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AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MARCH 7, 2000
PRELIMINARY COPY
SCHEDULE 14A
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A) OF
THE SECURITIES EXCHANGE ACT OF 1934
Filed by the Registrant / /
Filed by a Party other than the Registrant /X/
Check the appropriate box:
/X/ Preliminary Proxy Statement
/ / Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
/ / Definitive Proxy Statement
/ / Definitive Additional Materials
/ / Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12
▇▇▇▇▇ REALTY LIMITED PARTNERSHIP - V
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(Name of Registrant as Specified In Its Charter)
THE ▇▇▇▇▇ CORPORATION
THE ▇▇▇▇▇ COMPANY LIMITED PARTNERSHIP-II
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(Name of Persons Filing Proxy Statement, If Other Than the Registrant)
Payment of Filing Fee (Check the appropriate box):
/ / No fee required.
/ / Fee computed on table below per Exchange Act Rules 14a-6(i)(1)
and 0-11.
(1) Title of each class of securities to which transaction applies:
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(2) Aggregate number of securities to which transaction applies:
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(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11:
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(4) Proposed maximum aggregate value of transaction:
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(5) Total fee paid:
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/ / Fee paid previously with preliminary materials.
/X/ Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was
paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid: $7,491.48
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(2) Form, Schedule or Registration Statement No.:
Schedule 13E-3 (File No. 5-47451)
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(3) Filing Party:
▇▇▇▇▇ Realty Limited Partnership-V, KR5 Acquisition, L.L.C., KRF
Company, L.L.C., The ▇▇▇▇▇ Family Limited Partnership-94, The ▇▇▇▇▇
Corporation, The ▇▇▇▇▇ Company Limited Partnership-II, ▇▇▇▇▇▇▇ ▇▇▇▇▇
and ▇▇▇▇▇▇ ▇▇▇▇▇
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(4) Date Filed: January 21, 2000
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▇▇▇▇▇ REALTY LIMITED PARTNERSHIP - V
▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
------------------------
Dear Limited Partner:
You are cordially invited to attend a Special Meeting of Unitholders of
▇▇▇▇▇ Realty Limited Partnership - V, to be held on , 2000 at 10:00 a.m. at
.
At the special meeting you will be asked to consider and vote upon a
proposed merger, described in the accompanying proxy statement, of ▇▇▇▇▇ Realty
with and into KR5 Acquisition, L.L.C., a Delaware limited liability company that
is an affiliate of the general partners. Under the terms of the merger, KR5 is
offering you $1,200 per unit in cash. If the merger is completed, you will no
longer hold any interest in ▇▇▇▇▇ Realty. The general partners of ▇▇▇▇▇ Realty
and KR5 Acquisition, together with the persons or entities which control them,
have determined that the merger transaction is fair to the unitholders
unaffiliated with the general partners or KR5 Acquisition and in these
unitholders' interests and therefore recommend that unitholders vote "FOR" the
merger and the amendment.
Among the factors considered by the above parties in making the
recommendation were the following:
- ▇▇▇▇▇▇▇ & ▇▇▇▇▇▇▇▇▇, an independent real estate consulting firm, appraised
the properties owned by ▇▇▇▇▇ Realty. This offer represents a $336 premium
over the independent appraised value of $864 per unit determined based
primarily upon ▇▇▇▇▇▇▇ & Wakefield's appraisals; and
- ERP Operating Limited Partnership, a wholly owned subsidiary of Equity
Residential Properties, itself a $5.3 billion Chicago based Real Estate
Investment Trust UNAFFILIATED with ▇▇▇▇▇ Realty and the general partners,
first sought to acquire control of ▇▇▇▇▇ Realty in November 1999 through a
tender offer for the units at $675 per unit. KR5 in turn offered $864 per
unit, and through a subsequent bidding contest, the price offered to you
increased from $864 to $1,200 per unit.
Please read the entire proxy statement carefully, including the discussion
concerning the factors considered by the general partners in making their
recommendation.
The merger, the related merger agreement and the per unit price to be paid
to you have not been reviewed independently. A vote in favor of the merger will
also constitute a vote in favor of an amendment to ▇▇▇▇▇ Realty's partnership
agreement allowing ▇▇▇▇▇ Realty to enter into the merger agreement and complete
the merger with KR5.
KR5 has entered into a joint venture agreement with investment funds
affiliated with Equity Resources Group, Inc., a Cambridge, Massachusetts real
estate concern that is not affiliated with ERP. Equity Resouces currently owns
approximately 11% of the outstanding units and has agreed to vote in favor of
the merger and the amendment.
Your vote is important no matter how many units you own. Please date, sign
and promptly return the proxy card in the enclosed envelope or by facsimile as
instructed in this proxy statement. If you plan to attend the special meeting in
person, please check the appropriate box on the proxy card. You may change your
vote in person, even if you have previously sent in a proxy.
Any signed proxy cards that are returned without a choice indicated on them
will be voted "FOR" the transaction. The proxy statement explains in detail the
terms of the proposed merger and the related transactions.
This proxy statement explains in detail the terms of the proposed merger and
the related transactions. The date of this proxy statement is and was first
mailed to unitholders of ▇▇▇▇▇ Realty on .
▇▇▇▇▇ REALTY LIMITED PARTNERSHIP-V
The ▇▇▇▇▇ Corporation
GENERAL PARTNER
Boston, Massachusetts , 2000 By: -----------------------------------------
▇▇▇▇▇▇▇ ▇▇▇▇▇
CO-CHAIRMAN OF THE BOARD OF DIRECTORS
THIS TRANSACTION HAS NOT BEEN APPROVED OR DISAPPROVED BY THE UNITED STATES
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS
THE COMMISSION OR ANY STATE SECURITIES 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.
▇▇▇▇▇ REALTY LIMITED PARTNERSHIP - V
▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
------------------------
NOTICE OF SPECIAL MEETING OF UNITHOLDERS
TO BE HELD , 2000
------------------------
To Our Unitholders:
We are holding a special meeting of the holders of investor limited
partnership units of ▇▇▇▇▇ Realty Limited Partnership - V on , 2000, at
, local time, at , for the following purposes:
- To consider and vote on a proposal to approve a merger agreement under
which KR5 Acquisition, L.L.C., a newly-formed company, will merge with and
into ▇▇▇▇▇ Realty. Each ▇▇▇▇▇ Realty unitholder other than certain
unitholders that have agreed to reinvest their units in KR5 Acquisition
will receive $1,200 in cash for each outstanding investor limited
partnership unit that the unitholder owns immediately before the effective
time of the merger. A vote in favor of the merger agreement will also
constitute a vote in favor of an amendment to ▇▇▇▇▇ Realty's partnership
agreement allowing ▇▇▇▇▇ Realty to enter into the merger agreement and
complete the merger with KR5 Acquisition. Copies of the merger agreement
and amendment are attached as Appendices A and B, respectively, and are
described in the accompanying proxy statement.
- To consider and act upon such other matters as may properly come before
the special meeting or any adjournment of the meeting.
Only unitholders of ▇▇▇▇▇ Realty's investor limited partnership interests at
the close of business on the record date, , 2000, will be entitled to
notice of, and to vote at, the special meeting or any adjournment of the
meeting.
▇▇▇▇▇ REALTY LIMITED PARTNERSHIP - V
The ▇▇▇▇▇ Corporation
GENERAL PARTNER
Boston, Massachusetts , 2000 By: -----------------------------------------
▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇
SECRETARY
TABLE OF CONTENTS
PAGE NO.
--------
Questions and Answers About the Transaction................. 1
Summary..................................................... 2
Parties to the Transaction.............................. 2
Date, Time and Place of Special Meeting................. 3
Purpose of the Special Meeting.......................... 3
What Unitholders Will Receive in the Merger............. 3
The Amendment........................................... 3
Vote Required........................................... 3
Independent Appraisals of Properties.................... 3
Purpose of and Reasons for the Merger................... 3
Fairness of the Merger; Conflicts of Interest........... 4
Financing of the Merger................................. 4
Material Federal Income Tax Consequences................ 4
Market Information...................................... 5
Rights of Appraisal..................................... 5
Forward-Looking Statements.............................. 5
Selected Historical Financial Information............... 5
Special Factors............................................. 7
Background of the Merger; Purpose of the Transaction.... 7
Alternatives to the Merger.............................. 8
Fairness of the Merger.................................. 9
Disadvantages and Risks Associated with the Merger...... 11
Conflicts of Interest................................... 11
Independent Appraisals.................................. 11
Determination of Merger Price........................... 16
Effects of the Transaction.............................. 17
Financing of the Merger................................. 18
Material Federal Income Tax Consequences................ 19
The Special Meeting......................................... 21
Special Meeting; Record Date............................ 21
Procedures for Completing Proxies....................... 21
Votes Required.......................................... 22
Solicitation Procedures................................. 22
Revocation of Proxies................................... 22
Appraisal Rights........................................ 23
The Merger Agreement........................................ 24
Closing Date; Effective Time of the Merger.............. 24
Effects of the Merger................................... 24
Payment................................................. 25
Authority and Consent of the Purchaser.................. 25
Representations And Warranties of the Parties........... 25
Conditions to the Merger................................ 25
Termination............................................. 25
Amendment............................................... 25
Waiver.................................................. 25
The Surviving Entity.................................... 25
i
PAGE NO.
--------
Related Agreements.......................................... 26
The Amendment to the Partnership Agreement.................. 26
Purpose................................................. 26
The Amendment........................................... 26
Information About the Partnership, Its General Partners and 27
Their Affiliates..........................................
The Partnership......................................... 27
The General Partners.................................... 27
Description of the Assets............................... 28
Distributions........................................... 29
Ownership of Units...................................... 30
Market for the Units.................................... 30
Related Party Transactions.............................. 30
Selected Financial Data..................................... 32
Information Concerning the Purchaser and Its Affiliates..... 33
The Purchaser........................................... 33
Affiliates of the Purchaser............................. 33
Where You Can Find More Information......................... 33
General................................................. 33
Independent Accountants................................. 34
Index to Consolidated Financial Statements.................. F-1
Appendix A -- The Merger Agreement
Appendix B -- Amendment No. 1 to the Amended Agreement of Limited
Partnership of ▇▇▇▇▇ Realty Limited Partnership - V
Appendix C -- Form of Proxy Card
ii
QUESTIONS AND ANSWERS ABOUT THE TRANSACTION
Q. WHAT ARE UNITHOLDERS BEING ASKED TO VOTE UPON?
A. Unitholders are being asked to approve a merger agreement and related
amendment to ▇▇▇▇▇ Realty Limited Partnership - V's partnership agreement
which allows for the merger of KR5 Acquisition, L.L.C. into ▇▇▇▇▇ Realty. If
the unitholders approve the transactions, ▇▇▇▇▇ Realty will no longer be a
publicly held limited partnership.
Q. WHAT WILL UNITHOLDERS RECEIVE IF THE MERGER AGREEMENT IS APPROVED?
A. Unitholders will receive $1,200 in cash for each investor limited
partnership unit of ▇▇▇▇▇ Realty that they own. Unitholders will then no
longer have any interest in ▇▇▇▇▇ Realty.
Q. WHEN MAY UNITHOLDERS EXPECT TO RECEIVE THE MERGER CONSIDERATION?
A. Unitholders may expect to receive their cash payments within 15 days
following completion of the merger, which is expected to occur within 30
days following the special meeting.
Q. WHAT DO UNITHOLDERS NEED TO DO NOW?
A. After carefully reading and considering the information contained in this
document, unitholders should indicate on their proxy card how they want to
vote and mail their signed and dated proxy card in the enclosed return
envelope as soon as possible. Unitholders may also fax their completed proxy
cards to ▇▇▇▇▇ Funds Group at (▇▇▇) ▇▇▇-▇▇▇▇.
Q. WHAT SHOULD UNITHOLDERS DO IF THEY WANT TO CHANGE THEIR VOTE?
A. Just send in a later-dated, signed voting form to ▇▇▇▇▇ Funds Group before
the special meeting or attend the meeting in person and vote.
Q. WHAT IF UNITHOLDERS PLAN TO ATTEND THE SPECIAL MEETING IN PERSON?
A. Unitholders should send in their proxy card in any event. Unitholders may
request a ticket for admission to the special meeting by marking the
appropriate box on the proxy card and return it no later than ,
2000.
WHO CAN HELP ANSWER YOUR QUESTIONS?
After reading through this proxy statement, if you have more questions about
the merger, you should contact:
▇▇▇▇▇ FUNDS GROUP
▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Attention: Investor Communications
Phone: ▇-▇▇▇-▇▇-▇▇▇▇▇
(▇-▇▇▇-▇▇▇-▇▇▇▇)
Fax: (▇▇▇) ▇▇▇-▇▇▇▇
1
SUMMARY
This summary highlights selected information included in this proxy
statement, and is qualified by reference to the detailed information appearing
elsewhere in this proxy statement and the attached appendices. A copy of the
merger agreement and the amendment to ▇▇▇▇▇ Realty's partnership agreement are
attached as Appendices A and B, respectively. M uch of the information contained
in this proxy statement is not covered by the summary. Therefore, please
carefully review all of the information provided in this proxy statement.
PARTIES TO THE TRANSACTION
THE PARTNERSHIP
▇▇▇▇▇ Realty Limited Partnership - V, a Massachusetts limited partnership
(the "Partnership" or "▇▇▇▇▇ Realty"), was formed in Massachusetts in 1983 to
engage in real estate activities, including the ownership, operation and
management of residential real estate and other real estate related assets. The
Partnership currently owns two multi-family apartment complexes, one located in
Chicago, Illinois (the "Park Place Tower Apartments") and the other in
Cockeysville, Maryland (the "Century II Apartments") (collectively, the
"Properties").
The principal executive offices and place of business of the Partnership are
located at ▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇, ▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇, and its
telephone number is (▇▇▇) ▇▇▇-▇▇▇▇.
THE GENERAL PARTNERS
The ▇▇▇▇▇ Corporation, a Massachusetts corporation ("▇▇▇▇▇ Corp"), and The
▇▇▇▇▇ Company Limited Partnership-II, a Massachusetts limited partnership
("▇▇▇▇▇ ▇▇") (collectively, the "General Partners"), are the general partners of
the Partnership. The principal business of each of ▇▇▇▇▇ Corp and ▇▇▇▇▇ ▇▇ is
acting as a general partner of limited partnerships and managing real estate.
The principal executive offices and place of business of ▇▇▇▇▇ Corp and
▇▇▇▇▇ ▇▇ are located at ▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇, ▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇▇▇▇
▇▇▇▇▇, and their telephone number is (▇▇▇) ▇▇▇-▇▇▇▇.
THE PURCHASER
The proposed purchaser of the Partnership is KR5 Acquisition, L.L.C., a
Delaware limited liability company (the "Purchaser"), formed on November 24,
1999, by KRF Company, L.L.C., a Massachusetts limited liability company ("KRF
Company"). KRF Company is the sole managing member of the Purchaser and an
affiliate of the General Partners.
The Purchaser was formed for the purpose of merging with the Partnership,
and after the completion of the merger, its primary business will be operating,
managing and otherwise dealing with the Properties.
Before completing the merger, investment funds affiliated with Equity
Resources Group Incorporated (collectively, "Equity Resources") will contribute
3,985.5 investor limited partnership units ("Units"), or approximately 11% of
the total Units outstanding, held by them to the Purchaser in exchange for an
approximate 25% interest in the Purchaser, based upon the recapitalization of
the Partnership and assuming the Properties are refinanced as described below
under "Special Factors--Financing of the Merger--Source of Funds."
The principal executive offices and place of business of the Purchaser is at
▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇, ▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇, and its telephone
number is (▇▇▇) ▇▇▇-▇▇▇▇.
2
DATE, TIME AND PLACE OF SPECIAL MEETING
The Partnership will hold a special meeting of the holders of the Units
("Unitholders") on , 2000 at , local time, at .
PURPOSE OF THE SPECIAL MEETING
Unitholders of the Partnership will be asked to vote on the merger and an
amendment to ▇▇▇▇▇ Realty's partnership agreement to permit the Partnership to
enter the merger agreement and complete the merger.
WHAT UNITHOLDERS WILL RECEIVE IN THE MERGER
In the merger, Unitholders will receive $1,200 for each Unit they own. This
price is intended to provide Unitholders with the opportunity to liquidate their
investment in the Partnership for cash at a fair price. The per Unit merger
price will not be reduced by distributions declared or made by the Partnership
to Unitholders.
Unitholders received a $20 per Unit distribution from the Partnership in
February 2000.
THE AMENDMENT
The amendment is necessary because the partnership agreement currently
prohibits the Partnership from selling any property to, or entering into
agreement or transaction with, a General Partner or an affiliate of a General
Partner, except as expressly permitted. Because the Purchaser is an affiliate of
the General Partners, the Unitholders are being asked to consider and consent to
an amendment to the partnership agreement to allow the Partnership to enter into
the merger agreement and complete the merger. Failure to approve the amendment
would preclude the completion of the merger even if the merger were approved by
the Unitholders; consequently, a vote for the merger will automatically
constitute a vote in favor of the amendment.
VOTE REQUIRED
The affirmative vote of the holders of a majority of Units is necessary to
approve the merger and the related approval of the amendment. Equity Resources,
which holds approximately 11% of the Partnership's outstanding Units, has agreed
to vote for the approval of the merger and the amendment to the Partnership's
partnership agreement. This means that Unitholders representing an additional
39% of the Units must vote in favor of the proposal to ensure its approval. See
"Related Agreements."
INDEPENDENT APPRAISALS OF PROPERTIES
▇▇▇▇▇▇▇ & Wakefield has appraised the Properties and issued its reports
related to the appraisals, which are described in this proxy statement under
"Special Factors--Independent Appraisals."
PURPOSE OF AND REASONS FOR THE MERGER
The General Partners considered a number of factors in approving the merger
agreement and recommending it to Unitholders, including:
- the $1,200 per Unit merger price has been established as a result of
several competing offers for the Units between the Purchaser and a
third-party bidder;
- providing liquidity to Unitholders;
- the elimination of uncertainties relating to the price and timing of any
disposition of the Properties by the Partnership;
3
- the elimination of the risks associated with the future costs that might
be required to maintain the Properties and the incurrence of additional
indebtedness related to such maintenance; and
- the elimination of the annual filing and reporting of tax information by
the Unitholders.
The primary potential disadvantages of the merger to the unaffiliated
Unitholders include the following:
- continued ownership of the Units could be more economically beneficial to
Unitholders than the merger if the value of the Properties were to
increase;
- a more favorable transaction might be available from a third-party
purchaser of the Properties now or in the future;
- no independent committee or entity negotiated, reviewed or evaluated the
merger consideration offered by the Purchaser; and
- no independent person has evaluated or rendered any opinion with respect
to the fairness of the merger or merger price to Unitholders.
See "Special Factors--Fairness of the Merger."
FAIRNESS OF THE MERGER; CONFLICTS OF INTEREST
The General Partners believe that the merger is fair and in the best
interest of the Unitholders other than the General Partners or the Affiliates
and recommend that Unitholders vote for the approval of the merger. However, the
General Partners have economic and other interests that are in conflict with the
interests of the unaffiliated Unitholders. No independent committee or
independent third party has reviewed or approved the merger, the related merger
agreement or the per Unit price to be paid to Unitholders.
Together with the General Partners, the Purchaser, KRF Company, the ▇▇▇▇▇
Family Limited Partnership-94, the sole member of KRF Company (the "Family
Limited Partnership"), ▇▇▇▇▇▇▇ ▇▇▇▇▇ and ▇▇▇▇▇▇ ▇▇▇▇▇ are affiliates of the
Partnership (Messrs. ▇▇▇▇▇, together with the Purchaser, KRF Company and the
Family Limited Partnership, the "Affiliates"). The Partnership and the
Affiliates also believe that the merger is fair and in the best interest of the
Unitholders other than the General Partners or the Affiliates and their decision
as to the fairness of the merger is based upon the same factors considered by
the General Partners in this regard.
FINANCING OF THE MERGER
The Purchaser expects to finance the merger through capital contributions
from an affiliate and the anticipated refinancing of mortgage indebtedness of
the Partnership. See "Special Factors--Financing of the Merger--Source of
Funds."
MATERIAL FEDERAL INCOME TAX CONSEQUENCES
Sales of Units under the merger will be taxable transactions for federal
income tax purposes. On a sale of Units under the merger, Unitholders will
recognize gain or loss equal to the difference between:
- their "amount realized" on the sale; and
- their adjusted tax basis in the Units sold.
Unitholders "amount realized" will equal the sum of:
- the amount of cash Unitholders receive; and
- the amount of Partnership liabilities allocable to their Units.
4
The amount of Partnership liabilities allocable to each Unit is expected to
be equal to $1,089 as of the end of 1999.
Unitholders' adjusted tax basis in the Units sold will depend upon the facts
of their situation. The character of any gain or loss Unitholders recognize may
be partially capital and partially ordinary.
THE PRECISE TAX CONSEQUENCES OF THE MERGER TO UNITHOLDERS WILL DEPEND UPON THE
FACTS OF THEIR SITUATION. UNITHOLDERS SHOULD CONSULT THEIR TAX ADVISOR.
MARKET INFORMATION
On December 23, 1999, ERP Operating Partnership, an Illinois limited
partnership ("ERP"), made a revised tender offer to acquire all outstanding
Units at a price of $1,100 per Unit less Partnership distributions. Following
this offer, the Purchaser established a merger price of $1,200 per Unit. There
is otherwise no active trading market in the Units and there have been no
significant transactions between private parties that would establish an
accurate market price for the Units.
According to The Partnership Spectrum, an independent third-party industry
publication, for the eight months ended September 30, 1999, a total of 100 Units
traded at per Unit prices between $575 and $651 with a weighted average of $624
per Unit. For the period between October 1, 1999 and November 30, 1999, a total
of 50 Units traded at per Unit prices between $652 and $655.83 with a weighted
average of $653.80 per Unit. The General Partners do not, however, know if this
information is accurate or complete and have not independently confirmed these
trading prices.
See "Special Factors--Determination of Merger Price--Recent Unit Sales;
Tender Offer."
RIGHTS OF APPRAISAL
Neither Massachusetts law nor the partnership agreement grants Unitholders
appraisal rights, without regard to how a Unitholder votes (or abstains) at the
special meeting.
FORWARD-LOOKING STATEMENTS
Statements in this proxy statement are or may be forward-looking statements
that involve risks and uncertainties. Actual results may differ materially from
those expressed in these statements depending on a variety of factors.
Unitholders should carefully review all information, including the financial
statements and the notes to the financial statements, included in this document.
SELECTED HISTORICAL FINANCIAL INFORMATION
The following table sets forth selected financial information regarding the
Partnership's results of operations and financial position. This information
should be read in conjunction with the Consolidated Financial Statements and
Notes thereto and other financial information included or incorporated by
reference in this document. The historical financial data as of and for the
quarters ended September 30, 1999 and 1998 have been derived from the unaudited
financial statements included in the Partnership's Quarterly Report on Form 10-Q
for the quarters ended September 30, 1999 and 1998, respectively. The historical
financial data for the years ended December 31, 1998, 1997, 1996, 1995 and 1994
have been
5
derived from audited financial statements included in the Partnership's Annual
Report on Form 10-K for the year ended December 31, 1998. See "Where You Can
Find More Information."
NINE MONTHS ENDED,
SEPTEMBER 30 YEAR ENDED DECEMBER 31,
------------------------- -----------------------------------------------------
1999 1998 1998 1997 1996 1995
----------- ----------- ----------- ----------- ----------- -----------
UNAUDITED
Total revenues.......... $11,763,548 $11,277,451 $15,100,395 $14,523,598 $13,660,261 $13,839,760
Income (loss) before
gain from capital
transactions.......... 1,574,044 1,012,231 692,911 (304,383) (119,075) (795,377)
Gain on sale of
property.............. -- -- -- -- -- 3,265,789
Income (loss) before
extraordinary loss.... 1,574,044 1,012,231 692,911 (304,383) (119,075) 2,470,412
Extraordinary loss...... -- -- -- (288,156) -- (93,215)
Net income (loss)....... 1,574,044 1,012,231 692,911 (592,539) (119,075) 2,377,197
Net income (loss)
allocated to:
Investor Limited
Partners.............. 1,463,861 941,375 644,407 (586,614) (117,884) 2,353,425
Per Unit................ 41.59 26.74 18.31 (16.67) (3.35) 66.86
Original Limited
Partner............... 94,443 60,734 41,575 -- -- --
Net income (loss)
allocated to:
General partners........ 15,740 10,122 6,929 (5,925) (1,191) 23,772
Total assets............ 34,014,347 35,077,699 34,721,709 35,457,032 37,162,269 38,555,732
Long-term obligations... 40,752,418 41,387,711 41,235,548 41,848,811 41,700,453 42,273,669
YEAR ENDED DECEMBER 31,
-----------------------
1994
-----------------------
Total revenues.............................................. $13,652,413
Income (loss) before gain from capital transactions......... (1,450,214)
Gain on sale of property.................................... --
Income (loss) before extraordinary loss..................... (1,450,214)
Extraordinary loss.......................................... --
Net income (loss)........................................... (1,450,214)
Net income (loss) allocated to:
Investor Limited Partners................................... (1,435,712)
Per Unit.................................................... (40.79)
Original Limited Partner.................................... --
Net income (loss) allocated to:
General partners............................................ (14,502)
Total assets................................................ 42,604,180
Long-term obligations....................................... 46,805,538
DISTRIBUTIONS:
Investor Limited
Partners................. 1,408,000 1,408,000 1,408,000 1,408,000 704,000 -- --
Per Unit................... 40.00 40.00 40.00 40.00 20.00 -- --
Original Limited Partner... 90,838 90,839 90,839 90,839 45,419 -- --
General partners........... 15,140 15,140 15,140 15,140 7,570 -- --
The selected financial data results for the periods presented are not
comparable due to the sale of the Marine Terrace multi-family apartment complex
on July 19, 1995.
The per Unit distributions for the years ended December 31, 1998, 1997,
1996, 1995 and 1994 were $40.00, $40.00, $20.00, $0 and $0, respectively, none
of which represented a return of capital for tax purposes.
The historical performance of the Partnership is not necessarily indicative
of its future operations.
6
SPECIAL FACTORS
BACKGROUND OF THE MERGER; PURPOSE OF THE TRANSACTION
The Partnership was formed in 1983. In that year 35,200 Units were offered
to the public at a price of $1,000 per Unit. The Partnership initially owned
four multi-family apartment complexes and a joint venture interest in a fifth
project. In 1992, the Partnership sold one apartment complex as well as the
joint venture. The proceeds from the sales were approximately $3.9 million and
$16.0 million, respectively. In 1995, the Partnership sold another apartment
complex for $6,436,505. The proceeds from these sales were used to retire the
mortgage indebtedness on the properties sold, to purchase additional fixed
assets and to pay accumulated operating expenses, and were not distributed to
Unitholders.
The General Partners believe that most Unitholders have held their
investment in the Partnership for longer than their anticipated holding period.
The term of the Partnership is currently scheduled to terminate on December 31,
2020, unless it is sooner dissolved or terminated as provided in the partnership
agreement. While the Partnership currently provides investors with a $40 annual
distribution, other investment opportunities may offer a rate of return that is
as good or better than that offered by the Partnership.
The Units are not listed or traded on an exchange or quoted on the National
Association of Securities Dealers Automated Quotation System, and no active
trading market in the Units has developed. At the time of the Unit offering,
Unitholders may have anticipated holding their Units for approximately five
years based upon statements made in the prospectus for the offering. Because of
the limited trading market for the Units, Unitholders who wish to sell Units may
have difficulty doing so, and from time to time, the General Partners have been
asked by Unitholders to provide a means of disposing of their Units at a fair
price.
In the spring of 1999, ▇▇. ▇▇▇▇▇▇▇ ▇▇▇▇▇ and individuals employed by the
General Partners considered the possibility of acquiring the outstanding Units,
thereby providing Unitholders with the opportunity to liquidate their investment
in the Partnership for cash. ▇▇. ▇▇▇▇▇ contacted ▇▇. ▇▇▇▇▇ ▇▇▇▇▇ of The
Berkshire Group, an affiliate of the Partnership, regarding the possibility of
forming an investment vehicle that would acquire the outstanding Units and merge
with the Partnership. At this time, the parties agreed to explore acquiring the
remaining Units by these methods. On July 8, 1999, ▇▇▇▇▇▇▇ & Wakefield was
retained by the Partnership to appraise the fair market value of the Properties,
the principal assets of the Partnership. The ▇▇▇▇▇▇▇ & ▇▇▇▇▇▇▇▇▇ appraisals were
completed in August 1999.
In September 1999, ▇▇. ▇▇▇▇▇ of the Purchaser initiated contact with
▇▇. ▇▇▇▇▇▇ Dagbjartsson of Equity Resources, the holders of approximately 11% of
the outstanding Units, regarding the possibility of forming a joint venture to
acquire the remaining outstanding Units. Following the proposed merger and based
upon the recapitalization of the Partnership, Equity Resources will own
approximately a 25% interest in the Purchaser.
Equity Resources was approached because of its considerable experience in
evaluating the benefits and risks associated with continued ownership of the
Properties. Formed in 1982, Equity Resources holds interests in over 1,500
separate partnerships involved in all facets of the real estate business as
long-term investments and has invested over $100 million in real estate business
holdings. The Purchaser expects to utilize this experience by discussing with
Equity Resources from time to time matters relating to the Properties. In this
regard, the Purchaser hopes to benefit from Equity Resources' real estate
management experience.
During October and November 1999, ▇▇. ▇▇▇▇▇ and Mr. Dagbjartsson negotiated
the terms of their joint venture, and on December 2, 1999, executed an
investment agreement setting forth the terms of their agreements regarding the
merger and the operation of the Properties following the merger. See "Related
Agreements." In connection with the execution of these agreements, Equity
Resources agreed to vote in favor of the merger and the amendment to ▇▇▇▇▇
Realty's partnership agreement allowing the Partnership to complete the merger
with the Purchaser. Equity Resources also agreed to reinvest all of their
7
outstanding Units as a capital contribution to the Purchaser. In turn, KRF
Company will make a cash contribution to the Purchaser in exchange for its
interest and the existing mortgage indebtedness of the Partnership would be
refinanced. The Purchaser has contacted certain other Unitholders who are
engaged in the business of real estate management and development regarding
their interest in reinvesting Units in the Purchaser on the same terms as Equity
Resources, but has reached no understandings or agreements.
On November 23, 1999, ERP Operating Limited Partnership, an Illinois limited
partnership ("ERP"), made a third-party tender offer to acquire two-thirds of
the outstanding Units at $675 per Unit less distributions. ERP is an affiliate
of Equity Residential Properties Trust, the largest REIT apartment owner in the
country, which owns 1,062 properties in 35 states. On December 2, 1999, in
response to ERP's offer, the Purchaser made a proposal to acquire all of the
Units held by unaffiliated Unitholders at a price of $864 per Unit. The
Purchaser based the $864 per Unit price on an appraisal of the Properties
prepared by ▇▇▇▇▇▇▇ & Wakefield, which determined the aggregate value of the
Properties to be $70,550,000. In establishing this price, the Purchaser
decreased that amount by the approximately $41.4 million of mortgage
indebtedness on the Properties as of September 30, 1999 and arrived at a figure
of $29.15 million, or a per Unit price of approximately $828. From the $29.15
million figure, the Purchaser (a) added the remaining assets of the Partnership
as of September 30, 1999, principally consisting of approximately $6.3 million
of cash, cash equivalents and prepaid assets, (b) deducted the remaining
liabilities of the Partnership as of September 30, 1999, principally consisting
of approximately $3.5 million of accrued real estate taxes and other accrued
expenses, and (c) deducted mortgage debt repayment costs of approximately
$1.6 million which are expected to be incurred in connection with the
refinancing of the Properties. The Purchaser then arrived at a figure of
approximately $30.4 million, which it divided by 35,200, the total number of
Units outstanding, to arrive at its $864 per Unit price.
In response to a third-party tender offer made by ERP on December 15, 1999
to acquire two-thirds of the outstanding Units at a price of $875 per Unit less
Partnership distributions, the Purchaser increased its merger price to
Unitholders to $1,000 per Unit.
Following a revised tender offer made by ERP on December 23, 1999 to acquire
all of the outstanding Units at a price of $1,100 per Unit less Partnership
distributions, the Purchaser again increased its merger price to $1,200 per
Unit.
The purpose of the merger is for the Purchaser to acquire all of the
outstanding Units, while providing Unitholders with the opportunity to liquidate
their investment in the Partnership for cash at a fair price.
ALTERNATIVES TO THE MERGER
The General Partners considered two primary alternatives to the merger:
(1) the continued ownership of the Properties by the Partnership and (2) the
sale of one or both of the properties by the Partnership and the distribution of
the net proceeds of the sales to the Unitholders.
CONTINUATION OF THE PARTNERSHIP
The Properties owned by the Partnership were constructed in 1973, in the
case of the Park Place Tower Apartments, and 1969, in the case of the Century II
Apartments. Except for normal and necessary capital improvements, neither of the
Properties have undergone significant renovation. As residential properties age,
they incur increasing maintenance costs and may require extensive capital
improvements to maintain competitive with other properties located in the
marketplace in which the properties are located. These capital improvements may
require the investment of additional equity capital, additional borrowings or
the reduction or discontinuation of future cash distributions from the
Partnership. The Partnership has incurred an average of $1.74 million of capital
improvement expenditures during the last four years. However, normal and
necessary capital improvements may increase in the future and the Partnership
may be required to invest additional capital in the future to maintain
competitively the Properties.
In addition, the Partnership's investment in the Properties is subject to
competition from newly constructed or renovated residential properties located
in the markets served by the Properties.
8
Finally, as noted above, the General Partners believe that the duration of
most Unitholders' investments in the Properties has exceeded their initial
estimated holding periods, and that providing a means for Unitholders to
liquidate their investment is consistent with the desire of many of the
Unitholders, particularly in light of the limited and sporadic secondary market
for the Units.
SALE OF THE PROPERTIES
The General Partners believe that a sale of the Properties by the
Partnership through a solicitation of third-party bids or an auction would not
necessarily result in a more favorable transaction for Unitholders, and could
result in Unitholders realizing less for their Units than in the merger. A
third-party transaction could require the payment of transaction costs far in
excess of costs incurred by the Partnership in the merger, all of which would be
borne by the Partnership, and these costs would reduce the amount received by
each Unitholder in respect of his or her Units. For example, a sale of the
Properties would entitle the General Partners to a brokerage fee in an amount
equal to 3% of the sales price of the Properties. Moreover, the Partnership
would likely be required to retain a portion of the proceeds of a third-party
sale to cover the expenses related to ongoing administration of the Partnership
and to fund possible post-closing liabilities to a third-party purchaser. Under
the terms of the proposed merger agreement, the Partnership will not make any
representations regarding the Properties, and following the completion of the
merger, Unitholders' proceeds will not be reduced by claims relating to
contingent liabilities of the Properties.
Although the General Partners do not believe that the solicitation of
third-party bids would necessarily result in a more favorable transaction for
Unitholders, there is no assurance that Unitholders would not ultimately receive
more for their Units as a result of the sale of the Properties to a third party
who was able to consummate this type of transaction.
TENDER OFFER
From time to time, Unitholders have been approached by investors seeking to
acquire Units. Based on analyses of the proposals and general market
information, the General Partners have concluded that these offers are generally
made at prices that are significantly less than the fair value per Unit. For
instance, in the tender offer made by ERP, Unitholders were offered a price of
$1,100 per Unit, 10.9% less than the merger price and distribution payment
offered by the Purchaser. The General Partners recommended that Unitholders
decline this offer.
FAIRNESS OF THE MERGER
THE GENERAL PARTNERS RECOMMEND THAT UNITHOLDERS VOTE FOR THE MERGER AND THE
RELATED TRANSACTIONS. Although the amount to be paid to Unitholders following
the merger is not the result of arm's-length negotiations between the Purchaser
and the Partnership and is subject to conflicts of interest, the General
Partners, the Partnership and the Affiliates believe that the per Unit merger
price and the other terms of the merger are fair to Unitholders other than the
General Partners or the Affiliates. Therefore, the General Partners recommend
that Unitholders vote "FOR" the merger. The General Partners based their
conclusion on the following:
- The merger price exceeds by approximately 38.8% the appraised value of the
Properties as determined by ▇▇▇▇▇▇▇ & ▇▇▇▇▇▇▇▇▇, an independent,
nationally recognized real estate valuation firm.
- The fact that the $1,200 per Unit merger price (after taking into account
the $20 per Unit distribution payment) is $120 higher than the $1,100 per
Unit price offered by a third party in a recent tender offer, as well as
the purchase prices Unitholders realized on the sale of their Units in
recent, privately negotiated transactions as reported by an independent,
third-party source, which ranged from $571 to $655 per Unit. See
"--Determination of Merger Price--Recent Unit Sales; Tender Offer."
9
- The merger will eliminate the uncertainties relating to the amount and
timing of any liquidation of the Partnership following the sale of the
Properties, which will 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 these sales. In other
words, absent the merger Unitholders may receive a lesser amount for their
Units upon a sale of the Properties than the $1,200 per Unit being offered
by the Purchaser, while the timing of any sale and thus Unitholders'
receipt of any proceeds thereof is subject to uncertainties inherent in a
third-party sale process. Furthermore, by transferring their Units for
cash now, Unitholders will have the opportunity to redeploy investment
assets into alternative and potentially more liquid investments.
- Because there is no formal trading market for the Units, they can be
difficult to sell. The merger provides Unitholders with the opportunity to
immediately sell their Units for what the General Partners believe is a
fair price without the commissions or broker's fee of a secondary market
sale and without any transfer fees, thereby increasing the per Unit amount
that would otherwise be realized by Unitholders.
- Because the transaction is structured as a merger, cash proceeds will be
paid directly to Unitholders by the Purchaser and all of the assets and
liabilities of the Partnership will be transferred to the Purchaser
immediately upon the merger. As a result, the Partnership is not required
to continue operations or to escrow funds to fund possible post-closing
liabilities. A sale of the Properties, as opposed to a merger, would
require the Partnership to continue operating for an uncertain time period
before distributing the cash consideration received to the Unitholders.
Additionally, it would be difficult to predict with any precision the
amount ultimately realized by Unitholders, as the amount of post-closing
liabilities is difficult to determine.
- Although the Properties are in good condition, they are now more than
27 years old and may require refurbishing in the future to remain
competitive. This could require the Partnership to borrow additional
funds, thereby decreasing future cash flows and increasing the risk of
Unitholders' investment in the Partnership. In the merger, Unitholders
would receive $1,200 per Unit irrespective of any future expenditures or
indebtedness.
- The merger is not subject to a financing contingency, which increases the
likelihood that Unitholders who desire to realize liquidity will be able
to do so.
- As a result of the Purchaser's affiliation with the General Partners, the
Purchaser is familiar with the condition of the Properties and thus is
willing to assume all of the assets and liabilities of the Partnership on
terms and conditions that would be extremely uncommon for a third-party
purchaser, including the absence of representations and warranties about
the Properties, the absence of any indemnification protection and the lack
of any financing contingency. If the Partnership were to sell the
Properties to a third party, a significant dollar amount of the proceeds
would have to be retained to fund contingent liabilities, thereby delaying
Unitholders' ability to realize the full value of the sale.
- The merger is subject to the approval of a majority in interest of the
Unitholders.
Initially, the General Partners relied primarily on the appraised value of
the Properties in determining the fairness of the merger price to Unitholders,
and the related terms to Unitholders. However, the competitive bidding process
that commenced following ERP's tender offer in December 1999 is the principal
factor relied upon by the General Partners in reaching their fairness
determination as to the $1,200 per Unit merger price. Otherwise, in determining
the fairness of the merger price to unaffiliated Unitholders, and related terms
to unaffiliated Unitholders, the General Partners did not find it practicable to
quantify or otherwise attach relative weights to the specific factors described
above. In making their determination as to the fairness of the merger price to
unaffiliated Unitholders, the Partnership and the Affiliates relied on the same
factors considered by the General Partners in this regard as set forth above.
10
DISADVANTAGES AND RISKS ASSOCIATED WITH THE MERGER
Unitholders should note that the affiliates of the General Partners may
benefit from the merger. This is most likely to occur if the Properties are
ultimately sold by the Purchaser for an amount greater than the per Unit price
being offered to Unitholders. The General Partners considered the following
potential disadvantages and risks to the Unitholders if the merger is completed:
- Continued ownership of the Units could be more economically beneficial to
Unitholders than the merger if the value of the Properties were to
increase.
- A more favorable transaction might be available from a third-party
purchaser of the Properties now or in the future.
- No independent committee or entity negotiated, reviewed or evaluated the
merger consideration offered by the Purchaser.
- No independent personhas evaluated or rendered any opinion with respect to
the fairness of the merger or merger price to Unitholders.
- Unitholders will not be offered appraisal rights or dissenters' rights in
connection with the merger.
- Unitholders may incur tax liabilities as a result of the merger.
CONFLICTS OF INTEREST
The General Partners faced conflicts of interest with respect to the merger
that may be in conflict with the economic interest of the Unitholders.
Specifically, there is a conflict between the desire of the Purchaser, an
affiliate of the General Partner, to pay unaffiliated Unitholders a lower price
in exchange for Units cancelled in the merger and the desire of unaffiliated
Unitholders to receive a higher price in exchange for their Units.
The General Partners also have an indirect economic interest in completing
the merger, as opposed to a sale or liquidation of the Partnership's assets to a
third party, because a third-party sale or liquidation would eliminate (a) the
distributions received by the General Partners in respect of their indirect
interests in the Properties and (b) the fees paid to their affiliates for
services provided to the Partnership.
To mitigate these conflicts of interest, the General Partners have relied
upon independent appraisals of the Properties prepared by ▇▇▇▇▇▇▇ & Wakefield.
In addition, a majority of the Unitholders, including Equity Resources, must
approve the merger and the amendment to ▇▇▇▇▇ Realty's partnership agreement
before the merger can be implemented. Although the conflicts of interest cannot
be eliminated, the Purchaser and the General Partners believe that the events
leading up to the merger, including the competitive bidding process described
above and the undertaking of the independent appraisals, mitigate these
conflicts and that the proposed transaction is procedurally fair.
Unitholders were not independently represented in the negotiation of the
merger agreement and no independent person or committee has evaluated or
rendered any opinion with respect to the fairness of the per Unit price to be
paid to Unitholders.
INDEPENDENT APPRAISALS
Copies of the appraisals of the Century II Apartments and the Park Place
Tower Apartments have been filed as exhibits to the Statement on Schedule 13E-3
of the Purchaser and its affiliates, of which this proxy statement is a part.
See "Where You Can Find More Information."
EXPERIENCE OF ▇▇▇▇▇▇▇ & WAKEFIELD
▇▇▇▇▇▇▇ & ▇▇▇▇▇▇▇▇▇ is part of a national network of affiliated full service
real estate companies providing brokerage, management, consulting and valuation
services in the United States (the "C&W Affiliated Companies"). The clients of
the C&W Affiliated Companies include major commercial and investment banks,
Fortune 500 corporations, pension funds, advisory firms and government agencies.
The Valuation Advisory Services Group of the C&W Affiliated Companies has
19 branch offices located in
11
various geographic regions of the United States. This large network of
professionals provides local expertise in key markets and subsidiary-regions and
enables ▇▇▇▇▇▇▇ & Wakefield to effectively handle broad-based, multi-property
assignments. Furthermore, the C&W Affiliated Companies valuation network
provides a large national database of market information and ensures a
consistent methodology for each property valuation. The General Partners
considered several appraisal firms but ultimately chose ▇▇▇▇▇▇▇ & ▇▇▇▇▇▇▇▇▇
based upon their expertise and industry leadership.
APPRAISALS
Based on its complete appraisal, as defined by the Uniform Standards of
Professional Appraisal Practice, ▇▇▇▇▇▇▇ & Wakefield determined that, subject to
the assumptions and limitation described below and disregarding in each case the
existing financing, the "as is" market value of the Park Place Tower Apartments
and the Century II Apartments as of the date of the appraisals was $48,250,000
and $22,300,000, respectively. The appraisals assume a standard marketing and
exposure time of one year. Inherent in the appraisal standards utilized by
▇▇▇▇▇▇▇ & ▇▇▇▇▇▇▇▇▇ is the presumption that market value be expressed in terms
of cash, or without the inclusion of the existing financing on a property, which
is generally the case when the financing on the existing property is prepayable
and the loan to value ratio is below that which can be obtained from lending
institutions. In addition, purchasers of real property generally prefer to make
acquisitions without assuming the existing financing, as their capitalization
requirements may differ from those of the existing property owners' in terms of
the amount of leverage, interest rate, term of loan and amortization
requirements.
The summary set forth below does not purport to be a complete description of
the analyses employed or the assumptions made by ▇▇▇▇▇▇▇ & Wakefield in
preparing the appraisals. The Partnership imposed no conditions or limitations
on the scope of ▇▇▇▇▇▇▇ & Wakefield's investigation or the methods and
procedures to be followed in preparing the appraisals.
FACTORS CONSIDERED
In preparing its valuation of the Properties, ▇▇▇▇▇▇▇ & Wakefield:
- conducted a physical inspection of each Property and site improvements;
- reviewed the leasing policy, concessions and history of recent occupancy
with each Property's manager;
- reviewed a history of income and expenses and budget forecasts for 1999;
- conducted market research of occupancies, asking rents, concessions and
operating expenses at competing properties;
- conducted market inquiries into and otherwise researched sales of similar
properties;
- prepared an estimate of stabilized income and expenses; and
- considered the highest and best use of each site.
SUMMARY OF ▇▇▇▇▇▇▇ & WAKEFIELD'S METHODOLOGY AND APPROACHES TO VALUE
SALE COMPARISON APPROACH. The sale comparison approach uses analysis
techniques and sales of comparable improved properties to derive units of
comparison that are then used to indicate a value for the subject property.
▇▇▇▇▇▇▇ & Wakefield conducted a search for sales of comparable improved
properties. In the case of the Park Place Tower Apartments, in determining units
of comparisons, ▇▇▇▇▇▇▇ & ▇▇▇▇▇▇▇▇▇ placed considerable emphasis and
understanding on the sales of properties ▇▇▇▇▇▇▇ & Wakefield had previously
appraised. The primary units of comparison used in this analysis were sales
price per unit, capitalization rates and gross income multiplier.
▇▇▇▇▇▇▇ & ▇▇▇▇▇▇▇▇▇ compared four apartment complexes with the Park Place
Tower Apartments that were sold between 1996 and 1998 and located in the
Chicago, Illinois real estate market. The per unit sales prices for these
comparables ranged from $43,554 to $77,640 per apartment unit, with an average
unit sales price of $65,280 per unit. The range of sales prices per unit
reflected a variety of qualitative factors
12
including unit size, unit mix, age, condition, amenities and the style of the
units and the rents achieved by these units. ▇▇▇▇▇▇▇ & Wakefield rated three of
the four comparable properties superior to the Park Place Tower Apartments in
its qualitative analysis.
In the sales comparison approach, ▇▇▇▇▇▇▇ & ▇▇▇▇▇▇▇▇▇ compared the net
operating incomes ("NOI") per apartment unit of the Park Place Tower Apartments
with those of the four comparable apartment complexes. Under this analysis, each
of the respective comparable sale prices per unit was multiplied by the NOI per
unit of the Park Place Tower Apartments and then divided by the comparables'
corresponding NOI per unit, which produced an adjusted value indication for the
Park Place Tower Apartments. This analysis resulted in adjusted sales prices per
unit ranging from $45,938 to $67,558 with an average adjusted sales price of
approximately $57,317 per unit. Based on ▇▇▇▇▇▇▇ & Wakefield's analysis of the
Park Place Tower Apartments' physical characteristics in relation to the
comparable properties, ▇▇▇▇▇▇▇ & ▇▇▇▇▇▇▇▇▇ estimated the value of Park Place to
lie within the range of the adjusted sales prices indicated by the comparable
sales, or from $53,000 to $55,000 per unit. Utilizing the mid-point of this
range, or $54,000 per unit, ▇▇▇▇▇▇▇ & Wakefield reached an overall value
conclusion for the 901 units in Park Place of approximately $48.65 million.
With respect to the Century II Apartments, ▇▇▇▇▇▇▇ & ▇▇▇▇▇▇▇▇▇ compared the
Property with four similar apartment complexes that were sold in 1998 and 1999
and located in the Baltimore metropolitan real estate market. The per unit sales
prices for these comparable ranged from $36,445 to $52,874 per apartment unit.
▇▇▇▇▇▇▇ & Wakefield rated three of the four comparable properties inferior to
the Century II Apartments in its qualitative analysis. ▇▇▇▇▇▇▇ & ▇▇▇▇▇▇▇▇▇
compared each comparable property with the Century II Apartments from a
locational, physical and economic standpoint and arrived at an adjusted value
range of $45,106 to $50,230 per unit. Based on this analysis, ▇▇▇▇▇▇▇ &
Wakefield estimated a value range for the Century II Apartments from $48,000 to
$50,000 per unit. Applying this value range to the 468 units in the Century II
Apartments produced a value range for the Property of between $22.46 million and
$23.4 million, resulting in an estimated value of $22.9 million. From this,
▇▇▇▇▇▇▇ & ▇▇▇▇▇▇▇▇▇ deducted deferred maintenance charges of $920,000 to arrive
at a value estimate for the Century II Apartments of approximately $22.0
million.
Utilizing the NOI analysis described above, ▇▇▇▇▇▇▇ & Wakefield derived an
adjusted price for the Century II Apartments of between $49,007 to $55,399 per
unit, with a mid-point of $52,084 per unit. Applying a unit rate of $52,000 to
the Century II Apartments, ▇▇▇▇▇▇▇ & ▇▇▇▇▇▇▇▇▇ derived an aggregate value
estimate of approximately $24.3 million which, after deducting deferred
maintenance charges of $920,000, resulted in a value estimate of approximately
$23.4 million. After taking into account the results produced under the two
methodologies, ▇▇▇▇▇▇▇ & Wakefield estimated the overall value of the Century II
Apartments at $22.7 million.
INCOME APPROACH. The purpose of the income approach is to value an
income-producing property by analyzing likely future income and expenses to the
property.
▇▇▇▇▇▇▇ & ▇▇▇▇▇▇▇▇▇ employed a direct capitalization analysis on each of the
Properties by dividing a forecast of NOI by an appropriate capitalization rate,
which ▇▇▇▇▇▇▇ & Wakefield believed to be 9.75% for the Century II Apartments
and 9.25% for the Park Place Tower Apartments. Capitalization rates are
extracted from comparable market sales as an indication of value. ▇▇▇▇▇▇▇ &
▇▇▇▇▇▇▇▇▇ relied on a variety of sources as the basis of the forecast of NOI,
including an analysis of each Property's income and expenses based on historical
figures and comparable projects.
In its income approach, ▇▇▇▇▇▇▇ & Wakefield first examined the potential
gross income ("PGI") for the Park Place Tower Apartments, which includes
apartment rental collections, retail/commercial rental collections, parking
revenues and other income. Combining the expected revenues generated by these
various components resulted in an annual estimated gross potential income of
$12,139,488 for the Park Place Tower Apartments in 1999 compared with a PGI of
$10,996,240 in 1996, $11,180,834 in 1997 and $11,780,643 in 1998. Between 1996
and 1997, Park Place's PGI increased 1.68%, while between 1997 and 1998, PGI
grew by 5.36%. ▇▇▇▇▇▇▇ & Wakefield's estimate represent a 3.05% increase over
the 1998
13
achieved PGI, a figure near, but slightly below the mid-point of the
demonstrated growth rates. In addition, the Partnership reflects a budgeted PGI
in 1999 of $12,099,168. Based on historical collections, the indicated annual
growth rates and the Partnership's projected figure, ▇▇▇▇▇▇▇ & Wakefield
believed their PGI estimate of $12,139,488 was reasonable and supported by
operations at Park Place.
▇▇▇▇▇▇▇ & ▇▇▇▇▇▇▇▇▇ then calculated Park Place's effective gross income
("EGI") by addressing a vacancy and collection loss factor, income lost to
non-revenue units and any concessions which may or may not be relevant. Once the
EGI were established, operating expenses were stabilized and deducted from the
EGI in order to arrive at a NOI for Park Place.
▇▇▇▇▇▇▇ & ▇▇▇▇▇▇▇▇▇ deducted an estimated vacancy and collection loss of
$595,724 and $119,145, respectively, and an estimated concession charge of
$50,000 plus the lost income associated with non-revenue producing units of
$61,692 from the previously established PGI of $12,139,488, and arrived at an
estimated EGI of $11,312,927 for Park Place. After accounting for operating
expenses of $7,154 on a per unit basis and capital reserves at $450 per unit,
▇▇▇▇▇▇▇ & Wakefield arrived at an NOI of $4,461,524 or approximately $4,952 per
unit. Divided by an overall capitalization rate of 9.25%, ▇▇▇▇▇▇▇ & ▇▇▇▇▇▇▇▇▇
estimated the market value of the Park Place Tower Apartments under the income
approach to be approximately $48.25 million.
▇▇▇▇▇▇▇ & Wakefield calculated a stabilized vacancy rate and collection loss
of 7.0% for the Century II Apartments and 5% for Park Place Tower Apartments. In
the case of the Century II Apartments, ▇▇▇▇▇▇▇ & ▇▇▇▇▇▇▇▇▇ calculated a
potential rental income of $4,161,084 based on existing contractual income
collected at the property. ▇▇▇▇▇▇▇ & Wakefield then accounted for a vacancy rate
and collection loss of seven percent, non-revenue producing units and other
income to arrive at an EGI of $3,934,966. After deducting operating expenses of
$3,561 per unit, including a replacement reserve of $275 per unit, ▇▇▇▇▇▇▇ &
▇▇▇▇▇▇▇▇▇ arrived at a NOI of $2,268,604 or $4,847 per unit. Employing a
capitalization rate of 9.75% to the projected NOI resulted in an indicated value
of $23,267,737. From this figure, ▇▇▇▇▇▇▇ & Wakefield deducted deferred
maintenance charges of $920,000 to arrive at an estimated value of approximately
$22.3 million.
▇▇▇▇▇▇▇ & ▇▇▇▇▇▇▇▇▇ also utilized a discounted cash flow method to analyze
the value of the Century II Apartments. Under this method, anticipated future
cash flow and a reversionary value are discounted at an appropriate rate of
return to arrive at an estimate of present value. The assumptions employed by
▇▇▇▇▇▇▇ & Wakefield to determine the value of the Century II Apartments under
the discount cash flow method included: a terminal capitalization rate of 10%, a
discount rate of 12%, a 3% cost of sale, a holding period of ten years, a market
rent growth rate and an expense growth rate of 3%, and a vacancy rate and
collection loss of 7%. Based on these assumptions, ▇▇▇▇▇▇▇ & Wakefield's
estimate of cash flows for the ten-year period commencing August 1999 ranged
from approximately $1.2 million to $2.9 million. ▇▇▇▇▇▇▇ & Wakefield did not
utilize this method to value the Park Place Tower Apartments, as it believed
that the direct capitalization rate was the method more likely to be used by
potential investors in properties with characteristics similar to that property.
RECONCILIATION AND CONCLUSIONS OF APPRAISAL. The final step in the
appraisal process was to reconcile the sale comparison approach and the income
approach values to arrive at a final value conclusion. The primary consideration
to reconcile the two approaches are the reliability of the data used and the
applicability of each method for valuing a particular property. After
reconciling the various factors, ▇▇▇▇▇▇▇ & ▇▇▇▇▇▇▇▇▇ arrived at a final
appraised value for the Park Place Tower Apartments of $48,250,000 and a final
appraised value for the Century II Apartments of $22,300,000. The appraisal
valued the Properties at $70,550,000 in the aggregate, disregarding existing
financing secured by the Properties. For a description of how the appraisal was
utilized to determine the fairness of the merger, see "--Determination of the
Merger Price."
The Purchaser based its initial merger price of $864 per Unit on the
appraisals of the Properties. In establishing this price, the Purchaser deducted
from the $70,550,000 figure the approximately $41.4 million of mortgage
indebtedness on the Properties as of September 30, 1999 and arrived at a figure
of $29.15
14
million, or per Unit price of approximately $828. From the $29.15 million
figure, the Purchase (a) added the remaining assets of the Partnership as of
September 30, 1999, principally consisting of approximately $6.3 million of
cash, cash equivalents and prepaid assets, (b) deducted the remaining
liabilities of the Partnership as of September 30, 1999, principally consisting
of approximately $3.5 million of accrued real estate taxes and other accrued
expenses, and (c) deducted mortgage debt repayment costs of approximately $1.6
million which are expected to be incurred in connection with the refinancing of
the Properties. The Purchaser then arrived at a figure of approximately
$30.4 million, which it divided by 35,200, the total number of Units
outstanding, to arrive at its $864 per Unit price. See "--Background of the
Merger; Purpose of the Transaction."
ASSUMPTIONS, LIMITATIONS AND QUALIFICATIONS OF ▇▇▇▇▇▇▇ & WAKEFIELD'S
VALUATION
In preparing the appraisals, ▇▇▇▇▇▇▇ & ▇▇▇▇▇▇▇▇▇ relied, without independent
verification, on the accuracy and completeness of all information supplied or
otherwise made available to it by or on behalf of the Partnership, including
rent rolls, histories of income and expenses and lease summaries. In arriving at
the appraisals, ▇▇▇▇▇▇▇ & Wakefield assumed:
- good and marketable title to the Properties;
- each Property was free and clear of all liens, unless otherwise stated;
- responsible ownership and competent management of each Property;
- no hidden or unapparent conditions related to either Property, its
structure and its subsoil;
- full compliance with zoning and environmental laws;
- possession of all necessary licenses, certificates of occupancy and other
governmental consents and that the renewal of these items are possible;
- the soundness of the structures on each Property;
- the functionality of mechanical equipment and plumbing and electrical
components located and utilized by each Property;
- no potentially hazardous or toxic materials were utilized in the
construction or maintenance of the Properties nor located at or about the
Properties; and
- compliance with the Americans with Disabilities Act of 1990.
Further, in its valuation of the Park Place Tower Apartments, ▇▇▇▇▇▇▇ &
▇▇▇▇▇▇▇▇▇ was not provided with building plans for the site improvements and,
accordingly, building sizes relating to gross and net rentable area were
compiled from other documentation furnished by the Partnership. ▇▇▇▇▇▇▇ &
▇▇▇▇▇▇▇▇▇ did not conduct a legal survey of the Properties or review actual
tenant leases. To the knowledge of the General Partners, there have been no
material changes in the Partnership, its assets or any other relevant
information since the date of the appraisals which may limit the usefulness of
the appraisals and otherwise affect the validity and accuracy of the appraisals.
AN APPRAISAL IS ONLY AN ESTIMATE OF VALUE, AS OF THE SPECIFIC DATES STATED
IN THE APPRAISAL, AND IS SUBJECT TO THE ASSUMPTIONS AND LIMITING CONDITIONS
STATED IN THE APPRAISAL REPORT. AN OPINION IS NOT A MEASURE OF REALIZABLE VALUE
AND MAY NOT REFLECT THE AMOUNT WHICH WOULD BE RECEIVED IF THE PROPERTY WAS SOLD.
REFERENCE SHOULD BE MADE TO THE ENTIRE APPRAISAL REPORT.
AVAILABILITY OF REPORT
Copies of the appraisals have been filed with the Commission as an exhibit
to the Schedule 13E-3 filed by the Partnership and the Purchaser. Copies of the
appraisals for the Properties are also available for inspection and copying at
the principal executive offices of the Partnership during regular business hours
by any interested Unitholder or his designated representative at its or his
cost.
15
COMPENSATION
▇▇▇▇▇▇▇ & Wakefield was paid a fee of $15,000 in connection with the
appraisals. The fees paid to ▇▇▇▇▇▇▇ & ▇▇▇▇▇▇▇▇▇ in connection with the
appraisal were negotiated by the General Partners. The Partnership has agreed to
indemnify ▇▇▇▇▇▇▇ & Wakefield against specified liabilities arising out of its
engagement to prepare and deliver the appraisals.
The General Partners engaged ▇▇▇▇▇▇▇ & ▇▇▇▇▇▇▇▇▇ in July 1999 to value the
Properties. In 1998 and 1999, ▇▇▇▇▇▇▇ & Wakefield provided its appraisal
services to Berkshire Realty Company, Inc., an affiliate of the General Partners
and the property manager of the Properties, and Berkshire Realty Holdings,
L.P., also an affiliate of the General Partners. ▇▇▇▇▇▇▇ & ▇▇▇▇▇▇▇▇▇ received
approximately $700,000 for the services provided to Berkshire Realty Company and
Berkshire Realty Holdings. Other than these engagements, there has been no
material relationship between ▇▇▇▇▇▇▇ & Wakefield or its affiliates and the
Partnership or its affiliates, nor is any material relationship contemplated.
DETERMINATION OF MERGER PRICE
As described above under "--Background of the Merger; Purpose of the
Transaction," the Purchaser based its initial merger price of $864 per Unit on
the appraisals of the Properties prepared by ▇▇▇▇▇▇▇ & ▇▇▇▇▇▇▇▇▇. The
established merger price of $1,200 per Unit was determined following the revised
tender offer of $1,100 per Unit made by ERP. The General Partners believe that
this price is fair to Unitholders.
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 sixteen 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 merger
price.
RECENT UNIT SALES; TENDER OFFER
Although not necessarily an indication of value, the per Unit price to be
paid to Unitholders in the merger is higher than the trading prices for the
Units during the past year as reported by The Partnership Spectrum, an
independent third-party industry publication. The General Partners do not know
whether the information compiled by The Partnership Spectrum is accurate or
complete. According to its reports, for the eight months ended September 30,
1999, a total of 100 Units traded at per Unit prices between $575 and $651 with
a weighted average of $624 per Unit. In addition, for the period between
October 1, 1999 and November 30, 1999, a total of 50 Units traded at per Unit
prices between $652 and $655.83 with a weighted average of $653.80 per Unit.
Trading prices as reported by The Partnership Spectrum 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 to amounts
less than the reported prices. The General Partners have not independently
confirmed the trading prices referred to above, and believe that these prices
are not necessarily indicative of value. Consequently, the General Partners
believe that the comparison of the per Unit price to be paid to Unitholders with
these prices, while informative, is not dispositive of the fairness of the price
to be paid to Unitholders.
The $1,200 per Unit price to be paid to Unitholders in the merger is also
higher than the $1,100 price (less distributions) offered in a recent
third-party tender offer to acquire the outstanding Units.
EFFECTS OF THE TRANSACTION
EFFECT ON THE PARTNERSHIP
If the merger is approved and the remaining conditions to the merger are met
or waived, the merger will be effected by filing certificates of merger with the
Delaware Secretary of State and the Massachusetts Secretary of State. As a
result, the assets and liabilities of the Partnership will be transferred to the
Purchaser as the surviving entity in the merger and the Partnership will cease
to exist. The benefits and risks associated with ownership of the Properties
will then rest solely with the Purchaser.
16
Following the merger, the Partnership will cease to be a public company and
will not file reports under the Securities Exchange Act of 1934 or be subject to
the rules under it.
EFFECTS ON THE UNITHOLDERS
As a result of the merger, each Unit of the unaffiliated Unitholders will be
cancelled in exchange for a $1,200 cash payment, without interest, payable by
the Purchaser to the Unitholder upon receipt by the Purchaser of the appropriate
forms from the Unitholder. Following the completion of the merger, the
Unitholders will cease to be owners of the Partnership and will no longer have
the potential benefits and risks associated with ownership. Unitholders will
forego the opportunity to continue to participate as investors in the
Partnership, including the right to distributions and potential appreciation of
its assets over time.
Unitholders will recognize a gain or loss on the conversion of Units into
cash in the merger to the extent of the difference between the amount realized
and the Unitholder's adjusted basis in the Units sold. See "--Material Federal
Income Tax Consequences."
EFFECTS ON THE GENERAL PARTNERS AND THE PURCHASER
The General Partners will not receive any payment in exchange for the
redemption of their general partnership or original limited partnership
interests nor will they receive any fees from the Partnership in connection with
the merger. Following the merger, the Purchaser will continue to pay management
fees to an affiliate of the General Partner as described below under
"Information About the Partnership, Its General Partners and Their
Affiliates--Related Party Transactions." An affiliate of the General Partners
will manage and control and have an approximate 75% ownership interest in the
Purchaser and thus will benefit from any returns the Purchaser receives from its
investment in the Properties, whether from operating the Properties, selling the
Properties or otherwise.
FAILURE TO APPROVE THE MERGER
If the merger is not approved by Unitholders, the General Partners will
continue to operate the Partnership in accordance with the terms of the
partnership agreement and in fulfillment of their fiduciary duties. The
Partnership may (1) continue to hold the Properties, (2) refinance either or
both of the Properties and utilize the proceeds of the refinancing to implement
capital improvements in the Properties, (3) solicit offers from potential
purchasers to acquire either or both Properties, through bid solicitation,
auction or otherwise or (4) pursue other strategies intended to enhance the
value of the Unitholders' investment in the Partnership.
PLANS OR PROPOSALS BY PARTNERSHIP OR AFFILIATES FOLLOWING THE MERGER
Following the completion of the merger, the Purchaser intends to review the
Partnership and its assets, distribution 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. The Purchaser presently anticipates conducting the business and
operations of the Partnership substantially as they are currently conducted.
The Purchaser does not have any specific plans for the sale or disposition
of the Properties or any material change in the business of the Partnership
following the merger. The Purchaser will, however, evaluate any proposals and
may sell or dispose of its assets if attractive terms are offered. Presently,
there are no arrangements or proposals to do so.
Under the agreements entered into in connection with the merger, Equity
Resources, which following the merger will own approximately 25% of the
Purchaser, may require the managing members of the Purchaser to cause the
Purchaser to attempt to sell the Properties at any time during the six-month
period following the fifth anniversary of the completion of the merger. See
"Related Agreements."
17
FINANCING OF THE MERGER
SOURCE OF FUNDS
The aggregate consideration to be paid to Unitholders is approximately $37.5
million. Of this amount, up to $16 million will be in the form of a capital
contribution from KRF Company to the Purchaser and the remainder will be
obtained from the anticipated refinancing of existing mortgage indebtedness of
the Partnership. In addition, Equity Resources will contribute 3,985.5 Units
currently held by them in the Partnership as a capital contribution to the
Purchaser. KRF Company will finance its capital contributions to the Purchaser
through capital contributions from an affiliate of the General Partners which
has available sufficient amounts of liquid capital necessary to fund the
obligations of KRF Company to the Purchaser in respect of the merger
consideration.
It is anticipated that the Purchaser will obtain financing from ▇▇▇▇▇▇
Mortgage Capital Corporation under loans to be secured by each of the
partnership's Properties, which loans will then be assigned to the Federal
National Mortgage Association ("▇▇▇▇▇▇ ▇▇▇"). It is expected that the loan
proceeds will be used to acquire the outstanding Units, refinance existing debt,
including prepayment penalties of approximately $1.6 million, and pay associated
closing costs. The Purchaser expects to have a signed commitment letter by the
date of the special meeting.
The Purchaser expects to borrow between $66 million and $68 million. The
proposed term of the loans is 60 to 84 months, with a proposed amortization
schedule of 360 months. It is anticipated that the loans will bear an adjustable
interest rate as provided by ▇▇▇▇▇▇ Mae. It is proposed that the interest rate
index shall be based on the three-month London Interbank Offered Rate plus a
spread. The interest rate will change every three months based upon the LIBOR
index.
It is anticipated that the loans will be prepayable in the future, together
with a prepayment premium. The Purchaser expects to pay origination fees related
to the loans and third-party costs relating to surveys, title insurance and
other closing costs. It is further anticipated that the loan agreements will
contain customary restrictive covenants and events of default. If the financing
described above is not available, the Purchaser anticipates that it would be
able to obtain alternative financing for the merger, but has made no
arrangements for any alternative financing.
COSTS BORNE BY THE PURCHASER
It is expected that approximately $66 million to $68 million will be
required to finance the merger, and approximately $772,000 will be required to
pay related fees and expenses. The following is an itemized statement of the
approximate amount of all expenses incurred or to be incurred by the Purchaser
in connection with the merger:
Financing costs............................................. $500,000
Legal fees.................................................. 200,000
Appraisal and related expenses.............................. 25,000
Printing and mailing costs.................................. 15,000
Proxy solicitation fees..................................... 22,000
Other, including filing fees................................ 10,000
--------
Total................................................. $772,000
========
18
MATERIAL FEDERAL INCOME TAX CONSEQUENCES
The following summary is a general discussion of material federal income tax
consequences of a sale of Units under the merger 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. This summary is based on the Internal Revenue Code, applicable Treasury
Regulations under it, administrative rulings, practice and procedures and
judicial authority as of the date of this proxy statement. All of the foregoing
are subject to change, and any 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 the
Unitholder's specific circumstances or to specific 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. This summary also does not discuss any aspect of state, local,
foreign or other tax laws. Sales of Units under the merger 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 ITS TAX ADVISOR AS TO THE PARTICULAR TAX
CONSEQUENCES TO THE UNITHOLDER OF SELLING UNITS UNDER THE MERGER.
CONSEQUENCES TO UNITHOLDERS
A Unitholder will recognize gain or loss on a sale of Units under the merger
equal to the difference between (1) the Unitholder's "amount realized" on the
sale and (2) the Unitholder's adjusted tax basis in the Units sold. The "amount
realized" with respect to Units sold under the merger will be a sum equal to the
amount of cash received by the Unitholder for the Units plus the amount of
Partnership liabilities allocable to the Units, as determined under Internal
Revenue Code Section 752. A Unitholder's adjusted tax basis in Units sold under
the merger will vary depending upon the Unitholder's particular circumstances,
and will be affected by allocations of Partnership income, gain or loss, and by
any cash distributions made by the Partnership to a Unitholder with respect to
its Units. In this regard, Unitholders will be allocated a pro rata share of the
Partnership's taxable income or loss with respect to Units sold under the merger
through the effective date of the sale.
In general, the character, as capital or ordinary, of a Unitholder's gain or
loss on a sale of Units under the merger 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
Internal Revenue 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. 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 capital assets.
A Unitholder's capital gain or loss, if any, on a sale of Units under the
merger 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 these 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 generally allowed to carry
back excess capital losses to the three preceding taxable years.
19
Under Internal Revenue 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 these 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 these losses
against any income or gain recognized by the Unitholder on a sale of his Units
under the merger.
Gain realized by a foreign Unitholder on a sale of a Unit under the merger
will be subject to federal income tax. Under Section 1445 of the Internal
Revenue 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 foreign Unitholder from the price payable to the foreign
Unitholder.
Amounts withheld would be creditable against a foreign Unitholder's federal
income tax liability and, if in excess of the liability, a refund could be
obtained from the Internal Revenue Service by filing a U.S. income tax return.
Unless an exemption applies under applicable law and regulations concerning
"backup withholding" of U.S. federal income tax, the Purchaser will be required
to withhold, and will withhold, 31% of the gross proceeds otherwise payable to a
Unitholder or other payee pursuant to the merger unless the Unitholder or other
payee provides its taxpayer identification number (social security number or
employee identification number) and certifies that this number is correct, or
certifies that it is awaiting a taxpayer identification number. To prevent the
imposition of backup federal income tax withholding on payments made to certain
Unitholders with respect to the purchase price of Units purchased under the
merger, a tendering Unitholder must provide the Purchaser with the holder's
correct taxpayer identification number and certify that the Unitholder is not
subject to backup federal income tax withholding by completing the Substitute
Form W-9 included in the letter of transmittal.
20
THE SPECIAL MEETING
SPECIAL MEETING; RECORD DATE
Under Massachusetts partnership law and the partnership agreement, the
merger and the amendment requires approval of a majority of the holders of each
class of outstanding investor limited partnership units. A special meeting of
the Unitholders will be held on , 2000, at , at local
time, to consider and vote upon the merger and the amendment to the
Partnership's partnership agreement. In accordance with the partnership
agreement, the close of business on , 2000 has been established as the
record date for the special meeting. Under the terms of the partnership
agreement, only the Unitholders of record on the record date are eligible to
vote those Units on the proposals set forth in this proxy statement. A
Unitholder of record as of the record date will retain the right to vote on the
proposals set forth in this document even if the Unitholder sells or transfers
its Units after the record date. As of the record date, the Partnership had
35,200 Units outstanding and entitled to vote, held of record by approxmiately
1,870 Unitholders. A list of the Unitholders entitled to vote at the special
meeting will be available for inspection at the executive offices of the
Partnership at ▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇, ▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇. Under
the partnership agreement, valid voting requires a quorum constituted by a
majority in interest of the Unitholders voting at the special meeting in person
or by proxy.
Even if a Unitholder intends to attend the special meeting in person, they
are requested to complete and return the enclosed proxy card promptly.
PROCEDURES FOR COMPLETING PROXIES
Accompanying this proxy statement is a proxy card solicited by the General
Partners for use at the special meeting. When a proxy card is returned, properly
executed, the Units represented by it will be voted at the special meeting by
the General Partners in the manner specified on the proxy card. It is important
that Unitholders ▇▇▇▇, sign and date their proxy card and return it either in
the enclosed, postage-prepaid envelope or by facsimile as instructed below to
▇▇▇▇▇ Funds Group as soon as possible. When voting a proxy by facsimile, both
sides of the proxy must be transmitted. Delivery of a proxy does not prohibit
Unitholders from attending the special meeting. To be properly executed, the
proxy card must be signed by and bear the date of signature of the Unitholder
voting the Units represented by the card. All questions as to the form of
documents and the validity of consents will be determined by the General
Partners, which determinations shall be final and binding. The General Partners
reserve the right to waive any defects or irregularities in any proxy.
Each Unit entitles the holder thereof to one vote with respect to the
proxies solicited by this document. Only Unitholders of record on the record
date may grant a proxy with respect to their Units.
IF UNITS STAND OF RECORD IN THE NAMES OF TWO OR MORE PERSONS, ALL PERSONS
MUST SIGN THE PROXY CARD. WHEN SIGNING AS AN ATTORNEY, EXECUTOR, ADMINISTRATOR,
TRUSTEE OR GUARDIAN, PLEASE GIVE THE FULL TITLE OF THE POSITION HELD. IF A
CORPORATION, THE PROXY SHOULD BE SIGNED BY THE PRESIDENT OR OTHER AUTHORIZED
OFFICER. IF A PARTNERSHIP, PLEASE SIGN IN THE PARTNERSHIP'S NAME BY AN
AUTHORIZED PERSON. IF A UNITHOLDER'S UNITS ARE HELD IN THE NAME OF A BROKERAGE
FIRM, BANK, NOMINEE OR OTHER INSTITUTION, ONLY THIS INSTITUTION CAN SIGN A PROXY
WITH RESPECT TO THE UNITS AND CAN DO SO ONLY AT THE UNITHOLDER'S DIRECTION.
ACCORDINGLY, IF ANY UNITS ARE SO HELD, UNITHOLDERS SHOULD CONTACT THEIR ACCOUNT
REPRESENTATIVE AND GIVE INSTRUCTIONS FOR A PROXY TO BE SIGNED WITH RESPECT TO
THEIR UNITS.
A Unitholder in favor of the merger and the amendment to ▇▇▇▇▇ Realty's
partnership agreement should ▇▇▇▇ the "for" box on the enclosed proxy card, date
and sign the proxy and either mail it promptly in the enclosed postage-prepaid
envelope or fax a copy to ▇▇▇▇▇ Funds Group as instructed below. If a proxy card
is executed but no indication is made as to what action is to be taken, it will
be deemed to constitute a vote "for" the merger and "for" the amendment. By
consenting to the merger and the amendment, the Unitholders irrevocably appoint
the General Partners, or their designee, as their attorney-in-fact to execute
and deliver those documents as are necessary to effect the merger and the
amendment.
21
Questions and requests for assistance or for additional copies of this proxy
statement and the proxy card may be directed to the Partnership's Solicitation
Agent, ▇▇▇▇▇ Funds Group, ▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇, ▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇▇▇▇
▇▇▇▇▇, Attention: Investor Services, or by telephone at ▇-▇▇▇-▇▇-▇▇▇▇▇ or
facsimile at ▇▇▇-▇▇▇-▇▇▇▇. Unitholders should also use this fax number for
delivery of their completed proxy cards. In addition to soliciting proxies by
mail, proxies may be solicited in person and by telephone or telegraph.
Unitholders may also contact their broker, dealer, commercial bank, trust
company or other nominee for assistance concerning the proxy solicitation.
VOTES REQUIRED
Under the terms of the partnership agreement, the vote of the Unitholders
owning a majority of the Units is necessary to approve the amendment to the
partnership agreement. Under Massachusetts law, the vote of the Unitholders
owning a majority of the Units is necessary to approve the merger. Each Unit
entitles the holder thereof to one vote on each matter submitted to a vote of
the Unitholders. If a majority in interest of the Unitholders consent to the
merger and the amendment and certain other conditions are met, the merger will
be completed. If both the merger and the amendment are not approved by the
Unitholders owning a majority of the Units, the merger will not be completed.
Equity Resources, which holds approximately 11% of the Partnership's
outstanding Units, has agreed to vote for the approval of the merger and the
amendment to the Partnership's partnership agreement. In addition, Unitholders
representing approximately 4.57% of the Units have previously agreed to vote
their interest in the Partnership in proportion to the votes of all other
Unitholders who vote on a given matter. Therefore, these Unitholders would have
to vote 60% of their Unit holdings in favor of the merger if, for example, other
Unitholders representing 60% percent of the outstanding Units voted for the
approval of the merger. This means that, in total, an additional 39% of the
unaffiliated Unitholders must vote in favor of the merger proposal to ensure its
approval. See "Related Agreements." Units held by ▇▇▇▇▇ ▇▇, as a limited partner
of the Partnership, will not be voted at the special meeting or included in the
determination of whether a quorum exists.
THE CONSENT OF THE UNITHOLDERS HOLDING A MAJORITY IN INTEREST OF THE
OUTSTANDING UNITS IS NECESSARY TO COMPLETE THE PROPOSED MERGER AND TO ADOPT THE
AMENDMENT. FAILURE TO RETURN A PROXY IN A TIMELY MANNER OR TO VOTE AT THE
SPECIAL MEETING, ABSTENTION FROM VOTING OR A BROKER NON-VOTE WILL EACH HAVE THE
SAME EFFECT AS A VOTE "AGAINST" THE MERGER AND "AGAINST" THE AMENDMENT.
THEREFORE, UNITHOLDERS ARE ASKED TO PLEASE DATE, SIGN AND PROMPTLY RETURN THEIR
PROXY CARDS.
SOLICITATION PROCEDURES
The Partnership has retained ▇▇▇▇▇ Funds Group to act as Solicitation Agent
and for advisory services in connection with this proxy statement. In connection
therewith, ▇▇▇▇▇ Funds Group will be paid reasonable and customary compensation
and will be reimbursed for their reasonable out-of-pocket expenses, as described
above under "Special Factors--Financing of the Merger--Costs Borne by the
Purchaser." The Partnership has also agreed to indemnify ▇▇▇▇▇ Funds Group
against specified liabilities and expenses including liabilities and expenses
under federal securities laws.
The Partnership will not pay any fees or commissions to any broker or dealer
or other person, other than to ▇▇▇▇▇ Funds Group, for soliciting proxies in this
solicitation. Banks, brokerage houses and other custodians, nominees and
fiduciaries will be requested to forward the solicitation materials to the
customers for whom they hold Units, and the Partnership will reimburse them for
reasonable mailing and handling expenses incurred by them in forwarding proxy
materials to their customers.
REVOCATION OF PROXIES
A proxy executed and delivered by a Unitholder may subsequently be revoked
by submitting written notice of revocation to the Partnership. A revocation may
be in any written form, including a later-dated proxy card, validly signed by a
Unitholder as long as it clearly states that the Unitholder's proxy previously
22
given is no longer effective. To prevent confusion, the notice of revocation
must be dated. Notices of revocation should be delivered to ▇▇▇▇▇ Funds Group at
the address or by facsimile as listed above. A Unitholder may also revoke its
proxy by attending the special meeting and voting in person. If a Unitholder
signs, dates and delivers a proxy to the Partnership and, thereafter, on one or
more occasions, signs and delivers a later-dated proxy, the latest-dated proxy
card is controlling as to the instructions indicated in that proxy and
supersedes the Unitholder's prior proxy as embodied in any previously submitted
proxy card.
APPRAISAL RIGHTS
Neither the partnership agreement nor Massachusetts law provides rights of
appraisal or similar rights to Unitholders whether or not Unitholders abstain or
vote for or against the merger. As a result, if Unitholders holding a majority
of the Units approve the merger and if the merger is completed, the Partnership
will be merged with and into the Purchaser and all unaffiliated Unitholders,
including those who do not approve the merger, will receive the merger price for
each of their Units in accordance with the terms of the merger agreement.
23
THE MERGER AGREEMENT
The merger agreement between the Partnership and the Purchaser will be
entered into only if the Unitholders approve the amendment to the Partnership's
partnership agreement. Under the merger agreement, the merger of the Partnership
with and into the Purchaser will not take place unless the Unitholders approve
the merger. If the merger is approved at the special meeting, the General
Partners on behalf of the Partnership intend to enter into an agreement
substantially in the form of the merger agreement. The material provisions of
the merger agreement are summarized below. Although complete in all material
respects, this summary is qualified by reference to the full text of the merger
agreement attached to this proxy statement as Annex A. Unitholders are
encouraged to read the merger agreement carefully. If all of the conditions in
the merger agreement are met, principally the approval by the Unitholders of the
merger, at the effective time of the merger, the Partnership will be merged with
and into the Purchaser, with the Purchaser continuing as the surviving entity.
The Purchaser, as the surviving entity, will succeed to and possess all of the
rights, privileges and powers of the Partnership, whose assets shall vest in the
Purchaser, and who will then be liable for all of the liabilities and
obligations of or any claims or judgments against the Partnership.
CLOSING DATE; EFFECTIVE TIME OF THE MERGER
The merger will become effective at 5:00 p.m. on the date on which the
latter of (1) the filing of the certificate of merger with the Office of the
Secretary of State of Delaware and (2) the filing of the certificate of merger
with the Secretary of State of the Commonwealth of Massachusetts.
EFFECTS OF THE MERGER
At the effective time, by virtue of the merger, and without any further
action on the part of anyone, all Partnership interests outstanding immediately
beforehand, including Units, general partnership interests and original limited
partnership interests, will be cancelled. Each Unit owned by the Unitholders,
other than Equity Resources, or those who are not affiliates of the Purchaser or
the General Partners, will be automatically converted into a right to receive,
in exchange for each Unit, $1,200 in cash, without interest. Immediately before
the effective time, 3,985.5 partnership interests (whether general or limited)
will be contributed to the Purchaser for membership interests in the Purchaser.
PAYMENT
The merger price will be paid to unaffiliated Unitholders by the Purchaser
within 15 days of the effective time. Interest will not accrue on amounts owed
to unaffiliated Unitholders. Payments will be made only to the unaffiliated
Unitholder in whose name Units are registered on the books of the Partnership at
the effective time. Neither the Purchaser nor any other party will be liable to
any Unitholder for any merger consideration or other payments made to a public
official under applicable abandoned property laws. The Purchaser will be
entitled to deduct and withhold from the merger consideration paid to a
Unitholder any taxes or other amounts required by law, including backup
withholding imposed under Internal Revenue Code Section 3406 and withholding
imposed under Internal Revenue Code Section 1445 on the gross amount realized by
specified foreign persons upon the disposition of specified interests in U.S.
real property.
Under federal law, to the extent that amounts are withheld, these amounts
will be treated as having been paid to a Unitholder for purposes of the merger
agreement. Beginning at the effective time, there will be no further transfers
of any Units on the books of the Partnership. Each Unitholder whose Units were
converted and cancelled will be deemed to have withdrawn as a limited partner of
the Partnership. Unitholders will then have no further interest in the
Partnership or the Purchaser, including any allocations or distributions of
income, property or otherwise, other than the right to receive the merger price
per Unit.
Following the effective time, the officers of the Purchaser, as the
surviving entity in the merger, will terminate the Partnership's reporting
obligations with the Securities and Exchange Commission.
24
AUTHORITY AND CONSENT OF THE PURCHASER
The Purchaser has informed the Partnership that the execution, delivery and
performance of the merger agreement by the Purchaser and the completion of the
transactions contemplated by it have been duly authorized by the Purchaser's
members as necessary.
REPRESENTATIONS AND WARRANTIES OF THE PARTIES
The merger agreement contains no representations and warranties.
CONDITIONS TO THE MERGER
Before the merger is completed, the following must occur:
- the holders of a majority of the outstanding Units must approve the
amendment in accordance with the partnership agreement;
- the holders of a majority of the outstanding Units must approve the merger
agreement in accordance with the partnership agreement and Massachusetts
law;
- any consent, approval or waiver of any third party required in order for
the Purchaser or the Partnership to complete the merger must be obtained.
In addition, unless the relevant condition is waived by the Purchaser and
the Partnership, the merger will not be completed if any of the following occur:
- the enactment, promulgation or enforcement by any governmental entity of a
statute, regulation or injunction which prohibits or restrains the merger
or subjects any party to substantial damage as a result of the merger; and
- a change or event which has or could be reasonably expected to either
(1) cause a material adverse effect to the business, condition, financial
or otherwise, or result of operations of the Partnership or (2) prevent or
cause a material delay in the completion of the merger or the performance
of the merger agreement by the Purchaser or the Partnership.
TERMINATION
The merger agreement may be terminated by the mutual agreement of the
Purchaser and the General Partners at any time before the filing of the
certificates of merger.
AMENDMENT
At any time before the filing of the certificates of merger, the merger
agreement may be amended by the joint determination in writing of the Purchaser
and the General Partners. No amendment may be made which would change any term
of the certificate of formation or operating agreement of the surviving entity
in the merger.
WAIVER
At any time before the effective time of the merger, whether before or after
this proxy statement is mailed, any party may waive compliance with any of the
agreements of the other party or conditions to its own obligations contained in
the merger agreement.
THE SURVIVING ENTITY
The certificate of formation, operating agreement and managers and officers
of the Purchaser will be the certificate of formation, operating agreement and
managers and officers utilized by or employed by the Purchaser before the
merger.
25
RELATED AGREEMENTS
In connection with the merger, the Purchaser and its sole member,
KRF Company, have entered into an investment agreement and voting agreement,
each dated as of December 2, 1999, with Equity Resources. Under the investment
agreement, Equity Resources has agreed to reinvest their Units in the Purchaser
as a capital contribution. KRF Company, on the other hand, will make a cash
contribution to the Purchaser of up to $16 million. The Purchaser and
KRF Company, on the one hand, and Equity Resources on the other hand, further
agreed to indemnify the other in connection with any liability arising out of a
breach of the investment agreement, while the Purchaser agreed to identify the
parties in connection with any liabilities arising out of any Unitholder
litigation relating to the merger. To the extent that the indemnification
provisions are unenforceable, the parties agreed to contribute additional
amounts in satisfaction of any losses to the extent legally permissible.
The Purchaser may terminate the investment agreement at any time. The
investment agreement will terminate automatically if the merger is not completed
by August 1, 2000, or, if the members of the Purchaser do not make their capital
contributions before the parties complete the merger.
Under the voting agreement, Equity Resources, which owns approximately 11%
of the outstanding Units, has agreed that at any meeting of the partners of the
Partnership, however called, and in any action by consent of the limited
partners of the Partnership, Equity Resources will vote, or cause to be voted,
the Units held of record or beneficially owned by it in favor of the merger and
the amendment to the partnership agreement. Equity Resources further agreed that
at any meeting of the partners of the Partnership, however called, and in any
action by consent of the limited partners of the Partnership, Equity Resources
will vote, or cause to be voted, in person or by proxy, the Units held of record
or beneficially owned by it against approval of any proposal made in opposition
to or in competition with the merger.
In addition, Equity Resources further agreed that, without the consent of
the Purchaser and KRF Company, Equity Resources would not, either directly or
indirectly, offer or otherwise agree to sell, assign, pledge, transfer, exchange
or dispose of any Units or options, warrants or other convertible securities to
acquire or purchase Units, whether now or later acquired. Under the terms of the
voting agreement, if Equity Resources acquires any additional Units, the voting
agreement will be applicable to the additional Units.
In addition, under the terms of the Purchaser's organizational documents,
upon the request of Equity Resources, the managing members of the Purchaser have
agreed to cause the Purchaser to attempt to sell the Properties at any time
during the six-month period following the fifth anniversary of the completion of
the merger.
THE AMENDMENT TO THE PARTNERSHIP AGREEMENT
PURPOSE
The purpose of the amendment is to amend ▇▇▇▇▇ Realty's partnership
agreement to permit the Partnership to enter into the merger agreement and
complete the merger with the Purchaser. Except for specifically enumerated
transactions, the partnership agreement prohibits the Partnership from selling
any property to, or entering into any agreement or arrangement with, a General
Partner or an affiliate of a General Partner. Because the Purchaser is an
affiliate of the General Partners and the merger agreement is an agreement which
may be considered to be an indirect sale of the Properties, these prohibitions
prevent the Partnership from entering into the merger agreement with the
Purchaser.
THE AMENDMENT
The description of the amendment to the partnership agreement summarized
above is qualified in its entirety by reference to the text of the amendment
attached to this proxy statement as Annex B. Unitholders are encouraged to read
the annexed amendment carefully.
26
In accordance with the amendment, the parties must enter into the merger
agreement after February 1, 2000 and before August 1, 2000. The amendment adds
the merger agreement to the list of the transactions which the Partnership is
permitted to compete with an affiliate of the General Partners; otherwise, the
amendment does not alter the partnership agreement.
INFORMATION ABOUT THE PARTNERSHIP,
ITS GENERAL PARTNERS AND THEIR AFFILIATES
THE PARTNERSHIP
The Partnership was organized on June 16, 1983 as a limited partnership
under Massachusetts law. The Partnership is governed by its partnership
agreement, which vests exclusive management and control over the Partnership in
the General Partners, subject to the rights of the Unitholders to vote on
limited matters. The address of the Partnership's principal executive office is
at ▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇, ▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇, and the telephone
number is (▇▇▇) ▇▇▇-▇▇▇▇.
The Partnership considers itself to be engaged only in the industry segment
of real estate investing. The Partnership issued all of the original limited
partner interests in the Partnership to The ▇▇▇▇▇ Company Limited
Partnership-II. On September 6, 1983, the Partnership, under a sales agent
agreement, commenced the marketing and sale of Units for $1,000 per Unit, 35,200
of which were sold. The Partnership invested the net proceeds from the Unit
offering in leveraged real estate. The Partnership originally invested in four
multi-family apartment complexes--Century II Apartments, Marine Terrace, the
Fieldcrest Apartments and the Park Place Tower Apartments--and a joint venture
in Lakeview Tower Apartments with ▇▇▇▇▇ Realty Limited Partnership-IV, an
affiliated limited partnership. The aggregate purchase price of the properties
was approximately $67 million and the Partnership originally funded
approximately $2.3 million to the joint venture.
On March 20, 1989, the General Partners formed ▇▇▇▇▇ Realty Park
Place-Chicago Limited Partnership, an Illinois limited partnership ("Realty-V"),
as a prerequisite for the refinancing of the Park Place Tower Apartments. At the
same time, the General Partners transferred ownership of the Park Place Tower
Apartments to Realty-V. The General Partner of Realty-V is ▇▇▇▇▇ Corp. The
limited partner of Realty-V is the Partnership. ▇▇▇▇▇ Corp has beneficially
assigned its interest in Realty-V to the Partnership. The Partnership and
Realty-V are collectively known as ▇▇▇▇▇ Realty Limited Partnership-V and
Subsidiary (collectively referred to in this proxy statement as the
"Partnership").
The Partnership sold two of its apartment complexes, the Fieldcrest
Apartments and Marine Terrace, in 1992 and 1995, respectively. The Partnership
also received a distribution of proceeds from the sale of the joint venture in
1992.
The Partnership's real estate investments are subject to seasonal
fluctuations resulting from changes in utility consumption and seasonal
maintenance expenditures. However, the future performance of the Partnership
will depend upon factors which cannot be predicted. These factors include
general economic and real estate market conditions, both on a national basis and
in those areas in which the Partnership's real estate investments are located,
real estate tax rates, operating expenses, energy costs, government regulations
and federal and state income tax laws. The requirements for compliance with
federal, state and local regulations to date have not had an adverse effect on
the Partnership's operations, and no adverse effect from regulatory compliance
is anticipated in the future.
As of September 30, 1999, the Partnership did not employ any personnel.
THE GENERAL PARTNERS
The General Partners of the Partnership are ▇▇▇▇▇ Corp and ▇▇▇▇▇ ▇▇. The
principal business address of each of the General Partners is at ▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇, ▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇. The principal business of each
of the General Partners is to act as a general partner of the Partnership. The
27
directors and principal executive officers of ▇▇▇▇▇ Corp are ▇▇▇▇▇▇▇ ▇▇▇▇▇,
▇▇▇▇▇▇ ▇▇▇▇▇ and ▇▇▇▇▇ ▇▇▇▇▇, and the sole shareholders of ▇▇▇▇▇ Corp are
▇▇▇▇▇▇▇ ▇▇▇▇▇ and ▇▇▇▇▇▇ ▇▇▇▇▇. The General Partners of ▇▇▇▇▇ ▇▇ are ▇▇▇▇▇▇▇
▇▇▇▇▇, ▇▇▇▇▇▇ ▇▇▇▇▇ and ▇▇▇▇▇ Corp. ▇▇▇▇▇ ▇▇ owns all of the original limited
partnership interests in the Partnership.
▇▇▇▇▇▇▇ ▇▇▇▇▇ co-founded and serves as Co-Chairman and Chief Executive
Officer of The Berkshire Companies Limited Partnership ("The Berkshire
Companies"), an integrated real estate financial services firm engaged in real
estate acquisitions, mortgage banking, investment sponsorship, venture capital
investing, financial management, commercial laundry and linen services, and
furniture manufacturing and sales.
▇▇. ▇▇▇▇▇ has held the position of Co-Chairman since The Berkshire Companies
was established as The ▇▇▇▇▇ Companies in 1969 and he has served as the Chief
Executive Officer since 1992. ▇▇. ▇▇▇▇▇ serves as a Director of ▇▇▇▇▇ Government
Income Trust and ▇▇▇▇▇ Government Income Trust-II and he is also a member of the
Board of Trustees at ▇▇▇▇▇▇▇ & Women's Hospital. He is a graduate of ▇▇▇▇▇▇
College where he received an honorary Doctor of Science in Business
Administration in 1989 and was elected trustee in 1990. ▇▇. ▇▇▇▇▇'▇ address is
at ▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇, ▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇.
▇▇▇▇▇▇ ▇▇▇▇▇ is actively involved in the management of The Berkshire
Companies and affiliated entities. ▇▇. ▇▇▇▇▇ has been an instructor of history
at the New Jewish High School in Waltham, Massachusetts since September of 1997.
▇▇. ▇▇▇▇▇ attended the University of Pennsylvania and Harvard University and
holds a master's degree in History from ▇▇▇▇▇ University. ▇▇. ▇▇▇▇▇'▇ address is
at ▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇, ▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇.
▇▇▇▇▇ ▇▇▇▇▇ is Executive Vice President and Chief Financial Officer of The
Berkshire Group. Prior to joining The Berkshire Group, ▇▇. ▇▇▇▇▇ was a principal
and Chief Financial Officer for eighteen years at Leggat ▇▇▇▇▇▇ Properties. He
received a P.A.P. from Northwestern University Graduate Business School and an
M.B.A. and a B.S. from Central Michigan University.
DESCRIPTION OF THE ASSETS
As of September 30, 1999, the Partnership had leveraged investments in two
apartment complexes acquired in 1984, which together have an aggregate of 1,369
units. One of the complexes has an additional 18,417 square feet of leasable
commercial space. A summary of the Partnership's real estate investments is
presented below.
AVERAGE OCCUPANCY
-------------------------------------------------------------------------
FOR THE FOR THE YEAR ENDED
TOTAL UNITS/ NINE MONTHS DECEMBER 31,
CURRENT LEASABLE ENDED ----------------------------------------------------
DESCRIPTION SQUARE FOOTAGE SEPTEMBER 30, 1999 1998 1997 1996 1995 1994
----------- ---------------- ------------------ -------- -------- -------- -------- --------
Century II Apartments
Cockeysville, Maryland......... 468 Units 96% 100% 100% 96% 92% 92%
Park Place Tower Apartments...... 901 Units/ 97% 99% 99% 96% 94% 94%
Chicago, Illinois................ 18,417 Sq. Ft. 86% 64% 64% 76% 83% 83%
CENTURY II APARTMENTS
On December 10, 1997, the Partnership completed the refinancing of the
Century II Apartments mortgage note. The property was refinanced with a
$11,000,000 non-recourse mortgage note payable at the rate of 6.75% per annum
with monthly principal and interest payments of $71,346. The mortgage note,
which is collateralized by the property, matures on January 1, 2008, at which
time the remaining principal of approximately $9,401,537 and the accrued
interest are due. The note may be prepaid, subject to a prepayment penalty, at
any time with 30 days prior notice. The Partnership used the majority of the
28
proceeds from the refinancing to repay the existing mortgage note of
$10,309,332, to pay closing costs of $236,763 and a prepayment premium of
$210,825, and to establish various escrows. The prepayment premium, as well as
unamortized deferred mortgage costs of $77,331, are reported in the statement of
Operations included in the Partnership's consolidated financial Statements and
appearing elsewhere in this proxy statement as an extraordinary loss from early
extinguishment of debt for the year ended December 31, 1997.
At December 31, 1996, the property was subject to a non-recourse first
mortgage note of $11,000,000, which was payable in equal monthly installments of
principal and interest of $104,844, based on a 25-year amortization schedule.
Based on the borrowing rates currently available to the Partnership for bank
loans with similar terms and average maturities, the fair value of the long-term
debt is approximately $10,898,000 and $10,470,000 for the years ended
December 31, 1998 and 1997, respectively.
PARK PLACE TOWER APARTMENTS
The Park Place Tower Apartments property is subject to a non-recourse
mortgage note in the original amount of $33,000,000, dated September 15, 1993,
held by the U.S. Department of Housing and Urban Development ("HUD"). The note
is payable in equal monthly installments of principal and interest of $212,783,
based on a 31-year amortization. At maturity, all unpaid principal
(approximately $1,457,000) and any accrued interest are due. The note may be
prepaid subject to a prepayment premium. In the event a prepayment of principal
occurs, a prepayment premium will be due, based on a declining premium rate of
5% to 0% of the outstanding principal balance over a period of 5 years. As
stipulated in the regulatory agreement with HUD, the Partnership makes monthly
deposits of $17,743 in an established reserve for replacements to be used for
improvements. Under the terms of the loan, HUD restricts the distribution of
funds to "surplus cash," as defined by HUD in the regulatory agreement.
DISTRIBUTIONS
One of the objectives of the Partnership is to generate cash available for
distribution to its partners. In 1995, after several years of infrequent
distributions, the General Partners determined that there was sufficient cash
flow, as calculated under the partnership agreement, and working capital
reserves to reinstate distributions. These semiannual distributions, which
commenced in the first quarter of 1996, were paid at an annual rate of $20.00
per Unit. The General Partners believed there was sufficient cash flow and
working capital reserves to increase the annual distribution rate in 1997 to the
current rate of $40.00 per Unit. The table below sets forth the distribution
made by the Partnership to its partners for the nine months ended September 30,
1999 and during the years ended December 31, 1998 and 1997. The Partnership made
a $20 per Unit distribution to its partners in February 2000.
YEAR ENDED DECEMBER 31,
NINE MONTHS ENDED ---------------------------------------------
SEPTEMBER 30, 1999 1998 1997
--------------------- --------------------- ---------------------
AMOUNT PER UNIT AMOUNT PER UNIT AMOUNT PER UNIT
---------- -------- ---------- -------- ---------- --------
Limited Partners:
Investor Limited Partners
(35,200 Units outstanding)............ $1,408,000 $40.00 $1,408,000 $40.00 $1,408,000 $40.00
Original Limited Partner................ 90,838 90,839 90,839
General Partners........................ 15,140 15,140 15,140
Total................................. $1,513,978 $1,513,979 $1,513,979
Future distributions will be at the discretion of the Partnership and will
be determined after consideration of a number of factors including, among
others, the Partnership's financial condition, cash flows and current and
anticipated cash needs.
29
OWNERSHIP OF UNITS
The number of Unitholders as of September 30, 1999 was approximately 1,870.
As of September 30, 1999, none of the Unitholders beneficially owned more than
5% of the Partnerships 35,200 outstanding Units. The table below sets forth the
beneficial ownership interests in the Units held by the investment funds
comprising Equity Resources.
NAME AND ADDRESS AMOUNT AND NATURE PERCENT
OF OF OF
TITLE OF CLASS BENEFICIAL OWNER BENEFICIAL OWNER CLASS
-------------- --------------------------------- ----------------- --------
Investor Limited Partner Units Equity Resource Fund XIX L.P. 225.00 Units 0.64%
▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Investor Limited Partner Units Equity Resources Bridge Fund 20.00 Units 0.06%
▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Investor Limited Partner Units Equity Resource General Fund L.P. 20.00 Units 0.06%
▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Investor Limited Partner Units Equity Resource Fund XVII L.P. 1,599.50 Units 4.54%
▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Investor Limited Partner Units Equity Resource Boston Fund 1,099.00 Units 3.11%
▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Investor Limited Partner Units Equity Resource Cambridge Fund 175.00 Units 0.50%
▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Investor Limited Partner Units Equity Resource Fund XXI L.P. 847.00 Units 2.41%
▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
TOTAL 3,985.50 Units 11.33%
On September 30, 1999, the General Partners or their affiliates owned 106
Units, or .30% of the total outstanding Units, of the Partnership in addition to
their general and original limited partner interests.
MARKET FOR THE UNITS
The Units are not traded on any established trading market and no market of
this type is expected to develop. Thus, limited information is available as to
high and low bid quotations or sales prices. According to The Partnership
Spectrum, an independent third-party industry publication, for the eight months
ended September 30, 1999, a total of 100 Units traded at per Unit prices between
$575 and $651 with a weighted average of $624 per Unit. For the period between
October 1, 1999 and November 30, 1999, a total of 50 Units traded at per Unit
prices between $652 and $655.83 with a weighted average of $653.80 per Unit.
Unitholders are advised, however, that these gross sales prices reported by
The Partnership Spectrum 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 to amounts less than the reported
prices. In addition, other measures of the value of the Units may be relevant to
Unitholders.
RELATED PARTY TRANSACTIONS
The Partnership pays property management fees to an affiliate of the General
Partners for management services. Under the management agreements, management
fees are payable monthly at a rate of 5%
30
of the gross receipts from the properties under management. The Partnership also
reimburses affiliates of the General Partners for specified expenses incurred in
connection with the operation of the Partnership and its properties, including
administrative expenses.
Amounts accrued or paid to the General Partners' affiliates for the nine
months ended September 30, 1999 and for the years ended December 31, 1998, 1997
and 1996 were as follows:
1999 1998 1997 1996
-------- -------- -------- --------
Property management fees............................ $467,815 $506,198 $475,569 $442,295
Expense reimbursements.............................. 275,029 307,468 317,432 288,226
-------- -------- -------- --------
Charged to operations............................... $742,844 $813,666 $793,001 $730,521
Expense reimbursements due from affiliates of $8,323 and $1,456,
respectively were included in prepaid expenses and other assets for the nine
months ended September 30, 1999 and for the year ended December 31, 1998.
Under the partnership agreements the General Partners are entitled to a
brokerage fee in an amount equal to 3% of the contract sales price of any real
estate sold by the Partnership, subject to specified limitations. No brokerage
fees have been paid to the General Partners of their affiliates for the
three-year period ending December 31, 1998.
In addition to the amounts above, refinancing costs of $110,000 were paid to
the General Partners' affiliates during the year ending December 31, 1997.
31
SELECTED FINANCIAL DATA
The following table sets forth selected financial information regarding the
Partnership's results of operations and financial position. This information
should be read in conjunction with the Consolidated Financial Statements and
Notes thereto and other financial information included or incorporated by
reference in this document. The historical financial data as of and for the
quarters ended September 30, 1999 and 1998 have been derived from the unaudited
financial statements included in the Partnership's Quarterly Report on
Form 10-Q for the quarters ended September 30, 1999 and 1998, respectively. The
historical financial data for the years ended December 31, 1998, 1997, 1996,
1995 and 1994 have been derived from audited financial statements included in
the Partnership's Annual Report on Form 10-K for the year ended December 31,
1998. See "Where You Can Find More Information."
NINE MONTHS ENDED FOR THE
SEPTEMBER 30, YEAR ENDED DECEMBER 31
----------------------- ----------------------------------------------------------------------
1999 1998 1998 1997 1996 1995 1994
---------- ---------- ----------- ----------- ----------- ----------- -----------
UNAUDITED
Total revenues................. 11,763,548 11,277,451 $15,100,395 $14,523,598 $13,660,261 $13,839,760 $13,652,413
Income (loss) before gain from
capital transactions......... 1,574,044 1,012,231 692,911 (304,383) (119,075) (795,377) (1,450,214)
Gain on sale of property....... -- -- -- -- -- 3,265,789 --
Income (loss) before
extraordinary loss........... 1,574,044 1,012,231 692,911 (304,383) (119,075) 2,470,412 (1,450,214)
Extraordinary loss............. -- -- -- (288,156) -- (93,215) --
Net income (loss).............. 1,574,044 1,012,231 692,911 (592,539) (119,075) 2,377,197 (1,450,214)
Net income (loss) allocated to:
Investor limited partners...... 1,463,861 941,375 644,407 (586,614) (117,884) 2,353,425 (1,435,712)
per Unit....................... 41.59 26.74 18.31 (16.67) (3.35) 66.86 (40.79)
Original limited partner....... 94,443 60,734 41,575 -- -- -- --
Net income (loss) allocated to:
General partners............... 15,740 10,122 6,929 (5,925) (1,191) 23,772 (14,502)
Total assets................... 34,014,347 35,077,699 34,721,709 35,457,032 37,162,269 38,555,732 42,604,180
Long-term obligations.......... 40,752,418 41,387,711 41,235,548 41,848,811 41,700,453 42,273,669 46,805,538
DISTRIBUTIONS:
Investor limited partners...... 1,408,000 1,408,000 1,408,000 1,408,000 704,000 -- --
Per Unit....................... 40.00 40.00 40.00 40.00 20.00 -- --
Original limited partner....... 90,838 90,839 90,839 90,839 45,419 -- --
General partners............... 15,140 15,140 15,140 15,140 7,570 -- --
The selected financial data results for the periods presented are not
comparable due to the sale of the Marine Terrace multi-family apartment complex
on July 19, 1995.
The per Unit distributions for the years ended December 31, 1998, 1997,
1996, 1995 and 1994 were $40.00, $40.00, $20.00, $0 and $0, respectively, none
of which represented a return of capital for tax purposes.
Historical performance of the Partnership is not necessarily indicative of
its future operations.
32
INFORMATION CONCERNING THE PURCHASER
AND ITS AFFILIATES
THE PURCHASER
The Purchaser, KR5 Acquisition, L.L.C., is a wholly owned subsidiary of KRF
Company. The Purchaser was organized for the purpose of merging with the
Partnership and has not carried on any activities to date other than those
incident to its formation and the transactions contemplated by the merger
agreement. The Purchaser has no assets and liabilities. The principal office and
place of business of the Purchaser is ▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇, ▇▇▇▇▇▇,
▇▇▇▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇.
AFFILIATES OF THE PURCHASER
KRF Company was organized to conduct the business and the operations of
KRF3 Acquisition Company, L.L.C., a Delaware limited liability company whose
principal business is to hold limited partnership interests in ▇▇▇▇▇ Realty
Fund, Ltd.-III. The principal office and place of business of KRF Company is
▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇, ▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇. The sole member of
KRF Company is The ▇▇▇▇▇ Family Limited Partnership-94 (the "Family Limited
Partnership").
The Family Limited Partnership was formed to hold and manage investments for
its partners. The general partners of the Family Limited Partnership are ▇▇▇▇▇▇▇
▇▇▇▇▇ and ▇▇▇▇▇▇ ▇▇▇▇▇. See "Information About The Partnership, Its General
Partners and Their Affiliates--The General Partners."
The Family Limited Partnership, KRF Company, the Purchaser and the General
Partners are under the common control of ▇▇▇▇▇▇▇ ▇▇▇▇▇ and ▇▇▇▇▇▇ ▇▇▇▇▇. As a
result of the voting and investment agreements entered into among Equity
Resources, the Purchaser and KRF Company, ▇▇▇▇▇▇▇ ▇▇▇▇▇ and ▇▇▇▇▇▇ ▇▇▇▇▇ may be
deemed to each beneficially own indirectly 4,086.5 Units, which is 11.6% of the
total number of Units.
All information contained in this proxy statement concerning the Purchaser
is based upon statements and representations made by the Purchaser or its
representatives to the Partnership or its representatives.
WHERE YOU CAN FIND MORE INFORMATION
GENERAL
The Partnership files reports with the Securities and Exchange Commission on
a regular basis. Unitholders may read or copy any document that the Partnership
files with the Commission at the Commission's Public Reference Room at
▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇, ▇.▇., ▇▇▇▇▇▇▇▇▇▇, ▇.▇. ▇▇▇▇▇. You may obtain information about
the Public Reference Room by calling the Commission for further information at
1-800-SEC-0330. The Partnership's Commission filings are also available from the
Commission's web site at ▇▇▇.▇▇▇.▇▇▇.
The following documents previously filed by the Partnership with the
Securities and Exchange Commission are incorporated in this proxy statement by
reference:
(a) Annual Report on Form 10-K for the year ended December 31, 1998 as
filed on March 31, 1999; and
(b) Quarterly Report on Form 10-Q for the quarter ended September 30,
1999 as filed on November 15, 1999.
All documents filed by the Partnership pursuant to Sections 13(a), 13(c), 14 or
15(d) of the Securities Exchange Act after the date of this document and prior
to the date of the special meeting or any adjournment or postponement of the
meeting shall be deemed to be incorporated by reference and made a part of this
document from the date of the filing of these documents. Any statement contained
in a document incorporated or deemed to be incorporated by reference in this
document shall be deemed to be
33
modified or superseded for purposes of this proxy statement to the extent that a
statement contained in this document or in any other document subsequently filed
with the Commission which also is deemed to be incorporated by reference in this
document modified or supersedes such statement. Any such statement so modified
or superseded shall not be deemed, except as so modified or superseded, to
constitute a part of this proxy statement.
The Purchaser, KRF Company, the Family Limited Partnership, the General
Partners and ▇▇▇▇▇▇ and ▇▇▇▇▇▇▇ ▇▇▇▇▇ are affiliates of the Partnership.
Accordingly, together with the Partnership, they have jointly filed with the
Commission a Schedule 13E-3. This proxy statement does not contain all of the
information contained in the Schedule 13E-3, some of which is omitted as
permitted by Commission rules. Statements made in this proxy statement, while
complete in all material respects, are qualified by reference to documents filed
as exhibits to the Schedule 13E-3. The Schedule 13E-3, including exhibits, is
available for inspection and copying at the Commission as described above.
The Purchaser and the General Partners are not public companies and are not
required to file reports of any type with the Commission.
INDEPENDENT ACCOUNTANTS
The consolidated financial statements and financial statement schedule of
the Partnership appearing in this proxy statement have been audited by
PricewaterhouseCoopers LLP, independent auditors, as set forth in their report
included in this document. These consolidated financial statements and financial
statement schedule are included in this document and incorporated in this
document by reference. It is expected that representatives of
PricewaterhouseCoopers LLP will be present at the special meeting, both to
respond to appropriate questions of Unitholders and to make a statement if they
so desire.
34
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
PAGE
----
Annual Audited Financial Statements:
Report of Independent Accountants........................... F-2
Financial Statements:
Balance Sheets, December 31, 1998 and 1997.................. F-3
Statements of Operations, for the years ended December 31,
1998, 1997 and 1996....................................... F-4
Statements of Changes in Partners' Deficit, for the years
ended December 31, 1998, 1997 and 1996.................... F-5
Statements of Cash Flows, for the years ended December 31,
1998, 1997 and 1996....................................... F-6
Notes to Financial Statements............................... F-7-F-13
Schedule III--Real Estate and Accumulated Depreciation...... F-14
F-1
REPORT OF INDEPENDENT ACCOUNTANTS
To the Partners of
▇▇▇▇▇ Realty Limited Partnership-V and Subsidiary:
In our opinion, the consolidated financial statements and the financial
statement Schedule listed in the index on page F-1 present fairly, in all
material respects, the financial position of ▇▇▇▇▇ Realty Limited Partnership-V
and 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.
Boston, Massachusetts
February 10, 1999 [LOGO]
PricewaterhouseCoopers LLP
F-2
▇▇▇▇▇ REALTY LIMITED PARTNERSHIP-V AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1998 AND 1997
1998 1997
------------ ------------
ASSETS
Multi-family apartment complexes, net of accumulated
depreciation of $45,292,687 and $41,602,481, respectively
(Note D).................................................. $ 28,589,655 $ 30,790,070
Cash and cash equivalents (Note C).......................... 2,101,415 802,726
Cash restricted for tenant security deposits................ 311,432 294,572
Replacement reserve escrows (Note D)........................ 664,186 399,771
Prepaid expenses and other assets (Note E).................. 2,572,492 2,662,138
Deferred expenses, net of accumulated amortization of
$82,843 and $48,332, respectively (Note E)................ 482,529 507,755
------------ ------------
Total assets.......................................... $ 34,721,709 $ 35,457,032
============ ============
LIABILITIES AND PARTNERS' DEFICIT
Liabilities:
Mortgage notes payable (Note D)........................... $ 41,836,237 $ 42,400,979
Accrued real estate taxes................................. 2,008,500 1,950,000
Accrued expenses and other liabilities.................... 1,841,074 1,249,087
------------ ------------
Total liabilities..................................... 45,685,811 45,600,066
------------ ------------
Contingency (Note F)
Partners' deficit (Note G):
Investor Limited Partners (35,200 Units outstanding)...... (10,130,376) (9,366,783)
Original Limited Partner.................................... (420,061) (370,797)
General Partners............................................ (413,665) (405,454)
------------ ------------
Total Partners' deficit............................... (10,964,102) (10,143,034)
------------ ------------
Total liabilities and Partners' deficit............... $ 34,721,709 $ 35,457,032
============ ============
The accompanying notes are an integral part of the consolidated financial
statements.
F-3
▇▇▇▇▇ REALTY LIMITED PARTNERSHIP-V AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
1998 1997 1996
----------- ----------- -----------
Revenue:
Rental (Note H)..................................... $14,987,931 $14,395,306 $13,489,627
Interest Income..................................... 112,464 128,292 170,634
----------- ----------- -----------
Total revenue................................... 15,100,395 14,523,598 13,660,261
----------- ----------- -----------
Expenses:
Operating (Note E).................................. 3,205,429 3,629,513 3,635,470
Maintenance......................................... 961,085 1,136,671 927,736
General and administrative(Notes E and F)........... 891,841 324,660 323,652
Real estate taxes (Note I).......................... 2,117,434 2,280,910 1,621,545
Management fees (Note E)............................ 506,198 475,569 442,295
Depreciation and amortization....................... 3,724,717 3,600,639 3,387,658
Interest (Note D)................................... 3,000,780 3,380,019 3,440,980
----------- ----------- -----------
Total expenses.................................. 14,407,484 14,827,981 13,779,336
----------- ----------- -----------
Income (loss) before extraordinary loss............. 692,911 (304,383) (119,075)
Extraordinary loss (Note D)........................... -- (288,156) --
----------- ----------- -----------
Net income (loss) (Note J).......................... $ 692,911 $ (592,539) $ (119,075)
=========== =========== ===========
Allocation of net income (loss)(Note G):
Investor Limited Partners (35,200 Units
outstanding):
Income (loss) before extraordinary loss........... $ 644,407 $ (301,339) $ (117,884)
Extraordinary loss................................ -- (285,275) --
----------- ----------- -----------
Net income (loss)............................... $ 644,407 $ (586,614) $ (117,884)
=========== =========== ===========
Investor Limited Partners Per Unit:
Income (loss) before extraordinary loss......... $ 18.31 $ (8.56) $ (3.35)
Extraordinary loss................................ -- (8.11) --
----------- ----------- -----------
Net income (loss)................................. $ 18.31 $ (16.67) $ (3.35)
=========== =========== ===========
Original Limited Partner:
Income (loss) before extraordinary loss........... $ 41,575 $ -- $ --
Extraordinary loss................................ -- -- --
----------- ----------- -----------
Net income (loss)................................. $ 41,575 $ -- $ --
=========== =========== ===========
General Partners:
Income (loss) before extraordinary loss............. $ 6,929 $ (3,044) $ (1,191)
Extraordinary loss.................................. -- (2,881) --
----------- ----------- -----------
Net income (loss)................................. $ 6,929 $ (5,925) $ (1,191)
=========== =========== ===========
The accompanying notes are an integral part of the consolidated financial
statements.
F-4
▇▇▇▇▇ REALTY LIMITED PARTNERSHIP-V AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CHANGES IN PARTNERS' DEFICIT
FOR THE YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
TOTAL
INVESTOR ORIGINAL GENERAL PARTNERS'
LIMITED PARTNERS LIMITED PARTNER PARTNERS DEFICIT
---------------- --------------- --------- ------------
Balance at December 31, 1995............ $ (6,550,285) $(234,539) $(375,628) $ (7,160,452)
Distributions........................... (704,000) (45,419) (7,570) (756,989)
Net loss................................ (117,884) -- (1,191) (119,075)
------------ --------- --------- ------------
Balance at December 31, 1996............ (7,372,169) (279,958) (384,389) (8,036,516)
Distributions........................... (1,408,000) (90,839) (15,140) (1,513,979)
Early extinguishment of debt............ (285,275) -- (2,881) (288,156)
Loss before extraordinary loss.......... (301,339) -- (3,044) (304,383)
------------ --------- --------- ------------
Balance at December 31, 1997............ (9,366,783) (370,797) (405,454) (10,143,034)
Net income (Note G)..................... 644,407 41,575 6,929 692,911
Distributions (Note G).................. (1,408,000) (90,839) (15,140) (1,513,979)
------------ --------- --------- ------------
Balance at December 31, 1998............ $(10,130,376) $(420,061) $(413,665) $(10,964,102)
============ ========= ========= ============
The per Unit distributions for the years ended December 31, 1998, 1997 and 1996
were $40.00, $40.00 and $20.00, respectively, none of which represents a return
of capital for tax purposes.
The accompanying notes are an integral part of the consolidated financial
statements.
F-5
▇▇▇▇▇ REALTY LIMITED PARTNERSHIP-V AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
1998 1997 1996
----------- ------------ -----------
Cash flows from operating activities:
Net income (loss)................................... $ 692,911 $ (592,539) $ (119,075)
Adjustments to reconcile net income (loss) to net
cash provided by operating activities:
Interest earned on replacement reserve escrows.... (14,933) (17,068) (27,713)
Depreciation and amortization..................... 3,724,717 3,600,639 3,387,658
Extraordinary loss from early extinguishment of
debt............................................ -- 288,156 --
Changes in assets and liabilities:
Decrease (increase) in cash restricted for tenant
security deposits............................... (16,860) 13,336 130,341
Decrease (increase) in prepaid expenses and other
assets.......................................... 89,646 (1,284,748) (6,508)
Increase in accrued real estate taxes............. 58,500 290,000 --
Increase in accrued expenses and other
liabilities..................................... 591,492 7,037 21,147
Decrease in due to affiliates..................... -- (26,480) (7,847)
----------- ------------ -----------
Net cash provided by operating activities....... 5,125,473 2,278,333 3,378,003
----------- ------------ -----------
Cash flow from investing activities:
Deposits to replacement reserve escrows............. (306,512) (212,912) (212,912)
Withdrawals from replacement reserve escrows........ 57,030 519,865 280,477
Additions to fixed assets........................... (1,489,791) (1,728,096) (2,413,114)
Increase in accrued expenses and other liabilities
related to fixed asset additions.................. 495 -- --
----------- ------------ -----------
Net cash used in investing activities........... (1,738,778) (1,421,143) (2,345,549)
----------- ------------ -----------
Cash flow from financing activities:
Proceeds from mortgage note payable................. -- 11,000,000 --
Repayment of mortgage notes payable................. -- (10,309,332) --
Payment of prepayment premium....................... -- (210,825) --
Principal payments on mortgage notes payable........ (564,742) (559,944) (530,699)
Increase in deferred expenses....................... (9,285) (227,478) --
Distributions....................................... (1,513,979) (1,513,979) (756,989)
----------- ------------ -----------
Net cash used in financing activities........... (2,088,006) (1,821,558) (1,287,688)
----------- ------------ -----------
Net increase (decrease) in cash and cash
equivalents........................................... 1,298,689 (964,368) (255,234)
Cash and cash equivalents, beginning of year.......... 802,726 1,767,094 2,022,328
----------- ------------ -----------
Cash and cash equivalents, end of year................ $ 2,101,415 $ 802,726 $ 1,767,094
=========== ============ ===========
The accompanying notes are an integral part of the consolidated financial
statements.
F-6
▇▇▇▇▇ REALTY LIMITED PARTNERSHIP-V AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
A. ORGANIZATION
▇▇▇▇▇ Realty Limited Partnership-V ("KRLP-V") was formed on June 16, 1983 by
filing a Certificate of Limited Partnership in The Commonwealth of
Massachusetts. KRLP-V terminates on December 31, 2020, unless earlier terminated
upon the sale of the last of KRLP-V's properties or the occurrence of certain
other events as set forth in the Partnership Agreement.
KRLP-V issued all of the General Partner Interests to The ▇▇▇▇▇ Corporation
("▇▇▇▇▇ Corp.") (a Massachusetts corporation) and The ▇▇▇▇▇ Company Limited
Partnership-II ("KLCP-II") (a Massachusetts limited partnership), in exchange
for capital contributions aggregating $1,000. Except under certain limited
circumstances upon termination of KRLP-V, the General Partners are not required
to make any additional capital contributions. KRLP-V also issued all of the
Original Limited Partner Interests to KCLP-II in exchange for a capital
contribution of $4,000.
On September 6, 1983, KRLP-V commenced the marketing and sale of units of
Investor Limited Partner Interest ("Units") for $1,000 per Unit. The public
offering was closed on December 2, 1983 at which time a total of 35,200 Units
had been sold for $35,200,000.
On March 20, 1989, the General Partners formed ▇▇▇▇▇ Realty Park
Place-Chicago Limited Partnership ("Realty-V") as a prerequisite for the
refinancing of ▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇ ("▇▇▇▇ ▇▇▇▇▇"). At the same time, the
General Partners transferred ownership of Park Place to Realty-V. The General
Partner of Realty-V is ▇▇▇▇▇ Corp. The Limited Partner of Realty-V is KRLP-▇.
▇▇▇▇▇ Corp. has beneficially assigned its interest in Realty-V to KRLP-V. KRLP-V
and Realty-V are collectively known as ▇▇▇▇▇ Realty Limited Partnership-V and
Subsidiary (collectively referred to herein as 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 J).
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.
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.
F-7
▇▇▇▇▇ REALTY LIMITED PARTNERSHIP-V AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
B. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
RENTAL REVENUES
Leases require the payment of base 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 of the related assets 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 on the properties are amortized
over the term 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 that the Partnership's tax returns are examined by the Internal
Revenue Service or state taxing authority and the examination results in a
change in the Partnership's taxable income or loss, such change will be reported
to the Partners.
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
F-8
▇▇▇▇▇ REALTY LIMITED PARTNERSHIP-V AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
B. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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........................ $ 405,431 $802,726
Treasury bills........................................ 1,695,984 --
---------- --------
$2,101,415 $802,726
========== ========
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
1998 1997 RATE MATURITY DATE
----------- ----------- -------- ---------------
Century II Apartments...................... $10,882,768 $11,000,000 6.75% January 1, ▇▇▇▇
▇▇▇▇ ▇▇▇▇▇ Tower Apartments................ 30,953,469 31,400,979 6.75% May 1, 2024
----------- -----------
Total.................................. $41,836,237 $42,400,979
=========== ===========
CENTURY II APARTMENTS
On December 10, 1997, the Partnership completed the refinancing of the
Century II Apartments mortgage note. The property was refinanced with a
$11,000,000 non-recourse mortgage note payable at the rate of 6.75% per annum
with monthly principal and interest payments of $71,346. The mortgage note,
which is collateralized by the property, matures on January 1, 2008 at which
time the remaining principal (approximately $9,401,537) and accrued interest are
due. The note may be prepaid, subject to a prepayment penalty, at any time with
30 days notice. The Partnership used the majority of the proceeds from the
refinancing to repay the existing mortgage note on the property of $10,309,332,
pay closing costs of $236,763, to pay a prepayment premium of $210,825 and to
establish various escrows. The prepayment premium as well as unamortized
deferred mortgage costs of $77,331, are reported in the Statement of
F-9
▇▇▇▇▇ REALTY LIMITED PARTNERSHIP-V AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
D. MORTGAGE NOTES PAYABLE (CONTINUED)
Operations as an extraordinary loss from early extinguishment of debt for the
year ended December 31, 1997.
At December 31, 1996, the property was subject to a non-recourse first
mortgage note of $11,000,000, which was payable in equal monthly installments of
principal and interest of $104,844, based on a 25-year amortization schedule.
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 $10,898,000 and $10,470,000 for the years ended
December 31, 1998 and 1997, respectively.
PARK PLACE TOWER APARTMENTS
The property is subject to a non-recourse mortgage note in the original
amount of $33,000,000, dated September 15, 1993, held by the U.S. Department of
Housing and Urban Development ("HUD"). The note is payable in equal monthly
installments of principal and interest of $212,783, based on a 31-year
amortization. At maturity, all unpaid principal (approximately $1,457,000) and
any accrued interest are due. The note may be prepaid subject to a prepayment
premium. In the event prepayment of principal occurs, a prepayment premium shall
be due, based on a declining premium rate of 5% to 0% of the outstanding
principal balance over a period of 5 years. As stipulated in the Regulatory
Agreement with HUD, the Partnership makes monthly deposits of $17,743 in an
established reserve for replacements to be used for improvements. Under the
terms of the loan, HUD restricts the distribution of funds to Surplus Cash, as
defined by HUD in the Regulatory Agreement.
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 $31,766,000 at December 31, 1998. At December 31, 1997,
the fair market value could not be determined since the mortgage note could not
be prepaid until 1998.
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 $600,689, $642,513, $687,250,
$735,102 and $786,286.
During the years ended December 31, 1998, 1997 and 1996, the Partnership
paid $2,844,807, $3,221,886 and $3,280,828 of interest on its mortgage notes,
respectively.
E. 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.
F-10
▇▇▇▇▇ REALTY LIMITED PARTNERSHIP-V AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
E. RELATED PARTY TRANSACTIONS (CONTINUED)
Amounts accrued or 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...................... $506,198 $475,569 $442,295
Expense reimbursements........................ 307,468 317,432 288,226
-------- -------- --------
Charged to operations....................... $813,666 $793,001 $730,521
======== ======== ========
Expense reimbursements due from affiliates of $1,456 were included in
prepaid expenses and other assets for the year ended December 31, 1998.
In addition to the amounts above, refinancing costs of $110,000 were paid to
the General Partners' affiliates during the year ended December 31, 1997.
F. LEGAL PROCEEDING
The Partnership is a defendant in a class action suit related to the
practice of giving discounts for the early or timely payments of rent at Park
Place Apartments ("Park Place") and Marine Terrace Apartments, a previously
owned property. The central issue of the complaint is whether the operative
lease violated a Chicago municipal ordinance relating to late fee charges
because it allowed tenants a discount if rent was paid on or before the first of
the month. The allegation was that, notwithstanding the stated rental rate and
printed discount, the practice represented an unlawful means of exacting late
fee charges. In addition to seeking damages for any "forfeited" discounts,
plaintiffs seek statutory damages of two months rent per lease violation and
reasonable attorneys' fees. To be eligible for such damages plaintiffs must
prove that the defendants deliberately used a provision prohibited by the
ordinance.
During 1994, the Court ruled in favor of the defendants, and accepted the
Partnership's Motion to Dismiss the Plaintiff's Third Amended Complaint. The
plaintiffs filed an appeal with the Appellate Court of Illinois, First District.
During 1996, the decision was reversed on appeal and the case remanded to trial
court for further proceedings. The defendants intend to vigorously defend this
case.
Continued discussions with Plaintiffs' counsel have resulted in a tentative
settlement which was presented to the court in December, 1998. Although the
settlement has not been finalized, the Partnership recorded provisions totaling
$1,015,000 in the 1998 and 1997 consolidated financial statements of $733,000
and $282,000, respectively.
G. PARTNERS' DEFICIT
Under the terms of the Partnership Agreement, losses from operations are
allocated 99% to the Investor Limited Partners and 1% to the General Partners
and profits from operations are allocated 93% to the Investor Limited Partners,
6% 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 thereon and thereafter,
65% to the Investor Limited Partners, 28% to the Original Limited Partner and 7%
to the General Partners.
Profits from Capital Transactions are allocated first, to the Investor
Limited Partners until they have received a return of their total invested
capital. Thereafter, profits from Capital Transactions are allocated
F-11
▇▇▇▇▇ REALTY LIMITED PARTNERSHIP-V AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
G. PARTNERS' DEFICIT (CONTINUED)
in accordance with the Partnership Agreement. Losses from Capital Transactions
are allocated 99% to the Investor Limited Partners and 1% to the General
Partners. Notwithstanding anything above, the General Partners shall be
allocated at least 1% of all profits and losses from Capital Transactions.
Under the Partnership Agreement, cash distributions are made on the same
basis as the allocations of profits described above. Pursuant to the Partnership
Agreement, proceeds from Capital Transactions shall first be applied to the
payment of all debts and liabilities of the Partnership and second to fund
reserves for contingent liabilities. The remaining net cash proceeds shall then
be distributed in accordance with the Partnership Agreement.
As of December 31, 1998, the following cumulative partner contributions and
allocations have been made since inception of the Partnership:
INVESTOR LIMITED ORIGINAL GENERAL
PARTNERS LIMITED PARTNER PARTNERS TOTAL
---------------- --------------- --------- ------------
Capital contributions................... $ 35,200,000 $ 4,000 $ 1,000 $ 35,205,000
Syndication costs....................... (4,501,000) -- -- (4,501,000)
Distributions........................... (7,619,303) (478,576) (79,762) (8,177,641)
Net income (loss) before capital
transactions.......................... (39,885,037) 54,515 (402,327) (40,232,849)
Net gains on capital transactions....... 6,674,964 -- 67,424 6,742,388
------------ --------- --------- ------------
Balance at December 31, 1998............ $(10,130,376) $(420,061) $(413,665) $(10,964,102)
============ ========= ========= ============
H. FUTURE BASE RENTS DUE UNDER COMMERCIAL OPERATING LEASES
Future base rent receivable under commercial operating leases for the years
1999 through 2003 and thereafter is as follows:
1999........................................................ $149,330
2000........................................................ 93,989
2001........................................................ 81,653
2002........................................................ 82,361
2003........................................................ 71,177
Thereafter.................................................. 155,981
I. REAL ESTATE TAXES
During the third quarter of 1996, the Partnership successfully petitioned
for the reassessment of prior years' real estate taxes on Park Place Tower
Apartments. The Partnership received tax refunds toward the 1986, 1987, 1988 and
1990 real estate taxes totaling approximately $325,000, which was reflected as a
reduction in the 1996 real estate tax expense.
J. FEDERAL INCOME TAXES
For federal income tax purposes, the Partnership is depreciating property
using the Accelerated Cost Recovery System ("ACRS") and the Modified Accelerated
Cost Recovery System ("MACRS") depending on which is applicable.
F-12
▇▇▇▇▇ REALTY LIMITED PARTNERSHIP-V AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
J. FEDERAL INCOME TAXES (CONTINUED)
The reconciliation of the net income (loss) reported in the accompanying
Consolidated Statement of Operations with the net income (loss) reported in the
Partnership's federal income tax return for the years ended December 31, 1998,
1997 and 1996 is as follows:
1998 1997 1996
---------- --------- ---------
Net income (loss) per Consolidated Statement of
Operations............................................... $ 692,911 $(592,539) $(119,075)
Difference between book and tax depreciation and
amortization............................................. 414,641 317,863 (30,155)
Difference between book and tax legal adjustment........... 733,000 113,526 168,474
---------- --------- ---------
Net income (loss) for federal income tax purposes.......... $1,840,552 $(161,150) $ 19,244
========== ========= =========
The allocation of the net income for federal income tax purposes for 1998 is
as follows:
PORTFOLIO INCOME PASSIVE INCOME TOTAL
---------------- -------------- ----------
Investor Limited Partners............................ $101,864 $1,609,849 $1,711,713
Original Limited Partner............................. 6,572 103,861 110,433
General Partners..................................... 1,096 17,310 18,406
-------- ---------- ----------
$109,532 $1,731,020 $1,840,552
======== ========== ==========
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
were $48.63, $(4.58) and $.54, respectively.
The basis of the Partnership's assets for financial reporting purposes
exceeded its tax basis by approximately $7,651,000 and $8,063,500 at
December 31, 1998 and 1997, respectively. The basis of the Partnership's
liabilities for financial reporting purposes exceeded its tax basis by
approximately $1,015,000 and $282,000 at December 31, 1998 and 1997,
respectively.
F-13
▇▇▇▇▇ REALTY LIMITED PARTNERSHIP-V AND SUBSIDIARY
SCHEDULE III--REAL ESTATE AND ACCUMULATED DEPRECIATION
DECEMBER 31, 1998
COSTS CAPITALIZED
SUBSEQUENT TO DEPRECIABLE
INITIAL COSTS TO PARTNERSHIP ACQUISITION LIFE
---------------------------- ----------------- ----------------
BUILDINGS BUILDINGS
AND AND
DESCRIPTION ENCUMBRANCES LAND IMPROVEMENTS IMPROVEMENTS DEPRECIABLE LIFE
----------- ------------ ------------ ------------- ----------------- ----------------
Century II Apartments
Cockeysville, Maryland... $10,882,768 $1,049,868 $13,948,246 $ 5,333,839 3 to 25 years
Park Place Tower Apartments
Chicago, Illinois........ 30,953,469 2,877,561 38,230,448 12,442,380 3 to 25 years
----------- ---------- ----------- -----------
Total.................. $41,836,237 $3,927,429 $52,178,694 $17,776,219
=========== ========== =========== ===========
GROSS AMOUNTS CARRIED AT
END OF YEAR
-------------------------
BUILDINGS YEAR
AND ACCUMULATED YEAR CONSTRUCTION
DESCRIPTION LAND IMPROVEMENTS TOTAL DEPRECIATION ACQUIRED COMPLETED
----------- ---------- ------------ ----------- ------------ -------- ------------
Century II Apartments
Cockeysville, Maryland...... $1,049,868 $19,282,085 $20,331,953 $12,758,634 1984 ▇▇▇▇
▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇
▇▇▇▇▇▇▇, Illinois........... 2,877,561 50,672,828 53,550,389 32,534,053 1984 1973
---------- ----------- ----------- -----------
Total..................... $3,927,429 $69,954,913 $73,882,342 $45,292,687
========== =========== =========== ===========
Reconciliation of Real Estate and Accumulated Depreciation for each of the
three years in the period ended December 31, 1998:
REAL ESTATE 1998 1997 1996
----------- ----------- ----------- -----------
Balance at beginning of year.......... $72,392,551 $70,664,455 $68,251,341
Acquisition and improvements.......... 1,489,791 1,728,096 2,413,114
----------- ----------- -----------
Balance at end of year................ $73,882,342 $72,392,551 $70,664,455
=========== =========== ===========
ACCUMULATED DEPRECIATION 1998 1997 1996
------------------------ ----------- ----------- -----------
Balance at beginning of year.......... $41,602,481 $38,066,263 $34,745,814
Depreciation expense.................. 3,690,206 3,536,218 3,320,449
----------- ----------- -----------
Balance at end of year................ $45,292,687 $41,602,481 $38,066,263
=========== =========== ===========
Note: The Partnership uses the cost basis for property valuation for both income
tax and financial statement purposes. The aggregate cost for of the
Partnership's real estate for federal income tax purposes was $73,894,392
and the aggregate accumulated depreciation for federal income tax purposes
is $52,945,211 at December 31, 1998.
F-14
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Quarterly Financial Statements:
Balance Sheet at September 30, 1999 (unaudited) and December
31, 1998.................................................. F-16
Statements of Operations (unaudited) for the three months
ended September 30, 1999 and September 30, 1998; and for
the nine months ended September 30, 1999 and
September 30, 1998........................................ F-17
Statements of Cash Flows (unaudited) for the three months
ended September 30, 1999 and September 30, 1998........... F-18
Notes to (Unaudited) Financial Statements................... F-19-F-22
F-15
▇▇▇▇▇ REALTY LIMITED PARTNERSHIP-V AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
SEPTEMBER 30, DECEMBER 31,
1999 1998
------------- ------------
ASSETS
Multi-family apartment complexes net of accumulated
depreciation of $47,876,135 and $45,292,687,
respectively.............................................. $ 27,214,103 $ 28,589,655
Cash and cash equivalents (Note 2).......................... 3,806,917 2,101,415
Cash restricted for tenant security deposits................ 320,149 311,432
Replacement reserve escrows................................. 750,758 664,186
Prepaid expenses and other assets (Note 5).................. 1,465,716 2,572,492
Deferred expenses, net of accumulated amortization of
$108,668 and $82,843, respectively........................ 456,704 482,529
------------ ------------
Total assets.......................................... $ 34,014,347 $ 34,721,709
============ ============
LIABILITIES AND PARTNERS' DEFICIT
Liabilities:
Mortgage notes payable.................................... $ 41,387,023 $ 41,836,237
Accrued real estate taxes................................. 1,504,557 2,008,500
Accrued expenses and other liabilities (Note 3)........... 2,026,803 1,841,074
------------ ------------
Total liabilities..................................... 44,918,383 45,685,811
------------ ------------
Contingency (Note 3):
Partners' deficit (Note 4):
Investor Limited Partners (35,200 Units outstanding)...... (10,074,515) (10,130,376)
Original Limited Partner.................................. (416,456) (420,061)
General Partners.......................................... (413,065) (413,665)
------------ ------------
Total Partners' deficit............................... (10,904,036) (10,964,102)
------------ ------------
Total liabilities and Partners' deficit............... $ 34,014,347 $ 34,721,709
============ ============
The accompanying notes are an integral part of the consolidated financial
statements.
F-16
▇▇▇▇▇ REALTY LIMITED PARTNERSHIP-V AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
FOR THE THREE MONTHS FOR THE NINE MONTHS
ENDED SEPTEMBER 30, ENDED SEPTEMBER 30,
----------------------- -------------------------
1999 1998 1999 1998
---------- ---------- ----------- -----------
Revenue:
Rental.................................... $3,922,597 $3,807,018 $11,634,413 $11,193,425
Interest income........................... 53,528 28,705 129,135 84,026
---------- ---------- ----------- -----------
Total revenue......................... 3,976,125 3,835,723 11,763,548 11,277,451
---------- ---------- ----------- -----------
Expenses:
Operating (Note 5)........................ 961,011 652,721 2,652,161 2,351,381
Maintenance............................... 292,786 291,869 705,272 658,108
General and administrative (Note 5)....... 76,592 43,876 196,675 125,223
Real estate taxes......................... 189,102 572,843 1,334,783 1,728,890
Management fees (Note 5).................. 178,426 140,224 467,815 395,309
Depreciation and amortization............. 894,245 967,685 2,609,273 2,751,909
Interest.................................. 738,374 748,796 2,223,525 2,254,400
---------- ---------- ----------- -----------
Total expenses........................ 3,330,536 3,418,014 10,189,504 10,265,220
---------- ---------- ----------- -----------
Net income.................................. $ 645,589 $ 417,709 $ 1,574,044 $ 1,012,231
========== ========== =========== ===========
Allocation of net income (Note 4):
Investor Limited Partners
(35,200 Units outstanding).............. $ 600,398 $ 388,469 $ 1,463,861 $ 941,375
========== ========== =========== ===========
Investor Limited Partners Per Unit........ $ 17.06 $ 11.03 $ 41.59 $ 26.74
========== ========== =========== ===========
Original Limited Partner.................. $ 38,735 $ 25,063 $ 94,443 $ 60,734
========== ========== =========== ===========
General Partners.......................... $ 6,456 $ 4,177 $ 15,740 $ 10,122
========== ========== =========== ===========
The accompanying notes are an integral part of the consolidated financial
statements.
F-17
▇▇▇▇▇ REALTY LIMITED PARTNERSHIP-V AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
FOR THE NINE MONTHS ENDED
SEPTEMBER 30,
-------------------------
1999 1998
----------- -----------
Cash flows from operating activities:
Net income................................................ $ 1,574,044 $ 1,012,231
Adjustments to reconcile net income to net cash provided
by operating activities:
Interest earned on replacement reserve escrow........... (8,842) (9,521)
Depreciation and amortization........................... 2,609,273 2,751,909
Changes in assets and liabilities:
Increase in cash restricted for tenant security
deposits............................................ (8,717) (18,382)
Decrease (Increase) in prepaid expenses and other
assets.............................................. 1,106,776 (601,804)
Increase (Decrease) in accrued real estate taxes...... (503,943) 660,095
Increase in accrued expenses and other liabilities.... 185,729 (121,056)
----------- -----------
Net cash provided by operating activities........... 4,954,320 3,673,472
----------- -----------
Cash flows from investing activities:
Deposits to replacement reserve escrows................... (229,884) (229,884)
Withdrawals from replacement reserve escrows.............. 152,154 57,030
Additions to fixed assets................................. (1,207,896) (1,002,347)
Increase in accrued expenses and other liabilities related
to fixed asset additions................................ -- 3,349
----------- -----------
Net cash used in investing activities............... (1,285,626) (1,171,852)
----------- -----------
Cash flows from financing activities:
Principal payments on mortgage notes payable.............. (449,214) (419,973)
Increase in deferred expenses............................. -- (9,285)
Distributions............................................. (1,513,978) (1,513,979)
----------- -----------
Net cash used in financing activities............... (1,963,192) (1,943,237)
----------- -----------
Net increase in cash and cash equivalents................... 1,705,502 558,383
Cash and cash equivalents, beginning of period.............. 2,101,415 802,726
----------- -----------
Cash and cash equivalents, end of period.................... $ 3,806,917 $ 1,361,109
=========== ===========
The accompanying notes are an integral part of the consolidated financial
statements.
F-18
▇▇▇▇▇ REALTY LIMITED PARTNERSHIP-V AND SUBSIDIARY
NOTES TO (UNAUDITED) CONSOLIDATED FINANCIAL STATEMENTS
(1) ACCOUNTING POLICIES
Certain information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting principles
have been condensed or omitted in this report on Form 10-Q pursuant to the Rules
and Regulations of the Securities and Exchange Commission. In the opinion of the
General Partners of ▇▇▇▇▇ Realty Limited Partnership-V and Subsidiary (the
"Partnership") the disclosures contained in this report are adequate to make the
information presented not misleading. See Notes to Consolidated Financial
Statements included in the Partnership's Annual Report on Form 10-K for the year
ended December 31, 1998 for additional information relevant to significant
accounting policies followed by the Partnership.
In the opinion of the General Partners of the Partnership, the accompanying
unaudited consolidated financial statements reflect all adjustments (consisting
of only normal recurring accruals) necessary to present fairly the Partnership's
consolidated financial position as of September 30, 1999, its results of
operations for the three and nine months ended September 30, 1999 and 1998 and
its cash flows for the nine months ended September 30, 1999 and 1998.
The results of operations for the three and nine months ended September 30,
1999 are not necessarily indicative of the results which may be expected for the
full year.
(2) CASH AND CASH EQUIVALENTS
Cash and cash equivalents consisted of the following:
SEPTEMBER 30, DECEMBER 31,
1999 1998
------------- ------------
Cash and money market accounts...................... $2,436,248 $ 405,431
Treasury bills...................................... 1,370,669 1,695,984
---------- ----------
$3,806,917 $2,101,415
========== ==========
(3) LEGAL PROCEEDING
The Partnership is a defendant in a class action suit related to the
practice of giving discounts for the early or timely payments of rent at Park
Place Apartments ("Park Place") and Marine Terrace Apartments, a previously
owned property. The central issue of the complaint was whether the operative
lease violated a Chicago municipal ordinance relating to late fee charges
because it allowed tenants a discount if rent was paid on or before the first of
the month. The allegation was that, notwithstanding the stated rental rate and
printed discount, the practice represented an unlawful means of exacting late
fee charges. In addition to seeking damages for any "forfeited" discounts,
plaintiffs seek statutory damages of two months rent per lease violation and
reasonable attorneys' fees. To be eligible for such damages, plaintiffs must
prove that the defendants deliberately used a provision prohibited by the
ordinance.
During 1994, the Court ruled in favor of the defendants and accepted the
Partnership's Motion to Dismiss the Plaintiff's Third Amended Complaint. The
plaintiffs filed an appeal with the Appellate Court of Illinois, First District.
During 1996, the decision was reversed on appeal and the case remanded to trial
court for further proceedings. The defendants have continued to vigorously
defend the case.
Continued discussions with Plaintiffs' counsel have resulted in a settlement
which was presented to the court on July 28, 1999. The court granted preliminary
approval of the settlement agreement and a hearing
F-19
▇▇▇▇▇ REALTY LIMITED PARTNERSHIP-V AND SUBSIDIARY
NOTES TO (UNAUDITED) CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(3) LEGAL PROCEEDING (CONTINUED)
on the fairness of the settlement has been scheduled for November 18, 1999.
Although the settlement has not received final approval by the court, the
Partnership has recorded provisions totaling $1,015,000 in the consolidated
financial statements at September 30, 1999 and December 31, 1998.
(4) CHANGES IN PARTNERS' DEFICIT
A summary of changes in Partners' deficit for the nine months ended
September 30, 1999 is as follows:
INVESTOR ORIGINAL TOTAL
LIMITED LIMITED GENERAL PARTNERS'
PARTNERS PARTNER PARTNERS DEFICIT
------------ --------- --------- ------------
Balance at December 31, 1998................ $(10,130,376) $(420,061) $(413,665) $(10,964,102)
Net income.................................. 1,463,861 94,443 15,740 1,574,044
Distributions............................... (1,408,000) (90,838) (15,140) (1,513,978)
------------ --------- --------- ------------
Balance at September 30, 1999............... $(10,074,515) $(416,456) $(413,065) $(10,904,036)
============ ========= ========= ============
(5) 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 accrued or paid to the General Partners' affiliates were as follows:
FOR THE THREE MONTHS FOR THE NINE MONTHS
ENDED SEPTEMBER 30, ENDED SEPTEMBER 30,
--------------------- -------------------
1999 1998 1999 1998
--------- --------- -------- --------
Property management fees............ $178,426 $140,224 $467,815 $395,309
Expense reimbursements.............. 100,691 79,283 275,029 201,456
-------- -------- -------- --------
Charged to operations............. $279,117 $219,507 $742,844 $596,765
======== ======== ======== ========
Expense reimbursements due from affiliates of $8,323 and $1,456 were
included in prepaid expenses and other assets at September 30, 1999 and
December 31, 1998, respectively.
F-20
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
This Management's Discussion and Analysis of Financial Condition and Results
of Operations contains forward-looking statements including those concerning
Management's expectations regarding the future financial performance and future
events. These forward-looking statements involve significant risk and
uncertainties, including those described herein. Actual results may differ
materially from those anticipated by such forward-looking statements.
LIQUIDITY AND CAPITAL RESOURCES
The Partnership's ability to generate cash adequate to meet its needs is
dependent primarily upon the operating performance of its real estate
investments. Such ability would also be impacted by the future availability of
bank borrowing sources as current debt matures. These sources of liquidity will
be used by the Partnership for payment of expenses related to real estate
operations, capital improvements, debt service and other expenses. Cash Flow, if
any, as calculated under Section 8.2(a) of the Partnership Agreement, will then
be available for distribution to the Partners.
YEAR 2000
The General Partners of the Partnership have conducted an assessment of the
Partnership's core internal and external computer information systems and have
taken the further necessary steps to understand the nature and extent of the
work required to make its systems Year 2000 ready in those situations in which
it is required to do so. The Year 2000 readiness issue concerns the inability of
computerized information systems to accurately calculate, store or use a date
after 1999. This could result in a system failure or miscalculations causing
disruptions of operations. The Year 2000 issue affects virtually all companies
and all organizations.
In this regard, the General Partners of the Partnership, along with certain
affiliates, began a computer systems project in 1997 to significantly upgrade
its existing hardware and software. The General Partners completed the testing
and conversion of the financial accounting operating systems in February 1998.
As a result, the General Partners have generated operating efficiencies and
believe their financial accounting operating systems are Year 2000 ready. The
General Partners incurred hardware costs as well as consulting and other
expenses related to the infrastructure and facilities enhancements necessary to
complete the upgrade and prepare for the Year 2000. There are no other
significant internal systems or software that the Partnership is using at the
present time.
The General Partners of the Partnership have evaluated Year 2000 compliance
issues with respect to its non-financial systems, such as computer controlled
elevators, boilers, chillers or other miscellaneous systems. The General
Partners do not anticipate any problems in its non-financial systems.
The General Partners of the Partnership surveyed the Partnership's material
third-party service providers (including but not limited to its banks and
telecommunications providers) and significant vendors and received assurances
that such providers and vendors are to be Year 2000 ready. The General Partners
do not anticipate any problems with such providers and vendors that would
materially impact its results of operations, liquidity or capital resources.
In addition, the Partnership is also subject to external forces that might
generally affect industry and commerce, such as utility and transportation
company Year 2000 readiness failures and related service interruptions. However,
the General Partners do not anticipate these would materially impact its results
of operations, liquidity or capital resources.
F-21
OPERATIONS
The following discussion relates to the operations of the Partnership and
its properties (Park Place and Century) for the three and nine months ended
September 30, 1999 and 1998.
Net income increased for the three and nine months ended September 30, 1999
as compared to the same periods in 1998, as rental revenue increased and total
expenses remained relatively stable.
The increase in rental revenue for the three and nine months ended
September 30, 1999 when compared to the same periods in 1998 is attributable to
residential rental rate increases implemented at Park Place and Century during
the second half of 1998 and the first quarter of 1999. Interest income increased
as average cash and cash equivalent balances increased between the periods.
Total expenses remained relatively stable when comparing the three and nine
months ending September 30, 1999 to the same periods of 1998 as the increase in
operating, general and administrative and management fee expenses were offset by
a decrease in real estate taxes and depreciation expenses. Operating expense
increased in the third quarter of 1999, resulting from increases in electricity
expense and an increase in workmen's compensation expense due to an adjustment
to the workmen's compensation reserve in 1998. General and administrative
expense increased due to higher expenses incurred in connection with preparation
and mailing of Partnership reports and other investor communications. Property
management fees increased in conjunction with the increase in rental revenue as
discussed above. Real estate taxes decreased during the third quarter of 1999
due to an abatement, of approximately $245,000, and refund of prior years taxes
received by Park Place. Depreciation expense decreased as fixed asset additions
purchased in previous years at Park Place became fully depreciated.
F-22
APPENDIX A
AGREEMENT AND PLAN OF MERGER
THIS AGREEMENT AND PLAN OF MERGER (this "AGREEMENT") is made and entered
into as of , 2000 by and between KR5 Acquisition, L.L.C., a Delaware
limited liability company (the "COMPANY" or, after the Effective Time (as
defined in Article V hereof), the "SURVIVING ENTITY"), and ▇▇▇▇▇ Realty Limited
Partnership-V, a Massachusetts limited partnership (the "PARTNERSHIP").
W I T N E S S E T H:
WHEREAS, the Company is a limited liability company duly formed and validly
existing under the laws of the State of Delaware;
WHEREAS, the Partnership is a limited partnership duly formed and validly
existing under the laws of the Commonwealth of Massachusetts;
WHEREAS, the Massachusetts Revised Uniform Limited Partnership Act, Mass.
Gen. ▇▇▇▇ ▇▇▇. ch. 109, Sections 1-62 (the "MASSACHUSETTS LP ACT"), and the
Delaware Limited Liability Company Act, 6 Del. C. Sections 18-101 ET SEQ. (the
"DELAWARE LLC ACT"), each permits a limited partnership formed and existing
under the Massachusetts LP Act to merge with and into a limited liability
company formed and existing under the Delaware LLC Act;
WHEREAS, the members of the Company have authorized and the general partners
and limited partners of the Partnership have duly authorized the merger of the
Partnership with and into the Company pursuant to the terms of this Agreement;
and
WHEREAS, the holders of limited partnership interests of Fund V have
approved an amendment to the Amended Agreement of Limited Partnership, dated
July 27, 1983, authorizing the Partnership to enter into this Agreement;
NOW, THEREFORE, in consideration of the mutual covenants and agreements
herein contained, and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, it is agreed that, in accordance
with the applicable statutes of the State of Delaware and the Commonwealth of
Massachusetts, and subject to the conditions precedent contained herein, the
Partnership shall be at the Effective Time, merged with and into the Company
(the "MERGER"), with the Company to be the Surviving Entity. The mode of
carrying the Merger into effect shall be as follows:
ARTICLE I
MERGER
At the Effective Time, the Partnership shall be merged with and into the
Company, the separate existence of the Partnership shall cease, the Company
shall continue in existence and the Merger shall in all respects have the
effects provided for by the Massachusetts LP Act and the Delaware LLC Act.
Prior to the Effective Time, the Company and the Partnership shall take all
such action as shall be necessary or appropriate in order to effectuate the
Merger. If at any time after the Effective Time, the Company shall consider or
be advised that any further assignments, conveyances or assurances in law are
necessary or desirable to carry out the provisions hereof, the proper members,
managers, officers or other agents of the Company, as authorized agents and
attorneys-in-fact for the Partnership (and acting in the name of the Company or
the Partnership), shall execute and deliver any and all proper deeds,
assignments, and assurances in law, and do all such additional things necessary
or proper to carry out the provisions hereof.
ARTICLE II
TERMS OF TRANSACTION
At the Effective Time, by virtue of the Merger and without any action on the
part of the holders thereof, (i) the partnership interests in the Partnership
outstanding immediately prior to the Effective
Time, held by (a) the general partners of the Partnership (the "GENERAL
PARTNERS"), (b) the "ORIGINAL LIMITED PARTNERS" (as defined in the Partnership's
Amended Agreement of Limited Partnership, dated as of July 27, 1983, as amended
from time to time (the "PARTNERSHIP AGREEMENT")) and (c) the limited partners of
the Partnership who are, at the Effective Time, directly or indirectly
controlling, controlled by or under common control with the Company, Equity
Resources Group Incorporated or the General Partners ("the AFFILIATE LIMITED
PARTNERS"), shall be canceled and retired and shall cease to exist, (ii) the
partnership interests of limited partners of the Partnership who are not
Affiliate Limited Partners (the "UNAFFILIATED LIMITED PARTNERS") outstanding
immediately prior to the Effective Time shall be canceled and converted into and
represent the right to receive in exchange therefor $1,200 per "UNIT" (as
defined in the Partnership Agreement), without interest thereon, payable by the
Surviving Entity to the holder of such Unit (as reflected on the records of the
Partnership at the Effective Time) upon receipt by the Surviving Entity of the
Proof of Ownership Form hereto, a Substitute Form W-9 and any other additional
documentation necessary or desirable to complete the conversion of the Units
required which the Surviving Entity shall reasonably request from the holder,
(iii) the limited liability company interests held by the members of the Company
outstanding immediately prior to the Effective Time shall remain the outstanding
limited liability company interests of such members of the Company, and such
members shall continue as the members of the Surviving Entity.
Neither the Surviving Entity nor any other party hereto shall be liable to a
holder of Units for any payments made to a public official pursuant to
applicable abandoned property laws. The Surviving Company shall be entitled to
deduct and withhold from the amounts otherwise payable to a holder of Units
pursuant to the Merger any taxes or other amounts as are required by applicable
law, including without limitation Sections 3406 and 1445 of the Internal Revenue
Code of 1986, as amended. To the extent that amounts are so withheld by the
Surviving Entity, they shall be treated for all purposes of this Agreement as
having been paid to the holder of the Units in respect of which such deduction
and withholding was made.
After the Effective Time, the transfer books of the Partnership shall be
closed and there shall be no further registration of transfers on the records of
the Partnership of the Units that were outstanding immediately prior to the
Effective Time. As of the Effective Time, each holder of a Unit which was
converted into the right to receive cash pursuant to Article II hereof shall be
deemed to have withdrawn as a limited partner and shall have no further interest
in the Partnership or the Surviving Entity or any allocations or distributions
of income, property or otherwise, other than the right to receive the amount as
provided in this Article II.
No appraisal rights shall be available to holders of Units in connection
with the Merger.
ARTICLE III
CERTIFICATE OF FORMATION AND
LIMITED LIABILITY COMPANY AGREEMENT
From and after the Effective Time, and until thereafter amended as provided
by law, the Certificate of Formation and Limited Liability Company Agreement of
the Company as in effect immediately prior to the Effective Time shall be the
Certificate of Formation and Limited Liability Company Agreement of the
Surviving Entity.
ARTICLE IV
MANAGERS AND OFFICERS
From and after the Effective Time, and until their successors are duly
elected or appointed, or until their earlier death, resignation or removal, the
managers and officers of the Surviving Entity shall be the same as the managers
and officers of the Company immediately prior to the Effective Time.
ARTICLE V
EFFECTIVE TIME
Certificates of merger evidencing the Merger ("CERTIFICATES OF MERGER")
substantially in the form of EXHIBIT A attached hereto shall be filed by the
General Partners and the Company with the Secretary of State of the State of
Delaware and the Secretary of State of the Commonwealth of Massachusetts
pursuant to the applicable requirements of the Delaware LLC Act and the
Massachusetts LP Act. The Merger shall become effective upon the later of the
filing of the Certificates of Merger with the Secretary of State of the
Commonwealth of Massachusetts and the Secretary of State of the State of
Delaware or such other time as shall be agreed by the parties and set forth in
the Certificates of Merger and in accordance with the Massachusetts LP Act and
the Delaware LLC Act (such time of effectiveness, the "EFFECTIVE TIME").
ARTICLE VI
TERMINATION
This Agreement may be terminated at any time prior to the Effective Time:
(i) by mutual written consent of the Company and the General Partners;
(ii) by either the Company or the General Partners if the Merger shall
not have been consummated by [ []; PROVIDED, HOWEVER, that the right to
terminate this Agreement pursuant to this clause (ii) of Article VI shall
not be available to any party whose failure to perform any of its
obligations under this Agreement has been the cause of, or resulted in, the
failure of the Merger to occur on or before such date.
In the event of a termination of this Agreement by either the Company or the
General Partners, as provided in this Article VI, this Agreement shall forthwith
become void and there shall be no liability or obligation on the part of the
Company or the General Partners or their respective managers or officers, except
with respect to Article IX and this second paragraph of Article VI. Nothing
herein shall relieve any party of liability with respect to any fraud or
intentional breach by any party hereto of this Agreement.
ARTICLE VII
AMENDMENTS
At any time prior to the Effective Time, the Company and the General
Partners may amend, modify or supplement this Agreement in such manner as they
jointly may determine; PROVIDED, HOWEVER, that, such amendment must be executed
in writing by all parties hereto and PROVIDED FURTHER, that no such amendment,
modification, or supplement shall reduce the amount or change the type of
consideration into which each Unit shall be converted upon consummation of the
Merger or alter or change any term of the Certificate of Formation or Limited
Liability Company Agreement of the Surviving Entity.
ARTICLE VIII
CONDITIONS TO CONSUMMATION OF THE MERGER
The respective obligations of each party hereto to effect the Merger are
subject to the satisfaction at or prior to the Effective Time of the following
conditions:
(i) this Agreement shall have been approved and adopted by the partners
of the Partnership in accordance with the Massachusetts LP Act and the
Partnership Agreement;
(ii) this Agreement shall have been approved and adopted by the members
of the Company in accordance with the Delaware LLC Act and the Limited
Liability Company Agreement of the Company;
(iii) no statute, rule, regulation, executive order, decree, ruling or
injunction shall have been enacted, promulgated or enforced by any
governmental entity, and no action, suit, claim or legal, administrative or
arbitral proceeding or investigation shall be pending before any
governmental entity which seeks to prohibit, restrain, enjoin or restrict
the consummation of the transactions contemplated
by this Agreement or which seeks to subject any party to substantial damages
as a result of the consummation of the transactions contemplated by this
Agreement;
(iv) each of the parties shall have obtained the consent, approval or
waiver of each non-governmental person whose consent, approval or waiver
shall be required in order for such party to consummate the transactions
contemplated by this Agreement;
(v) since June 30, 1999, no change or event shall have occurred which
has had or could reasonably be expected to result in a Material Adverse
Effect. For purposes of this Agreement, "MATERIAL ADVERSE EFFECT" means any
change, event or effect (a) in, on or relating to the business of the
Partnership that is, or is reasonably likely to be, materially adverse to
the business, assets (including intangible assets), liabilities (contingent
or otherwise), condition (financial or otherwise), prospects or results of
operations of the Partnership and its subsidiaries taken as a whole, or
(b) that may prevent or materially delay the performance of this Agreement
by the Company or the Partnership or the consummation of the transactions
contemplated hereby.
ARTICLE IX
GOVERNING LAW
This Agreement shall be governed by and construed in accordance with the
domestic laws of the State of Delaware without giving effect to any choice of
law or conflict of law provision or rule (whether of the State of Delaware or
any other jurisdiction) that would cause the application of the laws of any
jurisdiction other than the State of Delaware.
ARTICLE X
MISCELLANEOUS
This Agreement may be executed in counterparts, each of which when so
executed shall be deemed to be an original, and such counterparts shall together
constitute but one and the same instrument.
IN WITNESS WHEREOF, the undersigned have duly executed this Agreement as of
the day and year first above written.
KR5 ACQUISITION, L.L.C.
By: KRF Company, L.L.C.,
its managing member
By: KRF Company, L.L.C.
The ▇▇▇▇▇ Family Limited Partnership-94,
its sole member
By:
------------------------------------------
▇▇▇▇▇▇▇ ▇▇▇▇▇
General Partner
▇▇▇▇▇ REALTY LIMITED PARTNERSHIP-V
By: The ▇▇▇▇▇ Corporation, its general partner
By:
------------------------------------------
▇▇▇▇▇▇▇ ▇▇▇▇▇
Co-Chairman of the Board of Directors
APPENDIX B
AMENDMENT NO. 1 TO THE AMENDED AGREEMENT OF
LIMITED PARTNERSHIP OF ▇▇▇▇▇ REALTY LIMITED PARTNERSHIP-V
------------------------
THIS AMENDMENT NO. 1 TO THE AMENDED AGREEMENT OF LIMITED PARTNERSHIP, dated
as of July 27, 1983 (the "Partnership Agreement"), OF ▇▇▇▇▇ REALTY LIMITED
PARTNERSHIP-V, a Massachusetts limited partnership (the "Partnership"), by and
among The ▇▇▇▇▇ Corporation, a Massachusetts corporation, and The ▇▇▇▇▇ Company
Limited Partnership--II, a Massachusetts limited partnership, as General
Partners (together, the "General Partners"), The ▇▇▇▇▇ Company Limited
Partnership-II, as the Original Limited Partner, and those persons admitted to
the Partnership as Investor Limited Partners and providing their Consent hereto
is made as of , 2000, in accordance with the procedures of Section
14(a) of the Partnership Agreement. Capitalized terms used herein and not
otherwise defined shall have the meanings ascribed to them in the Partnership
Agreement.
1. The Partnership Agreement is amended by adding the following prior to
the last sentence of Section 6.2(b) thereof and to Section 6.6 at the conclusion
thereof:
"Notwithstanding the foregoing or any other provision contained in the
Partnership Agreement, at any time after February 1, 2000, the Partnership may,
among other items, enter into, consummate and perform its obligations under a
merger agreement with an Affiliate of the General Partner substantially in the
form of the agreement previously delivered to Investor Limited Partners pursuant
to a Proxy Statement and provided that such merger agreement is executed prior
to August 1, 2000.
2. In all other respects the Partnership Agreement shall remain in full
force and effect in accordance with its terms.
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be
executed and delivered by their respective duly authorized persons as of the
date first above written.
THE ▇▇▇▇▇ CORPORATION,
GENERAL PARTNER
By: --------------------------------------
Name: ▇▇▇▇▇▇▇ ▇▇▇▇▇
Title: CO-CHAIRMAN OF THE BOARD OF DIRECTORS
THE ▇▇▇▇▇ COMPANY LIMITED PARTNERSHIP-II,
GENERAL PARTNER AND ORIGINAL LIMITED PARTNER
By: The ▇▇▇▇▇ Corporation,
GENERAL PARTNER
By: --------------------------------------
Name: ▇▇▇▇▇▇▇ ▇▇▇▇▇
Title: CO-CHAIRMAN OF THE BOARD OF DIRECTORS
FORM OF PROXY CARD
▇▇▇▇▇ REALTY LIMITED PARTNERSHIP--V
▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
SOLICITED BY THE GENERAL PARTNERS FOR THE SPECIAL MEETING OF UNITHOLDERS
TO BE HELD ON , 2000
The undersigned hereby appoints , or any of them, each with full
power of substitution, as proxies or proxy of the undersigned and hereby
authorizes them to represent and vote as designated below all investor limited
partnership units of ▇▇▇▇▇ Realty Limited Partnership--V Units (the
"Partnership") held of record by the undersigned at the close of business on
, 2000 at the Special Meeting of Unitholders (the "Special Meeting") to
be held on , 2000 at the Partnership's principal executive offices
located at ▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇, ▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇, or any
adjournment or postponement thereof, and, in their discretion, upon all matters
incident to the conduct of the Special Meeting and such other matters as may
properly be brought before the Special Meeting.
This signed Voting Form revokes all proxies previously given by the
undersigned to vote at the Special Meeting of Unitholders or any adjournment or
postponement thereof. The undersigned hereby acknowledges receipt of the Notice
of Special Meeting of Unitholders and the Proxy Statement relating to the
Special Meeting.
THE GENERAL PARTNERS RECOMMEND A VOTE FOR THE FOLLOWING PROPOSAL.
To approve the Agreement and Plan of Merger between KR5 Acquisition, L.L.C.
and the Partnership and the amendment to the Partnership's Amended Agreement of
Limited Partnership, dated as of July 27, 1983, allowing the Partnership to
enter into the merger agreement and complete the merger with KR5 Acquisition,
L.L.C.
/ / FOR / / AGAINST / / ABSTAIN
(CONTINUED ON REVERSE SIDE)
WHEN PROPERLY EXECUTED, THIS VOTING FORM WILL BE VOTED AS DIRECTED. IF NO
DIRECTION IS GIVEN, THIS VOTING FORM WILL BE VOTED FOR THE FOREGOING PROPOSAL.
PLEASE SIGN EXACTLY AS NAME APPEARS BELOW.
Dated ______________________, 2000
__________________________________
Signature
__________________________________
Signature, if held jointly
Please sign exactly as your name
appears on this Voting Form. If
units are registered in more than
one name, the signatures of all
such persons are required. A
corporation should sign in its
full corporate name by a duly
authorized officer, stating such
officer's title. Trustees,
guardians, executors and
administrators should sign in
their official capacity giving
their full title as such. A
partnership should sign in the
partnership name by an authorized
person, stating such person's
title and relationship to the
partnership.
PLEASE COMPLETE, DATE, SIGN AND RETURN THIS VOTING FORM PROMPTLY, USING THE
ENCLOSED ENVELOPE. ALTERNATIVELY, PLEASE FORWARD BOTH SIDES OF THE COMPLETED
VOTING FORM BY FACSIMILE TO ▇▇▇▇▇ FUNDS GROUP AT ▇▇▇-▇▇▇-▇▇▇▇.
/ / I have read the above and would like to attend the special meeting in
person. Please send me a ticket for admission to the meeting.