be subject to federal income tax. Under Section 1445 of the Code, the
transferee of a partnership interest held by a foreign person generally is
required to deduct and withhold a tax equal to 10% of the amount realized on the
disposition. The Purchaser will withhold 10% of the amount realized by a
tendering foreign Unitholder from the Purchase Price payable to such foreign
Unitholder. Amounts withheld would be creditable against a foreign Unitholder's
federal income tax liability and, if in excess thereof, a refund could be
obtained from the Internal Revenue Service by filing a U.S. income tax return.
CONSEQUENCES TO A NON-TENDERING UNITHOLDER. If the Minimum Condition is
satisfied and the Offer is completed, there will be a sale or exchange of 50% or
more of the total Units in Partnership capital and profits within a 12-month
period and, as a result, a termination of the Partnership for federal income tax
purposes will occur, and the taxable year of the Partnership will close.
13
The Properties (subject to related debt) of the Partnership will be treated as
contributed to a new partnership. The Partnership will then be deemed to
distribute to its Unitholders interests in the new partnership in a deemed
liquidation of the Partnership. Following a constructive termination of the
Partnership, the Partnership will start a new depreciable life for its assets
and, as a result, the Partnership's current annual depreciation deductions will
be reduced and taken over a longer period of years than is the case currently.
In addition, the consequences of a termination of the Partnership include
erasure of the Partnership's tax elections and changes in the methods of
depreciation available to the Partnership for tax purposes.
If the Proposed Xxxxxx is completed, a Unitholder who does not tender his
or its Units in the Offer will receive, in the Proposed Merger, cash
consideration in a taxable transaction. The tax consequences to a Unitholder in
the Proposed Merger will be the same as those described above for a tendering
Unitholder.
CONSEQUENCES TO A TAX-EXEMPT UNITHOLDER. Although certain entities
generally are exempt from federal income taxation, such tax-exempt entities
(including Individual Retirement Accounts (each an "IRA")) are subject to
federal income tax on any "unrelated business taxable income" ("UBTI"). UBTI
generally includes, among other things, income (other than, in the case of
property which is not "debt-financed property," interest, dividends, real
property rents not dependent upon income or profits, and gain from disposition
of non-inventory property) derived by certain trusts (including IRAs) from a
trade or business or by certain other tax-exempt organizations from a trade or
business, the conduct of which is not substantially related to the exercise of
such organization's charitable, educational or other exempt purpose and income
to the extent derived from debt-financed property. Subject to certain
exceptions, "debt-financed property" is generally any property which is held to
produce income and with respect to which there is an "acquisition indebtedness"
at any time during the taxable year. Acquisition indebtedness is generally
indebtedness incurred by a tax-exempt entity directly or through a partnership:
(i) in acquiring or improving a property; (ii) before acquiring or improving a
property if the indebtedness would not have been incurred but for such
acquisition or improvement; or (iii) after acquiring or improving a property if
the indebtedness would not have been incurred but for such acquisition or
improvement and the incurrence of such indebtedness was reasonably foreseeable
at the time of the acquisition or improvement.
To the extent the Partnership holds debt-financed property or inventory or
other assets as a dealer, a tax-exempt Unitholder (including an IRA) could
realize UBTI on the sale of a Unit. In addition, a tax-exempt Unitholder will
realize UBTI upon the sale of a Unit, if such Unitholder held its Units as
inventory or otherwise as dealer property, or acquired its Units with
acquisition indebtedness. However, any UBTI recognized by a tax-exempt
Unitholder as a result of a sale of a Unit, in general, may be offset by such
Unitholder's net operating loss carryover (determined without taking into
account any amount of income or deduction which is excluded in computing UBTI),
subject to applicable limitations.
EACH TAX-EXEMPT UNITHOLDER SHOULD CONSULT ITS TAX ADVISOR AS TO THE
PARTICULAR TAX CONSEQUENCES TO SUCH UNITHOLDER OF SELLING OR NOT SELLING UNITS
PURSUANT TO THE OFFER.
THE OFFER
Section 1. Terms of the Offer
Upon the terms and subject to the conditions of the Offer (including, if
the Offer is extended or amended, the terms and conditions of any such extension
or amendment), the Purchaser will accept for payment and pay for all Units
validly tendered on or prior to the Expiration Date and not withdrawn in
accordance with "The Offer-- Section 4. Withdrawal Rights". The Expiration Date
is midnight New York City Time, on June 11, 1999, unless and until the
Purchaser, in its sole discretion, shall have extended the period of time for
which the Offer is open, in which event the Expiration Date shall be the latest
time and date on which the Offer, as so extended by the Purchaser, shall expire.
The Offer is conditioned on satisfaction of certain conditions (see "The
Offer--Section 8. Conditions of the Offer"). The Purchaser reserves the right
(but shall not be obligated), in its sole discretion and for any reason, to
waive any or all of such conditions. If, on or prior to the Expiration Date, any
or all of such conditions have not been satisfied or waived, the Purchaser
reserves the right (but shall not be obligated) to (i) decline to purchase any
of the Units tendered, terminate the Offer and return all tendered Units to
tendering Unitholders, (ii) waive all the unsatisfied conditions and, subject to
complying with the applicable rules and regulations of the Commission, purchase
all Units validly tendered, (iii) extend the Offer and, subject to the right of
Unitholders to withdraw Units until the Expiration Date, retain the Units that
have been tendered during the period or periods for which the Offer is extended
or (iv) amend the Offer. The rights reserved by the Purchaser in this paragraph
are in addition to the Purchaser's right to terminate the Offer at any time
prior to the acceptance of tendered Units for payment.
14
This Offer and the Agreement of Assignment and Transfer and other relevant
materials are being mailed by the Purchaser (which is an affiliate of the
General Partners) to the persons shown by the Partnership's records to have been
limited partners, assignees thereof, or (in the case of Units owned of record by
Individual Retirement Accounts ("IRAs") and qualified plans) beneficial owners
of Units as of June 11, 1999.
Section 2. Procedures for Tendering Units
Valid Tender. For Units to be validly tendered pursuant to the Offer, a
properly completed and duly executed Agreement of Assignment and Transfer (a
copy of which is enclosed and printed on yellow paper), together with any other
documents required by the Agreement of Assignment and Transfer or instructions
thereto, must be received on or prior to the Expiration Date by the Purchaser at
the following address: Xxx Xxxxxx Xxxxxx, Xxxxx 0000, Xxxxxx, Xxxxxxxxxxxxx
00000. A Unitholder may tender any or all Units owned by such Unitholder.
If a Unitholder who has tendered Units pursuant to the Madison Offer wishes
to tender some or all of such Units to the Purchaser pursuant to this Offer,
such Unitholder must first withdraw such Units from the Madison Offer. The
Purchaser has provided a "Notice of Withdrawal" (enclosed on pink paper) which,
if properly completed and timely delivered to Madison, will enable such
Unitholders to withdraw Units tendered pursuant to the Madison Offer. The
enclosed "Notice of Withdrawal," or any other proper Notice of Withdrawal which
complies with the withdrawal requirements of Section 5 of the Madison Offer,
should be received by Xxxxxxx in accordance with the terms of the Madison Offer
NO LATER THAN MAY 24, 1999, the expiration date of the Madison Offer, unless
extended. Any Unitholder tendering Units to the Purchaser following the
withdrawal of such Units from the Madison Offer should furnish the Purchaser
with a copy of the Notice(s) of Withdrawal sent by such Unitholder to Madison.
IN ORDER FOR A TENDERING UNITHOLDER TO PARTICIPATE IN THE OFFER, UNITS MUST
BE VALIDLY TENDERED AND NOT WITHDRAWN PRIOR TO THE EXPIRATION DATE, WHICH IS
MIDNIGHT, NEW YORK CITY TIME, ON JUNE 11, 1999, OR SUCH DATE TO WHICH THE OFFER
MAY BE EXTENDED.
The method of delivery of the Agreement of Assignment and Transfer and all
other required documents is at the option and risk of the tendering Unitholder
and delivery will be deemed made only when actually received by the Purchaser.
If delivery is by mail, registered mail with return receipt requested is
recommended. In all cases, sufficient time should be allowed to ensure timely
delivery.
Signature Guarantees. The signatures on the Agreement of Assignment and
Transfer must be medallion guaranteed by a commercial bank, savings bank, credit
union, savings and loan association or trust company having any office, branch
or agency in the United States, a brokerage firm that is a member firm of a
registered national securities exchange or a member of the National Association
of Securities Dealers, Inc. (the "NASD").
Appointment as Attorney-in-Fact and Proxy. By executing an Agreement of
Assignment and Transfer as set forth above, a tendering Unitholder irrevocably
appoints the designees of the Purchaser as such Unitholder's attorney-in-fact
and proxy, in the manner set forth in the Agreement of Assignment and Transfer,
each with full power of substitution, to the full extent of such Unitholder's
rights with respect to the Units tendered by such Unitholder and accepted for
payment by the Purchaser. All such proxies shall be considered irrevocable and
coupled with an interest in the tendered Units. Such appointment will be
effective upon receipt by the Purchaser of the Agreement of Assignment and
Transfer and if, when and only to the extent that, the Purchaser accepts Units
for payment pursuant to the Offer. Upon such acceptance for payment, all prior
proxies given by such Unitholder with respect to such Units will, without
further action, be revoked, and no subsequent proxies may be given (and if given
will not be effective). The designees of the Purchaser will, with respect to
such Units, be empowered to exercise all voting and other rights of such
Unitholder as they in their sole discretion may deem proper at any meeting of
Unitholders, by written consent or otherwise. The Purchaser reserves the right
to require that, in order for Units to be deemed validly tendered, immediately
upon the Purchaser's payment for such Units, the Purchaser must be able to
exercise full voting rights with respect to such Units, including voting at any
meeting of Investor Limited Partners (as defined in the Partnership Agreement).
In addition, pursuant to such appointment as attorney-in-fact, the
designees of the Purchaser each will have the power, among other things, (i) to
seek to transfer ownership of such Units on the Partnership's books (and execute
and deliver any accompanying evidences of transfer and authenticity any of them
may deem necessary or appropriate in connection therewith, including, without
limitation, any documents or instruments required to be executed under a
"Transferor's (Seller's) Application for Transfer" created by the NASD, if
required), (ii) upon the consummation of the Offer, to become a substitute
limited partner of the Partnership, to receive any and all distributions made by
the Partnership after the date on which the Units are purchased by the Purchaser
(the "Purchase Date") and to receive all benefits and otherwise exercise all
rights of beneficial ownership of such Units in accordance with the terms of the
Offer, (iii) to execute and deliver to the Partnership and/or the General
Partners (as the case may be) a change of address form instructing the
Partnership to send any and all future distributions to which the Purchaser is
entitled pursuant to the terms of the Offer in respect of tendered Units to the
address
15
specified in such form, and (iv) to endorse any check payable to or upon the
order of such Unitholder representing a distribution to which the Purchaser is
entitled pursuant to the terms of the Offer, in each case on behalf of the
tendering Unitholder.
Assignment of Entire Interest in the Partnership. By executing and
delivering the Agreement of Assignment and Transfer, a tendering Unitholder
irrevocably sells, assigns, transfers, conveys and delivers to the Purchaser and
it assigns all of such person's right, title and interest in and to the Units
tendered thereby and accepted for payment pursuant to the Offer and any and all
non-cash distributions, other Units or other securities issued or issuable in
respect thereof on or after the Purchase Date including, without limitation, to
the extent that they exist, all rights in, and claims to, any Partnership
profits and losses, cash distributions (regardless of the fact that the record
date for any such distribution may be a date prior to the Purchase Date), voting
rights and other benefits of any nature whatsoever and whenever distributable or
allocable to the Units under the Partnership Agreement. By executing and
delivering the Agreement of Assignment and Transfer, a tendering Unitholder (i)
represents that the assignment of Units pursuant to the terms of the Offer are
made in accordance with all applicable laws and regulations and (ii) expressly
intends that the Purchaser become a substitute limited partner of the
Partnership. The Purchaser will seek to be admitted as a substituted limited
partner of the Partnership upon consummation of the Offer.
Determination of Validity; Rejection of Units; Waiver of Defects; No
Obligation to Give Notice of Defects. All questions as to the validity, form,
eligibility (including time of receipt) and acceptance for payment of any tender
of Units pursuant to the procedures described above will be determined by the
Purchaser, in its sole discretion, which determination shall be final and
binding. The Purchaser reserves the absolute right to reject any or all tenders
if not in proper form or if the acceptance of, or payment for, the Units
tendered may, in the opinion of the Purchaser's counsel, be unlawful. The
Purchaser also reserves the right to waive any defect or irregularity in any
tender with respect to any particular Units of any particular Unitholder
(whether or not similar defects or irregularities are waived in the case of
other Unitholders), and the Purchaser's interpretation of the terms and
conditions of the Offer (including the Agreement of Assignment and Transfer and
the Instructions thereto) will be final and binding. No tender will be deemed to
have been validly made until all defects and irregularities have been cured or
waived. Neither the Purchaser nor any other person will be under any duty to
give notification of any defects or irregularities in the tender of any Units or
will incur any liability for failure to give any such notification.
A tender of Units pursuant to any of the procedures described above will
constitute a binding agreement between the tendering Unitholder and the
Purchaser upon the terms and subject to the conditions of the Offer, including
the tendering Unitholder's representation and warranty that (i) such Unitholder
owns the Units being tendered within the meaning of Rule 14e-4 under the
Exchange Act and (ii) the tender of such Units complies with Rule 14e-4. Rule
14e-4 requires, in general, that a tendering security holder will actually be
able to deliver the security subject to the tender offer, and is of concern
particularly to any Unitholders who have granted options to sell or purchase the
Units, hold option rights to acquire such securities, maintain "short" positions
in the Units (i.e., have borrowed the Units) or have loaned the Units to a short
seller. Because of the nature of limited partnership interests, the Purchaser
believes it is unlikely that any option trading or short selling activity exists
with respect to the Units. In any event, a Unitholder will be deemed to tender
Units in compliance with Rule 14e-4 and the Offer if the holder is the record
owner of the Units and the holder delivers the Units pursuant to the terms of
the Offer or uses any other method permitted in the Offer.
Section 3. Acceptance for Payment and Payment for Units
Upon the terms and subject to the conditions of the Offer (including, if
the Offer is extended or amended, the terms and conditions of any extension or
amendment), the Purchaser will accept for payment, and will pay for, all Units
validly tendered and not withdrawn in accordance with "The Offer--Section 4.
Withdrawal Rights" as promptly as practicable following the Expiration Date. The
Purchaser expressly reserves the right, in its sole discretion, to delay
acceptance for payment of, or, subject to the requirements of Rule 14e-1(c) of
the Exchange Act, payment for, Units in order to comply in whole or in part with
any applicable law or condition. In all cases, payment for Units accepted for
payment pursuant to the Offer will be made only after (i) timely receipt of a
valid, properly and fully executed Agreement of Assignment and Transfer,
together with any other documents required thereby, and (ii) receipt by the
Purchaser of the Partnership's confirmation that the transfer of Units pursuant
to the Offer have been effectuated. The Purchaser will issue payment only to the
Unitholder of record (including, in the case of Units held of recorded by an IRA
or other qualified plan, such IRA or qualified plan) and payment will be
forwarded only to the address listed on the Agreement of Assignment and
Transfer.
For purposes of the Offer, the Purchaser shall be deemed to have been
accepted for payment (and thereby purchased tendered Units) when the Purchaser
is in receipt of the Partnership's confirmation that the transfer of Units has
been effectuated. Upon the terms and subject to the conditions of the Offer,
payment for the Units purchased pursuant to the Offer will in all cases be made
by the Purchaser.
The Offer Price will be automatically reduced by the aggregate amount of
distributions per Unit, if any, made by the Partnership from and after the date
of this Offer until the date on which the Purchaser pays for Units purchased
pursuant to the Offer. Under no circumstances will the Purchaser pay interest on
the Offer Price for Units.
16
If any tendered Units are not purchased for any reason, the Agreement of
Assignment and Transfer with respect to such Units not purchased will be of no
force or effect. If, for any reason whatsoever, acceptance for payment of, or
payment for, any Units tendered pursuant to the Offer is delayed or the
Purchaser is unable to accept for payment, purchase or pay for the Units
tendered pursuant to the Offer, then without prejudice to the Purchaser's rights
under "The Offer--Section 9. Certain Legal Matters" the Purchaser may
nevertheless retain tendered Units, subject to any limitations of applicable
law, and such Units may not be withdrawn except to the extent that the tendering
Unitholders are entitled to withdrawal rights as described in "The Offer--
Section 4. Withdrawal Rights."
If, prior to the Expiration Date, the Purchaser shall increase the
consideration offered to Unitholders pursuant to the Offer, such increased
consideration shall be paid for all Units accepted for payment pursuant to the
Offer, whether or not such Units were tendered prior to such increase.
Unless otherwise prohibited, the Purchaser reserves the right to transfer
or assign, in whole or from time to time in part, to one or more of the
Purchaser's affiliates, the right to purchase Units tendered pursuant to the
Offer, but any such transfer or assignment will not relieve the Purchaser of its
obligations under the Offer or prejudice the rights of tendering Unitholders to
receive payment for Units validly tendered and accepted for payment pursuant to
the Offer.
Section 4. Withdrawal Rights
Except as otherwise provided in this Section, all tenders of Units pursuant
to the Offer are irrevocable, provided that Units tendered pursuant to the Offer
may be withdrawn at any time prior to the Expiration Date.
For withdrawal to be effective, a written notice of withdrawal must be
timely received by the Depository (i.e. a valid notice of withdrawal must be
received on or before June 11, 1999, or such other date to which this Offer may
be extended) at the address set forth on the back cover of this Offer to
Purchase. Any such notice of withdrawal must specify the name of the person who
tendered the Units to be withdrawn and must be signed by the person(s) who
signed the Agreement of Assignment and Transfer and must also contain a
medallion signature guarantee.
If purchase of, or payment for, Units is delayed for any reason, or if the
Purchaser is unable to purchase or pay for Units for any reason, then, without
prejudice to the Purchaser's rights under the Offer, tendered Units may be
retained by the Purchaser and may not be withdrawn except to the extent that
tendering Unitholders are entitled to withdrawal rights as set forth in this
Section 4, subject to Rule 14e-1(c) under the Exchange Act, which provides, in
part, that no person who makes a tender offer shall fail to pay the
consideration offered or return the securities (i.e. Units) deposited by or on
behalf of security holders promptly after the termination or withdrawal of a
tender offer.
All questions as to the form and validity (including time of receipt) of
notices of withdrawal will be determined by the Purchaser, in its sole
discretion, which determination shall be final and binding. Neither the
Purchaser nor any other person will be under any duty to give notification of
any defects or irregularities in any notice of withdrawal or will incur any
liability for failure to give any such notification.
Any Units properly withdrawn will be deemed not to be validly tendered for
purposes of the Offer. Withdrawn Units may be re-tendered, however, by following
the procedures described in "The Offer--Section 2. Procedures for Tendering
Units" at any time prior to the Expiration Date.
Section 5. Extension of Tender Period; Termination; and Amendment
The Purchaser expressly reserves the right, in its sole discretion and
regardless of whether any of the conditions set forth in "The Offer--Section 8.
Conditions of the Offer" shall have been satisfied, at any time and from time to
time, (i) to extend the period of time during which the Offer is open and
thereby delay acceptance for payment of, and the payment for, validly tendered
Units, (ii) upon the failure to be satisfied of any of the conditions specified
in "The Offer--Section 8. Conditions of the Offer," to delay the acceptance for
payment of, or payment for, any Units not heretofore accepted for payment or
paid for, or to terminate the Offer and not accept for payment any Units not
theretofore accepted for payment or paid for, by giving written notice, of such
termination to the Unitholders, and (iii) to amend the Offer in any respect
(including, without limitation, by increasing or decreasing the consideration
offered or the number of Units being sought in the Offer or both or changing the
type of consideration). Any extension, termination or amendment will be followed
as promptly as practicable by public announcement, the announcement in the case
of an extension to be issued no later than 9:00 a.m., New York City Time, on the
next business day after the previously scheduled Expiration Date, in accordance
with the public announcement requirement of Rule 14e-1(d) under the Exchange
Act. Without limiting the manner in which the Purchaser may choose to make any
public
17
announcement, except as provided by applicable law, the Purchaser will have no
obligation to publish, advertise or otherwise communicate any such public
announcement, other than by issuing a release to PRNewswire service. The
Purchaser may also be required by applicable law to disseminate to Unitholders
certain information concerning the extensions of the Offer or any other material
changes in the terms of the Offer.
If the Purchaser extends the Offer, or if the Purchaser (whether before or
after its acceptance for payment of Units) is delayed in its payment for Units
or is unable to pay for Units pursuant to the Offer for any reason, then,
without prejudice to the Purchaser's rights under the Offer, the Purchaser may
retain all tendered Units, and such Units may not be withdrawn except to the
extent tendering Unitholders are entitled to withdrawal rights as described in
"The Offer--Section 4. Withdrawal Rights." However, the ability of the Purchaser
to delay payment for Units that the Purchaser has accepted for payment is
limited by Rule 14e-1 under the Exchange Act, which requires that the Purchaser
pay the consideration offered or return the securities deposited by or on behalf
of holders of securities promptly after the termination or withdrawal of the
Offer.
If the Purchaser makes a material change in the terms of the Offer or the
information concerning the Offer or waives a material condition of the Offer,
the Purchaser will extend the Offer to the extent required by applicable law.
The minimum period during which an offer must remain open following a material
change in the terms of the Offer or information concerning the Offer, other than
a change in price or a change in percentage of securities sought, will depend
upon the facts and circumstances, including the relative materiality of the
change in the terms or information. With respect to a change in price or a
change in percentage of securities sought (other than an increase of not more
than 2% of the securities sought), however, a minimum ten business day period is
generally required to allow for adequate dissemination to security holders and
for investor response. As used in this Offer to Purchase, "business day" means
any day other than a Saturday, Sunday or a federal holiday, and consists of the
time period from 12:01 a.m. through 12:00 midnight, New York City Time.
Section 6. Certain Information Concerning the Partnership
Information included herein concerning the Partnership is derived from the
Partnership's publicly-filed reports. The Partnership is subject to the
information and reporting requirements of the Exchange Act and in accordance
therewith is required to file reports and other information with the Commission
relating to its business, financial condition and other matters. Such reports
and other information, including the Partnership's Annual Reports on Form 10-K
and Quarterly Reports on Form 10-Q, are available on the Commission's electronic
data gathering and retrieval (XXXXX) system at its internet web site at
xxxx://xxx.xxx.xxx, may be inspected at the public reference facilities
maintained by the Commission at Room 0000, Xxxxxxxxx Xxxxx, 000 Xxxxx Xxxxxx,
X.X., Xxxxxxxxxx, X.X. 00000, and are available for inspection and copying at
the regional offices of the Commission located in Northwestern Atrium Center,
000 Xxxx Xxxxxxx Xxxxxx, Xxxxx 0000, Xxxxxxx, Xxxxxxxx 00000 and at 0 Xxxxx
Xxxxx Xxxxxx, 00xx Xxxxx, Xxx Xxxx, Xxx Xxxx 00000. Copies of such material can
also be obtained from the Public Reference Room of the Commission in Washington,
D.C. at prescribed rates. The Purchaser disclaims any responsibility for the
information included in such reports and extracted in this Offer to Purchase.
General Background on the Partnership. The primary business of the
Partnership is to acquire, operate, and ultimately dispose of the Properties.
The principal executive offices of the Partnership and the General Partners are
located at Xxx Xxxxxx Xxxxxx, Xxxxx 0000, Xxxxxx, Xxxxxxxxxxxxx 00000, and their
telephone number is 0-000-000-0000. The Partnership was formed on April 3, 1982
by filing a Certificate of Limited Partnership in the Commonwealth of
Massachusetts. The Partnership issued all of the General Partner Interest to the
two General Partners, The Xxxxx Company ("KCo"), a Massachusetts limited
partnership, and The Xxxxx Corporation ("KCorp"), a Massachusetts corporation.
The Partnership also issued all of the Original Limited Partner Interests to
KCo. On June 4, 1982, the Partnership commenced an offering of up to 25,000
units of Investor Limited Partner Interests at the price of $1,000 per unit. As
of September 29, 1982, the Partnership received subscriptions for all 25,000
Units and therefore, the public offering was successfully completed on that
date.
The Partnership's Properties Assets and Business. The Partnership currently
indirectly owns three multi-family apartment complexes (the Brookeville
Apartments, the Xxxxxx'x Forge Apartments and the Hannibal Grove Apartments
having an aggregate of 990 Units. The Partnership considers itself to be engaged
only in the industry segment of investment in real estate. The Partnership's
real estate investments are subject to some seasonal fluctuations due to changes
in utility consumption and seasonal maintenance expenditures. However, the
future performance of the Partnership will depend upon factors that cannot be
predicted. A summary of the Partnership's real estate investments is presented
below.
18
Occupancy
Occupancy Average Occupancy For
as of The Year Ended December 31,
Year Total March 31, ----------------------------------------
Acquired Units 1999 1998 1997 1996 1995 1994
-------- ----- ---- ---- ---- ---- ---- ----
Brookeville Apartments; Columbus, Ohio 1983 424 97% 99% 98% 95% 94% 94%
Hannibal Grove Apartments; Columbia, Maryland 1983 316 94% 100% 100% 94% 93% 94%
Xxxxxx'x Forge Apartments; Columbia, Maryland 1983 250 98% 100% 99% 94% 94% 95%
19
Mortgage notes payable collateralized by the Properties consisted of the
following as at December 31, 1998.
Mortgage Notes
Principal
----------------------------
Interest Maturity
Property 1998 1997 Rate Date
--------------------------------------------- ----------- ----------- -------- --------
Brookeville Apartments; Columbus, Ohio $8,428,579 $8,499,549 7.75 1-Aug-28
Xxxxxx'x Forge Apartments; Columbia, Maryland $4,363,601 $4,502,891 9.25 3-May-00
Hannibal Grove Apartments; Columbia, Maryland $5,934,497 $6,123,931 9.25 3-May-00
----------- -----------
Total $18,726,677 $19,126,371
=========== ===========
Brookeville Apartments. The property is subject to a non-recourse mortgage note
in the original amount of $8,755,000, payable to the Department of Housing and
Urban Development ("HUD"). The mortgage note requires monthly payments of
$60,600 consisting of principal and interest at the rate of 7.75% per annum. In
addition, the Partnership is required to fund a monthly deposit of $5,158 to an
escrow account to be used for future property replacements and improvements and
a mortgage insurance premium deposit equal to .5% per annum of the outstanding
principal balance. The note matures on August 1, 2028. In accordance with HUD
regulations, distributions are limited to the extent of Surplus Cash, as defined
by the Regulatory Agreement for Multifamily Housing Projects, dated July 20,
1993 between Brookeville Apartments Limited Partnership and the Secretary of
Housing and Urban Development as recorded in the Franklin County Recorder Volume
23319, page J05. The mortgage note payable is collateralized by the Property and
may be prepaid during the five years beginning August 1, 1998, subject to an
annual declining prepayment penalty of 5% to 1%, respectively. After August 1,
2003, there is no prepayment penalty.
Based on the borrowing rates currently available to the Partnership for
bank loans with similar terms and average maturities, the fair value of
long-term debt was approximately $9,446,000 at December 31, 1998. At December
31, 1997, the fair market value could not be determined since the mortgage note
could not be prepaid.
Xxxxxxxx Xxxxx and Xxxxxx'x Forge Apartments. The properties are subject to
non-recourse mortgage notes for Hannibal Grove Apartments and Xxxxxx'x Forge
Apartments in the original amounts of $6,800,000 and $5,000,000, respectively,
payable at a rate of 9.25% per annum. Monthly principal and interest payments
are $62,333 for Hannibal Grove Apartments and $45,833 for Xxxxxx'x Forge
Apartments. The notes mature on May 3, 2000 at which time all unpaid principal,
$5,653,175 (Hannibal Grove Apartments) and $4,156,746 (Xxxxxx'x Forge
Apartments), and any accrued interest are due. The mortgage notes payable are
collateralized by the respective properties and may be prepaid subject to a
prepayment penalty. The prepayment penalty will be the greater of (i) the
principal balance multiplied by the difference between 9.4301% and the yield
rate on publicly traded U.S. Treasury Securities having the closest matching
maturity date as reported in the Wall Street Journal, or (ii) one percent of the
then outstanding principal.
Based on the borrowing rates currently available to the Partnership for
bank loans with similar terms and average maturities, the fair value of
long-term debt for Hannibal Grove Apartments and Xxxxxx'x Forge Apartments is
approximately $6,118,000 and $4,449,000, respectively at December 31, 1998. At
December 31, 1997, the fair market value could not be determined since the
mortgage notes could not be prepaid.
Due to restrictions on transfers and prepayment, the Partnership may be
unable to refinance certain mortgage notes payable at such calculated fair
value. The aggregate scheduled principal amounts of long-term borrowings due
during the five years ending December 31, 2003 are $437,124, $10,020,473,
$89,480, $96,667 and $104,430. During 1998, 1997 and 1996 the Partnership paid
$1,625,506, $1,659,719 and $1,690,992 of interest, respectively, on its mortgage
notes.
The Partnership is considering a capital improvement plan to maintain the
Properties current rent and occupancy and rent levels (subject to inflationary
increases) in light of the competition in the markets served by the Partnership
(for a xxxxxx description of the Capital Plan, see "Special Factors-Section 1.
Background of the Offer").
20
Financial Data
Set forth below is a summary of certain financial data for the Partnership
that has been excerpted from the Partnership's Annual Report on Form 10-K for
the year ended December 31, 1998. The Partnership's audited financial statements
for the fiscal years ended December 31, 1998 and December 31, 1997 filed with
the Partnership's Annual Report on Form 10-K for the year ended December 31,
1998 are included in Exhibit I to this Offer. The financial information set
forth below is qualified in its entirety by reference to such annual report and
documents filed with the Commission and the financial statements and related
notes contained therein. The Purchaser expressly disclaims any responsibility
for the information contained in these filed reports and extracted in this
discussion. The following table sets forth in comparative tabular form a summary
of selected financial data for each of the Partnership's last five full years:
For the Years Ended December 31
----------------------------------------------------------------------------------
1998 1997 1996 1995 1994
----------- ----------- ----------- ----------- -----------
Total revenue ............................. $7,608,315 $7,280,181 $6,628,658 $352,337 $6,215,466
Net income (loss) ......................... $536,483 $(23,224) $(446,360) $(547,893) $(453,031)
Net income (loss) allocated to:
Investor Limited Partners ........ $509,659 $(22,063) $(424,042) $(520,498) $(430,380)
Per Unit ......................... $20.39 $(0.88) $(16.96) $(20.82) $(17.22)
Original Limited Partner ......... $21,459 $(929) $0 $0 $(18,121)
General Partners ................. $5,365 $(232) $(22,318) $(27,395) $(4,530)
Total assets at 12/31 ..................... $11,982,905 $12,354,768 $13,224,310 $14,384,144 $15,702,150
Long-term obligations at 12/31 ............ $18,289,553 $18,726,677 $19,126,371 $19,491,853 $19,827,968
Distributions:
Investor Limited Partners ........ $594,752 $396,500 $396,500 $297,495 $99,132
Per Unit ......................... $23.79 $15.86 $15.86 $11.90 $3.97
Original Limited Partner ......... $25,045 $16,697 $16,697 $12,526 $4,174
General Partners ................. $6,261 $4,174 $4,174 $3,132 $1,043
The book value per unit at December 31, 1998 and at March 31, 1999 was ($252.22)
and ($260.92), respectively.
Partnership Distributions
Year Ended December 31, 1998 Year Ended December 31, 1997
---------------------------- ----------------------------
Amount Per Unit Amount Per Unit
------ -------- ------ --------
Limited Partners:
Investor Limited Partners $594,752 $23.79 $396,500 $15.86
(25,000 Units outstanding)
Original Limited Partner 25,045 16,697
General Partners 6,261 4,174
-------- --------
Total $626,058 $417,371
======== ========
Section 7. Certain Information Concerning the Purchaser and its Affiliates
The Purchaser is KRF3 Acquisition Company, L.L.C., a Delaware limited
liability company which is a wholly owned subsidiary of KRF Company. The
Purchaser was organized for the purpose of acquiring the Partnership and has not
carried on any activities to date other than those incident to its formation and
the transactions contemplated by this Offer to Purchase. The principal office
and place of business of the Purchaser is Xxx Xxxxxx Xxxxxx, Xxxxx 0000, Xxxxxx,
Xxxxxxxxxxxxx 00000.
KRF Company was organized for the purpose of conducting the business and
the operations of the Purchaser. KRF Company has not carried on any activities
to date other than those incident to its formation and the transactions
contemplated by this Offer to Purchase.
21
The principal office and place of business of KRF Company is Xxx Xxxxxx Xxxxxx,
Xxxxx 0000, Xxxxxx, Xxxxxxxxxxxxx 00000. The sole member of KRF Company is
Family Limited Partnership.
Family Limited Partnership was formed to hold and manage investments for
its partners. The general partners of Family Limited Partnership are Xxxxxxx
Xxxxx and Xxxxxx Xxxxx.
Xxxxxxx Xxxxx is a United States citizen whose principal occupation is
acting as the Chairman of The Berkshire Companies Limited Partnership, a
Massachusetts limited partnership ("BCLP") which, together with its
subsidiaries, is principally engaged in mortgage banking and investment
sponsorship, asset and other management services, venture capital investing,
commercial laundry and linen services, and furniture manufacturing and sales.
His business address is The Berkshire Group, Xxx Xxxxxx Xxxxxx, Xxxxx 0000,
Xxxxxx, Xxxxxxxxxxxxx 00000.
Xxxxxx Xxxxx is a United States citizen and is actively involved in the
management of BCLP and affiliated entities. He is also an instructor of history
at the New Jewish High School, Waltham, Massachusetts. His business address is
The Berkshire Group, Xxx Xxxxxx Xxxxxx, Xxxxx 0000, Xxxxxx, Xxxxxxxxxxxxx 00000.
The General Partners of the Partnership are KCorp and KCo. The directors
and principal executive officers of KCorp are Xxxxxxx Xxxxx, Xxxxxx Xxxxx and
Xxxxx Xxxxx, and the sole shareholders of KCorp are Xxxxxxx and Xxxxxx Xxxxx.
The General Partners of KCo are Xxxxxxx Xxxxx, Xxxxxx Xxxxx and KCorp. KCo owns
all of the original limited partnership interests in the Partnership.
The Family Limited Partnership, KRF Company, the Purchaser and the General
Partners are under the common control of Xxxxxxx and Xxxxxx Xxxxx. As of the
date of this Offer, Xxxxxxx Xxxxx and Xxxxxx Xxxxx each own 40 Units and as the
partners of Xxxxx Associates, a Massachusetts general partnership, Xxxxxxx and
Xxxxxx Xxxxx jointly own 50 Units. Collectively, Xxxxxxx and Xxxxxx Xxxxx own
0.52% of the total number of Units. Xxxxx Associates acquired 10 Units on
January 2, 1999 at a price of $1,000 per Unit from a long time employee of an
affiliate of the General Partners receiving long term disability benefits.
The Purchaser believes that its affiliates will tender all of their Units
pursuant to the Offer. Because of the conflict of interest inherent in the
Purchaser's affiliation with the Partnership, the affiliates who own Units have
determined not to make a recommendation regarding the Offer, the Proposed
Amendment or the Proposed Merger (See "Special Factors--Section 4. Conflicts of
Interests and Transactions with Affiliates" for a xxxxxx description of the
conflicts of interests).
Set forth below is certain unaudited financial information with respect to
the Family Limited Partnership as of May 12, 1999.
Assets
Cash & cash equivalents $ 55,054
Short term investments 6,000,000
Marketable securities 9,439,855
-----------
Total Assets $15,494,909
===========
Liabilities and Partners' Equity
Liabilities $ 0
-----------
Total Liabilities 0
Partner Equity 15,494,909
-----------
Total liabilities and partners' equity $15,494,909
===========
Section 8. Conditions of the Offer
Notwithstanding any other provisions of the offer and in addition to (and
not in limitation of) the Purchaser's rights to extend and amend the Offer at
any time in its sole discretion, the Purchaser shall not be required to accept
for payment, purchase or pay for, subject to Rule 14e-1(c) under the Exchange
Act, any tendered Units (whether or not any Units have theretofore been accepted
for payment or paid for pursuant to the Offer), and may terminate the Offer as
to any Units not then paid for, if (i) the Minimum Condition shall not have been
satisfied, (ii) the Purchaser shall not have confirmed to its reasonable
satisfaction that, upon purchase of the Units pursuant to the Offer, the
Purchaser will have full rights to ownership as to all such Units and the
purchaser will be admitted as a substitute limited partner under Section
22
10.3 of the Partnership Agreement, (iii) the Purchaser shall not have confirmed
to its reasonable satisfaction that, upon the purchase of the Units pursuant to
the Offer, the transfer restrictions set forth in Section 10.4 of the
Partnership Agreement are inapplicable, or (iv) all authorizations, consents,
orders or approvals of, or declarations or filings with, or expirations of
waiting periods imposed by, any court, administrative agency or commission or
other governmental authority or instrumentality, domestic or foreign, necessary
for the consummation of the transactions contemplated by the Offer shall not
have been filed, occurred or been obtained on or before the Expiration Date.
Furthermore, notwithstanding any other term of the Offer, the Purchaser
will not be required to accept for payment or pay for any Units not theretofore
accepted for payment or paid for and may terminate or amend the Offer as to such
Units if, at any time on or after the date of the Offer and before the
acceptance of such Units for payment or the payment therefore, the Purchaser
determines, in its sole discretion, that any of the following conditions exist:
(i) a there shall have been threatened, instituted or pending any action,
proceeding, application, audit, claim or counterclaim by or before any court or
governmental, regulatory or administrative agency, authority or tribunal,
domestic, foreign or supranational, which (a) challenges the acquisition by the
Purchaser of the Units or seeks to obtain any material damages as a result
thereof, (b) makes or seeks to make illegal, the acceptance for payment,
purchase or payment for any Units or the consummation of the Offer, (c) imposes
or seeks to impose limitations on the ability of the Purchaser or any affiliate
of the Purchaser to acquire or hold or to exercise full rights of ownership of
the Units, including, but not limited to, the right to vote any Units purchased
by them on all matters properly presented to the Unitholders or to effect the
Proposed Amendment or the Proposed Merger, (d) may result in a material
diminution of the benefits expected to be derived by the purchaser or any of its
affiliates as a result of the Offer, (e) requires divestiture by the Purchaser
of any Units, (f) might materially adversely affect the business, properties,
assets, liabilities, financial condition, operations, results of operations or
prospects of the Partnership or the Purchaser or (g) challenges or adversely
affects the Offer;
(ii) there shall be any action taken, or any statute, rule, regulation,
order or injunction shall have been proposed, enacted, enforced, promulgated,
issued or deemed applicable to the Offer, or any other action shall have been
taken, by any federal or state court, government or governmental authority or
agency, domestic or foreign, other than the application of the waiting period
provisions of the Xxxx-Xxxxx-Xxxxxx Antitrust Improvements Act of 1976, as
amended, which has or might, directly or indirectly, result in any of the
consequences referred to in clauses (a) through (g) of paragraph (i) above;
(iii) any change or development shall have occurred or been threatened
since the date hereof, in the business, properties, assets, liabilities,
financial condition, tax status, operations, results of operations or prospects
of the Partnership, which, in the reasonable judgment of the Purchaser, is or
may be materially adverse to the Partnership, or the Purchaser shall have become
aware of any fact that, in the reasonable judgment of the Purchaser, does or may
have a material adverse effect on the value of the Units;
(iv) there shall have occurred (a) any general suspension of trading in, or
limitation on prices for, securities on any national securities exchange or in
the over-the-counter market in the United States, (b) a declaration of a banking
moratorium or any suspension of payments in respect of banks in the United
States, (c) any limitation (whether or not mandatory) by any governmental
authority on, or other event which might affect, the extension of credit by
banks or other lending institutions in the United States or result in any
imposition of currency controls in the United States, (d) a commencement or
escalation of a war or armed hostilities or other national or international
calamity directly or indirectly involving the United States, (e) a material
change in United States or other currency exchange rates or a suspension of a
limitation on the markets thereof, or (f) in the case of any of the foregoing
existing at the time of the commencement of the Offer a material acceleration or
worsening thereof;
(v) it shall have been publicly disclosed or the Purchaser shall have
otherwise learned that (a) more than fifty percent (50%) of the outstanding
Units have been or are proposed to be acquired by another person (including a
"group" within the meaning of Section 13(d)(3) of the Exchange Act), or (ii) any
person or group that prior to such date had filed a Statement with the
Securities and Exchange Commission pursuant to Section 13(d) or (g) of the
Exchange Act has increased or proposes to increase the number of Units
beneficially owned by such person or group as disclosed in such Statement by two
percent or more of the outstanding Units; or
(vi) any developments that may result in a material diminution in the
benefits expected to be derived by the Purchaser as a result of the transactions
contemplated by the Offer (including, without limitation the Proposed Amendment,
the Proposed Merger) or any other merger or other similar business combination
with the Partnership).
The foregoing conditions are for the sole benefit of the Purchaser and its
affiliates and may be asserted by the Purchaser regardless of the circumstances
(including, without limitation, any action or inaction by the Purchaser or any
of its affiliates) giving rise to such conditions or may be waived by the
Purchaser in whole or in part at any time and from time to time in its sole
discretion. Any determination by the Purchaser concerning the events described
in this Section will be final and binding upon all parties.
23
Section 9. Certain Legal Matters
General. Except as set forth in this Section 9, the Purchaser is not aware
of any filings, approvals or other actions by or with any domestic or foreign
governmental authority or administrative or regulatory agency that would be
required prior to the acquisition of Units by the Purchaser pursuant to the
Offer, other than the filing of a Tender Offer Statement on Schedule 14D-1 and a
Transaction Statement on Schedule 13E-3 with the Commission and any amendments
thereto. Should any such approval or other action be required, it is the
Purchaser's present intention that such additional approval or action would be
sought. While there is no present intent to delay the purchase of Units tendered
pursuant to the Offer pending receipt of any such additional approval or the
taking of any such action, there can be no assurance that any such additional
approval or action, if needed, would be obtained without substantial conditions
or that adverse consequences might not result to the Partnership's business, or
that certain parts of the Partnership's business might not have to be disposed
of or held separate or other substantial conditions complied with in order to
obtain such approval or action, any of which could cause the Purchaser to elect
to terminate the Offer without purchasing Units thereunder. The Purchaser's
obligation to purchase and pay for Units is subject to certain conditions,
including conditions related to the legal matters discussed in this Section.
Antitrust. The Purchaser does not believe that the Xxxx-Xxxxx-Xxxxxx
Antitrust Improvements Act of 1976, as amended, is applicable to the acquisition
of Units pursuant to the Offer.
Margin Requirements. The Units are not "margin securities" under the
regulations of the Board of Governors of the Federal Reserve System and,
accordingly, such regulations are not applicable to the Offer.
Appraisal Rights. Unitholders will not have appraisal rights as a result of
the Offer.
State Takeover Laws. A number of states have adopted anti-takeover laws
which purport, to varying degrees, to be applicable to attempts to acquire
securities of corporations or other entities which are incorporated or organized
in such states or which have substantial assets, security holders, principal
executive officers or principal places of business therein. Although the
Purchaser has not attempted to comply with any state anti-takeover statutes in
connection with the Offer, the Purchaser reserves the right to challenge the
validity or applicability or any state law allegedly applicable to the Offer and
nothing in this Offer to Purchase nor any action taken in connection therewith
is intended as a waiver of such right. If any state anti-takeover statute is
applicable to the Offer, the Purchaser might be unable to accept for payment or
purchase Units tendered pursuant to the Offer or be delayed in continuing or
consummating the Offer. In such case, the Purchaser may not be obliged to accept
for purchase or pay for any Units tendered.
ERISA. By executing and returning the Agreement of Assignment and Transfer,
a Unitholder will be representing that either (a) the Unitholder is not a plan
subject to Title I of the Employee Retirement Income Security Act of 1974, as
amended ("ERISA"), or Section 4975 of the Code, or an entity deemed to hold
"plan assets" within the meaning of 29 C.F.R. Section 2510.3-101 of any such
plan; or (b) the tender and acceptance of Units pursuant to the Offer will not
result in a nonexempt prohibited transaction under Section 406 of ERISA or
Section 4975 of the Code.
Section 10. Fees and Expenses
Except as otherwise set forth herein, the Purchaser will pay all costs and
expenses of printing, publishing and mailing the Offer.
The following table sets forth the various expenses in connection with the
Offer. All of the amounts shown are estimated except the Commission registration
fee.
Commission filing fee ............................... $ 2,750
Legal fees and expenses ............................. 150,000
Solicitation Expenses ............................... 22,000
Printing Costs ...................................... 15,000
Partnership Transfer Fees ........................... 67,500
Miscellaneous ....................................... 2,750
--------
Total ...................................... $260,000
========
The Purchaser has retained Xxxxx Funds Group Limited Partnership to act as
Depositary and Co-Information Agent and Xxxxxxxxx & Company, Inc. to serve as
Co-Information Agent in connection with the Offer. The Purchaser has agreed to
pay each of the Depositary and the Information Agents reasonable and customary
compensation for their services in connection with the Offer, plus
24
reimbursement for out-of-pocket expenses, and has agreed to indemnify each of
them against certain liabilities and expenses in connection therewith, including
certain liabilities under the federal securities laws.
The Purchase will not pay any fees or commissions to any broker or dealer
or other person (other than the Information Agents) in connection with the
solicitation of tenders of Units pursuant to the Offer.
Section 11. Miscellaneous
THE OFFER IS NOT BEING MADE TO (NOR WILL TENDERS BE ACCEPTED FROM OR ON
BEHALF OF) UNITHOLDERS IN ANY JURISDICTION IN WHICH THE MAKING OF THE OFFER OR
THE ACCEPTANCE THEREOF WOULD NOT BE IN COMPLIANCE WITH THE LAWS OF SUCH
JURISDICTION. THE PURCHASER IS NOT AWARE OF ANY JURISDICTION WITHIN THE UNITED
STATES IN WHICH THE MAKING OF THE OFFER OR THE ACCEPTANCE THEREOF WOULD BE
ILLEGAL.
The Purchaser has filed with the Commission (i) a Tender Offer Statement on
Schedule 14D-1 (including exhibits) pursuant to Rule 14d-3 under the Exchange
Act and (ii) a Rule 13e-3 Transaction Statement (with exhibits) pursuant to Rule
13e-3 under the Exchange Act. Each such filing will furnish additional
information with respect to the Offer. Such filings and any amendments thereto,
including exhibits, may be inspected and copies may be obtained from the offices
of the Commission in the manner specified in "The Offer--Section 6. Certain
Information Concerning the Partnership."
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATION ON BEHALF OF THE PURCHASER NOT CONTAINED HEREIN OR IN THE
AGREEMENT OF ASSIGNMENT AND TRANSFER AND, IF GIVEN OR MADE, SUCH INFORMATION OR
REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED.
KRF3 ACQUISITION COMPANY, L.L.C.
May 14, 1999
EXHIBIT I
XXXXX REALTY FUND, LTD.-III AND SUBSIDIARY
CONSOLIDATED FINANCIAL STATEMENTS AND SCHEDULE
----------
Report of Independent Accountants Ex. I-2
Consolidated Balance Sheets for December 31, 1998 and Ex. I-3
December 31, 1997
Consolidated Statements of Operations For the Years Ended
December 31, 1998, 1997 and 1996 Ex. I-4
Consolidated Statements of Changes in Partners' Deficit
For the Years Ended December 31, 1998, 1997 and 1996 Ex. I-5
Consolidated Statements of Cash Flows For the Years Ended
December 31, 1998, 1997 and 1996 Ex. I-6
Notes to Consolidated Financial Statements Ex. I-7 - Ex. I-14
Schedule III - Real Estate and
Accumulated Depreciation Ex. I-15 - Ex. I-16
All other schedules are omitted as they are not applicable or not required, or
the information is provided in the consolidated financial statements or the
notes thereto.
Exhibit I-1
REPORT OF INDEPENDENT ACCOUNTANTS
----------
To the Partners of Xxxxx Realty Fund, Ltd.-III and Subsidiary:
In our opinion, the consolidated financial statements and the financial
statement schedule listed in the index on page F-2 present fairly, in all
material respects, the financial position of Xxxxx Realty Fund, Ltd.-III and its
Subsidiary (the "Partnership") at December 31, 1998 and December 31, 1997, and
the results of their operations and their cash flows for each of the three years
in the period ended December 31, 1998, in conformity with generally accepted
accounting principles. These financial statements and financial statement
schedule are the responsibility of the Partnership's management; our
responsibility is to express an opinion on these financial statements and
financial statement schedule based on our audits. We conducted our audits of
these statements in accordance with generally accepted auditing standards, which
require that we plan and perform the 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, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for the opinion expressed above.
/s/ PricewaterhouseCoopers LLP
February 10, 1999
Exhibit I-2
XXXXX REALTY FUND, LTD.-III AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
December 31, 1998 and 1997
----------
ASSETS
1998 1997
------------ ------------
Multi-family apartment complexes,
net of accumulated depreciation of
$21,977,268 and $20,216,642,
respectively (Note D) $ 9,784,836 $ 10,519,769
Cash and cash equivalents (Note C) 932,065 552,221
Replacement reserve escrow (Note D) 160,954 177,778
Cash restricted for tenant
security deposits 229,416 202,691
Prepaid expenses and other assets 614,911 595,696
Deferred expenses, net of accumulated
amortization of $258,861 and $212,971,
respectively 260,723 306,613
------------ ------------
Total assets $ 11,982,905 $ 12,354,768
============ ============
LIABILITIES AND PARTNERS' DEFICIT
Liabilities:
Mortgage notes payable (Note D) $ 18,726,677 $ 19,126,371
Accrued expenses and other liabilities
(Note E) 601,319 683,413
Due to affiliates (Note G) 199,500 --
------------ ------------
Total liabilities 19,527,496 19,809,784
------------ ------------
Commitment (Note F)
Partners' deficit (Note F):
Investor Limited Partners
(25,000 Units outstanding) (6,305,460) (6,220,367)
Original Limited Partner (909,737) (906,151)
General Partners (329,394) (328,498)
------------ ------------
Total Partners' deficit (7,544,591) (7,455,016)
------------ ------------
Total liabilities and Partners'
deficit $ 11,982,905 $ 12,354,768
============ ============
The accompanying notes are an integral
part of the consolidated financial statements.
Exhibit I-3
XXXXX REALTY FUND, LTD.-III AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
For the Years Ended December 31, 1998, 1997 and 1996
----------
1998 1997 1996
----------- ----------- -----------
Revenue:
Rental $ 7,541,280 $ 7,224,085 $ 6,568,309
Other income 67,035 56,096 60,349
----------- ----------- -----------
Total revenue 7,608,315 7,280,181 6,628,658
----------- ----------- -----------
Expenses:
Operating (Note G) 2,004,219 2,041,820 1,991,923
Maintenance 591,235 578,869 556,909
Real estate taxes 559,440 539,978 504,867
General and administrative
(Note G) 66,012 101,687 93,995
Management fees (Note G) 376,570 357,766 326,363
Depreciation and amortization 1,806,516 1,980,892 1,866,979
Interest (Note D) 1,667,840 1,702,393 1,733,982
----------- ----------- -----------
Total expenses 7,071,832 7,303,405 7,075,018
----------- ----------- -----------
Net income (loss) (Note H) $ 536,483 $ (23,224) $ (446,360)
=========== =========== ===========
Allocation of net income (loss)
(Note F):
Investor Limited Partners
(25,000 Units outstanding) $ 509,659 $ (22,063) $ (424,042)
=========== =========== ===========
Investor Limited Partners
Per Unit $ 20.39 $ (.88) $ (16.96)
=========== =========== ===========
Original Limited Partner $ 21,459 $ (929) $ --
=========== =========== ===========
General Partners $ 5,365 $ (232) $ (22,318)
=========== =========== ===========
The accompanying notes are an integral
part of the consolidated financial statements.
Exhibit I-4
XXXXX REALTY FUND, LTD.-III AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CHANGES IN PARTNERS' DEFICIT
For the Years Ended December 31, 1998, 1997 and 1996
----------
Investor Original Total
Limited Limited General Partners'
Partners Partner Partners Deficit
----------- ----------- ----------- -----------
Balance at
December 31, 1995 $(4,981,262) $ (871,828) $ (297,600) $(6,150,690)
Net loss (424,042) -- (22,318) (446,360)
Distributions (396,500) (16,697) (4,174) (417,371)
----------- ----------- ----------- -----------
Balance at
December 31, 1996 (5,801,804) (888,525) (324,092) (7,014,421)
Net loss (22,063) (929) (232) (23,224)
Distributions (396,500) (16,697) (4,174) (417,371)
----------- ----------- ----------- -----------
Balance at
December 31, 1997 (6,220,367) (906,151) (328,498) (7,455,016)
Net income (Note F) 509,659 21,459 5,365 536,483
Distributions
(Note F) (594,752) (25,045) (6,261) (626,058)
----------- ----------- ----------- -----------
Balance at
December 31, 1998 $(6,305,460) $ (909,737) $ (329,394) $(7,544,591)
=========== =========== =========== ===========
The per Unit distribution for the years ended December 31, 1998, 1997 and 1996
were $23.79, $15.86 and $15.86, respectively, none of which represented a return
of capital.
The accompanying notes are an integral
part of the consolidated financial statements.
Exhibit I-5
XXXXX REALTY FUND, LTD.-III AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Years Ended December 31, 1998, 1997 and 1996
----------
1997 1996 1998
----------- ----------- -----------
Cash flows from operating activities:
Net income (loss) $ 536,483 $ (23,224) $ (446,360)
Adjustments to reconcile net income
(loss) to net cash provided by
operating activities:
Depreciation and amortization 1,806,516 1,980,892 1,866,979
Interest earned on replacement reserve
escrow (7,392) (4,889) --
Changes in assets and liabilities:
Decrease (increase) in cash
restricted for tenant security
deposits (26,725) (18,933) 19,192
Decrease (increase) in prepaid
expenses and other assets (19,215) 7,394 (6,836)
Increase (decrease) in due to
affiliates 199,500 -- (10,790)
Increase (decrease) in accrued
expenses and other liabilities (82,094) (54,465) 39,895
----------- ----------- -----------
Net cash provided by
operating activities 2,407,073 1,886,775 1,462,080
----------- ----------- -----------
Cash flows from investing activities:
Additions to fixed assets (1,025,693) (949,541) (996,817)
Increase (decrease) in accrued expenses
and other liabilities related to
fixed asset additions -- (9,000) 9,000
Withdrawals from replacement reserve
escrow 86,111 -- 153,250
Deposits to replacement reserve
escrow (61,895) (61,895) (61,895)
----------- ----------- -----------
Net cash used in investing
activities (1,001,477) (1,020,436) (896,462)
----------- ----------- -----------
Cash flows from financing activities:
Principal payments on mortgage
notes payable (399,694) (365,482) (334,208)
Distributions (626,058) (417,371) (417,371)
----------- ----------- -----------
Net cash used in
financing activities (1,025,752) (782,853) (751,579)
----------- ----------- -----------
Net increase (decrease) in cash and
cash equivalents 379,844 83,486 (185,961)
Cash and cash equivalents, beginning
of the year 552,221 468,735 654,696
----------- ----------- -----------
Cash and cash equivalents,
end of the year $ 932,065 $ 552,221 $ 468,735
=========== =========== ===========
The accompanying notes are an integral
part of the consolidated financial statements.
Exhibit I-6
XXXXX REALTY FUND, LTD.-III AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
----------
A. Organization
Xxxxx Realty Fund, Ltd.-III ("KRF-III") was formed on April 23, 1982 by
filing a Certificate of Limited Partnership in The Commonwealth of
Massachusetts. KRF-III terminates on December 31, 2020, unless earlier
terminated upon the sale of the last of KRF-III's properties or the
occurrence of certain other events as set forth in the Partnership
Agreement.
KRF-III issued all of the General Partner Interests to The Xxxxx Company, a
Massachusetts limited partnership, and The Xxxxx Corporation, a
Massachusetts corporation, in exchange for capital contributions
aggregating $1,000. Except under certain limited circumstances upon
termination of KRF-III, the General Partners are not required to make any
additional capital contributions. KRF-III also issued all of the Original
Limited Partner Interests to The Xxxxx Company in exchange for a capital
contribution of $4,000. The Original Limited Partner is not required to
make any additional capital contributions to KRF-III.
On June 4, 1982, KRF-III commenced an offering of up to 25,000 units of
Investor Limited Partner Interests (the "Units") for $1,000 per Unit. As of
September 29, 1982, KRF-III received subscriptions for all 25,000 Units and
therefore, the public offering was successfully completed on that date.
In 1993, the General Partners formed Brookeville Apartments Limited
Partnership ("Brookeville L.P.") as a prerequisite for the refinancing of
Brookeville Apartments ("Brookeville") with the Department of Housing and
Urban Development ("HUD"). At the same time, the General Partners
transferred ownership of Brookeville to Brookeville L.P. The General
Partner of Brookeville L.P. is the Westcop Corporation ("Westcop") and
KRF-III is the Limited Partner in Brookeville L.P. Westcop has beneficially
assigned its interest in Brookeville L.P. to KRF-III. KRF-III and
Brookeville L.P. are collectively known as Xxxxx Realty Fund, Ltd.-III and
Subsidiary (the "Partnership").
B. Significant Accounting Policies
The Partnership uses the following accounting policies for financial
reporting purposes, which may differ in certain respects from those used
for federal income tax purposes (see Note H).
Basis of Presentation
The consolidated financial statements present the consolidated assets,
liabilities and operations of the Partnership. All intercompany balances
and transactions have been eliminated.
Risks and Uncertainties
The Partnership invests its cash primarily in deposits and money market
funds with commercial banks. The Partnership has not experienced any losses
to date on its invested cash.
Continued
Exhibit I-7
XXXXX REALTY FUND, LTD.-III AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
----------
B. Significant Accounting Policies, Continued
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amount of assets and liabilities,
contingent assets and liabilities and revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Cash and Cash Equivalents
The Partnership includes all short-term investments with maturities of
three months or less from the date of acquisition in cash and cash
equivalents. The cash investments are recorded at cost, which approximates
current market values.
Rental Revenues
Leases require the payment of rent monthly in advance. Rental revenues are
recorded on the accrual basis.
Depreciation
Depreciation is provided for by the use of the straight-line method over
estimated useful lives as follows:
Buildings and improvements 5 to 25 years
Appliances, carpeting and equipment 3 to 8 years
Impairment of Long-Lived Assets
Real estate assets and equipment are stated at depreciated cost. Pursuant
to Statement of Financial Accounting Standards Opinion No. 121 "Accounting
for the Impairment of Long-Lived Assets and for Long-Lived Assets to be
Disposed of", impairment losses are recorded on long-lived assets used in
operations on a property by property basis, when events and circumstances
indicate that the assets might be impaired and the estimated undiscounted
cash flows to be generated by those assets are less than the carrying
amount of those assets. Upon determination that an impairment has occurred,
those assets shall be reduced to fair value.
Deferred Expenses
Costs of obtaining and recording mortgages are amortized over the life of
the related mortgage notes using the straight-line method which
approximates the effective interest method.
Income Taxes
The Partnership is not liable for federal or state income taxes as
Partnership income or loss is allocated to the Partners for income tax
purposes. In the event the Partnership's tax returns are examined by the
Internal Revenue Service or state taxing authority and the examination
results in a change in Partnership taxable income or loss, such change will
be reported to the Partners.
Continued
Exhibit I-8
XXXXX REALTY FUND, LTD.-III AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
----------
B. Significant Accounting Policies, Continued
Descriptive Information About Reportable Segments
During the fourth quarter of 1998, the Partnership adopted the Financial
Accounting Standards Board's Statement of Financial Accounting Standards
No. 131, "Disclosures About Segments of an Enterprise and Related
Information" ("Statement No. 131"). Statement No. 131 superseded FASB
Statement No. 14, "Financial Reporting for Segments of a Business
Enterprise". Statement No. 131 establishes standards for the way that
public business enterprises report information regarding reportable
operating segments. The adoption of Statement No. 131 did not affect the
results of operations or financial position of the Partnership.
The Partnership operates and develops apartment communities which generate
rental and other income through the leasing of apartment units. The General
Partners separately evaluate the performance of each of the Partnership's
apartment communities. However, because each of the apartment communities
have similar economic characteristics, facilities, services and tenants,
the apartment communities have been aggregated into a single dominant
apartment communities segment.
All revenues are from external customers and no revenues are generated from
transactions with other segments. There are no tenants which contributed
10% or more of the Partnership's total revenue during 1998, 1997 or 1996.
Reclassifications
Certain prior year balances have been reclassified to conform with current
year consolidated financial statement presentation.
C. Cash and Cash Equivalents
Cash and cash equivalents consisted of the following:
December 31,
-------------------------
1998 1997
-------- --------
Cash and money market accounts $682,656 $402,783
Commercial paper 249,409 149,438
-------- --------
$932,065 $552,221
======== ========
Continued
Exhibit I-9
XXXXX REALTY FUND, LTD.-III AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
----------
D. Mortgage Notes Payable
The properties owned by the Partnership are pledged as collateral for the
non-recourse mortgage notes outstanding at December 31, 1998 and 1997. Mortgage
notes payable consisted of the following:
Principal Annual
-------------------------- Interest
Property 1998 1997 Rate Maturity Date
-------- ---------- ---------- -------- --------------
Brookeville
Apartments $8,428,579 $8,499,549 7.75% August 1, 2028
Xxxxxx'x Forge
Apartments and
Oakland Xxxxxxx
Apartments 4,363,601 4,502,891 9.25% May 3, 2000
Hannibal Grove
Apartments 5,934,497 6,123,931 9.25% May 3, 2000
Total $18,726,677 $18,126,371
=========== ===========
Brookeville Apartments
The property is subject to a non-recourse mortgage note in the original amount
of $8,755,000, payable to the Department of Housing and Urban Development
("HUD"). The mortgage note requires monthly payments of $60,600 consisting of
principal and interest at the rate of 7.75% per annum. In addition, the
Partnership is required to fund a monthly deposit of $5,158 to an escrow account
to be used for future property replacements and improvements and a mortgage
insurance premium deposit equal to .5% per annum of the outstanding principal
balance. The note matures on August 1, 2028. In accordance with HUD regulations,
distributions are limited to the extent of Surplus Cash, as defined by the
Regulatory Agreement. The mortgage note payable is collateralized by the
property and may be prepaid during the five years beginning August 1, 1998,
subject to an annual declining prepayment penalty of 5% to 1%, respectively.
After August 1, 2003, there is no prepayment penalty.
Based on the borrowing rates currently available to the Partnership for bank
loans with similar terms and average maturities, the fair value of long-term
debt is approximately $9,446,000 at December 31, 1998. At December 31, 1997, the
fair market value could not be determined since the mortgage note could not be
prepaid.
Xxxxxxxx Xxxxx Apartments ("Hannibal") and Xxxxxx'x Forge and Oakland Xxxxxxx
Apartments ("Xxxxxx'x")
The properties are subject to non-recourse mortgage notes for Xxxxxxxx and
Xxxxxx'x in the original amounts of $6,800,000 and $5,000,000, respectively,
payable at a rate of 9.25% per annum. Monthly principal and interest payments
are $62,333 for Xxxxxxxx and $45,833 for Xxxxxx'x. The notes mature on May 3,
2000 at which time all unpaid principal, $5,653,175
Continued
Exhibit I-10
XXXXX REALTY FUND, LTD.-III AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
----------
D. Mortgage Notes Payable, Continued
(Xxxxxxxx) and $4,156,746 (Xxxxxx'x), and any accrued interest are due. The
mortgage notes payable are collateralized by the respective properties and may
be prepaid subject to a prepayment penalty. The prepayment penalty will be the
greater of 1) the principal balance multiplied by the difference between 9.4301%
and the yield rate on publicly traded U.S. Treasury Securities having the
closest matching maturity date as reported in the Wall Street Journal, or 2) one
percent of the then outstanding principal.
Based on the borrowing rates currently available to the Partnership for bank
loans with similar terms and average maturities, the fair value of long-term
debt for Xxxxxxxx and Xxxxxx'x is approximately $6,118,000 and $4,449,000,
respectively at December 31, 1998. At December 31, 1997, the fair market value
could not be determined since the mortgage notes could not be prepaid.
Due to restrictions on transfers and prepayment, the Partnership may be unable
to refinance certain mortgage notes payable at such calculated fair value.
The aggregate scheduled principal amounts of long-term borrowings due during the
five years ending December 31, 2003 are $437,124, $10,020,473, $89,480, $96,667
and $104,430.
During 1998, 1997 and 1996 the Partnership paid $1,625,506, $1,659,719 and
$1,690,992 of interest, respectively, on its mortgage notes.
E. Accrued Expenses and Other Liabilities
Accrued expenses and other liabilities consisted of the following at December
31, 1998 and 1997:
1998 1997
-------- --------
Accounts payable $ 1,016 $ --
Accrued real estate taxes 161,258 162,030
Other liabilities 191,934 288,703
Tenant security deposits 219,272 186,065
Prepaid rent 27,839 46,615
-------- --------
Total $601,319 $683,413
======== ========
F. Partners' Deficit
Under the terms of the Partnership Agreement, profits and losses from operations
are allocated 95% to the Investor Limited Partners, 4% to the Original Limited
Partner and 1% to the General Partners until such time that the Investor Limited
Partners have received a return of their total invested capital plus a 9% per
annum Cumulative Return on Investment thereon and thereafter, 65% to the
Investor Limited Partners, 28% to the Original Limited Partner and 7% to the
General Partners.
Continued
Exhibit I-11
XXXXX REALTY FUND, LTD.-III AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
----------
F. Partners' Deficit, Continued
Also, under the Partnership Agreement, cash distributions from operations
are generally made on the same basis as the allocations of profits and
losses described above. Net cash proceeds, as determined by the General
Partners, resulting from transactions such as refinancing or sale of a
property, are to be distributed as follows: 1) to the Investor Limited
Partners until they have received a return of their total Invested Capital;
2) to the Investor Limited Partners until they have received an amount
equal to their Cumulative Return on Investment in respect of all fiscal
years of the Partnership; 3) to the Original Limited Partner and General
Partners until they have received a return of their total Invested Capital;
4) to an unaffiliated brokerage firm (the "Sales Agent") to the extent of
any subordinated Financial Consulting Fee then due, and; 5) any remaining
Cash Proceeds shall be distributed 65% to the Investor Limited Partners,
28% to the Original Limited Partner and 7% to the General Partners.
Notwithstanding anything above, the General Partners shall, under all
circumstances, receive at least 1% of all distributions of net cash
proceeds from a capital transaction.
Per the Partnership Agreement, profits from capital transactions are to be
allocated to the extent of cash distributions described above, first to the
Investor Limited Partners until they have received a return of their total
Invested Capital. Losses from capital transactions are to be allocated to
the extent of cash distributions described above, first to the Investor
Limited Partners until they have received a return of their total Invested
Capital plus their Cumulative Return on Investment. Thereafter, profits and
losses from capital transactions are to be allocated in accordance with the
Partnership Agreement. Notwithstanding anything above, the General Partners
shall be allocated, under all circumstances, at least 1% of all profits and
losses from capital transactions.
For income tax purposes, the allocation of Partnership items is determined
according to the Partnership Agreement, to the extent that each allocation
has "substantial economic effect" pursuant to the Internal Revenue Code,
Section 704. In the event that an allocation does not meet these statutory
requirements, Partnership items will be reallocated according to these
provisions. For 1996, reallocation was necessary. The consolidated
financial statements presented herein reflect the allocation of net loss in
accordance with the rules of the Internal Revenue Code for the year ended
December 31, 1996.
Continued
Exhibit I-12
XXXXX REALTY FUND, LTD.-III AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
----------
F. Partners' Deficit, Continued
As of December 31, 1998, the following cumulative partner contributions and
allocations have been made since the inception of the Partnership:
Investor Original
Limited Limited General
Partners Partner Partners Total
------------ ---------- ---------- ------------
Capital contributions $ 25,000,000 $ 4,000 $ 1,000 $ 25,005,000
Syndication costs (3,486,600) -- -- (3,486,600)
Cash distributions
from operations (10,706,873) (450,813) (112,701) (11,270,387)
Cash distributions from
refinancing proceeds (5,173,000) -- (52,252) (5,225,252)
Net loss from operations (21,341,654) (858,825) (264,417) (22,464,896)
Net income from capital
transaction 9,402,667 395,901 98,976 9,897,544
------------ ---------- ---------- ------------
Balance at
December 31, 1998 $ (6,305,460) $ (909,737) $ (329,394) $ (7,544,591)
============ ========== ========== ============
G. Related Party Transactions
The Partnership pays property management fees to an affiliate of the
General Partners for management services. Pursuant to the management
agreements, management fees are payable monthly at a rate of 5% of the
gross receipts from the properties under management. The Partnership also
reimburses affiliates of the General Partners for certain expenses incurred
in connection with the operation of the Partnership and its properties,
including administrative expenses. Amounts paid to the General Partners'
affiliates during the years ended December 31, 1998, 1997 and 1996 were as
follows:
1998 1997 1996
-------- -------- --------
Property management fees $376,570 $357,766 $326,363
Expense reimbursements 163,891 179,032 173,132
-------- -------- --------
Charged to operations $540,461 $536,798 $499,495
======== ======== ========
Due to affiliates consisted of expense reimbursements of $199,500 at
December 31, 1998.
Continued
Exhibit I-13
XXXXX REALTY FUND, LTD.-III AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
----------
H. Federal Income Taxes
For federal income tax purposes, the Partnership is depreciating property under
the Accelerated Cost Recovery System ("ACRS") and the Modified Accelerated Cost
Recovery System ("MACRS"), depending on which is applicable.
The reconciliation of the net income (loss) reported in the accompanying
Consolidated Statement of Operations with the net loss reported in the
Partnership's 1998, 1997 and 1996 federal income tax returns is as follows:
1998 1997 1996
---------- ---------- ----------
Net income (loss) per
Consolidated Statement of
Operations $ 536,483 $ (23,224) $ (446,360)
Difference in book to tax
depreciation and amortization 1,164,574 557,885 221,435
---------- ---------- ----------
Net income (loss) for federal
income tax purposes $1,701,057 $ 534,661 $ (224,925)
========== ========== ==========
The allocation of the net income for federal income tax purposes for the
year ended December 31, 1998 is as follows:
Portfolio Passive
Income Income Total
---------- ---------- ----------
Investor Limited Partners $ 63,141 $1,552,863 $1,616,004
Original Limited Partner 2,658 65,384 68,042
General Partners 665 16,346 17,011
---------- ---------- ----------
Total $ 66,464 $1,634,593 $1,701,057
========== ========== ==========
During the years ended December 31, 1998, 1997 and 1996 the per Unit net income
(loss) to the Investor Limited Partners for federal income tax purposes was
$64.64, $21.17 and $(8.55), respectively.
The basis of the Partnership's assets for financial reporting purposes exceeds
its tax basis by approximately $2,288,000 and $3,451,000 at December 31, 1998
and 1997, respectively. The tax and book basis of the Partnership's liabilities
are the same.
Exhibit I-14
XXXXX REALTY FUND, LTD.- III AND SUBSIDIARY
SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION
December 31, 1998
Costs Capitalized
Subsequent to
Initial Costs to Partnership Acquisition
------------------------------ -----------------
Buildings Buildings
and and Depreciable
Description Encumbrances Land Improvements Improvements Life
---------------- ------------ ----------- ------------ ----------------- -----------
Brookeville
Apartments
Columbus, OH $ 8,428,579 $ 623,126 $ 8,312,134 $ 4,158,128 3 to 25 years
Xxxxxxxx Xxxxx
Apartments
Columbia, MD 5,934,497 518,519 6,883,945 4,198,244 3 to 25 years
Xxxxxx'x Forge &
Oakland Xxxxxxx
Apartments
Columbia, MD 4,363,601 340,956 4,521,895 2,205,157 3 to 25 years
----------- ----------- ----------- -----------
Total $18,726,677 $ 1,482,601 $19,717,974 $10,561,529
=========== =========== =========== ===========
Gross Amounts Carried at
End of Year
--------------------------------------------------
Buildings Year
and Accumulated Year Construction
Description Land Improvements Total Depreciation Acquired Completed
------------- ---------- ------------ ----------- ------------ -------- ------------
Brookeville
Apartments
Columbus, OH $ 623,126 $ 12,470,262 $13,093,388 $ 9,015,376 1983 1975
Xxxxxxxx Xxxxx
Apartments
Columbia, MD 518,519 11,082,189 11,600,708 8,213,191 1983 1970
Xxxxxx'x Forge &
Oakland Xxxxxxx
Apartments
Columbia, MD 340,956 6,727,052 7,068,008 4,748,701 1983 1970
---------- ------------ ----------- -----------
Total $1,482,601 $ 30,279,503 $31,762,104 $21,977,268
========== ============ =========== ===========
Continued
Exhibit I-15
XXXXX REALTY FUND, LTD.- III AND SUBSIDIARY
SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION, Continued
December 31, 1998
----------
Reconciliation of Real Estate and Accumulated Depreciation for each of the three
years in the period ended December 31, 1998:
1998 1997 1996
----------- ----------- -----------
Real Estate
Balance at beginning of year $30,736,411 $29,786,870 $28,790,053
Acquisition and improvements 1,025,693 949,541 996,817
----------- ----------- -----------
Balance at end of year $31,762,104 $30,736,411 $29,786,870
=========== =========== ===========
Accumulated Depreciation 1998 1997 1996
----------- ----------- -----------
Balance at beginning of year $20,216,642 $18,281,640 $16,460,550
Depreciation expense 1,760,626 1,935,002 1,821,090
----------- ----------- -----------
Balance at end of year $21,977,268 $20,216,642 $18,281,640
=========== =========== ===========
Note: The Partnership uses the cost basis for property valuation for both income
tax and financial statement purposes. The aggregate cost for federal income tax
purposes at December 31, 1998 is $31,775,676, and the aggregate accumulated
depreciation for federal income tax purposes is $24,267,669.
Exhibit I-16
The Agreement of Assignment and Transfer, a Withdrawal Letter, if
applicable, and any other required documents should be sent or delivered by each
Unitholder to the Depositary at its address set forth below.
The Depository for the Offer is:
XXXXX FUNDS GROUP LIMITED PARTNERSHIP
Xxx Xxxxxx Xxxxxx
Xxxxx 0000
Xxxxxx, Xxxxxxxxxxxxx 00000
Attention: Investor Services
Phone: 0-000-00-XXXXX
(0-000-000-0000)
Fax: (000) 000-0000
Questions and requests for assistance may be directed to the Information
Agents at the address and telephone number listed below. Additional copies of
this Offer to Purchase, the Agreement of Assignment and Transfer, the Withdrawal
and other tender offer materials may be obtained from the Information Agents as
set forth below, and will be furnished promptly at Purchaser's expense.
The Information Agents for the Offer are:
XXXXXXXXX
& COMPANY INC.
&
XXXXX FUNDS GROUP LIMITED PARTNERSHIP
Xxx Xxxxxx Xxxxxx
Xxxxx 0000
Xxxxxx, Xxxxxxxxxxxxx 00000
Attention: Investor Services
Phone: 0-000-00-XXXXX
(0-000-000-0000)
Fax: (000) 000-0000
