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As filed with the Securities and Exchange Commission on June 14, 1999
Registration No. 333-55753
- --------------------------------------------------------------------------------
U.S. Securities and Exchange Commission
Washington, D.C. 20549
--------------------
AMENDMENT NO. 5 TO
FORM S-4
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
Baron Capital Properties, L.P.
------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 6798 31-1574856
- --------------------------- ---------------------------- ----------------
State or other jurisdiction (Primary Standard Industrial (I.R.S. Employer
of incorporation or Classification Code Number) Identification No.)
organization)
Baron Capital Trust
------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 6798 31-1584691
- --------------------------- ---------------------------- ----------------
State or other jurisdiction (Primary Standard Industrial (I.R.S. Employer
of incorporation or Classification Code Number) Identification No.)
organization)
7826 Cooper Road
Cincinnati, Ohio 45242
(513) 984-5001
------------------------------------------
(Address, including ZIP Code and telephone
number, including area code, of registrants'
principal executive offices)
Gregory K. McGrath
7826 Cooper Road
Cincinnati, Ohio 45242
(513) 984-5001
------------------------------------------
(Name, address, including ZIP Code, and telephone
number, including area code, of agent for service)
Copies to:
Edward L. Lublin, Esq.
Manatt, Phelps & Phillips, LLP
1501 M Street, N.W. , Suite 700
Washington, D.C. 20005
(202) 463-4300
Approximate date of commencement of proposed sale of the securities to the
public: As soon as practicable after the Registration Statement becomes
effective.
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CALCULATION OF REGISTRATION FEE
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Title of each class of Dollar amount to Proposed maximum Proposed maximum Amount of
securities to be registered be registered offering price per unit aggregate offering price registration fee (1)
- --------------------------- ------------- ----------------------- ------------------------ --------------------
<S> <C> <C> <C> <C>
2,500,000 Units of Limited
Partnership Interest $25,000,000 $10.00 $25,000,000 $7,576.00
- ----------------------------------------------------------------------------------------------------------------------------
2,500,000 Common Shares of
Beneficial
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<S> <C> <C> <C> <C>
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Interest in Baron
Capital Trust into
which the registered Units
will be exchangeable N/A N/A N/A N/A
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(1) Previously paid.
The Registrant hereby amends this registration statement on such date or dates
as may be necessary to delay its effective date until the Registrant shall file
a further amendment which specifically states that this registration statement
shall thereafter become effective in accordance with Section 8(a) of the
Securities Act of 1933 or until the registration statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
2
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CROSS REFERENCE SHEET
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<CAPTION>
Location or Heading in
Item Number Caption Prospectus
- ----------- ------- ----------------------
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Item 1 Forepart of Registration Statement and Outside Outside Front Cover
Front Cover Page of Prospectus
Item 2 Inside Front and Outside Back Cover Pages of Inside Front Cover; Outside Back Cover,
Prospectus Additional Information; Summary of
Declaration of Trust - Quarterly and
Annual Reports
Item 3 Risk Factors, Ratio of Earnings to Fixed Charges Outside Front Cover; Summary of the Trust
and Other Information and the Operating Partnership; Summary of
Risk Factors; Risk Factors; Tax Status
Item 4 Terms of the Transaction Summary of the Trust and the
Operating Partnership; The Exchange
Offering; The Trust and the
Operating Partnership; Investment
Objectives and Policies; Initial
Real Estate Investments; Comparison
of Rights of Holders of Exchange
Partnership Units, Operating
Partnership Units and Trust Common
Shares
Item 5 Pro Forma Financial Information Exhibit C
Item 6 Material Contacts with the Company Being Acquired The Trust and the Operating Partnership;
Summary of the Operating Partnership
Agreement
Item 7 Additional Information Required for Reoffering by Not Applicable
Persons and Parties Deemed to be Underwriters
Item 8 Interests of Named Experts and Counsel Outside Front Cover; Summary of the Trust
and the Operating Partnership; The Exchange
Offering; Experts; Legal Matters
Item 9 Disclosure of Commission Position on Summary of Declaration of Trust - Liability
Indemnification of Securities Act Liabilities and Indemnification
Item 10 Information with Respect to S-3 Registrants Not Applicable
Item 11 Incorporation of Certain Information by Reference Not Applicable
Item 12 Information with Respect to S-2 or S-3 Registrants Not Applicable
Item 13 Incorporation of Certain Information by Reference Not Applicable
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3
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<S> <C> <C>
Item 14 Information with Respect to Registrants Other than Summary of the Trust and the Operating
S-2 or S-3 Registrants Partnership; The Exchange Offering; Initial
Real Estate Investments; Litigation;
Exhibits C and D.
Item 15 Information with Respect to S-3 Companies Not Applicable
Item 16 Information with Respect to S-2 or S-3 Companies Not Applicable
Item 17 Information with Respect to Companies Other than Not Applicable
S-2 or S-3 Companies
Item 18 Information if Proxies, Consents or Authorizations Not Applicable
are to be Solicited
Item 19 Information if Proxies, Consents or Authorizations Summary of the Trust and the Operating
are not to be Solicited or in an Exchange Offer Partnership; The Exchange Offering;
Management; The Trust and the Operating
Partnership - Formation Transactions
Item 20 Indemnification of Directors and Officers Summary of Declaration of Trust - Liability
and Indemnification; Part II of
Registration Statement
Item 21 Exhibits and Financial Statement Schedules Part II of Registration Statement
Item 22 Undertakings Part II of Registration Statement
</TABLE>
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PART I
INFORMATION REQUIRED IN PROSPECTUS
Date of Issuance: ________________, 1999
Subject to Completion:
Information contained herein is subject to completion or amendment. A
Registration Statement relating to these securities has been filed with
Securities and Exchange Commission. These securities may not be sold nor
may offers to buy be accepted prior to the time the Registration Statement
becomes effective. This Prospectus shall not constitute an offer to sell
or the solicitation of an offer to buy nor shall there be any sale of
these securities in any State in which such offer, solicitation or sale
would be unlawful prior to registration or qualification under the
securities laws of any such State.
PROSPECTUS BARON CAPITAL PROPERTIES, L.P.
______________, 1999 2,500,000 Units of Limited Partnership Interest
Exchange Partnerships
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<S> <C>
Baron Strategic Investment Fund, Ltd. Florida Capital Income Fund II, Ltd.
Baron Strategic Investment Fund II, Ltd. Florida Capital Income Fund III, Ltd.
Baron Strategic Investment Fund IV, Ltd. Florida Capital Income Fund IV, Ltd.
Baron Strategic Investment Fund V, Ltd. Florida Income Advantage Fund I, Ltd.
Baron Strategic Investment Fund VI, Ltd. Florida Income Appreciation Fund I, Ltd.
Baron Strategic Investment Fund VIII, Ltd. Florida Income Growth Fund V, Ltd.
Baron Strategic Investment Fund IX, Ltd. Florida Opportunity Income Partners, Ltd.
Baron Strategic Investment Fund X, Ltd. GSU Stadium Student Apartments, Ltd.
Baron Strategic Vulture Fund I, Ltd. Lamplight Court of Bellefontaine Apartments, Ltd.
Brevard Mortgage Program, Ltd. Midwest Income Growth Fund VI, Ltd.
Central Florida Income Appreciation Fund, Ltd. Realty Opportunity Income Fund VIII, Ltd.
Florida Capital Income Fund, Ltd.
</TABLE>
THE EXCHANGE OFFERING WILL EXPIRE AT 5:00 P.M., NEW YORK CITY TIME,
ON THE EXPIRATION DATE DESCRIBED IN THE ELECTION FORM, UNLESS EXTENDED.
Baron Capital Properties, L.P. (the "Operating Partnership"), a Delaware
limited partnership, hereby offers, upon the terms and subject to the conditions
set forth in this prospectus (as the same may be amended or supplemented from
time to time, the "Prospectus") and in the accompanying Letter of Transmittal
and Election Form (which together constitute the "Exchange Offering"), to issue
up to 2,500,000 units of limited partnership interest in the Operating
Partnership ("Operating Partnership Units" or "Units"), which have been
registered under the Securities Act of 1933, as amended (the "Securities Act"),
pursuant to a Registration Statement of which this Prospectus constitutes a
part, in exchange for units of limited partnership interest ("Exchange
Partnership Units") owned by individual limited partners ("Exchange Limited
Partners") in 23 limited partnerships (the "Exchange Partnerships") which
directly or indirectly own equity and/or subordinated mortgage interests in one
or more residential apartment properties. The Exchange Partnerships are managed
by corporate general partners (the "Corporate General Partners") which are
affiliated with one of the founders of the Operating Partnership. Substantially
all of the mortgage interests owned by the Exchange Partnerships relate to
properties owned by other limited partnerships affiliated with one of the
founders of the Operating Partnership.
SEE "SUMMARY OF RISK FACTORS" AND "RISK FACTORS" ON PAGES ____ THROUGH
_______ AND PAGES _____ THROUGH ____, RESPECTIVELY, FOR A DISCUSSION OF CERTAIN
MATERIAL FACTORS WHICH SHOULD BE CONSIDERED IN CONNECTION WITH THE EXCHANGE
OFFERING AND THE OWNERSHIP OF OPERATING PARTNERSHIP UNITS AND TRUST COMMON
SHARES, INCLUDING THE FOLLOWING:
o The valuation of $10.00 per Unit used in the Exchange Offering is an
arbitrary amount, and it is possible that Trust Common Shares (into
which Units are exchangeable on a one-for-one basis), if listed on a
national securities exchange, will trade at a lower price.
<PAGE>
o The terms of the Exchange Offering were determined by the founders
of the Trust and the Operating Partnership with no separate counsel
or advisor for the Exchange Limited Partners.
o Offerees may not have an opportunity prior to their decision to
accept the Exchange Offering to evaluate a significant number of
properties in which the Trust and the Operating Partnership may
acquire an interest, and they will not have the benefit of knowing
in advance of deciding whether to accept the offering the extent of
the Operating Partnership's investment in respect of properties
involved in the offering until the offering is completed.
o If the Exchange Offering is completed in respect of their Exchange
Partnership, Offerees who accept the Exchange Offering will be
tendering their current investment in the particular Exchange
Partnership with an expected limited duration in exchange for an
investment in the Operating Partnership, which has an unlimited
duration.
o The Original Investors (described below under "Compensation") and
affiliates have significant influence over the operation of the
Trust, the Operating Partnership, and the Exchange Partnerships, and
the Exchange Offering involves transactions among them which involve
conflicts of interest which may result in decisions that do not
fully represent the interests of all Shareholders of the Trust,
Unitholders in the Operating Partnership and limited partners in the
Exchange Partnerships.
o All of the Exchange Partnerships are managed by corporate general
partners affiliated with one of the founders of the Operating
Partnership, and all of the mortgage interests owned by the Exchange
Partnerships relate to properties owned by other limited
partnerships affiliated with one of the founders of the Operating
Partnership.
o The purchase price to be paid by the Operating Partnership in the
Exchange Offering for the equity interests in properties is based
upon the following factors: (a) the estimated appraised market value
of the underlying property determined by qualified and licensed
independent appraisal firms; (b) the operating history of the
property; (c) the current principal balance of first mortgage and
other indebtedness to which the property is subject; (d) the amount
of distributable cash flow currently being generated by the
property; plus (e) additional factors which the Managing Shareholder
believes are appropriate to consider including, among others, the
property's overall current condition and prospects for the property
based upon improvements made or to be made to the property and, in
certain cases, the combination of two or more phases of the
property, which are expected to be owned upon completion of the
Exchange Offering and the actual or potential benefits to be
obtained by the sub-metering of utilities in order to pass costs
from the owner of the property to individual tenants. There can be
no assurance that the value of property interests acquired will
reflect their fair market value.
o The purchase price to be paid by the Operating Partnership in the
Exchange Offering for mortgage interests is based upon the following
factors: (a) the current principal balance of the amount of debt
which is senior to the mortgage interest to be acquired and other
indebtedness to which the property is subject; (b) the estimated
appraised market value of the underlying property determined by
qualified and licensed independent appraisal firms; (c) the
operating history of the property; (d) the amount of distributable
cash flow currently being generated by the property; plus (e)
additional factors which the Managing Shareholder believes are
appropriate to consider including, among others, the property's
overall current condition and prospects for the property based upon
improvements made or to be made to the property and, in certain
cases, the combination of two or more phases of the property, which
are expected to be owned upon completion of the Exchange Offering
and the actual or potential benefits to be obtained by the
sub-metering of utilities in order to pass costs from the owner of
the property to individual tenants. There can be no assurance that
the value of the mortgage interests acquired will reflect their fair
market value.
o Offerees who acquire Units in the Exchange Offering will pay a
higher price per Unit than the consideration the Original Investors
paid for Units issued to them in connection with the formation of
the Trust and the Operating Partnership.
o The Operating Partnership is authorized to provide or acquire
Mortgage Loans, where the aggregate amount of all Mortgage Loans on
the property does not exceed an amount equal to 80% of the appraised
replacement cost new of the property.
o Offerees who accept the offering may not experience returns
comparable to or in excess of those experienced by Limited Partners
in the Exchange Partnerships.
o The current returns of each individual partnership comprising the
Exchange Partnerships may not be achieved by the Trust and the
Operating Partnership after completion of the offering and may be
higher or lower than the current returns of other partnerships which
may participate in the offering.
o Real estate investment risks exist such as the effect of economic
and other conditions on cash flows from real estate interests
acquired by the Trust and the Operating Partnership.
o Financing risks exist, including debt service obligations, the
ability of the Trust and the Operating Partnership to incur
additional debt, the need to refinance current indebtedness at
various maturities, and the effect of any increase in interest
rates.
o The Operating Partnership expects to acquire Subordinated Mortgage
interests which are not recorded because of restrictions in loan
documents executed in connection with First Mortgages issued to
other unrelated lenders. If a mortgage is not recorded, the security
interest of the Operating Partnership would not be perfected and the
respective debt would rank pari passu with all other unsecured
creditors of the borrower.
o The successful operation of the Trust and the Operating Partnership
is dependent on key management.
o There can be no assurance of the successful completion of the
Exchange Offering and the Trust's Cash Offering.
2
<PAGE>
o In exchange for his capital contribution of $50,000, each of the
Original Investors has received Units assigned an initial value of
$6,010,800 if all 2,500,000 Common Shares are sold in the Cash
Offering by November 30, 1999 and all 2,500,000 Units offered in the
Exchange Offering are sold by such date. In addition, each serves as
an officer of the Trust, the Operating Partnership and the Managing
Shareholder and will receive compensation for such services.
o No public market for the sale of Units is expected to ever develop,
and, although Common Shares (into which Units are exchangeable) may
eventually be listed on a national stock exchange, it is possible
that no public market for the Common Shares will ever develop or be
maintained.
o The Trust will be taxed as a corporation if it fails to qualify as a
REIT.
The Operating Partnership and its general partner, Baron Capital Trust
(the "Trust" or the "General Partner"), a Delaware business trust, constitute an
affiliated real estate company which has been organized to acquire equity
interests in residential apartment properties located in the United States and
to provide or acquire mortgage loans secured by such types of property. The
Trust, indirectly through the Operating Partnership, intends to acquire, own,
operate, manage and improve residential apartment property interests for
long-term ownership, and thereby to seek to maximize current and long-term
income and the value of its assets. See "SUMMARY OF THE TRUST AND OPERATING
PARTNERSHIP," "THE TRUST AND THE OPERATING PARTNERSHIP," and "INVESTMENT
OBJECTIVES AND POLICIES" below. The management of the Trust has been involved in
the residential property business for over 10 years.
The Operating Partnership will conduct all of the Trust's real estate
operations and hold all direct or indirect property interests acquired. The
Trust, as its sole General Partner, will control the activities of the Operating
Partnership. The Trust will also acquire a limited partnership interest in the
Operating Partnership with the net proceeds of the Trust's ongoing $25,000,000
best efforts cash offering (the "Cash Offering") of Common Shares of beneficial
interest ("Trust Common Shares" or "Common Shares"). As of the date of this
Prospectus, the Trust has sold _____ Common Shares at $10.00 per share (gross
proceeds of $________) and has acquired _____ Units in the Operating
Partnership. The Trust intends to apply for listing on a national stock exchange
of the Common Shares being offered in the Cash Offering and the Trust Common
Shares into which Units issued in the Exchange Offering will be exchangeable.
For purposes of the Exchange Offering, each Operating Partnership Unit
being offered hereby has been arbitrarily assigned an initial value of $10 per
Unit, which corresponds to the offering price of each Trust Common Share being
offered in the Cash Offering. The value of each outstanding Unit and Common
Share will be substantially identical since Unitholders, including recipients of
Units in the Exchange Offering, will be entitled to exchange all or a portion of
such units at any time and from time to time for an equivalent number of Trust
Common Shares, so long as the exchange would not cause the exchanging party to
own (taking into account certain ownership attribution rules) in excess of 5% of
the then outstanding Shares in the Trust, subject to the Trust's right to cash
out any holder of Units who requests an exchange and subject to certain other
exceptions.
The Operating Partnership will not complete the Exchange Offering in
respect of any particular Exchange Partnership unless limited partners holding
at least 90% of the limited partnership interests in the Exchange Partnership
affirmatively elect to accept the offering. In addition, the Operating
Partnership will not complete any transaction in the offering whatsoever unless
a sufficient number of Offerees accept the offering such that the offering
involves the issuance of Operating Partnership Units with an initial assigned
value of at least $6,000,000.
THIS PROSPECTUS AND THE ACCOMPANYING EXHIBITS SHOULD BE READ IN THEIR
ENTIRETY BY EACH OFFEREE AND HIS ADVISORS BEFORE ACCEPTING THE EXCHANGE
OFFERING. ADDITIONAL COPIES OF THIS MATERIAL MAY BE OBTAINED BY CONTACTING THE
OPERATING PARTNERSHIP AT THE ADDRESS SET FORTH BELOW.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
The address and telephone and fax numbers of the principal office of
the Trust and the Operating Partnership are:
Baron Capital Trust/ Baron Capital Properties, L.P.
7826 Cooper Road
Cincinnati, Ohio 45242
(513) 984-5001 (Telephone)
(513) 984-4550 (Fax)
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TABLE OF CONTENTS
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Page
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SUMMARY OF THE TRUST AND THE OPERATING PARTNERSHIP.....................................................10
Summary of the Trust and the Operating Partnership..................................................10
Background and Reasons for the Exchange Offering....................................................17
Summary of Use of Proceeds of Cash Offering.........................................................18
Summary of Fees and Reimbursable Expenses...........................................................19
DESCRIPTION OF EXCHANGE PARTNERSHIPS...................................................................21
Baron Strategic Investment Fund, Ltd................................................................21
Baron Strategic Investment Fund II, Ltd.............................................................21
Baron Strategic Investment Fund IV, Ltd.............................................................21
Baron Strategic Investment Fund V, Ltd..............................................................22
Baron Strategic Investment Fund VI, Ltd.............................................................22
Baron Strategic Investment Fund VIII, Ltd...........................................................22
Baron Strategic Investment Fund IX, Ltd.............................................................22
Baron Strategic Investment Fund X, Ltd..............................................................23
Baron Strategic Vulture Fund I, Ltd.................................................................23
Brevard Mortgage Program, Ltd.......................................................................23
Central Florida Income Appreciation Fund, Ltd.......................................................23
Florida Capital Income Fund, Ltd....................................................................23
Florida Capital Income Fund II, Ltd.................................................................24
Florida Capital Income Fund III, Ltd................................................................24
Florida Capital Income Fund IV, Ltd.................................................................24
Florida Income Advantage Fund I, Ltd................................................................24
Florida Income Appreciation Fund I, Ltd.............................................................24
Florida Income Growth Fund V, Ltd...................................................................25
Florida Opportunity Income Partners, Ltd............................................................25
GSU Stadium Student Apartments, Ltd.................................................................25
Lamplight Court of Bellefontaine Apartments, Ltd....................................................25
Midwest Income Growth Fund VI, Ltd..................................................................25
Realty Opportunity Income Fund VIII, Ltd............................................................26
VALUATION TABLE........................................................................................26
SUMMARY OF RISK FACTORS................................................................................28
TAX STATUS.............................................................................................32
The Operating Partnership...........................................................................32
Exchange of Exchange Partnership Units for Operating Partnership Units..............................33
The Trust...........................................................................................33
COMPENSATION OF MANAGING PERSONS AND AFFILIATES........................................................34
CONFLICTS OF INTEREST..................................................................................41
FIDUCIARY RESPONSIBILITY...............................................................................43
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS......................................................44
RISK FACTORS...........................................................................................44
Arbitrary Offering Price............................................................................45
No Separate Representation of Offerees..............................................................45
Terms of Exchange Offering May Be More Favorable to Original Investors than Offerees................45
Acceptance of Exchange Offering Involves Exchange of Current Investment with Expected
Limited Duration for Investment in Operating Partnership with Unlimited Duration....................45
Offerees May Not Have Information Available to Evaluate Property Interests to be
Acquired by the Operating Partnership, Prior to Decision Whether to Accept the Exchange Offering....46
Possible Adverse Influence of Original Investors....................................................46
Conflicts of Interest...............................................................................47
No Assurance of Successful Performance of Partnership Interests to be Acquired in
Exchange Offering...................................................................................48
Potential Loss of Future Appreciation on Exchange Properties........................................48
Investors in Successful Exchange Partnerships Could Lose Advantage by
Combining with Less Successful Exchange Partnerships................................................48
Valuation of Mortgage Interests to be Acquired May Exceed Actual Value..............................49
Several Factors Could Have Possible Adverse Effects on Operation of Properties......................49
No Assurance of Avoiding Operating Losses...........................................................50
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Adverse Effects of Under-Performing Mortgage Investments............................................50
Subordinated Mortgage Loans to Be Acquired May Not Be Recorded......................................51
Several Factors Could Have Possible Adverse Effects on Distributions to Shareholders
and Unitholders.....................................................................................51
Distributions to Shareholders and Unitholders Adversely Affected by Poor Operating Results of
Operating Partnership...............................................................................52
Competition.........................................................................................52
Lack of Liquidity of Real Estate....................................................................52
Cash Distributions Could be Reduced by Cost of Capital Improvements.................................53
Real Estate Investments May Fail to Perform to Expected Level.......................................53
Debt Service Obligations Could Adversely Affect Cash Flow...........................................53
Possible Adverse Effects as a Result of Loss of Key Management......................................54
Uncertainty of Successful Completion of Cash Offering and Exchange Offering.........................54
Limited Marketability of Units and Common Shares....................................................55
Possible Adverse Effect on Market Price as a Result of Availability of Units and Common Shares for
Future Sale.........................................................................................55
Possible Adverse Effect of Market Interest Rates on Common Share Prices.............................56
Potential Adverse Tax Consequences..................................................................56
Taxation of the Trust as a Corporation if It Fails to Qualify as a REIT...........................56
REIT Requirements With Respect to Shareholder Distributions.......................................57
Potential Legislation Regarding REIT's..............................................................57
Potential Legislation Regarding REIT's............................................................57
Taxation of the Operating Partnership as a Corporation if It Fails to be Classified as a
Partnership.......................................................................................57
Deferral of Gain from Exchange Offering Subject to Certain Exceptions.............................57
Termination of Exchange Partnerships..............................................................58
Investors Liable for State and Local Taxes........................................................58
Non-participating Limited Partners in Participating Exchange Partnerships
Will Have Significant Influence over Certain Actions of the Partnerships............................58
Possible Dilution as a Result of Issuance of Additional Securities..................................59
Limits on Ownership and Transfers of Common Shares and Units Which May Delay or
Prevent a Takeover Offering a Premium Price.........................................................60
Lack of Liquidity of Retained Interest in an Exchange Partnership Following the Exchange Offering...60
No Operating History................................................................................60
Limited Participation Rights of Shareholders and Unitholders in Management..........................61
Regulatory Non-compliance Could Result in Fines or Judgments........................................61
Fair Housing Amendments Act of 1988...............................................................61
Americans with Disabilities Act...................................................................61
Compliance with Environmental Laws................................................................61
Shareholders and Unitholders Could be Adversely Affected by Limited Liability and Indemnification
of the Managing Persons.............................................................................62
No Assurance of Shareholder Limited Liability for Activities of Delaware Business Trust.............62
No Assurance of Profitable Sale of Trust and Operating Partnership Property.........................62
Property Losses May Not be Insurable................................................................62
Possible Lack of Independent Assessment of Prior Operating Results of Acquired Property Interests...63
Initial Value Assigned to Operating Partnership Units Offered in Exchange for
Exchange Partnership Units Exceeds Current Book Value of Exchange Partnerships......................63
Changes in Laws Could Increase Operating Expenses...................................................63
No Rights of Dissent................................................................................63
Possible Lack of Diversification in Property Investments............................................63
Other Participants May Fail to Fulfill Obligations..................................................63
Extended and Uncertain Investing Period Could Adversely Affect Returns..............................64
Possible "Year 2000" Problems.......................................................................64
THE EXCHANGE OFFERING..................................................................................64
Accounting Treatment................................................................................67
Background of the Exchange Offering.................................................................67
Effects of the Formation Transactions, Cash Offering and Exchange Offering..........................69
Exchange Property Appraisals........................................................................70
CAI and CACSI.....................................................................................71
RAS...............................................................................................72
S&W...............................................................................................72
Voyt..............................................................................................73
Historical Cash Distributions and Corporate General Partner Compensation............................73
Terms of the Exchange Offering......................................................................73
</TABLE>
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Expiration Date, Extensions, and Amendments.........................................................75
Acceptance for Exchange and Issuance of Operating Partnership Units.................................75
Procedures for Tendering Exchange Partnership Units.................................................76
Valid Tender......................................................................................76
Certificates......................................................................................76
Delivery..........................................................................................76
Determination of Validity.........................................................................76
Conditions to the Exchange Offering.................................................................77
Exchange Agent......................................................................................77
Fees and Expenses of the Exchange Offering..........................................................77
PRIOR PERFORMANCE OF AFFILIATES OF MANAGING SHAREHOLDER................................................78
ANAGEMENT..............................................................................................87
Managing Shareholder................................................................................88
Trust Management Agreement........................................................................89
Officers of the Trust and the Operating Partnership.................................................90
The Board of the Trust, Committees and Trustees.....................................................91
The Board of the Trust............................................................................91
Independent Trustees..............................................................................92
Corporate Trustee.................................................................................93
THE TRUST AND THE OPERATING PARTNERSHIP................................................................93
The Operating Partnership...........................................................................93
Formation Transactions..............................................................................96
Ownership of the Trust and the Operating Partnership................................................97
Regulations........................................................................................100
General..........................................................................................100
Fair Housing Amendments of 1988..................................................................100
Americans with Disabilities Act ("ADA")..........................................................100
Environmental Regulations........................................................................101
Rent Control Legislation.........................................................................101
Employees..........................................................................................101
INVESTMENT OBJECTIVES AND POLICIES....................................................................101
General............................................................................................101
Trust Policies with Respect to Certain Activities..................................................103
Investment Policies..............................................................................103
Disposition Policies.............................................................................104
Financing Policies...............................................................................104
Conflict of Interest Policies....................................................................105
INITIAL REAL ESTATE INVESTMENTS.......................................................................106
The Acquired Properties............................................................................106
Heatherwood Apartments...........................................................................106
Crystal Court Apartments.........................................................................106
Riverwalk Apartments.............................................................................107
Alexandria Property..............................................................................108
Acquisition of Limited Partnership Interests.....................................................108
Contract to Purchase Two Additional Properties...................................................108
The Exchange Properties............................................................................109
Equity Property Interests.............................................................................112
Property Information Debt Property Interests..........................................................115
Mortgage Information Equity Property Interests........................................................118
Mortgage Information Mortgage Properties..............................................................121
EXCHANGE MORTGAGE PARTNERSHIPS........................................................................122
Property Description...............................................................................146
Lease Agreements...................................................................................146
Competition........................................................................................146
Insurance..........................................................................................146
Property Management................................................................................146
MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION.............................................147
Plan of Operation..................................................................................147
Year 2000..........................................................................................148
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FEDERAL INCOME TAX CONSIDERATIONS.....................................................................149
CLASSIFICATION AS A PARTNERSHIP.......................................................................149
EXCHANGE OF EXCHANGE PARTNERSHIP UNITS FOR OPERATING PARTNERSHIP UNITS................................150
RELIEF FROM LIABILITIES/DEEMED CASH DISTRIBUTION......................................................151
DISGUISED SALE REGULATIONS............................................................................152
Effect of Assumption of Liabilities Under the Disguised Sale Regulations...........................152
Effect of Cash Distributions Under the Disguised Sale Regulations..................................153
Effect of Right to Convert to a Share of the Trust.................................................153
Effect of Disguised Sale Characterization..........................................................153
SECTION 465(E) RECAPTURE..............................................................................154
TRANSFER TO AN INVESTMENT COMPANY.....................................................................154
WITHHOLDING...........................................................................................155
TAX TREATMENT OF UNITHOLDERS WHO HOLD OPERATING PARTNERSHIP UNITS AFTER THE EXCHANGE..................155
INCOME AND DEDUCTIONS IN GENERAL......................................................................155
TREATMENT OF PARTNERSHIP DISTRIBUTIONS................................................................156
INITIAL BASIS OF OPERATING PARTNERSHIP UNITS..........................................................156
ALLOCATIONS OF PARTNERSHIP INCOME, GAIN, LOSS AND DEDUCTIONS..........................................156
EFFECT OF THE EXCHANGE ON DEPRECIATION................................................................157
DISSOLUTION OF PARTNERSHIP............................................................................157
LIMITATIONS ON DEDUCTIBILITY OF LOSSES; TREATMENT OF PASSIVE ACTIVITIES
AND PORTFOLIO INCOME..................................................................................157
SECTION 754 ELECTION..................................................................................158
DISPOSITION OF OPERATING PARTNERSHIP UNITS BY UNITHOLDERS.............................................158
TAX TREATMENT OF CONVERSION RIGHT.....................................................................158
CONSTRUCTIVE TERMINATION..............................................................................159
TAX-EXEMPT ORGANIZATIONS AND CERTAIN OTHER INVESTORS..................................................159
PARTNERSHIP INCOME TAX INFORMATION RETURNS AND PARTNERSHIP AUDIT PROCEDURES...........................160
REGISTRATION AS A TAX SHELTER.........................................................................160
ACTIVITIES ENGAGED IN FOR PROFIT......................................................................161
ORGANIZATIONAL AND SYNDICATION FEES...................................................................161
ANTI-ABUSE REGULATIONS................................................................................161
ALTERNATIVE MINIMUM TAX ON ITEMS OF TAX PREFERENCE....................................................162
STATE AND LOCAL TAXES.................................................................................162
INCOME TAX CONSIDERATIONS WITH RESPECT TO THE TRUST...................................................162
TAXATION OF THE TRUST.................................................................................163
Stock Ownership Tests..............................................................................163
Asset Tests......................................................................................164
Gross Income Tests...............................................................................164
The 75% Test..................................................................................164
The 95% Test..................................................................................165
Annual Distribution Requirements.................................................................165
Failure to Qualify...............................................................................166
TAX ASPECTS OF THE TRUST'S INVESTMENT IN THE OPERATING PARTNERSHIP....................................166
Entity Classification..............................................................................166
Tax Allocations with Respect to Trust Properties...................................................166
Sale of Trust Properties...........................................................................167
TAXATION OF SHAREHOLDERS..............................................................................167
Taxation of Taxable Domestic Shareholders..........................................................167
Backup Withholding.................................................................................168
Taxation of Tax-Exempt Shareholders................................................................168
Taxation of Foreign Shareholders...................................................................168
OTHER TAX CONSIDERATIONS..............................................................................169
Possible Legislative or Other Actions Affecting Tax Consequences...................................169
State and Local Taxes..............................................................................169
SUMMARY OF THE OPERATING PARTNERSHIP AGREEMENT........................................................169
SUMMARY OF DECLARATION OF TRUST.......................................................................169
Term...............................................................................................169
Control of Operations..............................................................................170
Liability and Indemnification......................................................................174
</TABLE>
7
<PAGE>
<TABLE>
<S> <C>
Distributions......................................................................................175
Quarterly and Annual Reports.......................................................................175
Accounting.........................................................................................175
Books and Records; Tax Information.................................................................175
Governing Law......................................................................................175
Amendments and Voting Rights.......................................................................175
Dissolution of Trust...............................................................................176
Removal and Resignation of the Managing Shareholder................................................176
Transferability of Shareholders' Interests.........................................................176
Independent Activities.............................................................................176
Power of Attorney..................................................................................177
Meetings and Voting Rights.........................................................................177
Additional Offerings of Shares.....................................................................177
Temporary Investments..............................................................................178
REPORTS TO UNITHOLDERS AND SHAREHOLDERS...............................................................178
Operating Partnership Unitholders..................................................................178
Trust Shareholders.................................................................................178
COMPARISON OF RIGHTS OF HOLDERS OF EXCHANGE PARTNERSHIP UNITS,
OPERATING PARTNERSHIP UNITS AND TRUST COMMON SHARES...................................................179
Issuance of Additional Securities..................................................................180
Term of Existence..................................................................................182
Management Control.................................................................................182
Economic Interest..................................................................................183
Net Losses....................................................................................184
Property Investments and Anticipated Holding Period................................................185
Restrictions on Transfers of Securities............................................................186
Tax Status.........................................................................................186
Pre-emptive Rights.................................................................................187
Managing Entity Removal and Resignation Rights.....................................................187
Reporting Rights...................................................................................188
Assessments........................................................................................190
Amendments of Governing Agreements.................................................................190
Liability and Indemnification......................................................................191
Compensation of Managing Persons and Affiliates....................................................192
Meetings and Voting Rights.........................................................................193
Accounting Method and Period.......................................................................194
CAPITAL STOCK OF THE TRUST............................................................................194
General............................................................................................194
Transfer Agent.....................................................................................195
Restrictions on Ownership and Transfer.............................................................195
CAPITALIZATION........................................................................................196
TERMS OF THE CASH OFFERING............................................................................197
AMENDMENTS TO PARTNERSHIP AGREEMENTS OF PARTICIPATING EXCHANGE PARTNERSHIPS
WITH NON-PARTICIPATING LIMITED PARTNERS...............................................................199
OTHER INFORMATION.....................................................................................205
General............................................................................................205
Authorized Sales Material..........................................................................206
Financial Statements...............................................................................206
LITIGATION............................................................................................207
EXPERTS...............................................................................................207
LEGAL MATTERS.........................................................................................207
EXPENSES OF THE EXCHANGE OFFERING.....................................................................208
ADDITIONAL INFORMATION................................................................................208
GLOSSARY..............................................................................................209
TABLES
Organizational Table..........................................................................12
Use of Proceeds of Trust's Cash Offering......................................................18
Fees and Reimbursable Expenses Table..........................................................19
</TABLE>
8
<PAGE>
<TABLE>
<S> <C>
Valuation Table...............................................................................27
Compensation of Managing Shareholder and Affiliates...........................................35
Property Information - Equity Property Interests.............................................112
Property Information - Debt Property Interests...............................................115
Mortgage Information - Equity Property Interests.............................................118
Mortgage Information - Mortgage Property Interests...........................................122
EXHIBITS
A........Prior Performance of Affiliates of Managing Shareholder.............................215
B Summary of Exchange Property and Exchange Partnership Information...................218
C........Financial Statements of the Trust, the Operating Partnership
and the Managing Shareholder........................................................220
D........Financial Statements of the Exchange Properties/Exchange Partnerships...............222
E........Combined Statement of Estimated Taxable Operating Results and
Funds Available From Operations.....................................................224
F........Exchange Property Appraisal Values..................................................225
</TABLE>
EVEN THOUGH, AS DESCRIBED HEREIN, THE TRUST BELIEVES THAT IT WILL BE TREATED AS
A REAL ESTATE INVESTMENT TRUST (A "REIT") FOR FEDERAL INCOME TAX PURPOSES, THE
TRUST HAS NOT OBTAINED, AND DOES NOT INTEND TO REQUEST, A RULING FROM THE
INTERNAL REVENUE SERVICE ("IRS") THAT IT WILL BE TREATED AS A REIT. ALTHOUGH THE
TRUST DOES NOT INTEND TO REQUEST SUCH A RULING FROM THE IRS, THE TRUST HAS
OBTAINED THE OPINION OF ITS SPECIAL TAX COUNSEL THAT, BASED ON THE ORGANIZATION
AND PROPOSED OPERATION OF THE TRUST AND THE OPERATING PARTNERSHIP AND BASED ON
CERTAIN OTHER ASSUMPTIONS AND REPRESENTATIONS, IT WILL QUALIFY AS A REIT. THE
OPINION IS NOT BINDING ON THE IRS OR ANY COURT.
EACH OFFEREE SHOULD CONSULT HIS OWN COUNSEL, ACCOUNTANT AND OTHER ADVISERS AS TO
LEGAL, TAX, ECONOMIC AND RELATED MATTERS CONCERNING THE INVESTMENT DESCRIBED
HEREIN AND ITS SUITABILITY FOR HIM.
THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER OR SOLICITATION TO ANYONE IN ANY
STATE OR IN ANY JURISDICTION IN WHICH SUCH AN OFFER OR SOLICITATION IS NOT
AUTHORIZED.
NO BROKER, SALESPERSON OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS IN RESPECT OF THIS EXCHANGE OFFERING
OR THE CASH OFFERING, OTHER THAN THOSE CONTAINED HEREIN (OR INFORMATION
REQUESTED BY AN OFFEREE AND FURNISHED TO SUCH OFFEREE IN WRITTEN FORM, SIGNED ON
BEHALF OF THE TRUST OR THE OPERATING PARTNERSHIP) AND, IF GIVEN OR MADE, SUCH
INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED
BY THE TRUST, THE OPERATING PARTNERSHIP OR ANY OTHER PERSON. ANY OTHER
INFORMATION OR REPRESENTATION MUST NOT BE RELIED UPON. EXCEPT AS OTHERWISE
INDICATED, THIS PROSPECTUS SPEAKS AS OF THE DATE ON THE COVER PAGE. NEITHER THE
DELIVERY OF THIS PROSPECTUS NOR ANY CONSUMMATION OF AN EXCHANGE OFFERING MADE
HEREUNDER SHALL CREATE ANY INFERENCE THAT THERE HAS BEEN NO CHANGE IN THE
AFFAIRS OF THE TRUST OR THE OPERATING PARTNERSHIP SINCE THE RESPECTIVE DATES AT
WHICH THE INFORMATION IS GIVEN HEREIN OR THE DATE HEREOF.
CERTAIN DEFINED TERMS MAY BE FOUND AT "GLOSSARY."
INVESTMENT IN SMALL BUSINESSES INVOLVES A HIGH DEGREE OF RISK, AND OFFEREES
SHOULD NOT ACCEPT THIS EXCHANGE OFFERING AND THEREBY INVEST IN OPERATING
PARTNERSHIP UNITS (OR TRUST COMMON SHARES, IF THE HOLDER OF SUCH UNITS EXCHANGES
THEM INTO COMMON SHARES) UNLESS THEY CAN AFFORD TO LOSE THEIR ENTIRE INVESTMENT.
SEE "RISK FACTORS" FOR THE RISK FACTORS THAT MANAGEMENT BELIEVES PRESENT THE
MOST SUBSTANTIAL RISKS TO AN OFFEREE IN THIS EXCHANGE OFFERING AND AN INVESTMENT
IN OPERATING PARTNERSHIP UNITS AND TRUST COMMON SHARES.
9
<PAGE>
IN MAKING AN INVESTMENT DECISION, OFFEREES MUST RELY ON THEIR OWN EXAMINATION OF
THE ISSUER AND THE TERMS OF THE EXCHANGE OFFERING, INCLUDING THE MERITS AND
RISKS INVOLVED. THESE SECURITIES HAVE NOT BEEN RECOMMENDED OR APPROVED BY ANY
FEDERAL OR STATE SECURITIES COMMISSION OR REGULATORY AUTHORITY. FURTHERMORE, THE
FOREGOING AUTHORITIES HAVE NOT CONFIRMED THE ACCURACY OR DETERMINED THE ADEQUACY
OF THIS DOCUMENT. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
SUMMARY OF THE TRUST AND THE OPERATING PARTNERSHIP
The following summary of this Prospectus is for the convenience of
Offerees and does not fully reflect all of the terms of the Exchange Offering.
This Prospectus describes in detail the numerous aspects of the transaction.
This Prospectus and accompanying Exhibits should be read in their entirety by
each Offeree and his advisors before accepting the Exchange Offering. The
following summary is qualified in its entirety by reference to the full text of
this Prospectus and the documents referred to herein. Unless the context
otherwise requires, the term "Trust" as used in this Prospectus shall refer to
Baron Capital Trust, the General Partner of the Operating Partnership and issuer
of the Common Shares being offered in the Cash Offering, and its affiliate,
Baron Capital Properties, L.P., the Operating Partnership, which is the issuer
of Units being offered in this Exchange Offering and will conduct the real
estate operations of the Trust and hold its property interests.
THIS PROSPECTUS AND THE RELATED LETTER OF TRANSMITTAL AND ELECTION FORM
CONTAIN IMPORTANT INFORMATION. HOLDERS OF EXCHANGE PARTNERSHIP UNITS ARE URGED
TO READ THIS PROSPECTUS AND THE RELATED LETTER OF TRANSMITTAL AND ELECTION FORM
CAREFULLY BEFORE DECIDING WHETHER TO TENDER THEIR EXCHANGE PARTNERSHIP UNITS
PURSUANT TO THE EXCHANGE OFFERING.
Offerees may tender their Exchange Partnership Units for exchange on or
prior to 5:00 p.m., New York City time, on the Expiration Date set forth in the
Election Form, unless the Exchange Offering is extended by the Operating
Partnership (in which case the term "Expiration Date" shall mean the latest date
and time to which the Exchange Offering is extended). The Operating Partnership
will not complete the Exchange Offering in respect of any particular Exchange
Partnership unless limited partners holding at least 90% of the limited
partnership interests in the Exchange Partnership affirmatively elect to accept
the offering. In addition, the Operating Partnership will not complete any
transaction in the offering whatsoever unless a sufficient number of Offerees
accept the offering such that the offering involves the issuance of Operating
Partnership Units with an initial assigned value of at least $6,000,000.
An Offeree must exchange all of his Exchange Partnership Units in order to
participate in the Exchange Offering. Partial exchanges will not be accepted.
Any Offeree who is a limited partner of an Exchange Partnership and does not
desire to participate in the Exchange Offering will be entitled to retain his
limited partnership interest in his respective Exchange Partnership on terms
substantially the same as those of his original investment. Offerees who elect
not to accept the offering will not have dissenters' or appraisal rights.
Neither the Operating Partnership nor the Trust will receive any cash
proceeds from the issuance of the Operating Partnership Units offered hereby. No
dealer-manager is being used in connection with this Exchange Offering. See "-
Use of Proceeds" and "THE EXCHANGE OFFERING."
Summary of the Trust and the Operating Partnership
This Prospectus constitutes the prospectus for the Exchange Offering being
conducted by the Operating Partnership, under which it is offering to issue
registered Units in exchange for limited partnership interests owned by
individual limited partners in limited partnerships which own direct or indirect
interests in residential apartment properties. Holders of Operating Partnership
Units, including recipients of Units in the Exchange Offering, may elect at any
time and from time to time to exchange all or a portion of their Units into an
equivalent number of Common Shares in the Trust so long as the exchange would
not cause the exchanging party to own (taking into account certain ownership
attribution rules) in excess of 5% of the then outstanding Shares in the Trust,
subject to the Trust's right to cash out any holder of Units who requests an
exchange and subject to certain other exceptions. See "THE EXCHANGE OFFERING."
This Prospectus and the accompanying Transmittal Letter and Election Form
are first being sent to Offerees in connection with the Exchange Offering on or
about the date indicated on the Election Form. Offerees who elect to accept the
Exchange Offering are required to indicate their acceptance of the offering in
the space provided on the Election Form and sign, date and return it,
10
<PAGE>
together with the certificates representing their Exchange Partnership Units in
a particular Exchange Partnership, to American Stock Transfer & Trust Company
(the "Exchange Agent") by the Expiration Date. Assuming the satisfaction or
waiver of the closing conditions of the Exchange Offering, as soon as
practicable after the Expiration Date, the Exchange Agent will send certificates
representing Operating Partnership Units to each Offeree who accepts the
Exchange Offering and delivers to the Exchange Agent a completed, dated and
signed copy of the Election Form and the certificate representing their Exchange
Partnership Units. See "THE EXCHANGE OFFERING - Exchange Offering Procedures."
The Trust and the Operating Partnership constitute an affiliated real
estate company which has been organized to acquire equity interests in
residential apartment properties located in the United States and/or to provide
or acquire mortgage loans secured by such types of property. The Trust,
indirectly through the Operating Partnership, intends to acquire, own, operate,
manage and improve residential apartment property interests for long-term
ownership, and thereby to seek to maximize current and long-term income and the
value of its assets. The management of the Trust and the Operating Partnership
has been involved in the residential property business for over 10 years. See
"MANAGEMENT," "THE TRUST AND THE OPERATING PARTNERSHIP" and "INVESTMENT
OBJECTIVES AND POLICIES."
The Trust and the Operating Partnership intend to make regular quarterly
pro rata distributions to their Shareholders and Unitholders, respectively, of
net income generated from investments in property interests. The initial
distribution by the Operating Partnership was made in the first quarter of 1999.
The Trust intends to operate as a REIT for federal income tax purposes,
provided, however, that if its Managing Shareholder (wholly owned and
controlled, along with the Corporate General Partners of the Exchange
Partnerships, by Gregory K. McGrath, a founder of the Trust and the Operating
Partnership) determines, with the affirmative vote of a Majority of Shareholders
entitled to vote on such matter approving the Managing Shareholder's
determination, that it is no longer in the best interests of the Trust to
continue to qualify as a REIT, the Managing Shareholder may revoke or otherwise
terminate the Trust's REIT election pursuant to applicable federal tax law. See
"TAX STATUS" and "FEDERAL INCOME TAX CONSIDERATIONS" below.
The Operating Partnership will conduct all of the Trust's real estate
operations and hold all direct or indirect property interests acquired. The
Operating Partnership will own record title to properties or limited partnership
interests or other equity interests in limited partnerships and other entities
which own direct or indirect interests in properties. The Trust is the sole
General Partner of the Operating Partnership, and, in such capacity, the Trust
will control the activities of the Operating Partnership. See "THE TRUST AND THE
OPERATING PARTNERSHIP." The operations of the Trust will be carried on through
the Operating Partnership (and any other subsidiaries the Trust may have in the
future), among other reasons, in order to (i) enhance the ability of the Trust
to qualify and maintain its status as a REIT for federal income tax purposes,
and (ii) enable the Trust to indirectly acquire interests in residential
apartment properties in exchange transactions, such as this Exchange Offering,
that involve the exchange of Operating Partnership Units for limited partnership
interests in limited partnerships which directly or indirectly own such property
interests, and thereby provide the opportunity for deferral until a later date
of any tax liabilities that sellers of partnership interests otherwise would
incur if they received cash or Trust Common Shares in connection therewith. See
"FEDERAL INCOME TAX CONSIDERATIONS." The Operating Partnership will be
responsible for, and pay when due, its share of all administrative and operating
expenses of property interests it acquires. See "THE TRUST AND THE OPERATING
PARTNERSHIP."
The Trust's Managing Shareholder (wholly owned and controlled, along with
the Corporate General Partner of each Exchange Partnership, by Mr. McGrath) is
Baron Advisors, Inc. ("Baron Advisors"), a Delaware corporation which will
manage the day-to-day operations of the Trust and the Operating Partnership. The
Trust and the Managing Shareholder are affiliates of each other, and each of
them is an Affiliate of the Operating Partnership. The Board of the Trust, a
majority of whose members are comprised of Independent Trustees, will have
general supervisory authority over the activities of the Trust and the Operating
Partnership and prior approval authority in respect of certain actions of the
Trust and Operating Partnership specified in the Declaration of Trust for the
Trust. Investment decisions for the Trust and the Operating Partnership will be
made by (i) Gregory K. McGrath (a founder of the Trust and the Operating
Partnership, the Chief Executive Officer of the Trust, the Operating Partnership
and the Managing Shareholder, and the sole shareholder and sole director of the
Managing Shareholder) and (ii) Robert S. Geiger (a founder of the Trust and the
Operating Partnership and the Chief Operating Officer of the Trust, the
Operating Partnership and the Managing Shareholder) (together, the "Original
Investors"), and (iii) James H. Bownas and Peter M. Dickson, the initial
Independent Trustees of the Trust. The Original Investors and affiliates have
significant influence over the operation of the Trust, the Operating Partnership
and the Exchange Partnerships, and the Exchange Offering involves transactions
among them which involve conflicts of interest which may result in decisions
that do not fully represent the interests of all Shareholders of the Trust,
Unitholders in the Operating Partnership and limited partners in the Exchange
Partnerships. See "CONFLICTS OF INTEREST," "MANAGEMENT" and "SUMMARY OF
DECLARATION OF TRUST - Control of Operations."
All of the Units being offered by the Operating Partnership pursuant to
this Prospectus are being offered in connection with the Exchange Offering. In
the Exchange Offering, the Operating Partnership is offering to issue Units to
individual limited partners in
11
<PAGE>
the Exchange Partnerships, which directly or indirectly own interests in
residential apartment properties or in Mortgages on such properties, in exchange
for their limited partnership interests.
The number of Operating Partnership Units being offered in exchange for
the limited partnership interests owned by Offerees will be based on appraisals
of the respective real property prepared by qualified and licensed independent
appraisal firms for each underlying residential apartment property involved in
the Exchange Offering and other considerations described herein. For purposes of
the Exchange Offering, each Unit has been arbitrarily assigned an initial value
of $10.00, which corresponds to the offering price of each Trust Common Share
being offered in the Cash Offering. The value of each Unit and Common Share
outstanding will be substantially identical since Unitholders, including
recipients of Units in the Exchange Offering, will be entitled to exchange all
or a portion of their Units at any time and from time to time for an equivalent
number of Trust Common Shares, so long as the exchange would not cause the
exchanging party to own (taking into account certain ownership attribution
rules) in excess of 5% of the then outstanding Shares in the Trust, subject to
the Trust's right to cash out any holder of Units who requests an exchange and
subject to certain other exceptions. To facilitate such exchanges of Units into
Common Shares, 2,500,000 Common Shares (in addition to the 2,500,000 Common
Shares being offered by the Trust in the Cash Offering) have been registered
with the Commission.
In the Exchange Offering, each limited partner in an Exchange Partnership
will be given the option to acquire the number of Units per $1,000 of original
investment in the partnership listed on the table set forth on page 32 of this
Prospectus (and on the inside cover of the Prospectus Supplement accompanying
this Prospectus) in exchange for all Exchange Partnership Units held by the
limited partner.
The net cash proceeds from the sale of Common Shares in the Cash Offering
(approximately $_____ gross proceeds raised as of the date of this Prospectus)
and the net cash proceeds of any subsequent issuance of Common Shares will be
contributed by the Trust to the Operating Partnership in exchange for an
equivalent number of Units in the Operating Partnership. The Trust and the
Operating Partnership will use the net cash proceeds of the Cash Offering and
unissued Units and Shares, together with available cash flow from operations
and/or other available financing sources (i) to acquire interests in residential
apartment properties or equity interests in partnerships or entities
substantially all of whose assets consist of residential apartment property
interests, (ii) for capital improvements which may be required on properties in
which the Trust and the Operating Partnership acquire an interest and (iii) for
working capital purposes. The Trust intends to apply for listing on a national
stock exchange of the Trust Common Shares being offered in the Cash Offering and
the Trust Common Shares into which Operating Partnership Units issued in the
Exchange Offering will be exchangeable.
The first organizational chart set forth below indicates the relationship
between Gregory K. McGrath, one of the founders of the Trust and the Operating
Partnership and each of the Exchange Partnerships. Affiliates of Mr. McGrath are
the corporate general partners of each of the Exchange Partnerships. The second
organizational chart set forth below indicates the relationship among the Trust,
the Operating Partnership, the Managing Shareholder (wholly owned and
controlled, along with the Corporate General Partner of each Exchange
Partnership, by Mr. McGrath), the Exchange Partnerships, and other real estate
limited partnerships managed by corporate general partners affiliated with the
Managing Shareholder which will not participate in the Exchange Offering.
Although this Prospectus has been prepared in connection with the offering
of Operating Partnership Units in the Exchange Offering, this Prospectus also
describes the material terms of the Cash Offering and an investment in Trust
Common Shares since Units are exchangeable into an identical number of Common
Shares at any time (subject to certain restrictions); and the economic interests
represented by Units and Common Shares are substantially identical.
PRE-OFFERING ORGANIZATIONAL CHART
Relationship between
Gregory K. McGrath and Sample Exchange Partnership
-------------------------------------------
Gregory K. McGrath
(co-founded Trust and Operating
Partnership and controls all 23
Exchange Partnerships and all 28
affiliated real estate limited
partnerships not involved
in Exchange Offering)
-------------------------------------------
12
<PAGE>
-------------------------------------------
Sample Exchange Partnership
(managed by corporate general
partner of which Mr. McGrath is the sole
stockholder, director and executive
officer)
-------------------------------------------
POST-OFFERING ORGANIZATIONAL CHART
CASH OFFERING
--------------------------
Public Shareholders
[GRAPHIC]
--------------------------
Common
Shares $
-------------------------- -------------------------
Managing Shareholder
Baron Capital Trust (an affiliate of Mr.
(Trust) McGrath,
who co-founded Trust
(managed by Board of and Operating
2 Independent Trustees Partnership and
and controls all Exchange
Managing Shareholder) Partnerships and all
Affiliated Real Estate
Limited Partnerships
not involved in
Exchange Offering)
-------------------------- -------------------------
Operating
Partnership
Units
EXCHANGE OFFERING (OP Units) $
<TABLE>
<S> <C> <C> <C> <C>
- ------------------------------------ -------------------------- ----------------------------------
Baron Capital
23 Exchange Partnerships* Properties, L.P. Original Investors
Exchange (Operating Partnership)
(managed by affiliates of Managing Partnership Capital (Gregory K. McGrath
Shareholder) Units (GP is Trust; LPs are Contribution and Robert S. Geiger, who each
________ Original Investors, _________ beneficially own
OP Units to be offered to Trust and Exchange 9.5% of the Trust by virtue
individual limited partners in ________ Limited Partners who _________ of ownership of OP Units)
exchange for their Exchange elect to accept Exchange
Partnership Units OP Units Offering) OP Units
- ------------------------------------ -------------------------- ----------------------------------
</TABLE>
[GRAPHIC]
--------------------------
28 Affiliated
Real Estate Limited
Partnerships Not
Involved in
Exchange Offering
(managed by
affiliates of
Managing
Shareholder)
--------------------------
13
<PAGE>
- ----------
* Each Exchange Partnership is a real estate investment program which
directly or indirectly owns all or a portion of either (i) the fee simple
title to, and/or a subordinated mortgage interest in, residential
apartment property or (ii) the limited partnership interest or beneficial
interest in a limited partnership or other entity which owns such an
equity or mortgage interest. See below at "THE EXCHANGE OFFERING" and "THE
TRUST AND THE OPERATING PARTNERSHIP - Ownership of the Trust and the
Operating Partnership."
The Trust and the Operating Partnership intend to investigate making an
additional public or private offering of Trust Common Shares and/or Operating
Partnership Units within the 12-month period following the commencement of the
Exchange Offering if the Managing Shareholder (wholly owned and controlled,
along with the Corporate General Partner of each Exchange Partnership, by Mr.
McGrath) determines that suitable property acquisition opportunities which
fulfill the Trust's investment criteria are available and such an offering would
fulfill its cost of funds requirements. The issuance by the Trust and the
Operating Partnership of additional Shares and Units subsequent to the
completion of the Cash Offering and the Exchange Offering could have a dilutive
effect on Shareholders who acquire Common Shares in the Cash Offering and on
Unitholders who receive Units in the Exchange Offering.
The address and telephone and fax numbers for the Managing Shareholder are
as follows:
Baron Advisors, Inc.
7826 Cooper Road
Cincinnati, Ohio 45242
Phone: (513) 984-5001
Fax: (513) 984-4550
The term of the Trust will end on the earliest to occur of (a) December
31, 2098, (b) the determination of the holders of at least a majority of the
Shares then outstanding to dissolve the Trust; (c) the sale of all or
substantially all of the Trust's Property, (d) the withdrawal of the Cash
Offering by the Managing Shareholder (wholly owned and controlled, along with
the Corporate General Partner of each Exchange Partnership, by Mr. McGrath)
prior to the Termination Date of the Cash Offering, and (e) the occurrence of
any other event which, by law, would require the Trust to terminate. See
"SUMMARY OF DECLARATION OF TRUST Term." The Operating Partnership will terminate
on December 31, 2098 unless terminated earlier in connection with a merger or a
sale of all or substantially all of its assets, upon a vote of its partners or
upon the occurrence of various other events. See "THE TRUST AND THE OPERATING
PARTNERSHIP."
As described below in this Prospectus, the Managing Shareholder, certain
of its affiliates, the Independent Trustees, and others will receive substantial
commissions, compensation or expense reimbursements from the Trust and the
Operating Partnership in connection with the Cash Offering and the Exchange
Offering, the operation of the Trust and the Operating Partnership and the
acquisition, ownership, operation, improvement and disposition of property of
the Trust and the Operating Partnership. See "COMPENSATION OF THE MANAGING
SHAREHOLDER AND AFFILIATES," "THE TRUST AND THE OPERATING PARTNERSHIP" and
"TERMS OF THE CASH OFFERING."
As its initial investment targets in the Exchange Offering, the Operating
Partnership is offering to acquire equity and/or subordinated mortgage interests
in 26 properties (the "Exchange Properties") directly or indirectly owned by 23
Exchange Partnerships managed by Corporate General Partners affiliated with the
Managing Shareholder. The Operating Partnership will acquire interests in a
particular property by acquiring from limited partners ("Exchange Limited
Partners") their units of limited partnership interest in the respective
partnership ("Exchange Partnership Units"). Each of the Exchange Partnerships
directly or indirectly owns equity and/or mortgage interests in one or more
properties. Certain of the Exchange Partnerships directly or indirectly own
equity interests in 16 Exchange Properties which consist of an aggregate of
1,012 residential units (comprised of studio, one, two, three and four-bedroom
units). Certain of the Exchange Partnerships directly or indirectly own mortgage
interests in 10 Exchange Properties, which consist of an aggregate of 813
existing residential units (studio and one and two bedroom units) and 164 units
(two and three bedroom units) under development. Of the Exchange Properties, 21
properties are located in Florida, three properties in Ohio and one property
each in Georgia and Indiana. The Exchange Properties are described in further
detail at "DESCRIPTION OF EXCHANGE PARTNERSHIPS," "INITIAL REAL ESTATE
INVESTMENTS" and Exhibit B hereto.
The sole asset of each of 13 of the Exchange Partnerships (individually,
an "Exchange Equity Partnership" and collectively, the "Exchange Equity
Partnerships") is record title to a residential apartment property or the entire
limited partnership or other equity interests in a limited partnership or other
entity which owns record title to a property. The sole assets of each of six of
the Exchange Partnerships (individually, an "Exchange Mortgage Partnership" and
collectively, the "Exchange Mortgage Partnerships") are the entire or an
undivided subordinated mortgage interest in one or more properties (and in one
case, unsecured debt interests). Each of the remaining four Exchange
Partnerships (individually, an "Exchange Hybrid Partnership" and collectively,
the "Exchange Hybrid
14
<PAGE>
Partnerships") own a combination of (i) all or a portion of the direct or
indirect equity interest in one or more properties and (ii) an undivided
subordinated mortgage interest in one or more properties (and in one case,
unsecured debt interests).
The aggregate appraised market value of 16 Exchange Properties in which
Exchange Equity Partnerships and Exchange Hybrid Partnerships directly or
indirectly own an equity interest (net to the partnerships' interest, less the
current principal balance of mortgage loans secured by such properties) was
approximately $16,515,480 at March 31, 1999. The current aggregate balance due
(including current aggregate principal balances of Subordinated Mortgage Loans
and other debt and accrued unpaid interest thereon) on the debt interests owned
by Exchange Mortgage Partnerships and Exchange Hybrid Partnerships in respect of
11 Exchange Properties was approximately $7,437,727 at March 31, 1999.
The current book value of the 23 Exchange Partnerships was approximately
$13,518,420 at March 31, 1999. If exchanges are consummated in respect of all
Exchange Partnership Units in the Exchange Offering, the partnership interests
acquired will have a purchase price totaling approximately $24,980,606,
comprised of Operating Partnership Units to be issued. The interests to be
acquired with the balance of the Operating Partnership Units being offered in
the Exchange Offering have not yet been finally determined.
In June and July 1998, the Operating Partnership acquired beneficial
ownership of a 67-unit residential apartment property located in Orlando,
Florida and an 80-unit property located in Lakeland, Florida. In September 1998,
the Operating Partnership acquired beneficial ownership of a 50-unit residential
apartment property located in New Smyrna Beach, Florida. In October 1998, the
Operating Partnership acquired an approximately 12.3% limited partnership
interest in a limited partnership which is the owner and developer of a 168-unit
residential apartment property under construction in Alexandria, Kentucky.
Subsequently, the Operating Partnership acquired additional limited partnership
units and as of May 14, 1999 the Operating Partnership owns an approximately
37.2% limited partnership interest in this limited partnership. Ninety eight of
the 168 residential units (approximately 58%) have been completed as of March
31, 1999 and are in the rent-up stage. The acquisitions described above, which
had a total cash purchase price of $3,448,506, were paid out of the net proceeds
of the Trust's ongoing Cash Offering.
In July 1998, the Operating Partnership made capital contributions in the
range of $2,900 to $83,300 (aggregate amount approximately $341,000) to 13 real
estate partnerships managed by affiliates of the Managing Shareholder, including
certain of the Exchange Partnerships, in exchange for a limited partnership
interest in such partnerships (less than 4% in each case). In September 1998,
the Trust entered into an agreement to acquire two luxury residential apartment
properties (total of 652 units) upon the completion of construction for an
aggregate purchase price in the range of approximately $41,000,000 to
$43,000,000. See "INITIAL REAL ESTATE INVESTMENTS."
Other than as described above, the available net cash proceeds of the Cash
Offering (approximately $______ as of the date of this Prospectus) and future
proceeds of the Cash Offering have not yet been committed to specific
properties. Offerees will not have any vote in the selection of property
investments after they accept the Exchange Offering. Therefore, Offerees who
elect to accept the Exchange Offering may not have available any information on
any additional properties to be acquired in the Exchange Offering and properties
to be acquired with a portion of the net proceeds of the Cash Offering, in which
case they will be required to rely on management's judgment regarding those
purchases.
In connection with the completion of the Exchange Offering in respect of
each Participating Exchange Partnership (i.e., each Exchange Partnership which
receives the requisite limited partner acceptance of the offering to allow the
partnership to participate in the offering, assuming it closes), (i) Mr.
McGrath, the sole stockholder, director and executive officer of the Corporate
General Partner of each of the Exchange Partnerships, will either grant the
Board of the Trust a management proxy coupled with an interest to vote the
shares of the Corporate General Partner of the Participating Exchange
Partnership or contract to assign all of the stock in the Corporate General
Partner to the Trust for $100 per partnership; (ii) the Corporate General
Partner will assign to the Operating Partnership all of its residual economic
interest in the partnership; and (iii) Mr. McGrath will cause the Corporate
General Partner to waive its right to receive from the partnership any ongoing
fees, effective at the time of exchange.
As of the date of this Prospectus, the Trust has applied $________ of the
net proceeds of the Cash Offering to acquire _____ Units in the Operating
Partnership. The Units acquired and to be acquired by the Trust with the net
proceeds of the Cash Offering are in addition to the 2,500,000 Units that are
available for issuance in connection with the Exchange Offering. Assuming the
Trust sells all 2,500,000 Common Shares being offered in the Cash Offering, the
Trust will contribute the net proceeds of the Cash Offering (up to $21,500,000,
after payment of selling commissions and reimbursable offering expenses) to the
Operating Partnership in exchange for 2,500,000 Units. In that case, assuming
that no transactions have been completed in the Exchange Offering, the Trust
would own approximately 81.2% of the then outstanding Units and the Original
Investors would own the remaining approximately 18.8%. The Original Investors
received the Units in exchange for their $100,000 initial capitalization of the
Operating Partnership and such Units have been deposited into a security escrow
account for a period of six to nine years, subject to earlier release under
certain conditions. See "THE TRUST AND THE OPERATING PARTNERSHIP - Formation
Transactions" and " - Ownership of the Trust and the
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Operating Partnership." If the Trust's Cash Offering and the Exchange Offering
are completed in full, each Original Investor would own 601,080 Units. In that
case, the value of the Units held by each Original Investor, calculated at the
$10.00 initial value assigned to each Unit to be issued in the Exchange
Offering, would then be $6,010,800 less a significant discount attributable to
the long-term escrow arrangement.
The Trust has authority under the Declaration of Trust to issue an
aggregate of up to 25,000,000 Shares (consisting of Common Shares and Preferred
Shares). The Operating Partnership has authority under the Operating Partnership
Agreement to issue any number of Units as may be determined by the Trust in its
sole discretion. However, because outstanding Units (other than those acquired
by the Trust) are exchangeable into an equivalent number of Trust Common Shares,
the Operating Partnership may not issue more than 25,000,000 Units, absent an
appropriate amendment of the Declaration of Trust and the Operating Partnership
Agreement. Assuming the Cash Offering and the Exchange Offering are completed in
full under the terms currently contemplated and no other transactions have taken
place (including, without limitation, any additional issuances of Common Shares
or Units, any exchange of Units into Common Shares or any exercise of Common
Share purchase warrants issued or to be issued to the Dealer Manager and
participating broker-dealers in connection with the Cash Offering), immediately
upon the completion of the offerings, the Trust would have 2,625,000 Common
Shares outstanding and the Operating Partnership would have 6,264,808 Units
outstanding. On a fully diluted basis assuming that all then outstanding Units
(other than those owned by the Trust) have been exchanged into an equivalent
number of Common Shares, all participants in the offerings would beneficially
own an aggregate of 6,327,160 Common Shares of the Trust (i.e., have the right
to vote or dispose of such Common Shares or to acquire ownership of Common
Shares in exchange for Units). Of those Common Shares, purchasers of Common
Shares in the Cash Offering as a group would beneficially own 2,500,000 Common
Shares (39.5%) and recipients of Units in the Exchange Offering as a group would
beneficially own 2,500,000 Common Shares (39.5%). The remaining Common Shares
would be beneficially owned by the Original Investors (approximately 19%) and
broker-dealers who earn Common Shares as commissions in exchange for their
services in the Exchange Offering (approximately 2%). See "THE TRUST AND THE
OPERATING PARTNERSHIP - Formation Transactions" and " - Ownership of the Trust
and the Operating Partnership."
To the extent Units remain available for issuance after completion of the
exchange transactions described herein, the Trust intends to investigate other
investment opportunities for the Exchange Offering, including equity or debt
interests held in additional properties by unaffiliated parties and by other
limited partnerships managed by affiliates of the Managing Shareholder (wholly
owned and controlled, along with the Corporate General Partner of each Exchange
Partnership, by Mr. McGrath). See also "PRIOR PERFORMANCE BY AFFILIATES OF
MANAGING SHAREHOLDER."
Properties in which the Operating Partnership will acquire an interest are
expected to use the straight-line method of depreciation over 30 years. Among
other investment policies described below at "INVESTMENT OBJECTIVES AND
POLICIES," the Operating Partnership will not make an equity investment in
respect of any property where the amount invested by it plus the amount of any
existing indebtedness or refinancing indebtedness in respect of such property
exceeds the appraised value of the property. In addition, the Trust and the
Operating Partnership will not acquire or provide mortgage loans or other debt
interests in respect of any property where the amount invested by the Trust and
the Operating Partnership plus the amount of any existing indebtedness in
respect of such property exceeds 80% of the property's estimated replacement
cost new as determined by the Managing Shareholder, unless substantial
justification exists.
Each Offeree who is a limited partner in an Exchange Partnership will
receive a copy of a Supplement to this Prospectus which describes the Exchange
Offering, the Cash Offering and certain aspects of the business of his
particular Exchange Partnership, the Operating Partnership and the Trust. The
Supplement is part of, and should be read in conjunction with, this Prospectus.
Unless specifically requested, Exchange Limited Partners will not receive a copy
of the various other supplements which contain information concerning other
Exchange Partnerships, the Operating Partnership and the Trust and which have
been distributed to their limited partners. Certain information concerning each
of the Exchange Partnerships and their property investments is included in this
Prospectus in this "SUMMARY OF THE TRUST AND THE OPERATING PARTNERSHIP" section
and at "INITIAL REAL ESTATE INVESTMENTS," in certain tables herein indexed in
the table of contents, and in Exhibits A, B, and D. Upon receipt of a written
request by any Exchange Limited Partner or his representative who has been so
designated in writing, the Operating Partnership will promptly deliver, without
charge, copies of other supplements to be delivered to limited partners in other
Exchange Partnerships. Limited Partners may make such request in writing to the
Operating Partnership at its principal executive office at the following
address: Baron Capital Properties, L.P., 7826 Cooper Road, Cincinnati, Ohio
45242, telephone 513-984-5001. Such request should be made to the attention of
Sharon Studt.
See "THE EXCHANGE OFFERING," "INITIAL REAL ESTATE INVESTMENTS,"
"MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION" and "COMPARISON OF
RIGHTS OF HOLDERS OF EXCHANGE PARTNERSHIP UNITS, OPERATING PARTNERSHIP UNITS AND
TRUST COMMON SHARES." For the definition of certain terms used in this
Prospectus, see "GLOSSARY."
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Background and Reasons for the Exchange Offering
In the first quarter of 1997, the Original Investors determined that a
single integrated structure of ownership by the Exchange Partnerships and
administration of the property interests controlled by them and projected to be
acquired by future affiliated programs would be far more efficient, cost
effective and advantageous for operations and for the various program investors.
In anticipation of its growth and change in structure, the organization
developed by the Original Investors has been able to attract highly experienced
management and financial personnel capable of managing a substantially larger
real estate portfolio. See "MANAGEMENT - Officers of the Trust and the Operating
Partnership."
The Exchange Partnership Corporate General Partners (wholly owned and
controlled, along with the Managing Shareholder of the Trust, by Mr. McGrath)
considered various alternatives to the Exchange Offering including continuation
of the partnerships in accordance with their existing business plans and sale or
liquidation of the partnership interests or assets held. In the case of each
Exchange Partnership, its Corporate General Partner has determined that the
Exchange Offering provides equal or greater value to the Exchange Limited
Partners compared with any other considered alternative.
Continuation of the existing business plans of the Exchange Partnerships
has been determined by their Corporate General Partners to be disadvantageous
for their respective limited partners compared with the opportunity to
participate in the Exchange Offering. Each of the Exchange Partnerships is a
"stand-alone" entity with an interest in one or more residential apartment
properties or Subordinated Mortgage Loans on similar properties. As a result,
the Exchange Partnerships have higher personnel and other operating and
financing expenses on a per-unit basis than the combined enterprise will have.
In addition, the combined enterprise will afford the Exchange Partnerships
highly experienced management and financial personnel that, for the individual
partnerships acting alone, would not be cost effective. Moreover, no market
exists for the limited partnership interests of the Exchange Limited Partners,
and therefore such interests are not currently liquid.
Liquidation has been determined by the Corporate General Partners of the
Exchange Partnerships to be impractical and disadvantageous for their respective
limited partners. In the case of each Exchange Partnership, its Corporate
General Partner has either explored the sale of the partnership assets or has
determined that such a sale would be premature as it would not maximize investor
value.
The Original Investors initiated the Exchange Offering, and the Corporate
General Partners participated in the structuring of the offering. The Corporate
General Partner of each Exchange Partnership believes that the Exchange Offering
is fair to the Exchange Limited Partners (regardless of whether all Exchange
Partnerships receive the requisite limited partner acceptance to allow them to
participate in the offering) and recommends that they accept the Exchange
Offering for the following reasons:
o The Units to be issued in the Exchange Offering have been valued
based upon a qualified independent third party appraisal of the
Exchange Partnerships' property interests and certain additional
factors which the Managing Shareholder believes are appropriate to
consider and reflect a value greater than the original investments
of the Exchange Limited Partners.
o The Exchange Offering has been structured to permit each Exchange
Limited Partner, if desired, to decide not to accept the offering
and instead retain his existing interest in his current partnership
on substantially the same terms and conditions as those of his
original investment.
o The Operating Partnership will not complete the offering in respect
of any Exchange Partnership unless limited partners holding at least
90% of the limited partnership interests therein affirmatively elect
to accept the offering. In addition, the Operating Partnership will
not complete any transaction in the offering whatsoever unless a
sufficient number of Offerees accept the offering such that the
offering involves the issuance of Operating Partnership Units with
an initial assigned value of at least $6,000,000.
o The Exchange Offering will provide each Exchange Limited Partner
with a significantly more diversified interest in income producing
real property and debt interests with a possible opportunity that
the Operating Partnership Units received and Common Shares into
which they are exchangeable will be marketable in the future.
o The Trust and the Operating Partnership have been able to attract
highly experienced management and financial personnel capable of
managing a substantially larger real estate portfolio.
o Upon the completion of the Exchange Offering it is anticipated (but
not assured) that the large number of residential units to be owned
by the Operating Partnership will provide the Exchange Partnerships
with a lower operating cost per residential unit and, as a
consequence, increase operating performance.
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o The Corporate General Partners (wholly owned and controlled, along
with the Managing Shareholder of the Trust, by Mr. McGrath) believe
that a single integrated structure of ownership by the Exchange
Partnerships and administration of the property interests which are
controlled by them and which were projected to be acquired by future
affiliated programs would be far more efficient, cost effective and
advantageous for operations and for the various program investors.
o The Exchange Offering has been designed to afford Exchange Limited
Partners who accept the offering the benefit of a deferral of any
recognition of taxable gain until they exercise their right to
exchange the Units received in the offering for an equivalent number
of Common Shares of the Trust. The exchange into Common Shares may
be made at any time at the sole discretion of each Exchange Limited
Partner.
o The Corporate General Partners considered various alternatives to
the Exchange Offering, including continuation of the existing
business plans of the Exchange Partnerships and sale or liquidation
of the partnership assets held, and have determined that the
Exchange Offering provides equal or greater value to the Exchange
Limited Partners compared with any other considered alternative.
Summary of Use of Proceeds of Cash Offering
Set forth below is the estimated application of proceeds of the Trust's
Cash Offering, assuming the Trust sells all 2,500,000 Common Shares being
offered. See also "COMPENSATION OF THE MANAGING SHAREHOLDER AND AFFILIATES" and
"TERMS OF THE CASH OFFERING." The table below provides information based on the
$25,000,000 maximum offering amount of the Cash Offering.
Maximum
Offering
Amount Percent
------ -------
Gross Cash Offering Proceeds: $25,000,000 100%
Cash Offering Expenses:
Underwriting Commissions (1): 2,000,000 8%
Distribution, Due Diligence and
Organizational Expenses (2): 250,000 1%
Legal and Consulting Expenses (3): 250,000 1%
----------- -----------
Amount Available for Investment and
Trust Operations: $22,500,000 90%
=========== ===========
Investment Expenses (4): 1,000,000 4%
Maximum Amount of Proceeds to be
Used to Acquire Limited Partnership
Interests in the Operating
Partnership: 21,500,000 86%
Cash Offering Expenses: 2,500,000 10%
----------- -----------
Total Application of Proceeds: $25,000,000 100%
=========== ===========
Footnotes:
1. The Trust will pay the Dealer Manager of the Cash Offering, selling
commissions in an amount equal to 8% of the gross proceeds received from
its sales of Common Shares in the offering from which it will pay any
broker-dealers that the Trust or the Dealer Manager selects to participate
in the sale of Common Shares. All or a portion of the commissions payable
may be reallocated to participating broker-dealers. The Trust has also
granted the Dealer Manager a five-year warrant, exercisable beginning on
the first anniversary of the commencement of the offering and ending on
the fifth anniversary, to acquire a number of Common Shares in an amount
equal to 8.5% of the number of Common Shares sold by it in the offering at
an exercise price of $13.00 per Common Share.
2. The Trust will reimburse the Managing Shareholder (wholly owned and
controlled, along with the Corporate General Partner of each Exchange
Partnership, by Mr. McGrath) for distribution, due diligence and
organizational expenses incurred in connection
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<PAGE>
with the formation of the Trust and the Operating Partnership and with the
Cash Offering in an amount not to exceed 1% of the gross proceeds from
sales of Common Shares in the offering ($250,000 maximum).
3. The Trust will reimburse the Managing Shareholder for legal, accounting
and consulting fees and printing, filing, recording, postage and other
miscellaneous expenses incurred in connection with the Cash Offering in an
amount not to exceed 1% of gross proceeds from sales of Common Shares in
the offering ($250,000 maximum). The reimbursements described in footnote
2 and this footnote 3 will be payable out of the net proceeds of the
offering. To the extent which the distribution, due diligence and
organizational expenses or the legal, accounting and consulting fees and
printing, filing, recording, postage and other miscellaneous expenses
exceed 1% of the gross proceeds from the offering, those expenses will not
be reimbursed to the Managing Shareholder.
4. The Trust will reimburse the Managing Shareholder for expenses incurred
prior to and during the Cash Offering for investigating and evaluating
investment opportunities for the Trust and the Operating Partnership and
for assisting them in consummating their investments, in an amount not to
exceed 4% of the gross proceeds from sales of Common Shares in the
offering (maximum $1,000,000) (reimbursable expenses paid in connection
with investment activities plus other acquisition fees and expenses may
not exceed 6% of the contract purchase price for acquisitions unless the
Independent Trustees determine that the transaction is commercially
reasonable). Such reimbursement will be payable from available net
proceeds of the Cash Offering or as cash flow permits as determined by the
Board of the Trust.
Summary of Fees and Reimbursable Expenses
Set forth below is a summary of fees and reimbursable expenses payable in
connection with the Cash Offering and the Exchange Offering and the operation of
the Trust and the Operating Partnership:
Recipient Type and Amount of Fees and Reimbursable Expenses
- --------- -------------------------------------------------
Broker-Dealers Selling commission in an amount equal to 8% of the
Participating in Cash subscription price of all Common Shares sold in the
Offering Cash Offering ($2,000,000 maximum). As additional
compensation, the Dealer Manager and the
participating broker-dealers will be entitled to
receive a five-year Warrant to acquire a number of
Common Shares in an amount equal to 8.5% of the
number of Common Shares sold in the Cash Offering by
the Dealer Manager or participating broker-dealers,
at a purchase price equal to $13.00 per Common
Share. See "TERMS OF THE CASH OFFERING."
Managing Shareholder Reimbursement for distribution, due diligence and
organizational expenses incurred in connection with
the formation of the Trust and the Operating
Partnership and with the Cash Offering, in an amount
not to exceed 1% of gross offering proceeds
($250,000 maximum).
Managing Shareholder Reimbursement for legal, accounting and consulting
fees and printing, filing, recording, postage and
other miscellaneous expenses incurred in connection
with the Cash Offering, in an amount not to exceed
1% of gross offering proceeds ($250,000 maximum).
Managing Shareholder Reimbursement for expenses incurred prior to and
during the Cash Offering for investigating,
evaluating and consummating investments of the Trust
and the Operating Partnership to be acquired from
unaffiliated parties with net proceeds of the Cash
Offering, in an amount not to exceed 4% of gross
offering proceeds; payable from available net
proceeds of the Cash Offering or as cash flow
permits as determined by the Board of the Trust.
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Type and Amount of Fees and Reimbursable Expenses
Recipient (cont'd)
- --------- -------------------------------------------------
Gregory K. McGrath, Initial year's compensation payable in the form of
a founder of the Common Shares of the Trust or Operating Partnership
Trust and the Units in an amount not to exceed 25,000 shares of
Operating the Trust or 25,000 Units to be determined by the
Partnership and Executive Compensation Committee of the Board of the
Chief Executive Trust, plus health benefits. Thereafter, his
Officer of the compensation and benefits will be determined by the
Trust, the Operating committee. In exchange for an initial cash capital
Partnership and the contribution of $50,000 to the Operating
Managing Shareholder Partnership, Mr. McGrath subscribed for Units which
are exchangeable (subject to certain escrow
restrictions) into 9.5% of the Common Shares
outstanding as of the earlier to occur of completion
of the Cash Offering and the Exchange Offering or
November 30, 1999, calculated on a fully diluted
basis assuming that all then outstanding Units
(other than those owned by the Trust) have been
exchanged into an equivalent number of Common
Shares. See "THE TRUST AND THE OPERATING PARTNERSHIP
-- Formation Transactions."
Robert S. Geiger, a Initial annual compensation of $100,000, plus health
founder of the Trust benefits and eligibility to participate in any
and the Operating option plan and bonus incentive plan which may be
Partnership and implemented by the Executive Compensation Committee
Chief Operating of the Board of the Trust. In exchange for an
Officer of the initial cash capital contribution of $50,000 to the
Trust, the Operating Operating Partnership, Mr. Geiger subscribed for
Partnership and the Units which are exchangeable (subject to certain
Managing Shareholder escrow restrictions) into 9.5% of the Common Shares
outstanding as of the earlier to occur of the
completion of the Cash Offering and the Exchange
Offering or November 30, 1999, calculated on a fully
diluted basis assuming that all then outstanding
Units (other than those owned by the Trust) have
been exchanged into an equivalent number of Common
Shares. See "THE TRUST AND THE OPERATING PARTNERSHIP
-- Formation Transactions."
Robert L. Astorino, Initial annual salary of $150,000, plus health
President - Property of benefits and eligibility to participate in any
the Operating Partnership option plan and bonus incentive plan which may be
implemented by the Executive Compensation Committee
of the Board of the Trust.
Mark L. Wilson, Initial annual salary of $110,000, plus health
Chief Financial benefits and eligibility to participate in any
Officer of the option plan and bonus incentive plan which may be
Operating implemented by the Executive Compensation Committee
Partnership and of the Board of the Trust.
Secretary of the
Trust
Independent Trustees Annual fee of $6,000.
Managing Shareholder Annual payment under the Trust Management Agreement,
in an amount equal to up to 1% of gross proceeds
from the Cash Offering plus 1% of initial assigned
value of Units issued in Exchange Offering, to
reimburse the Managing Shareholder for its operating
expenses relating to the business of the Trust and
the Operating Partnership.
Broker-Dealers Commission payable to broker-dealers who assist in
Participating in the Exchange Offering, consisting of a number of
Exchange Offering unregistered Common Shares equal to 5% of Units
exchanged in the Exchange Offering as a result of
their efforts.
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<PAGE>
DESCRIPTION OF EXCHANGE PARTNERSHIPS
As its initial acquisition candidates in connection with the Exchange
Offering, the Operating Partnership will offer to acquire all limited
partnership interests owned by partners in the 23 Exchange Partnerships. To the
extent Units remain available for issuance after completion of the exchange
transactions described herein, the Operating Partnership intends to investigate
other investment opportunities to exchange the balance of the Units for property
interests in other Exchange Offering transactions, including property interests
held by unaffiliated parties and interests held by other limited partnerships
managed by affiliates of the Managing Shareholder.
Set forth below is a summary of certain information relating to each of
the Exchange Partnerships. Exchange Partnerships which directly or indirectly
own only equity interests in residential apartment properties are referred to
herein as "Exchange Equity Partnerships;" partnerships which own only
subordinated mortgage interests in properties and other debt interests are
referred to herein as "Exchange Mortgage Partnerships;" and partnerships which
directly or indirectly own a combination of equity and subordinated mortgage
interests in properties and other debt interests are referred to herein as
"Exchange Hybrid Partnerships." Each of the partnerships was formed with the
objectives to generate current cash flow for distribution to partners from the
rental of residential apartments or receipt of interest income and, where
applicable, to provide the opportunity for capital appreciation from the future
sale or refinancing of the residential apartment property. The Corporate General
Partners of the Exchange Partnerships (wholly owned and controlled, along with
the Managing Shareholder of the Trust, by Mr. McGrath) believe these objectives
have been substantially achieved. None of the Exchange Partnerships was
organized as a tax credit program. The rights and obligations of the limited
partners and the Corporate General Partner of each of the Exchange Partnerships
under the respective limited partnership agreement is summarized below at
"COMPARISON OF RIGHTS OF HOLDERS OF EXCHANGE PARTNERSHIP UNITS, OPERATING
PARTNERSHIP UNITS AND TRUST COMMON SHARES." For additional information
concerning the Exchange Partnerships and their respective property interests,
see "SUMMARY OF THE TRUST AND THE OPERATING PARTNERSHIP" and "INITIAL REAL
ESTATE INVESTMENTS," the tables herein indexed in the table of contents and
Exhibits A, B and D.
Baron Strategic Investment Fund, Ltd.
Baron Strategic Investment Fund, Ltd., an Exchange Mortgage Partnership,
was organized as a Florida limited partnership in April 1996. Commencing June
12, 1996, Baron Capital XXXII, Inc., the general partner of the partnership and
an affiliate of the Managing Shareholder (wholly owned and controlled, along
with the general partner of the partnership and each general partner of the
other partnerships described below, by Mr. McGrath), sponsored a private
offering of 2,400 units of limited partnership interest in the partnership at a
purchase price of $500 per unit (gross proceeds of $1,200,000). The offering was
fully subscribed and closed on December 16, 1996. The partnership invested the
net proceeds of its offering to acquire (i) three unrecorded Subordinated
Mortgage Loans secured by a 68-unit residential apartment property referred to
as the Blossom Corners Property-Phase II located in Orlando, Florida and (ii) an
unrecorded Subordinated Mortgage Loan secured by a 164-townhome property
referred to as the Lake Sycamore Property under development in Cincinnati, Ohio.
The termination date of the partnership is December 31, 2026. It was anticipated
that the investment would be sold or mature by 2005.
Baron Strategic Investment Fund II, Ltd.
Baron Strategic Investment Fund II, Ltd., an Exchange Equity Partnership,
was organized as a Florida limited partnership in April 1996. Commencing July 9,
1996, Baron Capital XXXI, Inc., the general partner of the partnership and an
affiliate of the Managing Shareholder, sponsored a private offering of 1,600
units of limited partner interest in the partnership at a purchase price of $500
per unit (gross proceeds of $800,000). The offering was fully subscribed and
closed on October 30, 1996. The partnership invested the net proceeds of its
offering to acquire all of the limited partnership interests in a limited
partnership which holds a fee simple interest in a 72-unit residential apartment
property referred to as the Steeplechase Apartment Property located in Anderson,
Indiana. The termination date of the partnership is December 31, 2026. It was
anticipated that the property would be listed for sale within three years, but
no listing has occurred to date.
Baron Strategic Investment Fund IV, Ltd.
Baron Strategic Investment Fund IV, Ltd., an Exchange Mortgage
Partnership, was organized as a Florida limited partnership in October 1996.
Commencing November 25, 1996, Baron Capital XVII, Inc., the general partner of
the partnership and an affiliate of the Managing Shareholder, sponsored a
private offering of 2,000 units of limited partnership interest in the
partnership at a purchase price of $500 per unit (gross proceeds of $1,000,000).
The offering was fully subscribed and closed on March 10, 1997. The partnership
invested the net proceeds of its offering (and of a note payable to another
Exchange Partnership, Baron Strategic Investment Fund VI, Ltd.) to acquire two
unrecorded Subordinated Mortgage Loans secured by a 73-unit residential
apartment property referred to as the Country Square Property-Phase I located in
Tampa, Florida. The termination date of the partnership is December 31, 2026. It
was anticipated that the investment would be sold or mature by 2001.
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<PAGE>
Baron Strategic Investment Fund V, Ltd.
Baron Strategic Investment Fund V, Ltd., an Exchange Mortgage Partnership,
was organized as a Florida limited partnership in October 1996. Commencing
November 1, 1996, Baron Capital XL, Inc., the general partner of the partnership
and an affiliate of the Managing Shareholder, sponsored a private offering of
2,400 units of limited partnership interest in the partnership at a purchase
price of $500 per unit (gross proceeds of $1,200,000). The offering was fully
subscribed and closed on June 16, 1997. The partnership invested the net
proceeds of its offering to acquire (i) an unrecorded Subordinated Mortgage Loan
secured by a 33-unit residential apartment property referred to as the
Candlewood Property-Phase II located in Tampa, Florida, (ii) an undivided 26.3%
interest in three unrecorded Subordinated Mortgage Loans and a 100% interest in
an unrecorded Subordinated Mortgage Loan secured by an 81-unit residential
apartment property referred to as the Curiosity Creek Property located in Tampa,
Florida, and (ii) four unrecorded Subordinated Mortgage Loans secured by a
60-unit residential apartment property referred to as the Sunrise Property-Phase
I located in Titusville, Florida. The termination date of the partnership is
December 31, 2026. It was anticipated that the investment would be sold or
mature within three to five years.
Baron Strategic Investment Fund VI, Ltd.
Baron Strategic Investment Fund VI, Ltd., an Exchange Hybrid Partnership,
was organized as a Florida limited partnership in October 1996. Commencing
November 18, 1996, Baron Capital XXXI, Inc., the general partner of the
partnership and an affiliate of the Managing Shareholder, sponsored a private
offering of 2,400 units of limited partnership interest in the partnership at a
purchase price of $500 per unit (gross proceeds of $1,200,000). The offering was
fully subscribed and closed on April 14, 1997. The partnership invested the net
proceeds of its offering (i) to acquire a 52.44% limited partnership interest in
a limited partnership which holds fee simple title to a 91-unit residential
apartment property referred to as the Pineview Property located in Orlando,
Florida, (ii) to acquire an unrecorded Subordinated Mortgage Loan secured by a
33-unit residential apartment property located in Tampa, Florida referred to as
the Candlewood Property-Phase II, (iii) to acquire an undivided 20% interest in
a Subordinated Mortgage Loan secured by a 91-unit residential apartment property
located in Tampa, Florida referred to as the Garden Terrace Property-Phase III,
and (iv) to provide a loan (secured by a mortgage) to another Exchange
Partnership, Baron Strategic Investment Fund IV, Ltd., which in turn used such
loan proceeds and net proceeds from its own offering to acquire an unrecorded
Subordinated Mortgage Loan secured by a 73-unit residential apartment property
referred to as the Country Square Property-Phase I located in Tampa, Florida.
The termination date of the partnership is December 31, 2026. It was anticipated
that the investment would be sold or mature within three to five years.
Baron Strategic Investment Fund VIII, Ltd.
Baron Strategic Investment Fund VIII, Ltd., an Exchange Mortgage
Partnership, was organized as a Florida limited partnership in February 1997.
Commencing April 25, 1997, Baron Capital XLIV, Inc., the general partner of the
partnership and an affiliate of the Managing Shareholder, sponsored a private
offering of 2,400 units of limited partnership interest in the partnership at a
purchase price of $500 per unit (gross proceeds of $1,200,000). The offering was
fully subscribed and closed on February 5, 1998. The partnership invested the
net proceeds of its offering to acquire (i) an undivided 58% interest in an
unrecorded Subordinated Mortgage Loan secured by a 41-unit residential apartment
property referred to as the Heatherwood Property located in Kissimmee, Florida
and in three unsecured loans associated with such property, (ii) three
unrecorded Subordinated Mortgage Loans secured by a 59-unit residential
apartment property referred to as the Longwood Property-Phase I located in
Cocoa, Florida, and (iii) an unrecorded Subordinated Mortgage Loan secured by a
164-townhome property referred to as the Lake Sycamore Property under
development in Cincinnati, Ohio. The termination date of the partnership is
December 31, 2025. It was anticipated that the investment would be sold or
mature within three to five years.
Baron Strategic Investment Fund IX, Ltd.
Baron Strategic Investment Fund IX, Ltd., an Exchange Hybrid Partnership,
was organized as a Florida limited partnership in June 1997. Commencing June 6,
1997, Baron Capital XLII, Inc., the general partner of the partnership and an
affiliate of the Managing Shareholder, sponsored a private offering of 2,400
units of limited partnership interest in the partnership at a purchase price of
$500 per unit (gross proceeds of $1,200,000). The offering was fully subscribed
and closed on May 8, 1998. The partnership invested the net proceeds of its
offering to acquire (i) a 44.96% limited partnership interest in a limited
partnership which holds fee simple title to a 72-unit residential apartment
property referred to as the Crystal Court Property-Phase I located in Lakeland,
Florida, (ii) an unrecorded Subordinated Mortgage Loan secured by a 33-unit
residential apartment property located in Tampa, Florida referred to as the
Candlewood Property-Phase II, (iii) an undivided 25% interest in a Subordinated
Mortgage Loan secured by a 91-unit residential apartment property located in
Tampa, Florida referred to as the Garden Terrace Property-Phase III, and (iv) an
unrecorded Subordinated Mortgage Loan secured by a 164-townhome property
referred to as the Lake Sycamore Property under development in
22
<PAGE>
Cincinnati, Ohio. The termination date of the partnership is December 31, 2026.
It was anticipated that the investment would be sold or mature within three to
five years.
Baron Strategic Investment Fund X, Ltd.
Baron Strategic Investment Fund X, Ltd., an Exchange Hybrid Partnership,
was organized as a Florida limited partnership in June 1997. Commencing July 2,
1997, Baron Capital XLIV, Inc., the general partner of the partnership and an
affiliate of the Managing Shareholder, sponsored a private offering of 2,400
units of limited partnership interest in the partnership at a purchase price of
$500 per unit (gross proceeds of $1,200,000). The offering was fully subscribed
and closed on March 13, 1998. The partnership invested the net proceeds of its
offering to acquire (i) a 47.59% limited partnership interest in a limited
partnership which holds a fee simple interest in a 72-unit residential apartment
property referred to as the Crystal Court Property-Phase I located in Lakeland,
Florida, (ii) a 39.56% limited partnership interest in a limited partnership
which holds a fee simple interest in a 91-unit residential apartment property
referred to as the Pineview Property located in Orlando, Florida, (iii) an
undivided 55% interest in a Subordinated Mortgage Loan secured by a 91-unit
residential apartment property located in Tampa, Florida referred to as the
Garden Terrace Property-Phase III, and (iv) an undivided 42% interest in an
unrecorded Subordinated Mortgage Loan secured by a 41-unit residential apartment
property referred to as the Heatherwood Property-Phase II located in Kissimmee,
Florida and in three unsecured loans associated with such property. The
termination date of the partnership is December 31, 2026. It was anticipated
that the investment would be sold or mature within three to five years.
Baron Strategic Vulture Fund I, Ltd.
Baron Strategic Vulture Fund I, Ltd., an Exchange Mortgage Partnership,
was organized as a Florida limited partnership in April 1996. Commencing May 21,
1996, Baron Capital XXVI, Inc., the general partner of the partnership and an
affiliate of the Managing Shareholder, sponsored a private offering of 1,800
units of limited partnership interest in the partnership at a purchase price of
$500 per unit (gross proceeds of $900,000). The offering was fully subscribed
and closed on October 28, 1996. The partnership invested the net proceeds of its
offering to acquire an undivided 73.7% interest in three unrecorded Subordinated
Mortgage Loans and a 100% interest in an unrecorded Subordinated Mortgage Loan
secured by an 81-unit residential apartment property referred to as the
Curiosity Creek Property located in Tampa, Florida. The termination date of the
partnership is December 31, 2026. There was no anticipated date of sale of the
investment.
Brevard Mortgage Program, Ltd.
Brevard Mortgage Program, Ltd., an Exchange Mortgage Partnership, was
organized as a Florida limited partnership in November 1995. Commencing January
2, 1996, Baron Capital XII, Inc., the general partner of the partnership and an
affiliate of the Managing Shareholder, sponsored a private offering of 575 units
of limited partnership interest in the partnership at a purchase price of $1,000
per unit (gross proceeds of $575,000). The offering was fully subscribed and
closed on April 15, 1996. The partnership invested the net proceeds of its
offering to acquire three unrecorded Subordinated Mortgage Loans secured by a
64-unit residential apartment property referred to as the Meadowdale Property
located in Melbourne, Florida. The termination date of the partnership is
December 31, 2025. It was anticipated that the investment would be sold or
mature by 2005.
Central Florida Income Appreciation Fund, Ltd.
Central Florida Income Appreciation Fund, Ltd., an Exchange Equity
Partnership, was organized as a Florida limited partnership in April 1993.
Commencing September 12, 1994, Baron Capital of Florida, Inc. (formerly named
Sigma Financial Capital VI, Inc.), the general partner of the partnership and an
affiliate of the Managing Shareholder, sponsored a private offering of 2,100
units of limited partner interest in the partnership at a purchase price of $500
per unit (gross proceeds of $1,050,000). The offering was fully subscribed and
closed on October 19, 1995. The partnership invested the net proceeds of its
offering to acquire all of the limited partnership interests in a limited
partnership which holds a fee simple interest in a 56-unit residential apartment
property referred to as the Laurel Oaks (formerly Grove Hamlet) Apartment
Property located in Deland, Florida. The termination date of the partnership is
December 31, 2025. It was anticipated that the property would be listed for sale
within two years. The property was listed for sale in 1997, but no sale has
occurred.
Florida Capital Income Fund, Ltd.
Florida Capital Income Fund, Ltd., an Exchange Equity Partnership, was
organized as a Florida limited partnership in August 1994. Commencing November
16, 1994, Baron Capital II, Inc., the general partner of the partnership and an
affiliate of the Managing Shareholder, sponsored a private offering of 1,614
units of limited partner interest in the partnership at a purchase price of $500
per unit (gross proceeds of $807,000). The offering was fully subscribed and
closed on June 8, 1995. The partnership invested the net proceeds of its
offering to acquire all of the limited partnership interests in a limited
partnership which holds a fee simple interest in a
23
<PAGE>
77-unit residential apartment property referred to as the Eagle Lake Apartment
Property located in Port Orange, Florida. The termination date of the
partnership is December 31, 2025. It was anticipated that the property would be
listed for sale within three to five years. The property was listed for sale in
1997, but no sale has occurred.
Florida Capital Income Fund II, Ltd.
Florida Capital Income Fund II, Ltd., an Exchange Equity Partnership, was
organized as a Florida limited partnership in April 1993. In May 1995, Baron
Capital IV, Inc., an affiliate of the Managing Shareholder, became general
partner of the partnership, which on May 25, 1994 commenced a private offering
of 1,840 units of limited partner interest in the partnership at a purchase
price of $500 per unit (gross proceeds of $920,000). (The partnership also
issued 160 units to four investors in exchange for property interests acquired
by them in an unrelated program which was terminated.) The offering was fully
subscribed and closed on July 6, 1995. The partnership invested the net proceeds
of its offering to acquire all of the limited partnership interests in a limited
partnership which holds a beneficial interest in an unrecorded land trust which
holds a fee simple interest in a 52-unit residential apartment property referred
to as the Forest Glen Apartment Property (Phase I) located in Daytona Beach,
Florida. The termination date of the partnership is December 31, 2025. It was
anticipated that the property would be listed for sale within three years, but
no listing has occurred to date.
Florida Capital Income Fund III, Ltd.
Florida Capital Income Fund III, Ltd., an Exchange Equity Partnership, was
organized as a Florida limited partnership in April 1995. Commencing June 2,
1995, Baron Capital VII, Inc., the general partner of the partnership and an
affiliate of the Managing Shareholder, sponsored a private offering of 1,600
units of limited partner interest in the partnership at a purchase price of $500
per unit (gross proceeds of $800,000). The offering was fully subscribed and
closed on November 1, 1995. The partnership invested the net proceeds of its
offering to acquire all of the limited partnership interests in a limited
partnership which holds a fee simple interest in a 48-unit residential apartment
property referred to as the Bridge Point Apartment Property located in
Jacksonville, Florida. The termination date of the partnership is December 31,
2025. It was anticipated that the property would be listed for sale within three
to five years, but no listing has occurred to date. Florida Capital Income Fund
IV, Ltd.
Florida Capital Income Fund IV, Ltd., an Exchange Equity Partnership, was
organized as a Florida limited partnership in August 1995. Commencing January
11, 1995, Baron Capital V, Inc., the general partner of the partnership and an
affiliate of the Managing Shareholder, sponsored a private offering of 3,640
units of limited partner interest in the partnership at a purchase price of $500
per unit (gross proceeds of $1,820,000). The offering was fully subscribed and
closed on June 6, 1996. The partnership invested the net proceeds of its
offering to acquire all of the limited partnership interests in a limited
partnership which holds a fee simple interest in a 144-unit residential
apartment property referred to as the Glen Lake Apartment Property located in
St. Petersburg, Florida. The termination date of the partnership is December 31,
2025. It was anticipated that the property would be listed for sale within two
years, but no listing has occurred to date.
Florida Income Advantage Fund I, Ltd.
Florida Income Advantage Fund I, Ltd., an Exchange Equity Partnership, was
organized as a Florida limited partnership in September 1993. In January 1995,
Baron Capital IV, Inc., an affiliate of the Managing Shareholder, became general
partner of the partnership, which on February 22, 1994 commenced a private
offering of 940 units of limited partner interest in the partnership at a
purchase price of $1,000 per unit (gross proceeds of $940,000). The offering was
fully subscribed and closed on May 27, 1994. The partnership invested the net
proceeds of its offering to acquire all of the limited partnership interests in
a limited partnership which holds a beneficial interest in an unrecorded land
trust which holds a fee simple interest in a 26-unit residential apartment
property referred to as the Forest Glen Apartment Property (Phase III) located
in Daytona Beach, Florida. The termination date of the partnership is December
31, 2025. It was anticipated that the property would be listed for sale within
two years, but no listing has occurred to date.
Florida Income Appreciation Fund I, Ltd.
Florida Income Appreciation Fund I, Ltd., an Exchange Equity Partnership,
was organized as a Florida limited partnership in September 1993. In January
1995, Baron Capital IV, Inc., an affiliate of the Managing Shareholder, became
the general partner of the partnership, which on April 5, 1994 commenced a
private offering of 205 units of limited partner interest in the partnership at
a purchase price of $1,000 per unit (gross proceeds of $205,000). The offering
was fully subscribed and closed on September 2, 1994. The partnership invested
the net proceeds of its offering to acquire all of the limited partnership
interests in a limited partnership which holds a beneficial interest in an
unrecorded land trust which holds a fee simple interest in an 8-unit residential
apartment
24
<PAGE>
property referred to as the Forest Glen Apartment Property (Phase IV) located in
Daytona Beach, Florida. The termination date of the partnership is December 31,
2025. It was anticipated that the property would be listed for sale within two
years, but no listing has occurred to date.
Florida Income Growth Fund V, Ltd.
Florida Income Growth Fund V, Ltd., an Exchange Equity Partnership, was
organized as a Florida limited partnership in June 1995. Commencing January 31,
1995, Baron Capital XI, Inc., the general partner of the partnership and an
affiliate of the Managing Shareholder, sponsored a private offering of 2,300
units of limited partnership interest in the partnership at a purchase price of
$500 per unit (gross proceeds of $1,150,000). The offering was fully subscribed
and closed on February 27, 1997. The partnership invested the net proceeds of
its offering to acquire all of the limited partnership interests in a limited
partnership which holds a fee simple interest in a 70-unit residential apartment
property referred to as the Blossom Corners Apartment Property (Phase I) located
in Orlando, Florida. The termination date of the partnership is December 31,
2025. It was anticipated that the property would be listed for sale within two
years, but no listing has occurred to date.
Florida Opportunity Income Partners, Ltd.
Florida Opportunity Income Partners, Ltd., an Exchange Equity Partnership,
was organized as a Florida limited partnership in December 1994. Commencing
August 17, 1995, Baron Capital III, Inc., the general partner of the partnership
and an affiliate of the Managing Shareholder, sponsored a private offering of
800 units of limited partner interest in the partnership at a purchase price of
$1,000 per unit (gross proceeds of $800,000). The offering was fully subscribed
and closed on December 8, 1995. The partnership invested the net proceeds of its
offering to acquire all of the limited partnership interests in a limited
partnership which holds a fee simple interest in a 60-unit residential apartment
property referred to as the Camellia Court Apartment Property located in Daytona
Beach, Florida. The termination date of the partnership is December 31, 2025. It
was anticipated that the property would be listed for sale within two years, but
no listing has occurred to date.
GSU Stadium Student Apartments, Ltd.
GSU Stadium Student Apartments, Ltd., an Exchange Equity Partnership, was
organized as a Florida limited partnership in June 1995. Commencing May 25,
1995, Baron Capital X, Inc., the general partner of the partnership and an
affiliate of the Managing Shareholder, sponsored a private offering of 2,000
units of limited partner interest in the partnership at a purchase price of $500
per unit (gross proceeds of $1,000,000). The offering was fully subscribed and
closed on February 26, 1996. The partnership invested the net proceeds of its
offering to acquire all of the limited partnership interests in a limited
partnership which holds a fee simple interest in a 60-unit residential apartment
property referred to as the Stadium Club Apartment Property located in
Statesboro, Georgia. The termination date of the partnership is December 31,
2025. It was anticipated that the property would be listed for sale within three
years, but no listing has occurred to date.
Lamplight Court of Bellefontaine Apartments, Ltd.
Lamplight Court of Bellefontaine Apartments, Ltd., an Exchange Hybrid
Partnership, was organized as a Florida limited partnership in February 1996.
Commencing April 22, 1996, Baron Capital IX, Inc., the general partner of the
partnership and an affiliate of the Managing Shareholder, sponsored a private
offering of 700 units of limited partner interest in the partnership at a
purchase price of $1,000 per unit (gross proceeds of $700,000). The offering was
fully subscribed and closed on November 22, 1996. The partnership invested the
net proceeds of its offering to acquire (i) a 31.7% limited partnership interest
in a limited partnership which holds fee simple title to an 80-unit residential
apartment property referred to as the Lamplight Court Apartment Property located
in Bellefontaine, Ohio and (ii) two unrecorded Subordinated Mortgage Loans
secured by such property. The termination date of the partnership is December
31, 2026. It was anticipated that the property would be listed for sale within
three years, but no listing has occurred to date.
Midwest Income Growth Fund VI, Ltd.
Midwest Income Growth Fund VI, Ltd., an Exchange Equity Partnership, was
organized as a Michigan limited partnership in March 1996. Commencing April 22,
1996, Baron Capital of Ohio III, Inc. (formerly named Sigma Financial Capital
VI, Inc.), the general partner of the partnership and an affiliate of the
Managing Shareholder, sponsored a private offering of 600 units of limited
partner interest in the partnership at a purchase price of $500 per unit (gross
proceeds of $300,000). The offering was fully subscribed and closed on October
29, 1996. The partnership invested the net proceeds of its offering to acquire
all of the limited partnership interests in a limited partnership which holds a
fee simple interest in a 66-unit residential apartment property referred to as
the Brookwood Way Apartment Property located in Mansfield, Ohio. The termination
date of the partnership is December 31, 2026. It was anticipated that the
property would be listed for sale within three years, but no listing has
occurred to date.
25
<PAGE>
Realty Opportunity Income Fund VIII, Ltd.
Realty Opportunity Income Fund VIII, Ltd., an Exchange Equity Partnership,
was organized as a Florida limited partnership in April 1993. In January 1995,
Baron Capital IV, Inc., an affiliate of the Managing Shareholder, became general
partner of the partnership, which on March 3, 1994 commenced a private offering
of 944 units of limited partner interest in the partnership at a purchase price
of $1,000 per unit (gross proceeds of $944,000). The offering was fully
subscribed and closed on June 16, 1994. The partnership invested the net
proceeds of its offering to acquire all of the limited partnership interests in
a limited partnership which holds a beneficial interest in an unrecorded land
trust which holds a fee simple interest in a 30-unit residential apartment
property referred to as the Forest Glen Apartment Property (Phase II) located in
Daytona Beach, Florida. The termination date of the partnership is December 31,
2025. It was anticipated that the property would be listed for sale within two
years, but no listing has occurred to date.
VALUATION TABLE
In the Exchange Offering, each Limited Partner in an Exchange Partnership
will be given the option to acquire Operating Partnership Units in exchange for
all limited partnership units held by the Limited Partner in the partnership.
Set forth in the table below is the following information in respect of each
Exchange Equity Partnership, Exchange Mortgage Partnership and Exchange Hybrid
Partnership: (i) the name of the partnership, its respective Corporate General
Partner (wholly owned and controlled, along with the Managing Shareholder, by
Mr. McGrath), and the residential apartment property or properties in which the
partnership owns a direct or indirect interest, (ii) the number of investors and
number of outstanding limited partnership units in the partnership, (iii) the
valuation of the partnership determined by the Managing Shareholder: (with
respect to each Exchange Equity Partnership and each Exchange Hybrid Partnership
(to the extent of their property interests) the value was based upon the
following factors: (a) the estimated appraised market value of the underlying
property determined by qualified and licensed independent appraisal firms; (b)
the operating history of the property; (c) the current principal balance of
first mortgage and other indebtedness to which the property is subject; (d) the
amount of distributable cash flow currently being generated by the property;
plus (e) additional factors which the Managing Shareholder believes are
appropriate to consider including, among others, the property's overall current
condition and prospects for the property based upon improvements made or to be
made to the property and, in certain cases, the combination of two or more
phases of the property, which are expected to be owned upon completion of the
Exchange Offering and the actual or potential benefits to be obtained by the
sub-metering of utilities in order to pass costs from the owner of the property
to individual tenants; with respect to each Exchange Mortgage Partnership and
each Exchange Hybrid Partnership (to the extent of their mortgage interests in
properties and other debt interests) the value was based upon the following
factors: (1) the current principal balance of the amount of debt which is senior
to the mortgage interest to be acquired and the other indebtedness to which the
property is subject; (2) the estimated appraised market value of the underlying
property determined by qualified and licensed independent appraisal firms; (b)
the operating history of the property; (3) the amount of distributable cash flow
currently being generated by the property; plus (4) additional factors which the
Managing Shareholder believes are appropriate to consider including, among
others, the property's overall current condition and prospects for the property
based upon improvements made or to be made to the property and, in certain
cases, the combination of two or more phases of the property, which are expected
to be owned upon completion of the Exchange Offering and the actual or potential
benefits to be obtained by the sub-metering of utilities in order to pass costs
from the owner of the property to individual tenants); (iv) the aggregate number
of Operating Partnership Units being offered to all Limited Partners in the
partnership (and the initial dollar value assigned to them), (v) the amount of
original investment made by investors in each Exchange Partnership; (vi) the
number of Operating Partnership Units being offered to each Limited Partner in
the partnership per $1,000 of original investment in the partnership (and the
initial dollar value assigned to them), and (vii) the percentage of Units
offered to all limited partners in each Exchange Partnership in relation to
Units offered to limited partners in all Exchange Partnerships participating in
the initial transactions of the Exchange Offering.
26
<PAGE>
VALUATION TABLE
<TABLE>
<CAPTION>
Exchange Partnership General Partner Property(s) Number of
Investors
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Florida Income Growth Fund V, Ltd. Baron Capital VI, Inc. Blossom Corners I 49
Florida Capital Income Fund III, Ltd. Baron Capital VII, Inc. Bridge Point II 32
Midwest Income Growth Fund VI, Ltd. Baron Capital of Ohio III, Inc. Brookwood Way 7
Florida Opportunity Income Partners, Ltd. Baron Capital III, Inc. Camellia Court 29
Florida Capital Income Fund, Ltd. Baron Capital II, Inc. Eagle Lake 31
Florida Capital Income Fund II, Ltd. Baron Capital IV, Inc. Forest Glen I 38
Realty Opportunity Income Fund VIII, Ltd. Baron Capital IV, Inc. Forest Glen II 45
Florida Income Advantage Fund I, Ltd. Baron Capital IV, Inc. Forest Glen III 46
Florida Income Appreciation Fund I, Ltd. Baron Capital IV, Inc. Forest Glen IV 13
Central Florida Income Appreciation Fund, Ltd. Baron Capital of Florida, Inc. Laurel Oaks 51
GSU Stadium Student Apartments, Ltd. Baron Capital X, Inc. Stadium Club 38
Baron Strategic Investment Fund II, Ltd. Baron Capital XXXI, Inc. Steeplechase 16
Florida Capital Income Fund IV, Ltd. Baron Capital V, Inc. Glen Lake Suites 60
Baron Strategic Investment Fund, Ltd. Baron Capital XXXII, Inc. Blossom Corners II 42
Baron Strategic Investment Fund IV, Ltd. Baron Capital XVII, Inc. Country Square I 52
Baron Strategic Investment Fund V, Ltd. Baron Capital XL, Inc. Curiosity Creek, 52
Candlewood II, Sunrise I
Baron Strategic Investment Fund VI, Ltd. Baron Capital XXXI, Inc. Pineview, Garden Terrace, 38
Candlewood II
Baron Strategic Investment Fund VIII, Ltd. Baron Capital XLIV, Inc. Heatherwood II, Longwood 41
I, Sycamore
Baron Strategic Investment Fund IX, Ltd. Baron Capital LXII, Inc. Crystal Court I, 50
Candlewood II, Garden
Terrace, Sycamore
Baron Strategic Investment Fund X, Ltd. Baron Capital LXIV, Inc. Crystal Court I, 49
Candlewood II, Garden
Terrace, Pineview
Baron Strategic Vulture Fund, Ltd. Baron Capital XXVI, Inc. Curiosity Creek 40
Brevard Mortgage Program, Ltd. Baron Capital XII, Inc. Meadowdale 23
Lamplight Court of Bellefontaine, Ltd. Baron Capital IX, Inc. Lamplight Court 26
<CAPTION>
Percentage of
Units to All
Number of Units Limited Partners
Offered to Each Initial Partnership in
Aggregate Number Limited Partner Assigned Relations Units
of Units Offered Initial per $1,000 of Dollar Value Offered to All
Valuation of to All Limited Assigned Dollar Original Original per $1,000 Partners in all
Partnership Partners Value of Units Investment Investment Investment Partnerships
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
$ 1,310,347 131,035 $ 1,310,350 $ 1,150,000 114 $ 1,140 5.25%
$ 936,442 93,644 $ 936,440 $ 800,000 117 $ 1,170 3.75%
$ 381,063 38,106 $ 381,060 $ 300,000 127 $ 1,270 1.53%
$ 840,996 84,100 $ 840,100 $ 800,000 105 $ 1,050 3.37%
$ 924,487 92,449 $ 924,490 $ 807,000 115 $ 1,150 3.70%
$ 1,554,087 155,409 $ 1,554,090 $ 920,000 169 $ 1,690 6.22%
$ 987,220 98,722 $ 987,220 $ 944,000 105 $ 1,050 3.95%
$ 1,006,575 100,658 $ 1,006,580 $ 205,000 107 $ 1,070 4.03%
$ 254,159 25,416 $ 254,160 $ 205,000 124 $ 1,240 1.02%
$ 1,360,237 136,024 $ 1,360,240 $ 1,050,000 130 $ 1,300 5.45%
$ 1,051,818 105,182 $ 1,051,820 $ 900,000 117 $ 1,170 4.21%
$ 824,306 82,431 $ 824,310 $ 800,000 103 $ 1,030 3.30%
$ 2,475,501 247,550 $ 2,475,500 $ 1,820,000 136 $ 1,360 9.91%
$ 1,327,230 132,723 $ 1,327,230 $ 1,200,000 111 $ 1,110 5.31%
$ 1,040,000 104,000 $ 1,040,000 $ 1,000,000 104 $ 1,040 4.16%
$ 1,265,358 126,536 $ 1,265,360 $ 1,200,000 105 $ 1,050 5.07%
$ 1,253,314 125,331 $ 1,253,310 $ 1,200,000 104 $ 1,040 5.02%
$ 1,257,650 125,765 $ 1,257,650 $ 1,200,000 105 $ 1,050 5.03%
$ 1,251,000 125,100 $ 1,251,000 $ 1,200,000 104 $ 1,040 5.01%
$ 1,282,220 128,222 $ 1,282,220 $ 1,200,000 107 $ 1,070 5.13%
$ 990,101 99,010 $ 990,100 $ 900,000 110 $ 1,100 3.96%
$ 624,738 62,474 $ 624,740 $ 575,000 109 $ 1,090 2.50%
$ 781,757 78,176 $ 781,760 $ 700,000 112 $ 1,120 3.13%
- ----------------------------------------------------------------------------------------------------------------------------
$ 24,980,606 2,498,061 $ 24,980,660 $ 21,811,000 115 $ 1,150 100.00%
</TABLE>
27
<PAGE>
SUMMARY OF RISK FACTORS
The following is a summary of the material risk factors applicable to the
Exchange Offering and an investment in Units and Common Shares and the
operations of the Trust and the Operating Partnership. For a more detailed
description of the risk factors relating to the Exchange Offering and the
proposed activities of the Trust and the Operating Partnership, including those
set forth below, see "RISK FACTORS" below.
o The valuation of $10.00 per Unit used in the Exchange Offering is an
arbitrary amount, and it is possible that Common Shares of the Trust (into
which the Units are exchangeable), if listed on a national securities
exchange, will trade at a lower price.
o The terms of the Exchange Offering were determined by the founders of the
Trust and the Operating Partnership with no separate counsel or advisor
for the Offerees. Each Offeree is advised to seek independent advice and
counsel before deciding whether to accept the Exchange Offering.
o If the Exchange Offering is completed in respect of their Exchange
Partnership, Offerees who accept the Exchange Offering will be tendering
their current investment in a particular Exchange Partnership with an
expected limited duration in exchange for an investment in the Operating
Partnership, which has an unlimited duration. See "COMPARISON OF RIGHTS OF
HOLDERS OF EXCHANGE PARTNERSHIP UNITS, OPERATING PARTNERSHIP UNITS AND
TRUST COMMON SHARES - PROPERTY INTERESTS AND ANTICIPATED HOLDING PERIOD."
o If the Operating Partnership consummates exchanges in respect of all
Exchange Partnership Units initially targeted for investment in the
Exchange Offering, the partnership interests acquired will have a purchase
price totaling approximately $24,980,606, comprised of Operating
Partnership Units to be issued. The property interests to be acquired with
the balance of the Operating Partnership Units being offered in the
Exchange Offering have not yet been finally determined. In addition, to
date, the Operating Partnership has acquired beneficial ownership of four
properties for cash, entered into an agreement to acquire two properties
under development and invested in other real estate limited partnerships
as of the date of this Prospectus, but has not committed the available net
cash proceeds raised to date or to be raised in the future to any
additional specific properties. Therefore, Offerees who elect to accept
the Exchange Offering may not have available any information on additional
properties to be acquired, in which case they will be required to rely on
management's judgment regarding those purchases. In addition, Offerees
will not have the benefit of knowing in advance of deciding whether to
accept the offering the extent of the Operating Partnership's investment
in respect of properties involved in the offering until the offering is
completed.
o The Original Investors in the Operating Partnership serve as executive
officers of the Trust, the Operating Partnership and the Managing
Shareholder (wholly owned and controlled, along with the Corporate General
Partner of each Exchange Partnership, by Mr. McGrath) and will be
compensated for their services. (See "COMPENSATION OF MANAGING PERSONS AND
AFFILIATES.") Each of the Original Investors owns an amount of Operating
Partnership Units (up to 601,080 Units with an initial assigned value of
$6,010,800 when valued at $10.00 per Unit) which are exchangeable (subject
to escrow restrictions described below) into 9.5% of the Trust Common
Shares outstanding as of the earlier to occur of the completion of the
Cash Offering and the Exchange Offering or November 30, 1999, calculated
on a fully diluted basis assuming that all then outstanding Units (other
than those owned by the Trust) have been exchanged into an equivalent
number of Common Shares. (The Original Investors received the Units in
exchange for their initial contributions of $50,000 each to the
capitalization of the Operating Partnership, and such Units have been
deposited into a security escrow account for a period of six to nine
years, subject to earlier release under certain conditions described at
"THE TRUST AND THE OPERATING PARTNERSHIP - Formation Transactions.")
Accordingly, the Original Investors and affiliates have significant
influence over the affairs of the Trust, the Operating Partnership and the
Exchange Partnerships, and the Exchange Offering involves transactions
among them which may result in decisions that do not fully represent the
interests of all Shareholders of the Trust, Unitholders in the Operating
Partnership and limited partners in the Exchange Partnerships. In
addition, Offerees who acquire Operating Partnership Units in the Exchange
Offering will pay a higher price per unit than the Original Investors paid
for their Operating Partnership Units. See "MANAGEMENT" and "THE
28
<PAGE>
TRUST AND THE OPERATING PARTNERSHIP - Formation Transactions" and " -
Ownership of the Trust and the Operating Partnership."
o The Operating Partnership and the Trust will use Units, Common Shares, net
proceeds from the sale of securities, including the Trust's Cash Offering,
and available cash flow from operations to acquire direct or indirect
equity and mortgage and other debt interests in residential apartment
properties. The purchase price to be paid by the Operating Partnership in
the Exchange Offering in respect of each Exchange Equity Partnership and
each Exchange Hybrid Partnership (to the extent of its direct or indirect
equity interest in a property) differs based upon the following factors:
(a) the estimated appraised market value of the underlying property
determined by qualified and licensed independent appraisal firms; (b) the
operating history of the property; (c) the current principal balance of
first mortgage and other indebtedness to which the property is subject;
(d) the amount of distributable cash flow currently being generated by the
property; plus (e) additional factors which the Managing Shareholder
believes are appropriate to consider including, among others, the
property's overall current condition and prospects for the property based
upon improvements made or to be made to the property and, in certain
cases, the combination of two or more phases of the property, which are
expected to be owned upon completion of the Exchange Offering and the
actual or potential benefits to be obtained by the sub-metering of
utilities in order to pass costs from the owner of the property to
individual tenants. The purchase price to be paid by the Operating
Partnership in respect of each of the Exchange Mortgage Partnerships and
each of the Exchange Hybrid Partnerships (to the extent of their mortgage
interests in properties and other debt interests) differs based upon the
following factors: (i) the current principal balance of the amount of debt
which is senior to the mortgage interest to be acquired and other
indebtedness to which the property is subject; (ii) the estimated
appraised market value of the underlying property determined by qualified
and licensed independent appraisal firms; (iii) the operating history of
the property; (iv) the amount of distributable cash flow currently being
generated by the property; plus (v) additional factors which the Managing
Shareholder believes are appropriate to consider including, among others,
the property's overall current condition and prospects for the property
based upon improvements made or to be made to the property and, in certain
cases, the combination of two or more phases of the property, which are
expected to be owned upon completion of the Exchange Offering and the
actual or potential benefits to be obtained by the sub-metering of
utilities in order to pass costs from the owner of the property to
individual tenants. There can be no assurance that the value of property
interests or mortgage interests acquired is fair and reasonable and will
reflect their fair market value.
o Although the Trust has adopted certain policies designed to eliminate or
minimize their effect, potential conflicts of interest may arise among the
Trust, the Operating Partnership, the Managing Shareholder (wholly owned
and controlled, along with the Corporate General Partner of each Exchange
Partnership, by Mr. McGrath), the Original Investors and their respective
affiliates, including certain affiliates which have sponsored and/or
managed, or may in the future sponsor, real estate investment programs
which may seek to acquire interests in properties similar to those which
the Trust and the Operating Partnership will seek to acquire.
Substantially all of the mortgage interests owned by the Exchange
Partnerships relate to properties owned by other limited partnerships
affiliated with Mr. McGrath. The Trust and the Operating Partnership
may be restricted from investing in certain properties since affiliates
of the Managing Shareholder may have other investment vehicles investing
in similar properties. In addition, there will be competing demands for
management resources of the Managing Shareholder, the Trust and the
Operating Partnership and transactions are expected to be completed by
the Trust and the Operating Partnership with affiliates of the Managing
Shareholder. See "CONFLICTS OF INTEREST" and "INVESTMENT OBJECTIVES AND
POLICIES - Conflict of Interest Policies."
o Subject to certain exceptions, the Trust and the Operating Partnership are
authorized to provide or acquire Mortgage Loans as long as, among other
things, the aggregate amount of all mortgage loans outstanding on any
particular underlying property, including the loan of the Trust or the
Operating Partnership, as applicable, would not exceed an amount equal to
80% of the appraised replacement cost new of the property. Replacement
cost new refers to the estimated cost new of the improvements on a
property (estimated on the basis of current prices for the component parts
of a building) without taking into account the deficiencies of the
existing building compared to a new building, plus the estimated current
market value of the underlying land (generally determined using the direct
sales comparison approach).
29
<PAGE>
o Offerees who accept the Exchange Offering may not experience returns
comparable to or in excess of those experienced by Limited Partners in the
Exchange Partnerships.
o The current returns of the Exchange Partnerships may not be achieved by
the Trust and the Operating Partnership after completion of the Exchange
Offering and may be higher or lower than the current returns of other
partnerships which participate in the offering.
o Real estate investment considerations, individually or in the aggregate,
may negatively impact the ability of the Trust and Operating Partnership
to make distributions to Shareholders and Unitholders, including without
limitation the effect of national and local economic and other conditions
on residential apartment property values, the general lack of liquidity of
investments in real estate, the risks associated with investments in
mortgages, the ability of tenants to pay rents, the possibility that
rental units may not be occupied or may be occupied on terms unfavorable
to the Trust and the Operating Partnership, the frequent need for capital
improvements, the possibility that (including the effects of depreciation
and interest) certain properties may have experienced recurring losses for
financial reporting purposes, the possibility of uninsured losses, the
ability of the property investments of the Trust and the Operating
Partnership to generate sufficient cash flow to meet expenses, including
debt service requirements, or to be sold on favorable terms, if at all,
the availability of capital for investment, and competition in seeking
properties for acquisition and in seeking tenants.
o Financing risks exist, including debt service obligations, the ability of
the Trust and the Operating Partnership to incur additional debt, the
potential inability to refinance any mortgage indebtedness of the Trust
and the Operating Partnership upon maturity, risks associated with
possible investments in loans secured by Subordinated Mortgages on
property which may or may not be recorded, and the risk of higher interest
rates on any adjustable interest rate debt or debt incurred to refinance
indebtedness. The Operating Partnership expects to acquire mortgage
interests which are not recorded because of restrictions in loan documents
executed in connection with First Mortgages issued to other unrelated
lenders. If a Mortgage is not recorded, the security interest of the
Operating Partnership would not be perfected and the respective debt would
rank pari passu with all other unsecured creditors of the borrower.
o The Trust and the Operating Partnership will each be permitted to incur
indebtedness in an aggregate amount up to 300% of their respective net
assets (subject to certain exceptions described at "INVESTMENT OBJECTIVES
AND POLICIES - Trust Policies with respect to Certain Activities -
Financing Policies"), which could result in the Trust and the Operating
Partnership becoming highly leveraged, which in turn could adversely
affect the ability of the Trust and the Operating Partnership to make
distributions to Shareholders and Unitholders and increase the risk of
default under their respective indebtedness.
o The distribution requirements for REITs under federal income tax laws may
limit the Trust's ability to finance acquisitions and improvements of
property without additional debt or equity financing; financing such
acquisitions and improvements, in turn, may limit cash available for
distribution to Shareholders and Unitholders. See "TAX STATUS" and
"FEDERAL INCOME TAX CONSIDERATIONS."
o The successful operation of the Trust and the Operating Partnership is
dependent on key management. In addition, each of the Original Investors,
Mr. McGrath and Mr. Geiger, have other business interests and neither will
devote full business time to the Trust, the Operating Partnership or the
Managing Shareholder. See "MANAGEMENT."
o There can be no assurance of the successful completion of the Exchange
Offering and the Cash Offering and it is unlikely that the cash proceeds
from the sale in the Cash Offering of only a minimum number of Common
Shares will be sufficient to meet the investment objectives of the Trust
and the Operating Partnership.
o No public market for the sale of Units is expected to ever develop, and,
although Common Shares (into which Units are exchangeable) may eventually
be listed on a national stock exchange, it is possible that no public
market for the Common Shares will ever develop or be maintained, resulting
in lack of liquidity of the Common Shares.
30
<PAGE>
o The Trust will be taxed as a corporation if it fails to qualify as a REIT
for federal income tax purposes. In that event, the Trust will be liable
for certain federal, state and local income taxes and cash available for
distribution to Shareholders and Unitholders will decrease. Even if the
Trust qualifies for taxation as a REIT, the Trust may be subject to
certain Federal, state and local taxes on its income and property. See
"FEDERAL INCOME TAX CONSIDERATIONS."
o Under certain circumstances described at "FEDERAL INCOME TAX
CONSIDERATIONS - Exchange of Exchange Partnership Units for Operating
Partnership Units," an Exchange Limited Partner may recognize tax upon the
exchange of Exchange Partnership Units for Operating Partnership Units.
o The possible issuance by the Trust and the Operating Partnership of
additional Shares and Units subsequent to the completion of the Exchange
Offering and the Cash Offering, which issuance in turn may result in the
dilution of Offerees who elect to accept this Exchange Offering and
Shareholders of the Trust and affect the then prevailing market price of
Common Shares.
o Certain provisions in the Declaration of Trust for the Trust and other
statutory provisions have the potential to delay or prevent a takeover of
the Trust or other transaction in which the holders of some, or a
majority, of the outstanding Common Shares might receive a premium on
their Common Shares over the then prevailing market price or which such
holders might believe to be otherwise in their best interest. Such
provisions generally limit the actual or constructive ownership by any one
person or entity (other than the Original Investors) of equity securities
in the Trust to 5% of the outstanding Shares.
o As a result of certain amendments which will be made to the partnership
agreement of each Participating Exchange Partnership with one or more
Offerees who elect not to accept the Exchange Offering ("Non-participating
Limited Partners") following the Exchange Offering, such Non-participating
Limited Partners, voting as a class, will have the ability to veto certain
actions of the partnership, such as the sale of the partnership's
property, which might be in the best interest of the partnership, the
Operating Partnership, the Trust or the holders of securities of the Trust
and the Operating Partnership. There can be no assurance that
Non-participating Limited Partners will not use such voting power in a
manner which may have an adverse effect on the operations of the Trust or
the Operating Partnership.
o Following the Exchange Offering, the limited partnership interests of
Non-participating Limited Partners in Participating Exchange Partnerships
are likely to remain extremely illiquid because they will represent a
small minority interest in the partnership and because of the uncertainty
whether the property interests held by the partnership would be sold in
the near future due to the REIT and other provisions of the Code which
would penalize the Trust and possibly limited partners in the partnership
who accept the offering if the Operating Partnership sells the property
interest in the short term.
o The potential liability of the Trust and the Operating Partnership for
unknown or future environmental liabilities and the costs of compliance
with the Americans with Disabilities Act and other governmental
regulations, which may negatively impact the financial condition and
results of operations of the Trust and the Operating Partnership and cash
available to them for distribution to Shareholders and Unitholders.
o The $13,518,420 aggregate book value of the 23 Exchange Partnerships
initially targeted for investment in the Exchange Offering is less than
the $24,980,606 total of the initial value assigned to the Operating
Partnership Units being offered for Exchange Partnership Units. This
discrepancy is due to depreciation taken against the original price paid
by Exchange Equity Partnerships and Exchange Hybrid Partnerships for
direct or indirect equity interests in properties and the appreciation of
the properties since such purchase. As a result, the return on investment
of the Exchange Partnerships based on the initial assigned value of the
Units offered for limited partnership interests in such partnerships will
be less than the return on investment of the partnerships based on their
respective book values.
o Any Offeree who is a limited partner of an Exchange Partnership and does
not desire to participate in the Exchange Offering will be entitled to
retain his limited partnership interest in his respective Exchange
Partnership on substantially the same terms and conditions as his original
investment. Neither applicable law
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<PAGE>
nor the limited partnership agreement relating to any Exchange Partnership
provides any rights of dissent or appraisal to Offerees who do not elect
to accept the Exchange Offering.
o The use of Units being offered in the Exchange Offering and the net
proceeds of the Cash Offering to acquire interests in one or more existing
residential apartment properties may occur over an extended period during
which the Trust and the Operating Partnership will face risks of changes
in interest rates and adverse changes in the real estate market.
Similarly, during periods in which proceeds are invested in interim
investments prior to such application, the Trust and the Operating
Partnership may be affected by changes in prevailing interest rate levels.
Such interim investments would be expected to earn rates of return which
are lower than those earned on the real estate investments of the Trust
and the Operating Partnership.
TAX STATUS
The Operating Partnership
No ruling has been or will be sought from the IRS as to the status of the
Operating Partnership as a partnership for federal income tax purposes. Instead,
the Operating Partnership has relied on the opinion of special tax counsel that,
based upon the Code, the Regulations thereunder, published revenue rulings and
court decisions, the Operating Partnership will be classified as a partnership
for federal income tax purposes. In rendering its opinion, tax counsel has
relied on the following factual representations made by the Operating
Partnership and the Trust, as its General Partner:
o The Operating Partnership has not, and will not, elect to be treated
as an association taxable as a corporation;
o The Operating Partnership has been and will continue to be operated
in accordance with (i) all applicable partnership statutes, (ii) the
Agreement of Limited Partnership of the Operating Partnership, and
(iii) the description in this Prospectus;
o At least 22% in value of all of the assets of the Operating
Partnership shall always consist of assets other than those
described in Section 351(e)(1) of the Code; and
o The Operating Partnership will be operated so as to avoid treatment
as a publicly-traded partnership as set forth in Section 7704 of the
Code and applicable Regulations thereunder.
Under Section 7704 of the Code, certain "publicly-traded" partnerships are
treated as corporations for federal tax purposes. A partnership is a
publicly-traded partnership when interests in the partnership are traded on an
established securities market or are readily tradable on a secondary market or
the substantial equivalent thereof. Under Code Section 7704(c), a
publicly-traded partnership will nevertheless be treated as a partnership for
tax purposes if 90% or more of its gross income for the taxable year and each
preceding taxable year beginning after December 31, 1987, during which the
partnership (or any predecessor) was in existence consists of passive-type
income, such as interest, dividends, real property rents and gain from the sale
or other disposition of real property, and the partnership would not be
described as a regulated investment company under Code Section 851(a) were it a
domestic corporation.
Under Regulation Section 1.7704-1, interests in a partnership are
generally considered readily tradable on a secondary market or the substantial
equivalent thereof if (a) such interests are regularly quoted by any person,
such as a broker or dealer, making a market in the interests, (b) any person
makes available to the public bid or offer quotes with respect to such interests
and stands ready to effect buy or sell transactions at the quoted prices for
itself or on behalf of others, (c) the holder of an interest has a readily
available, regular and on-going opportunity to dispose of his interest through a
public means of obtaining or providing information of offers to buy, sell or
exchange such interests, or (d) prospective buyers and sellers have the
opportunity to buy, sell or exchange interests in a time frame and with the
regularity and continuity that the existence of a secondary market would
provide.
The Operating Partnership and the Trust have represented to special tax
counsel that the Units of the Operating Partnership will not be traded on an
established securities market and will not be readily tradable on a
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<PAGE>
secondary market (or the substantial equivalent thereof) within the meaning of
the Regulations. Additionally, the Operating Partnership and the Trust have
further represented that, at all times throughout the existence of the Operating
Partnership, at least 90% or more of the Operating Partnership's gross income
will consist of passive-type income, and the Operating Partnership will not be a
regulated investment company described in Code Section 851(a). Special tax
counsel has relied on such representations in rendering its opinion that the
Operating Partnership will be classified as a partnership for federal income tax
purposes.
If the Operating Partnership were taxed as a corporation in any taxable
year, its items of income, gain, loss and deduction would be reflected only on
its tax return rather than being passed through to the Unitholders, and its net
income would be taxed to the Operating Partnership at corporate rates currently
ranging to a maximum of 35%. In addition, any distribution made to a Unitholder
would be treated as either taxable dividend income at a rate currently ranging
to a maximum of 39.6% (to the extent of the Operating Partnership's current or
accumulated earnings and profits) or (in the absence of earnings and profits) a
non-taxable return of capital (to the extent of the Unitholder's tax basis in
his Units) or taxable capital gain (after the Unitholder's tax basis in the
Units has been reduced to zero). Accordingly, treatment of the Operating
Partnership as an association taxable as a corporation would result in a
material reduction in a Unitholder's cash flow and after-tax return and thus
would likely result in a substantial reduction of the value of the Units.
Exchange of Exchange Partnership Units for Operating Partnership Units
In general, a contribution by an Exchange Limited Partner of a limited
partnership interest ("Exchange Partnership Units") to the Operating Partnership
in exchange for Operating Partnership Units (the "Exchange") will not result in
the recognition of taxable gain at the time of the Exchange. There is an
exception to this general rule if the Exchange Limited Partner receives in
connection with the Exchange a cash distribution (or a deemed cash distribution
resulting from relief from liabilities) that exceeds such Exchange Limited
Partner's aggregate adjusted basis in his Exchange Partnership Units at the time
of the Exchange and other exceptions to non-recognition of gain described at
"FEDERAL INCOME TAX CONSIDERATIONS - Exchange of Exchange Partnership Units for
Operating Partnership Units." Special tax counsel is unable to issue an opinion
as to whether or not a particular Exchange Limited Partner will defer
recognition of gain upon the Exchange due to the number of factors that must be
considered with respect to each Exchange Limited Partner.
The Offerees will not receive any cash distributions in connection with
the Exchange Offering. Whether a particular Exchange Limited Partner will
receive a deemed cash distribution attributable to relief from liabilities in
connection with the Exchange that exceeds his adjusted basis in his Exchange
Partnership Units at the time of the Exchange will depend on a number of
variables, including such Exchange Limited Partner's adjusted tax basis in his
partnership interest at such time, the assets that the Exchange Limited Partner
originally contributed to the partnership in exchange for such Exchange
Partnership Units, the indebtedness, if any, of the Exchange Partnership in
which the Exchange Limited Partner owns an interest at the time of the Exchange,
the tax basis of any such contributed assets in the hands of the Exchange
Partnership at the time of the Exchange, the Exchange Limited Partner's share of
the "unrealized gain" with respect to the Exchange Partnership's assets at the
time of the Exchange, and the extent to which the Exchange Limited Partner
includes in his basis for his Exchange Partnership Units a share of the Exchange
Partnership's recourse liabilities by reason of indemnification or "deficit
restoration" obligations that will be eliminated by reason of the Exchange. See
"FEDERAL INCOME TAX CONSIDERATIONS Exchange of Exchange Partnership Units for
Operating Partnership Units."
The Trust
The Trust has elected to be taxed as a REIT under Sections 856 through 860
of the Code, commencing with its taxable year ending December 31, 1998. To
maintain REIT status, an entity must meet a number of organizational and
operational requirements, including a requirement that it currently distribute
to its shareholders at least 95% of its REIT taxable income (determined without
regard to the dividends paid deduction and by excluding net capital gains).
As a REIT, the Trust generally will not be subject to federal income tax
on net income it distributes currently to its Shareholders. If the Trust fails
to qualify as a REIT in any taxable year, it will be subject to federal income
tax at regular corporate rates and may not be able to qualify as a REIT for the
four subsequent taxable years.
33
<PAGE>
See "RISK FACTORS - Adverse Consequences of Failure to Qualify as a REIT" and
the Cash Offering Prospectus at "FEDERAL INCOME TAX CONSIDERATIONS." Even if the
Trust qualifies for taxation as a REIT, the Trust may be subject to certain
federal, state and local taxes on its income and property.
COMPENSATION OF MANAGING PERSONS AND AFFILIATES
The Trust is not entitled to receive any compensation for services
performed in its capacity as General Partner of the Operating Partnership. The
Trust, however, is entitled to be reimbursed on a monthly basis for expenses
incurred on behalf of the Operating Partnership, subject to certain limitations
described below. The Trust will contribute all net proceeds from the sale of
Common Shares in the Cash Offering to the Operating Partnership in exchange for
an equivalent number of Units, and as the owner of such Units will have
generally the same economic rights and other rights as other Unitholders. See
"THE TRUST AND THE OPERATING PARTNERSHIP - The Operating Partnership." The
Operating Partnership Agreement authorizes the Trust to cause the Operating
Partnership to issue additional Units to the Unitholders or to third parties or
the Trust which have designations, preferences or other special rights that are
senior to those of the Unitholders.
No special fees or commissions were or will be paid to the Managing
Shareholder (wholly owned and controlled, along with the Corporate General
Partner of each Exchange Partnership, by Mr. McGrath) or any affiliates in
connection with the Exchange Offering. Broker-dealers who assist the Operating
Partnership in consummating the Exchange Offering with individual Offerees who
accept the Exchange Offering will be paid as a commission a number of
unregistered Common Shares of the Trust equal to 5% of the Units exchanged in
the particular transactions as a result of their efforts.
The following table describes all material fees, compensation,
reimbursable expenses and other payments that may be received by the Managing
Shareholder, the Independent Trustees and executive officers of the Trust, the
Operating Partnership and the Managing Shareholder in exchange for their
respective services and expenses incurred in connection with the Cash Offering
and preparation of the Prospectus relating thereto, the operation of the Trust
and the Operating Partnership and investments investigated, evaluated and
consummated by the Trust and the Operating Partnership. The determination of the
type and amount of such compensation and payments was not the result of
arms'-length negotiation. See "CONFLICTS OF INTEREST."
The Independent Trustees must determine that organizational and offering
expenses payable by the Trust and the Operating Partnership in connection with
the formation of the Trust and the Operating Partnership and any offerings of
Shares or Units is reasonable and in no event exceeds an amount equal to 15% of
the gross proceeds of the particular offering. (See Section 1.9(g) of the
Declaration of Trust.)
The Independent Trustees must determine that the total amount of
acquisition fees and expenses payable by the Trust or the Operating Partnership
in connection with acquiring its investments is reasonable and in no event
exceeds an amount equal to 6% of the purchase price of the subject property, or
in the case of a mortgage loan provided or acquired by the Trust or the
Operating Partnership, 6% of the funds advanced, unless a majority of the
disinterested members of the Board of the Trust and a majority of the
disinterested Independent Trustees approve payment of an acquisition fee in
excess of such amounts based upon their determination that such fee is
commercially competitive, fair and reasonable to the Trust and the Operating
Partnership. (See Section 1.9(h) of the Declaration of Trust.)
The total operating expenses (excluding certain items, including capital
raising expenses, interest payments, taxes, non-cash expenditures such as
depreciation, and acquisition fees and expenses) of each of the Trust and the
Operating Partnership in any fiscal year may not exceed the greater of (i) 2% of
the aggregate book value of their respective investments, or (ii) 25% of their
respective net income for such year unless the Independent Trustees make a
finding that, based on such unusual and non-recurring factors which they deem
sufficient, a higher level of such operating expenses is justified for such
year. (See the sixth bullet point on page 199 of this Prospectus and Section
1.9(i) of the Declaration of Trust.) It is likely that the total operating
expenses of the Trust and the Operating Partnership for their initial years of
operations will exceed the 2%/25% limitations described above. In August 1998,
the Independent Trustees made a finding that such expenses are justified in
respect of the first fiscal year of operations on the basis that (i) the Trust
and the Operating Partnership are start-up companies which will expand
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<PAGE>
their property interests through acquisitions paid for with net proceeds from
the Cash Offering and Units in exchange transactions, including the Exchange
Offering, and (ii) significant start-up expenses incurred to cover the
acquisition or leasing of equipment, rental obligations and leasehold
improvements and salary expenses as a percentage of assets or net income will
decrease as operations expand.
The payment by the Trust and the Operating Partnership of an interest in
the gain from the sale of their respective assets, for which full consideration
is not paid in cash or property of equivalent value, is allowed provided the
amount or percentage of such interest is reasonable. Such an interest is
considered reasonable if it does not exceed 15% of the balance of such net
proceeds remaining after payment to Shareholders or Unitholders (as applicable),
in the aggregate, of an amount equal to 100% of the original issue price of
their Shares or Units, plus an amount equal to 6% of the original issue price of
their Shares or Units, per annum cumulative. For purposes of this calculation,
the original issue price of Shares and Units may be reduced by prior cash
distributions to Shareholders and Unitholders, as applicable.
(See Section 1.9(ee) of the Declaration of Trust.)
Additional fees that are not described in this Prospectus which may become
payable to affiliated parties for goods and services that may be provided to the
Trust or the Operating Partnership in the future will require the approval of a
majority of the Independent Trustees.
OFFERING AND ORGANIZATIONAL STAGE
---------------------------------
<TABLE>
<CAPTION>
Recipient Type of Compensation Maximum Amount
- --------- -------------------- --------------
<S> <C> <C>
Managing Shareholder (Baron Reimbursement for distribution, due Not to exceed $250,000
Advisors) diligence and organizational expenses
incurred in connection with the formation of the
Trust and the Operating Partnership and with the
Cash Offering in an amount not to exceed 1% of
gross proceeds from the Cash Offering.
Managing Shareholder Reimbursement for legal, accounting and Not to exceed $250,000
consulting fees and filing, recording,
printing, postage and other miscellaneous
expenses incurred in connection with the Cash
Offering in an amount not to exceed 1% of
gross proceeds from the Cash Offering.
Baron Capital Properties, No compensation will be payable to the Reimbursable expenses are
Inc. (the Corporate Trustee Corporate Trustee for performing services on expected to be limited to the
of the Trust) behalf of the Trust at the direction of the expense of operating an office
Managing Shareholder; however, reimbursement in Delaware (approximately
will be made for reasonable expenses $1,500 per year initially) as
incurred on behalf of the Trust which are required by the Delaware Act -
approved in advance by the Managing see "MANAGEMENT - Corporate
Shareholder. Trustee."
</TABLE>
35
<PAGE>
OFFERING AND ORGANIZATIONAL STAGE (cont'd)
------------------------------------------
<TABLE>
<CAPTION>
Recipient Type of Compensation Maximum Amount
- --------- -------------------- --------------
<S> <C> <C>
Managing Shareholder and The Managing Shareholder and certain Amount of reimbursable expenses
Affiliates affiliates are entitled to be reimbursed by incurred on behalf of the Trust
the Trust and the Operating Partnership for and the Operating Partnership.
all reasonable direct expenses incurred on
behalf of the Trust and the Operating
Partnership, as the case may be, including but
not limited to legal, accounting and consulting
fees and other expenses, to the extent those
expenses were incurred by them in carrying out
responsibilities assigned to them under the
Declaration of Trust and the Operating
Partnership Agreement and do not constitute
payment for activities for which they already
receive a fee, compensation and reimbursement as
described herein.
</TABLE>
ACQUISITION AND OPERATING STAGE
-------------------------------
<TABLE>
<S> <C> <C>
Managing Shareholder Reimbursement for expenses incurred prior Not to exceed $1,000,000;
to and during the Cash Offering for (reimbursable expenses paid in
investigating and evaluating investment connection with investment
opportunities for the Trust and the activities plus other
Operating Partnership (other than the acquisition fees and expenses
Exchange Properties) and for assisting them may not exceed 6% of the
in consummating their investments, in an contract purchase price for
amount not to exceed 4% of gross proceeds acquisitions unless the
from the Cash Offering; payable from Independent Trustees determine
available net proceeds of the Cash Offering that the transaction is
or as cash flow permits as determined by commercially reasonable).
the Board of the Trust.
Managing Shareholder Annual payment under the Trust Management Not to exceed $500,000 per year;
Agreement to reimburse it for its operating payable on a monthly basis
expenses relating to the business of the during the term of the agreement
Trust and the Operating Partnership, in an beginning June 1, 1998; at its
amount not to exceed 1% of gross proceeds option the Managing Shareholder
of the Cash Offering plus 1% of the initial may elect to be paid in Common
assigned value of Units issued in Shares with an equivalent value.
connection with the Exchange Offering.
</TABLE>
36
<PAGE>
ACQUISITION AND OPERATING STAGE (cont'd)
----------------------------------------
<TABLE>
<CAPTION>
Recipient Type of Compensation Maximum Amount
- --------- -------------------- --------------
<S> <C> <C>
Gregory K. McGrath, a Initial year's compensation Payable in the form of Common Shares of the
founder of the Trust and the Trust or Operating Partnership Units in an
Operating Partnership and amount not to exceed 25,000 shares of the
Chief Executive Officer of Trust or 25,000 Units in the initial year of
the Trust, the Operating operations to be determined by the Executive
Partnership and the Managing Compensation Committee of the Board of the
Shareholder Trust, plus health benefits; thereafter, his
compensation and benefits will be determined
by the committee. In exchange for an initial
cash capital contribution to the Operating
Partnership, Mr. McGrath subscribed for Units
which are exchangeable (subject to certain
escrow restrictions) into 9.5% of the Common
Shares outstanding as of the earlier to occur
of the completion of the Cash Offering and
the Exchange Offering or November 30, 1999,
calculated on a fully diluted basis assuming
that all then outstanding Units (other than
those owned by the Trust) have been exchanged
into an equivalent number of Common Shares.
See "THE TRUST AND THE OPERATING PARTNERSHIP
- Formation Transactions."
Robert S. Geiger, a founder Initial annual compensation $100,000, plus health benefits and
of the Trust and the eligibility to participate in any option plan
Operating Partnership and and bonus incentive plan which may be
Chief Operating Officer of implemented by the Executive Compensation
the Trust, the Operating Committee of the Board of the Trust. In
Partnership and the Managing exchange for an initial cash capital
Shareholder contribution to the Operating Partnership,
Mr. Geiger has been issued Units which are
exchangeable (subject to certain escrow
restrictions) into 9.5% of the Common Shares
outstanding as of the earlier to occur of the
completion of the Cash Offering and the
Exchange Offering or November 30, 1999,
calculated on a fully diluted basis assuming
that all then outstanding Units (other than
those owned by the Trust) have been exchanged
into an equivalent number of Common Shares.
See "THE TRUST AND THE OPERATING PARTNERSHIP
- Formation Transactions."
</TABLE>
37
<PAGE>
ACQUISITION AND OPERATING STAGE (cont'd)
----------------------------------------
<TABLE>
<CAPTION>
Recipient Type of Compensation Maximum Amount
- --------- -------------------- --------------
<S> <C> <C>
Robert L. Astorino, Initial annual salary $150,000, plus health benefits and
President - Properties of eligibility to participate in any
the Operating Partnership option plan and bonus incentive plan
which may be implemented by the
Executive Compensation Committee of
the Board of the Trust.
Mark L. Wilson, Chief Initial annual salary $110,000, plus health benefits and
Financial Officer of the eligibility to participate in any
Operating Partnership and option plan and bonus incentive plan
Secretary of the Trust which may be implemented by the
Executive Compensation Committee of
the Board of the Trust.
Independent Trustees Annual fee $6,000
Managing Shareholder and Subject to operational limitations on The compensation, price or fee
Affiliates REITs for federal income tax purposes, payable must be comparable to and
the Trust is authorized to contract competitive with that charged by a
with the Managing Shareholder and third party rendering comparable
affiliates to provide goods and goods and services which could
services other than those specified reasonably be made available to the
herein, but no such contract is Trust.
contemplated at this time. Any such
contract would require, among other
things, that such persons be
previously engaged in the business of
providing such goods or services as an
ongoing business and that the
compensation, price or fee does not
exceed that specified in the third
column.
</TABLE>
The tables below set forth (i) the actual amounts of compensation and
distributions, separately identified, paid by each Exchange Partnership to its
general partner (all such general partners are owned and controlled by an
Original Investor, Gregory K. McGrath) for such partnerships' last three fiscal
years and most recently ended interim period; and (ii) the amounts of
compensation and distributions that would have been paid to the Managing
Shareholder if the compensation and distributions structure to be in effect
after the Exchange Offering had been in effect during such period.
38
<PAGE>
Baron Capital Properties, L.P.
Schedule of Pre/Post Transaction Payments to General Partner
*********************************** Assumption: Offering not yet completed.
<TABLE>
<CAPTION>
Property Fund 1996 1996 1996
Name Name Management Accounting Total
<S> <C> <C> <C> <C>
Blossom Corners I Florida Income Growth Fund V, Ltd. 13,930 3,900 17,830
Bridgepoint Florida Capital Income Fund III, Ltd. 11,423 3,900 15,323
Brookwood Way Midwest Income Growth Fund VI, Ltd. 12,138 3,900 16,038
Camellia Court Florida Opportunity Income Partners 13,736 3,900 17,636
Eagle Lake Florida Capital Income Fund, Ltd. 19,024 3,900 22,924
Forest Glen I Florida Capital Income Fund II, Ltd. 16,802 3,900 20,702
Forest Glen II Realty Opportunity Income Fund VIII, 9,260 3,900 13,160
Ltd.
Forest Glen III Florida Income Advantage Fund I, Ltd. 9,314 3,900 13,214
Forest Glen IV Florida Income Appreciation Fund 2,996 3,900 6,896
Glen Lake Arms Florida Capital Income Fund IV, Ltd. 37,779 3,900 41,679
Laurel Oaks/Grove Central Florida Income Appreciation 11,970 3,900 15,870
Hamlet Fund, Ltd.
Stadium Club GSU Stadium Student Apartments, Ltd. 22,486 3,900 26,386
Steeplechase Baron Strategic Investment Fund II, 12,265 3,900 16,165
Ltd.
Baron Strategic Investment Fund, Ltd.
Baron Strategic Investment Fund IV, Ltd.
Baron Strategic Investment Fund V, Ltd.
Baron Strategic Investment Fund VI, Ltd.
Baron Strategic Investment Fund VIII, Ltd.
Baron Strategic Investment Fund IX, Ltd.
Baron Strategic Investment Fund X, Ltd.
Baron Strategic Vulture Fund I, Ltd.
Brevard Mortgage Program, Ltd.
Lamplight Court of Bellefontaine, Ltd.
-----------------------------------
193,122 50,700 243,822
===================================
<CAPTION>
Property Fund 1997 1997 1997
Name Name Management Accounting Total
<S> <C> <C> <C> <C>
Blossom Corners I Florida Income Growth Fund V, Ltd. 13,680 3,900 17,580
Bridgepoint Florida Capital Income Fund III, Ltd. 10,961 3,900 14,861
Brookwood Way Midwest Income Growth Fund VI, Ltd. 12,847 3,900 16,747
Camellia Court Florida Opportunity Income Partners 11,512 3,900 15,412
Eagle Lake Florida Capital Income Fund, Ltd. 18,361 3,900 22,261
Forest Glen I Florida Capital Income Fund II, Ltd. 16,387 3,900 20,287
Forest Glen II Realty Opportunity Income Fund VIII, 8,267 3,900 12,167
Ltd.
Forest Glen III Florida Income Advantage Fund I, Ltd. 8,860 3,900 12,760
Forest Glen IV Florida Income Appreciation Fund 2,929 3,900 6,829
Glen Lake Arms Florida Capital Income Fund IV, Ltd. 38,409 3,900 42,309
Laurel Oaks/Grove Central Florida Income Appreciation 11,429 3,900 15,329
Hamlet Fund, Ltd.
Stadium Club GSU Stadium Student Apartments, Ltd. 24,320 3,900 28,220
Steeplechase Baron Strategic Investment Fund II, 12,252 3,900 16,152
Ltd.
Baron Strategic Investment Fund, Ltd.
Baron Strategic Investment Fund IV, Ltd.
Baron Strategic Investment Fund V, Ltd.
Baron Strategic Investment Fund VI, Ltd.
Baron Strategic Investment Fund VIII, Ltd.
Baron Strategic Investment Fund IX, Ltd.
Baron Strategic Investment Fund X, Ltd.
Baron Strategic Vulture Fund I, Ltd.
Brevard Mortgage Program, Ltd.
Lamplight Court of Bellefontaine, Ltd.
------------------------------------
190,213 50,700 240,913
====================================
<CAPTION>
Property Fund 1998 1998 1998
Name Name Management Accounting Total
<S> <C> <C> <C> <C>
Blossom Corners I Florida Income Growth Fund V, Ltd. 17,459 3,900 21,359
Bridgepoint Florida Capital Income Fund III, Ltd. 12,582 3,900 16,482
Brookwood Way Midwest Income Growth Fund VI, Ltd. 14,802 3,900 18,702
Camellia Court Florida Opportunity Income Partners 14,524 3,900 18,424
Eagle Lake Florida Capital Income Fund, Ltd. 20,527 3,900 24,427
Forest Glen I Florida Capital Income Fund II, Ltd. 18,628 3,900 22,528
Forest Glen II Realty Opportunity Income Fund VIII, 10,606 3,900 14,506
Ltd.
Forest Glen III Florida Income Advantage Fund I, Ltd. 9,397 3,900 13,297
Forest Glen IV Florida Income Appreciation Fund 2,852 3,900 6,752
Glen Lake Arms Florida Capital Income Fund IV, Ltd. 36,486 3,900 40,386
Laurel Oaks/Grove Central Florida Income Appreciation 14,649 3,900 18,549
Hamlet Fund, Ltd.
Stadium Club GSU Stadium Student Apartments, Ltd. 22,082 3,900 25,982
Steeplechase Baron Strategic Investment Fund II, 15,353 3,900 19,253
Ltd.
Baron Strategic Investment Fund, Ltd.
Baron Strategic Investment Fund IV, Ltd.
Baron Strategic Investment Fund V, Ltd.
Baron Strategic Investment Fund VI, Ltd.
Baron Strategic Investment Fund VIII, Ltd.
Baron Strategic Investment Fund IX, Ltd.
Baron Strategic Investment Fund X, Ltd.
Baron Strategic Vulture Fund I, Ltd.
Brevard Mortgage Program, Ltd.
Lamplight Court of Bellefontaine, Ltd.
----------------------------------------
209,947 50,700 260,647
========================================
<CAPTION>
1st Qtr 1st Qtr 1st Qtr
Property Fund 1999 1999 1999 Total
Name Name Management Accounting Total
<S> <C> <C> <C> <C> <C>
Blossom Corners I Florida Income Growth Fund V, Ltd. 5,489 975 6,464 63,232
Bridgepoint Florida Capital Income Fund III, Ltd. 4,371 975 5,346 52,011
Brookwood Way Midwest Income Growth Fund VI, Ltd. 4,915 975 5,890 57,376
Camellia Court Florida Opportunity Income Partners 4,912 975 5,887 57,359
Eagle Lake Florida Capital Income Fund, Ltd. 6,330 975 7,305 76,918
Forest Glen I Florida Capital Income Fund II, Ltd. 6,170 975 7,145 70,662
Forest Glen II Realty Opportunity Income Fund VIII, 4,410 975 5,385 45,218
Ltd.
Forest Glen III Florida Income Advantage Fund I, Ltd. 3,873 975 4,848 44,118
Forest Glen IV Florida Income Appreciation Fund 2,293 975 3,268 23,744
Glen Lake Arms Florida Capital Income Fund IV, Ltd. 11,179 975 12,154 136,528
Laurel Oaks/Grove Central Florida Income Appreciation 5,421 975 6,396 56,145
Hamlet Fund, Ltd.
Stadium Club GSU Stadium Student Apartments, Ltd. 6,788 975 7,763 88,352
Steeplechase Baron Strategic Investment Fund II, 5,189 975 6,164 57,733
Ltd.
Baron Strategic Investment Fund, Ltd.
Baron Strategic Investment Fund IV, Ltd.
Baron Strategic Investment Fund V, Ltd.
Baron Strategic Investment Fund VI, Ltd.
Baron Strategic Investment Fund VIII, Ltd.
Baron Strategic Investment Fund IX, Ltd.
Baron Strategic Investment Fund X, Ltd.
Baron Strategic Vulture Fund I, Ltd.
Brevard Mortgage Program, Ltd.
Lamplight Court of Bellefontaine, Ltd.
------------------------------------------------------
71,340 12,675 84,015 829,396
======================================================
</TABLE>
Note:
1) The assumption made is that the Original Investor and Affiliates
controlled management during the full periods, 1996 through 1998. Actually
Original Investor and Affiliates controlled management and received
payment only during 7/98 through 12/98.
2) Received a total of $343,100 for all properties and $89,000 for Exchange
Properties from 7/98 through 12/98.
3) Fee amounts based upon 5% management fee, $325/mo. accounting fee and
$500-$1,000/mo. administrative fee.
4) General Partner is not entitled to distributions until all limited
partners are compensated at 12-15% return on investment annually.
39
<PAGE>
Baron Capital Properties, L.P.
Schedule of Pre/Post Transaction Payments to General Partner
********************* Assumption: Exchange Offering was completed 3 years ago.
<TABLE>
<CAPTION>
Property Fund 1st Qtr
Name Name 1996 1997 1998 1999 Total
<S> <C> <C> <C> <C> <C> <C>
Blossom Corners I Florida Income Growth Fund V, Ltd. 7,025 10,829 4,618 1,140 23,611
Bridgepoint Florida Capital Income Fund III, Ltd. 7,448 6,331 1,120 188 15,087
Brookwood Way Midwest Income Growth Fund VI, Ltd. 1,220 2,850 2,850 380 7,300
Camellia Court Florida Opportunity Income Partners 7,357 7,600 7,600 0 22,557
Eagle Lake Florida Capital Income Fund, Ltd. 7,667 6,320 950 475 15,411
Forest Glen I Florida Capital Income Fund II, Ltd. 6,341 469 2,410 475 9,696
Forest Glen II Realty Opportunity Income Fund VIII, Ltd. 5,338 285 1,520 95 7,238
Forest Glen III Florida Income Advantage Fund I, Ltd. 5,516 1,051 1,986 190 8,742
Forest Glen IV Florida Income Appreciation Fund 1,721 189 775 0 2,685
Glen Lake Arms Florida Capital Income Fund IV, Ltd. 15,261 16,752 9,168 0 41,181
Laurel Oaks/Grove Hamlet Central Florida Income Appreciation Fund, Ltd. 7,018 0 391 950 8,359
Stadium Club GSU Stadium Student Apartments, Ltd. 9,506 9,755 7,109 950 27,319
Steeplechase Baron Strategic Investment Fund II, Ltd. 1,857 6,460 1,292 190 9,799
Baron Strategic Investment Fund, Ltd. 2,984 11,020 4,845 1,140 19,989
Baron Strategic Investment Fund IV, Ltd. 32 4,131 8,433 190 12,785
Baron Strategic Investment Fund V, Ltd. 77 8,745 11,400 1,140 21,362
Baron Strategic Investment Fund VI, Ltd. 270 10,655 9,391 812 21,128
Baron Strategic Investment Fund VIII, Ltd. 0 5,622 9,349 466 15,436
Baron Strategic Investment Fund IX, Ltd. 0 1,092 7,955 285 9,331
Baron Strategic Investment Fund X, Ltd. 0 3,525 9,305 1,060 13,891
Baron Strategic Vulture Fund I, Ltd. 5,241 8,028 8,235 2,138 23,641
Brevard Mortgage Program, Ltd. 4,655 5,463 5,463 0 15,580
Lamplight Court of Bellefontaine, Ltd. 3,128 6,629 5,368 475 15,599
------------------------------------------------------
99,660 133,798 121,530 12,739 367,726
======================================================
</TABLE>
Notes:
1) The distributions equal the 9.5% interest deemed to be owned by the Original
Investor in each Exchange Partnership.
2) Excludes any compensation to be awarded to Mr. McGrath as Chief Executive
Officer, which has not yet been determined by the Trustees.
40
<PAGE>
CONFLICTS OF INTEREST
The Managing Shareholder (wholly owned and controlled, along with the
Corporate General Partner of each Exchange Partnership, by Mr. McGrath) will use
its best efforts to conduct the affairs of the Trust and the Operating
Partnership for the benefit of the Shareholders and Unitholders, respectively.
However, the Trust and the Operating Partnership are subject to various
conflicts of interest arising out of their relationship with the Managing
Shareholder, affiliates of the Managing Shareholder, the Original Investors, the
Shareholders and the Unitholders, including but not limited to those described
below.
The Managing Shareholder was formed for the sole purpose of serving as the
Managing Shareholder of the Trust. Certain affiliates of the Managing
Shareholder, however, have formed, manage or participate in other partnerships
or entities which engage in real estate activities and may acquire and/or
develop real estate for their own accounts. Affiliates of the Managing
Shareholder are corporate general partners of 51 other Delaware or Florida real
estate limited partnerships, including the 23 Exchange Partnerships, that were
previously organized to invest in separate residential apartment properties and
single-family housing and retail projects located in southeastern and
mid-western areas of the United States. Of such partnerships, 19 have invested
in record title to residential apartment properties or in limited partnership or
other equity interests in limited partnerships or other entities which own a
direct or indirect equity interest in such type of property, 19 have provided or
acquired mortgage loans secured by such type of property, five have invested in
Subordinated Mortgage Loans to developers of single-family homes, five have
invested in Subordinated Mortgage Loans to developers of condominium projects,
two have invested in Subordinated Mortgage Loans to shopping center developers
and one has invested in a Subordinated Mortgage for land for development.
Generally, each such program has a separate general partner and involves
separate projects or phases of projects which have been separately financed and
operated on a "stand-alone" basis. See "MANAGEMENT" and "PRIOR PERFORMANCE OF
AFFILIATES OF MANAGING SHAREHOLDER." It is expected that affiliates of the
Managing Shareholder will organize similar programs in the future.
Certain affiliates of the Managing Shareholder (wholly owned and
controlled, along with the Corporate General Partner of each Exchange
Partnership, by Mr. McGrath) have sponsored or may sponsor real estate
investment limited partnerships which may seek to acquire interests in
properties similar to those which the Trust may seek to acquire. In addition,
the Trust may attempt to acquire interests in properties from certain
partnerships or other entities, including the Exchange Partnerships, managed by
affiliates of the Managing Shareholder that directly or indirectly own interests
in properties or from investors in such partnerships. Substantially all of the
Mortgage and other debt interests owned by the prior partnerships relate to
properties owned by other limited partnerships or other entities affiliated with
Mr. McGrath.
Furthermore, the Original Investors, Mr. McGrath and Mr. Geiger, serve as
executive officers of the Trust, the Operating Partnership and the Managing
Shareholder and are principal Unitholders in the Operating Partnership. Mr.
McGrath is also the sole principal of the Managing Shareholder and of the
corporate general partners of the real estate investment limited partnerships
described above (including the Exchange Partnerships), certain of which own
interests in residential apartment properties in which the Trust and the
Operating Partnership may acquire an interest. In addition, affiliates of Mr.
McGrath are also the corporate general partners of limited partnerships which
are debtors under Subordinated Mortgage Loans and other debt interests owned by
certain of the Exchange Partnerships, and in such capacity, Mr. McGrath holds an
indirect minority economic interest in such partnerships which is subordinate to
the preferred returns of their limited partners. Therefore, individually and
collectively the Original Investors have significant influence over the affairs
of the Trust, the Operating Partnership and the Exchange Partnerships which may
result in decisions that do not fully represent the interests of all
Shareholders, Unitholders and Exchange Limited Partners. The Original Investors
also have other business interests, including other real estate investments, and
will not devote all of their business time to the operations of the Trust and
the Operating Partnership.
In order to eliminate or minimize conflicts of interest among the Trust,
the Operating Partnership, the Managing Shareholder, the Original Investors and
their respective affiliates which may arise in such situations, the Trust has
adopted provisions in the Declaration which require that at least a majority of
the members of the Board be Independent Trustees and that a majority of the
Board, and, in certain cases, a majority of the Independent Trustees, approve
transactions between the Trust and the Managing Shareholder, a Trustee, any
other member of the Board or any of their respective affiliates. See "SUMMARY OF
DECLARATION OF TRUST - Control of Operations."
In addition, the Board of the Trust has adopted a policy designed to
eliminate or minimize potential conflicts of interest which may arise in respect
of investment opportunities which may be presented to the Managing Shareholder,
an Independent Trustee, any other member of the Board, an Original Investor or
any of their respective affiliates. Under the policy, such parties may pursue
for their own account a residential apartment property investment opportunity
which may be suitable for the Trust and the Operating Partnership, in accordance
with the purposes for which they were organized, only
41
<PAGE>
upon fulfillment of the following conditions. First, the requesting party or
parties must deliver to the Board of the Trust, at least 60 days prior to the
consummation of any such transaction, a written investment proposal identifying
the parties to be involved in such transaction, specifying in reasonable detail
the proposed terms and conditions of the particular investment opportunity
intended to be pursued and granting the Trust and the Operating Partnership a
right of first refusal, exercisable within 30 days following the delivery of
such proposal, to participate in the proposed transaction in the place of the
requesting party or parties, on the terms and conditions specified in the
written proposal. In addition, the requesting party or parties either (i) must
receive written notice from a majority of the disinterested members of the Board
(i.e., those persons who have no other interest in any such transaction beyond
their role on the Board), or an authorized representative acting on their
behalf, which specifies that the Trust and the Operating Partnership have
determined not to participate in the proposed transaction or (y) must have not
received from the disinterested members of the Board, or an authorized
representative acting on their behalf, written notice, within 30 days following
the receipt of such written proposal, which notifies the requesting party or
parties that the Trust and the Operating Partnership elect to exercise their
right of first refusal to participate in the proposed transaction on the terms
and conditions specified in the written proposal. See "Investment Objectives And
Policies - Trust Policies With Respect To Certain Activities - Conflict Of
Interest Policies."
The Board of the Trust and the Independent Trustees are responsible for
overseeing the policy under the circumstances described above to insure that it
is applied fairly to the Trust. However, there can be no assurance that the
policies of the Trust and the Operating Partnership will always be successful in
eliminating or minimizing the influence of such conflicts, and, if they are not
successful, decisions could be made that might fail to reflect fully the
interests of all Shareholders and Unitholders.
In certain cases, the management of the Managing Shareholder and its
affiliates is identical. For example, the Chief Executive Officer, sole
stockholder and sole director of the Managing Shareholder is Gregory K. McGrath,
who is also the President, sole director and sole shareholder of each of the
corporate general partners of the investment programs referred to in the second
paragraph of this section. See "MANAGEMENT." As a result, the activities of
other investment programs organized by affiliates of the Managing Shareholder
may also result in conflicting demands upon the time and effort of the
management of the Managing Shareholder in the performance of its duties to the
Trust and the Operating Partnership. However, the Managing Shareholder will
devote as much attention to the activities of the Trust and the Operating
Partnership as is reasonably necessary to manage them.
In the event that any dispute arises in which the interests of the Trust
or the Operating Partnership and any other programs sponsored by the affiliates
of the Managing Shareholder diverge, the Trust, if necessary, intends to retain
separate counsel for each party with an adverse interest.
The Managing Shareholder, the Original Investors and certain affiliates
are entitled under the Declaration of Trust and other agreements to receive
compensation, payments and reimbursements discussed in this Prospectus. Such
compensation generally was not determined through a process of arm's-length
bargaining. The amounts payable and terms of such transactions may not
necessarily be determined by reference to costs to the Managing Shareholder, the
Original Investors or such affiliates, independent appraisals or comparable
third party transactions. As a result, the compensation or terms may not reflect
the fair market value of the services rendered or to be rendered to the Trust or
the Operating Partnership by the Managing Shareholder, the Original Investors or
affiliates or the value of the property acquired or disposed of.
In addition, the level of reimbursable expenses payable to the Managing
Shareholder or its affiliates in connection with the organization and operation
of the Trust may be greater or less than compensation or reimbursable expenses
payable in connection with the organization and operation of the other
investment programs sponsored by such affiliates.
The interests of the Shareholders and Unitholders may be inconsistent in
some respects with the interests of the Managing Shareholder (wholly owned and
controlled, along with the Corporate General Partner of each Exchange
Partnership, by Mr. McGrath). The Managing Shareholder and certain of its
affiliates, by reasons of their interests in the Trust and their receipt of
compensation and reimbursable expenses from the Trust, have and will have
potential conflicts of interest in connection with their performance of certain
activities. For example, a transaction such as a sale of the property of the
Trust or the Operating Partnership may produce an economic benefit for the
Managing Shareholder and/or an Affiliate but adverse tax consequences for the
Shareholders and Unitholders. Also, circumstances may arise where termination of
business by the Trust or the Operating Partnership may be advantageous to the
Managing Shareholder and/or affiliates, while continuation of the Trust and/or
the Operating Partnership might be advantageous to the Shareholders and the
Unitholders.
The Declaration of Trust and the Operating Partnership Agreement provide
that the Trust and the Operating Partnership will indemnify the Managing
Shareholder, Independent Trustees, other members of the Board of the Trust and
each of their respective affiliates and their respective officers, directors,
shareholders, partners, agents and employees against
42
<PAGE>
certain liabilities, and the availability of such indemnification could affect
the actions of such indemnified parties. See "SUMMARY OF DECLARATION OF TRUST -
Liability and Indemnification" and "COMPARISON OF RIGHTS OF HOLDERS OF EXCHANGE
PARTNERSHIP UNITS, OPERATING PARTNERSHIP UNITS AND TRUST COMMON SHARES -
Liability and Indemnification."
The Managing Shareholder (wholly owned and controlled, along with the
Corporate General Partner of each Exchange Partnership, by Mr. McGrath) intends
to utilize the services of certain suppliers of goods and services for the Trust
and the Operating Partnership that have previously provided goods or services to
prior investment programs organized by affiliates of the Managing Shareholder.
While such providers of goods and services are unaffiliated with the Managing
Shareholder, the existence of previous business relationships may affect the
ability of the Managing Shareholder to independently represent the interests of
the Trust and the Operating Partnership with respect to such providers of goods
and services in light of such other business relationships. While the Managing
Shareholder believes that it has represented and will continue to represent the
interests of the Trust and the Operating Partnership and believes that there are
benefits to utilizing the services of parties with whom the Managing Shareholder
has previous experience, Offerees who are concerned about such potential
conflicts are advised to request further information from the Managing
Shareholder and to independently evaluate such relationships.
No independent representation has been provided to Offerees to negotiate
the terms of the Exchange Offering on behalf of the Offerees, and each Offeree
should seek independent advice and counsel before deciding whether to accept the
Exchange Offering. However, independent appraisal firms have been retained to
prepare appraisals of each Exchange Property, and the exchange value to be
offered by the Operating Partnership for each limited partnership interest to be
acquired in the Exchange Offering will be based on such appraisals and other
considerations. In addition, the Trust has incorporated into the Declaration of
Trust substantially all of the guidelines of the Statement of Policy Regarding
Real Estate Investment Trusts of the North American Securities Administrators
Association, Inc. Such guidelines have been adopted by the securities
administrators of numerous states in which the Cash Offering and the Exchange
Offering are being made and are designed to protect individual investors in
REITs. The provisions of the Declaration of Trust which conform to such
guidelines set forth certain guidelines, limitations and restrictions on the
Cash Offering and the Exchange Offering and the operations of the Trust and the
Operating Partnership. See "SUMMARY OF DECLARATION OF TRUST - Control of
Operations."
While potential conflicts of interest, including those described herein,
may not be entirely eliminated, the Trust believes that any actual conflicts
that may arise will not materially affect the obligation of the Managing
Shareholder, the Independent Trustees, and any other members of the Board to act
in the best interests of the Trust and the Operating Partnership and their
Shareholders and Unitholders. See "FIDUCIARY RESPONSIBILITY" and "RISK FACTORS."
FIDUCIARY RESPONSIBILITY
The Managing Shareholder (wholly owned and controlled, along with the
Corporate General Partner of each Exchange Partnership, by Mr. McGrath), the
Trustees and other members of the Board of the Trust are deemed to be in a
fiduciary relationship to the Trust and the Operating Partnership and their
Shareholders and Unitholders, respectively, and consequently must exercise good
faith and integrity in handling the affairs of the Trust and the Operating
Partnership. The Trustees and other members of the Board of the Trust also have
a fiduciary duty to the Shareholders and Unitholders to supervise the
relationship of the Trust and the Operating Partnership with the Managing
Shareholder. Where the question has arisen, courts have held that a limited
partner may institute legal action on behalf of himself and all other similarly
situated limited partners (i.e., class action) to recover damages for a breach
by a general partner of its fiduciary duty, or on behalf of the partnership
(i.e., partnership derivative action) to recover damages from third parties.
Certain recent cases decided by the Federal courts may also be construed to
support the right of a limited partner to bring such actions under Rule 10b-5
issued under the Securities Act of 1934, as amended, for the recovery of damages
(including losses incurred in connection with the purchase or sale of a
partnership interest) resulting from a breach by a managing entity of its
fiduciary duty.
The foregoing summary is based on statutes, rules and decisions as of the
date of this Prospectus and involves a rapidly developing and changing area of
the law. Investors who believe that a breach of fiduciary duty by the Managing
Shareholder (wholly owned and controlled, along with the Corporate General
Partner of each Exchange Partnership, by Mr. McGrath), an Independent Trustee or
any other member of the Board has occurred or who have questions concerning the
duties of such persons should consult with their own counsel.
The Declaration of Trust and the Operating Partnership Agreement provide
that the Trust and the Operating Partnership, respectively, will indemnify the
Managing Shareholder, the Independent Trustees, other members of the Board and
their respective affiliates and their respective officers, directors,
shareholders, partners, agents and employees against
43
<PAGE>
liability arising out of the management of the Trust and the Operating
Partnership within the scope of the Declaration of Trust and the Operating
Partnership Agreement, as the case may be, unless negligence or misconduct is
involved. As a result of these indemnification arrangements, Offerees who accept
the Exchange Offering and Shareholders of the Trust have more limited rights of
action than they would have absent the limitations in the Declaration of Trust
and the Operating Partnership Agreement. The exculpatory provisions do not
include indemnification for liabilities arising under the Securities Act of
1933, as amended (the "Securities Act"), unless (i) there has been a successful
adjudication on the merits of each claim involving alleged securities law
violations as to the particular indemnitee, (ii) such claims have been dismissed
with prejudice on the merits by a court of competent jurisdiction as to the
particular indemnitee, or (iii) a court of competent jurisdiction approves a
settlement of the claims against the particular indemnitee and finds that
indemnification of the settlement and the related costs should be made. In
addition, the exculpatory provisions do not include indemnification for
liabilities arising from or out of intentional or criminal wrongdoing. See
Section 3.7(b) of the Declaration of Trust. Insofar as indemnification for
liabilities arising under the Securities Act may be permitted to the Managing
Shareholder, the Independent Trustees, other members of the Board and their
respective affiliates and their respective officers, directors, shareholders,
partners, agents and employees pursuant to the foregoing provisions, or
otherwise, the Trust has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as expressed
in the Securities Act and is, therefore, unenforceable. See "SUMMARY OF
DECLARATION OF TRUST - Liability and Indemnification."
The Managing Shareholder (wholly owned and controlled, along with the
Corporate General Partner of each Exchange Partnership, by Mr. McGrath) is not
permitted to commingle any funds of the Trust or the Operating Partnership with
its own funds or the funds of any other person. The Trust and the Operating
Partnership are expressly prohibited from making any loans to the Managing
Shareholder. The Trust and the Operating Partnership may borrow money from the
Managing Shareholder, but only on terms which are competitive with those offered
by unrelated lending institutions.
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
This Prospectus contains certain forward-looking statements, including
statements regarding, among other items: (i) the anticipated business strategies
of the Trust and the Operating Partnership and (ii) the intention of the Trust
and the Operating Partnership to acquire property interests in exchange for cash
proceeds the Trust receives from the Cash Offering and contributes to the
Operating Partnership, Common Shares or Preferred Shares of the Trust, loan
proceeds from any debt financings they may effect, any available net operating
revenue of the Operating Partnership, and Units of the Operating Partnership in
connection with the Exchange Offering and other possible transactions. Actual
results could differ materially from those projected in the forward-looking
statements as a result of any number of factors discussed elsewhere in this
Prospectus, including, without limitation, under the captions "SUMMARY OF THE
TRUST AND THE OPERATING PARTNERSHIP," "SUMMARY OF RISK FACTORS," "RISK FACTORS,"
"TAX STATUS," "CONFLICTS OF INTEREST," "THE EXCHANGE OFFERING," "MANAGEMENT,"
"THE TRUST AND THE OPERATING PARTNERSHIP," "INVESTMENT OBJECTIVES AND POLICIES,"
"INITIAL REAL ESTATE INVESTMENTS," "FEDERAL INCOME TAX CONSIDERATIONS," "SUMMARY
OF DECLARATION OF TRUST," and "TERMS OF THE OFFERING."
When used in this Prospectus the words "anticipate," "expect," "estimate,"
"intend," "believe," "project," and similar expressions are intended to identify
forward-looking statements. Such statements are subject to certain risks,
uncertainties and assumptions. Should one or more of these risks or
uncertainties materialize, or should underlying assumptions prove incorrect,
actual results may vary materially from those anticipated, expected, estimated,
intended, believed or projected. Among the key factors that may have a direct
bearing on the business, financial condition and results of operations of the
Trust and the Operating Partnership are the effects of risks associated with (i)
changes in the competitive marketplace for acquisitions of interests in
residential apartment properties, (ii) changes in the performance of the
operations of properties in which the Trust and the Operating Partnership
acquire an interest, and (iii) the volatility of the trading market for the
Common Shares and general economic conditions. The Trust and the Operating
Partnership assume no obligation to update such forward-looking statements or to
advise of changes in the assumptions and factors on which they are based. Given
these uncertainties, Offerees are cautioned not to place undue reliance on such
forward-looking statements.
RISK FACTORS
Offerees should carefully consider the following material risk factors, in
addition to the other information set forth in this Prospectus, in connection
with the Exchange Offering, an investment in the Units being offered hereby and
Common Shares in the Trust and the proposed operations of the Trust and the
Operating Partnership. See also "SUMMARY OF RISK FACTORS" above.
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Unless the context otherwise requires, the term "Trust" as used herein
shall collectively refer to Baron Capital Trust and its affiliate, Baron Capital
Properties, L.P., which is making the Exchange Offering pursuant to this
Prospectus and which will conduct the real estate operations of the Trust and
hold its property interests.
Arbitrary Offering Price
The offering price of $10.00 per Common Share in the Cash Offering and the
equivalent initial value assigned to each Unit to be issued in the Exchange
Offering have been arbitrarily established by the Trust, and do not necessarily
represent a price at which the Common Shares or Units could be resold, if at
all. See " Limited Marketability of Units and Common Shares."
No Separate Representation of Offerees
The terms of the Exchange Offering were determined by the founders of the
Trust and the Operating Partnership with no separate counsel or advisor for the
Offerees. Each Offeree is advised to seek independent advice and counsel before
deciding whether to accept the Exchange Offering. As described herein at "THE
EXCHANGE OFFERING - Exchange Property Appraisals," appraisals of the fair market
value and replacement cost new of each of the Exchange Properties to be involved
in the initial transactions of the Exchange Offering have been prepared by
qualified independent appraisal firms. Offerees should note, however, that
appraisals are only opinions of value or replacement cost and cannot be relied
upon as measures of realizable value or replacement cost. The amount that a
beneficial owner of an Exchange Property might realize from a sale thereof may
be more or less than estimates of the value considered by the appraiser,
depending upon condition of the property, current and anticipated uses and
zoning, financial, economic, market and other considerations that may affect a
property's value.
Terms of Exchange Offering May Be More
Favorable to Original Investors than Offerees
The terms and conditions of the Exchange Offering may be more favorable
for the Original Investors who formed the Trust and the Operating Partnership
and affiliates of the Original Investors than for Offerees. Offerees who acquire
Operating Partnership Units in the Exchange Offering will pay a higher price per
unit than the subscription price Gregory K. McGrath and Robert S. Geiger, the
Original Investors, paid for their Operating Partnership Units in connection
with the formation of the Trust and the Operating Partnership. The Original
Investors subscribed for their Units in exchange for a $100,000 initial
capitalization of the Operating Partnership, and such Units have been deposited
into a security escrow account for a period of six to nine years, subject to
earlier release under certain conditions. If the Trust's Cash Offering and the
Exchange Offering are completed in full, each Original Investor would own
601,080 Units. In that case, the value of the Units held by each Original
Investor, calculated at the $10.00 initial value assigned to each Unit to be
issued in the Exchange Offering, would then be $6,010,800 less a significant
discount attributable to the long-term escrow arrangement.
Mr. McGrath has agreed to serve as Chief Executive Officer of the Trust
and the Operating Partnership for the initial year of operations in exchange for
no cash compensation. Instead, he has agreed to be compensated in the form of
Common Shares or Units in an amount not to exceed 25,000 shares or units, as the
case may be, to be determined by the Executive Compensation Committee of the
Trust based upon his performance, plus benefits, including without limitation
health, disability and life insurance, and eligibility for participation in any
option plan and bonus incentive compensation plan which may be implemented by
the Trust. After the initial year, Mr. McGrath will be entitled to receive
compensation and benefits determined by the Executive Compensation Committee in
exchange for his services. Mr. Geiger has agreed to serve as the Chief Operating
Officer of the Trust and the Operating Partnership in exchange for an initial
annual salary of $100,000 plus benefits. See "MANAGEMENT."
Acceptance of Exchange Offering Involves Exchange of Current Investment
with Expected Limited Duration for Investment in
Operating Partnership with Unlimited Duration
If the Exchange Offering is completed in respect of their Exchange
Partnership, Offerees who accept the Exchange Offering will be tendering their
current investment in a particular Exchange Partnership with an expected limited
duration in exchange for an investment in the Operating Partnership, which has
an unlimited duration. See "COMPARISON OF RIGHTS OF HOLDERS OF EXCHANGE
PARTNERSHIP UNITS, OPERATING PARTNERSHIP UNITS AND TRUST COMMON SHARES."
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Offerees May Not Have Information Available to Evaluate
Property Interests to be Acquired by the Operating Partnership,
Prior to Decision Whether to Accept the Exchange Offering
In the Exchange Offering, the Operating Partnership will offer to issue
registered Operating Partnership Units in exchange for limited partnership
interests in limited partnerships which directly or indirectly own equity or
debt interests in residential apartment properties. If acquisitions are
consummated in respect of all Exchange Partnership Units initially targeted in
the Exchange Offering, the partnership interests acquired will have a purchase
price totaling approximately $24,980,606, comprised of Units to be issued with
an initial assigned value of such amount. The property interests to be acquired
with the balance of the Units to be offered in the Exchange Offering have not
yet been finally determined. The Trust intends to investigate other investment
opportunities for the Exchange Offering, including property interests held by
unaffiliated owners and certain other limited partnerships managed by affiliates
of the Managing Shareholder (wholly owned and controlled, along with the
Corporate General Partner of each Exchange Partnership, by Mr. McGrath).
The Operating Partnership will use a significant portion of the net cash
proceeds of the Trust's Cash Offering to acquire interests in residential
apartment properties or interests in other partnerships substantially all of
whose assets consist of direct or indirect interests in residential apartment
property. As of the date of this Prospectus, $3,789,506 of the net cash proceeds
of the Cash Offering (out of gross proceeds of approximately $___________) have
been used to acquire beneficial ownership of four properties and to make capital
contributions to 13 real estate limited partnerships, including certain of the
Exchange Partnerships, in exchange for limited partnership interests therein.
For a description of the acquired property interests, see "INITIAL REAL PROPERTY
INVESTMENTS - The Acquired Properties." None of the remaining net proceeds and
future net proceeds have been committed to specific properties. Although the
Operating Partnership has several investment opportunities under review for the
application of such proceeds, none of such potential opportunities has developed
beyond the negotiating stage. The Operating Partnership may direct a substantial
portion of the proceeds to investment opportunities that have not been
designated in this Prospectus, as it may be amended or supplemented from time to
time, and the Operating Partnership may be unable to or may decline to apply the
proceeds to any specific investments that may be described in this Prospectus or
any amendments or supplements thereto.
As a result of the foregoing, prior to deciding whether to accept the
Exchange Offering, Offerees may not have available sufficient information to
evaluate acquisitions of property interests by the Operating Partnership using
available net cash proceeds of the Cash Offering, available operating cash flow
or Units or other securities of the Trust or the Operating Partnership. In
addition, Offerees will not have any vote in the selection of investments in
property interests by the Trust or the Operating Partnership after they accept
the Exchange Offering. Consequently, Offerees will be relying upon the judgment
of the management of the Trust and the Operating Partnership for such decisions.
The actual number of properties in which the Operating Partnership will acquire
an interest will depend upon the number of suitable investment opportunities
available, the amount of net proceeds from the Cash Offering and any subsequent
offerings, operating cash flow and other financing sources the Operating
Partnership has available to invest, the willingness of Offerees in the Exchange
Offering and other sellers to accept Operating Partnership Units or other
securities in exchange for their property interests, and the amount of funds and
number of securities required for each investment opportunity. See "RISK
FACTORS," "MANAGEMENT," "THE TRUST AND THE OPERATING PARTNERSHIP," "INVESTMENT
OBJECTIVES AND POLICIES" and "INITIAL REAL ESTATE INVESTMENTS."
Possible Adverse Influence of Original Investors
Mr. McGrath and Mr. Geiger, the Original Investors in the Operating
Partnership, each own an amount of Operating Partnership Units which are
exchangeable (with certain escrow restrictions described at "THE TRUST AND THE
OPERATING PARTNERSHIP - Formation Transactions") into 9.5% of the Common Shares
outstanding as of the earlier to occur of the completion of the offerings or
November 30, 1999 (up to 601,080 Common Shares out of total maximum outstanding
of 6,327,160 Common Shares), calculated on a fully diluted basis assuming that
all then outstanding Units (other than those owned by the Trust) have been
exchanged into an equivalent number of Common Shares. Under the Declaration of
Trust, no other Shareholder or Unitholder may hold more than 5% of the
beneficial interest in the Trust. Although a majority of the members of the
Board of the Trust will be unaffiliated Independent Trustees as required under
the Declaration of Trust, Mr. McGrath serves as the Chief Executive Officer of
the Trust and the Operating Partnership and is the Chief Executive Officer, sole
stockholder and sole director of the Managing Shareholder and the sole principal
of the Corporate General Partners of the Exchange Partnerships, and Mr. Geiger
serves as Chief Operating Officer of the Trust, the Operating Partnership and
the Managing Shareholder. See "MANAGEMENT." Although there is no agreement,
understanding or arrangement for such individuals to act together in any manner,
they are in a position to exercise significant influence over the affairs of the
Trust, the Operating Partnership and the Managing Shareholder if they were to
act together in the future. In
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addition, affiliates of Mr. McGrath are also the corporate general partners of
limited partnerships which are debtors under Subordinated Mortgage Loans and
other debt interests owned by certain of the Exchange Partnerships, and in such
capacity, Mr. McGrath holds an indirect minority economic interest in such
partnerships which is subordinate to the preferred returns of their limited
partners. Accordingly, the Original Investors have significant influence over
the affairs of the Trust, the Operating Partnership, the Managing Shareholder
and the Exchange Partnerships which may result in decisions that do not fully
represent the interests of all Shareholders, Unitholders and Exchange Limited
Partners. See "INVESTMENT OBJECTIVES AND POLICIES - Trust Policies with Respect
to Certain Activities - Conflict of Interest Policies."
Conflicts of Interest
The Operating Partnership is subject to conflicts of interest arising out
of its relationship to the Trust, the Managing Shareholder, affiliates of the
Managing Shareholder, the Original Investors, Shareholders, the Exchange
Partnerships and Offerees in the Exchange Offering and other sellers of property
interests who receive Units in exchange for their property interests. For
example, Mr. McGrath, a founder of the Trust and the Operating Partnership and
the sole principal of the Managing Shareholder, is also the sole principal of
the corporate general partners of numerous real estate investment limited
partnerships (including the Exchange Partnerships involved in the Exchange
Offering) which own interests in residential apartment properties in which the
Trust and the Operating Partnership may acquire an interest. In addition,
affiliates of Mr. McGrath are also the corporate general partners of limited
partnerships which are debtors under Subordinated Mortgage Loans and other debt
interests owned by certain of the Exchange Partnerships, and in such capacity,
Mr. McGrath holds an indirect minority economic interest in such partnerships
which is subordinate to the preferred returns of their limited partners.
Moreover, certain affiliates of the Managing Shareholder controlled by Mr.
McGrath have sponsored and/or managed, or may in the future sponsor and/or
manage, real estate investment programs which may seek to acquire interests in
properties similar to those which the Trust and the Operating Partnership may
seek to acquire. The Trust and the Operating Partnership may be restricted from
investing in certain properties since affiliates of the Managing Shareholder may
have other investment vehicles investing in similar properties. In addition, the
Trust and the Operating Partnership may attempt to acquire interests in
properties from certain other partnerships managed by affiliates of the Managing
Shareholder that directly or indirectly own interests in properties or from
investors in such partnerships.
Furthermore, as described above at " - Possible Adverse Influence of
Original Investors," the Original Investors, Mr. McGrath and Mr. Geiger, serve
as executive officers of the Trust, the Operating Partnership and the Managing
Shareholder and have made an initial capital contribution to the Operating
Partnership in exchange for a significant number of Units. Therefore,
individually and collectively they will have significant influence over the
affairs of the Trust, the Operating Partnership, the Managing Shareholder and
the Exchange Partnerships which may result in decisions that do not fully
represent the interests of all Shareholders, Unitholders and Exchange Limited
Partners. Exchange Limited Partners who acquire Units in the Exchange Offering
will pay a higher price per Unit than the consideration the Original Investors
paid for Units issued to them.
The Trust has adopted certain policies designed to eliminate or minimize
conflicts of interest. These policies include provisions in the Declaration of
Trust which require that (i) at least a majority of the members of the Board of
the Trust be Independent Trustees and (ii) a majority of the Board, and, in
certain cases, a majority of the Independent Trustees, approve transactions
between the Trust or the Operating Partnership and the Managing Shareholder, any
other member of the Board of the Trust, or any of their respective affiliates,
including the Exchange Partnerships. In addition, the Board of the Trust has
adopted a policy which restricts the Managing Shareholder, an Independent
Trustee, any other member of the Board, an Original Investor or any of their
respective affiliates from pursuing for their own account any residential
apartment property investment opportunity which may be suitable for the Trust
and the Operating Partnership unless the Trust and the Operating Partnership
have first been given a right of first refusal to participate in the
opportunity. See "INVESTMENT OBJECTIVES AND POLICIES - Trust Policies with
Respect to Certain Activities - Investment Policies" and " -Conflict of Interest
Policies."
However, there can be no assurance that these policies will always be
successful in eliminating the influence of such conflicts, and, if they are not
successful, decisions could be made that might fail to reflect fully the
interests of all Shareholders and Unitholders. While the conflicts of interest
cannot be eliminated, the Trust and the Operating Partnership believe that any
actual conflicts will not materially affect the obligation of the Managing
Shareholder, the Board and the Independent Trustees to act in the best interests
of the Trust, the Shareholders, the Operating Partnership and the Unitholders.
See "CONFLICTS OF INTEREST."
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No Assurance of Successful Performance of Partnership
Interests to be Acquired in Exchange Offering
The annual rate of return on investment for 1997, for 1998 and for the
first quarter of 1999 generated by the Exchange Partnerships, which are the
initial acquisition candidates involved in the Exchange Offering, ranged between
zero and ten percent. The annual rate of return on investment for those periods
generated by other real estate partnerships managed by affiliates of the
Managing Shareholder (wholly owned and controlled, along with the Corporate
General Partner of each Exchange Partnership, by Mr. McGrath) ranged between ten
and twelve percent. Distributions were not made during these periods by certain
of the Exchange Partnerships because (i) certain apartment units were withdrawn
from the rental market, and net available cash flow was applied, to prepare them
for sale as individual condominium units (which plan was later abandoned) or to
convert them from long-term rentals to short-term corporate rentals or (ii) net
available cash flow was applied to pay certain expenses in connection with the
Cash Offering and the Exchange Offering. There can be no assurance that future
operations of the Participating Exchange Partnerships or any other property
investments in which the Operating Partnership or the Trust acquires a limited
partnership or other interest in connection with the Exchange Offering or other
transactions will be profitable or that Shareholders who acquire Common Shares
in the Cash Offering and Offerees who accept the Exchange Offering will
experience returns, if any, comparable to or in excess of those experienced by
investors in certain of the Exchange Partnerships or in certain other real
estate limited partnerships managed by affiliates of the Managing Shareholder.
There is also no assurance that the current returns of the Participating
Exchange Partnerships will be achieved by the Operating Partnership after
completion of the Exchange Offering or will be higher than the current returns
of other partnerships which may participate in the offering, although such other
partnerships may offer higher future growth potential than the Participating
Exchange Partnerships.
Potential Loss of Future Appreciation on Exchange Properties
In the absence of the consummation of the Exchange Offering, the
investment held by an Exchange Partnership in respect of an Exchange Property
might appreciate in value and might be able to be sold at a later date for more
consideration in favor of the Exchange Limited Partners in such partnership than
they would receive under the terms and conditions of the Exchange Offering.
Investors in Successful Exchange Partnerships Could Lose Advantage
by Combining with Less Successful Exchange Partnerships
In connection with the Exchange Offering, Exchange Limited Partners are
being offered the opportunity to exchange their existing limited partnership
units in their respective Exchange Partnership for Operating Partnership Units.
The number of Operating Partnership Units being offered for an interest in a
particular Exchange Partnership has an initial assigned value in the range of
103% to 169% of the amount of an Offeree's original investment in his Exchange
Partnership. For purposes of the Exchange Offering, the Units have been assigned
an initial value of $10 per unit, which is the price at which the Trust is
currently offering Common Shares in its Cash Offering. The value of Units and
Common Shares is linked since holders of Operating Partnership Units, including
recipients of Units in the Exchange Offering, may exchange their Units into an
equivalent number of Common Shares at any time, subject to certain conditions.
The number of Units being offered by the Operating Partnership in the
Exchange Offering in respect of each Exchange Equity Partnership and each
Exchange Hybrid Partnership (to the extent of its direct or indirect equity
interest in the property) differs based upon the following factors: (a) the
estimated appraised market value of the underlying property determined by
qualified and licensed independent appraisal firms; (b) the operating history of
the property; (c) the current principal balance of first mortgage and other
indebtedness to which the property is subject; (d) the amount of distributable
cash flow currently being generated by the property; plus (v) additional factors
which the Managing Shareholder believes are appropriate to consider including,
among others, the property's overall current condition and prospects for the
property based upon improvements made or to be made to the property and, in
certain cases, the combination of two or more phases of the property, which are
expected to be owned upon completion of the Exchange Offering and the actual or
potential benefits to be obtained by the sub-metering of utilities in order to
pass costs from the owner of the property to individual tenants. The number of
Units being offered in respect of each of the Exchange Mortgage Partnerships and
each of the Exchange Hybrid Partnerships (to the extent of its mortgage
interests in properties and other debt interests) differs based upon the
following factors: (i) the current principal balance of the amount of debt which
is senior to the mortgage interest to be acquired and other indebtedness to
which the property is subject; (ii) the estimated appraised market value of the
underlying property determined by qualified and licensed independent appraisal
firms; (iii) the operating history of the property; (iv) the amount of
distributable cash flow currently being generated by the property; plus (v)
additional factors which the Managing Shareholder believes are appropriate to
consider including, among others, the property's overall current condition and
prospects for the property based upon improvements made or to be made to the
property and, in certain cases, the
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combination of two or more phases of the property, which are expected to be
owned upon completion of the Exchange Offering and the actual or potential
benefits to be obtained by the sub-metering of utilities in order to pass costs
from the owner of the property to individual tenants. By accepting the Exchange
Offering, Exchange Limited Partners in Participating Exchange Partnerships which
are performing relatively better than other partnerships could lose any such
advantage while Exchange Limited Partners in Participating Exchange Partnerships
which are performing relatively poorer than the average could correspondingly
benefit.
Valuation of Mortgage Interests to be Acquired May Exceed Actual Value
Subject to certain exceptions, the Trust and the Operating Partnership are
authorized to provide or acquire Mortgage Loans as long as, among other things,
the aggregate amount of all Mortgage Loans outstanding on any particular
underlying property, including the loan of the Trust or the Operating
Partnership, as applicable, would not exceed an amount equal to 80% of the
appraised replacement cost new of the property. Replacement cost new refers to
the estimated cost new of the improvements on a property (estimated on the basis
of current prices for the component parts of a building) without taking into
account the deficiencies of the existing building compared to a new building,
plus the estimated current market value of the underlying land (generally
determined using the direct sales comparison approach). The amount to be paid by
the Operating Partnership for Mortgage interests will be based on appraisals of
the underlying property prepared by qualified independent appraisers and other
considerations. There can be no assurance that the amount paid by the Operating
Partnership for a mortgage interest will not exceed its value.
The purchase price to be paid by the Operating Trust for mortgage
interests will be based on the following factors: (1) the current principal
balance of the amount of debt which is senior to the mortgage interest to be
acquired and other indebtedness to which the property is subject; (2) the
estimated appraised market value of the underlying property determined by
qualified and licensed independent appraisal firms; (3) the operating history of
the property; (4) the amount of distributable cash flow currently being
generated by the property; plus (5) additional factors which the Managing
Shareholder believes are appropriate to consider including, among others, the
property's overall current condition and prospects for the property based upon
improvements made or to be made to the property and, in certain cases, the
combination of two or more phases of the property, which are expected to be
owned upon completion of the Exchange Offering and the actual or potential
benefits to be obtained by the sub-metering of utilities in order to pass costs
from the owner of the property to individual tenants. There can be no assurance
that the value of the mortgage interests acquired will reflect their fair market
value. Offerees should note that appraisals are only opinions of value and
cannot be relied upon as measures of realizable value. The amount that a
beneficial owner of an Exchange Property might realize from a sale of a mortgage
interest in a particular property may be more or less than the value to be paid
for such interest.
Several Factors Could Have Possible Adverse Effects on Operation of Properties
The results of operations of the Trust and the Operating Partnership will
depend, among other things, upon the quality of opportunities available for
investment. It is possible that the properties in which the Trust and the
Operating Partnership will acquire an interest will generate income and capital
appreciation, if any, at rates lower than those anticipated or available through
investment in comparable real estate or other investments. The performance of an
investment in the Trust and the Operating Partnership will depend on many
factors over which the Trust and the Operating Partnership may have no control,
including without limitation the continuation of certain advantageous provisions
of federal tax laws, adverse changes in national and local economic conditions,
increases in operating costs, adverse local conditions such as decreases in
employment or changes in real estate zoning laws and other characteristics of
the geographical location of investments of the Trust and the Operating
Partnership, which may reduce the desirability of real estate in the area,
excessive building, changes in interest rates, the availability of long-term
mortgage funds, changes in federal, state or local government laws, regulations,
or policies, changes in tax laws, the ability of tenants to pay rents, the
possibility that rental units may not be occupied or may be occupied on terms
unfavorable to the Trust or the Operating Partnership, the frequent need for
capital improvements, the possibility that (including the effects of
depreciation and interest) certain properties may have experienced recurring
losses for financial reporting purposes, various uninsurable risks, liabilities
in tort (which may exceed insurance coverage), acts of God and other
catastrophes, hazardous substances and other environmental problems in respect
of investments of the Trust and the Operating Partnership, the availability of
financing for operating or capital needs and the management capabilities of the
management of the Trust, the Operating Partnership, the Managing Shareholder
(wholly owned and controlled, along with the Corporate General Partner of each
Exchange Partnership, by Mr. McGrath), the Independent Trustees and other
members of the Board of the Trust and their respective affiliates and
developers, borrowers and property managers.
The above factors may also adversely affect the ability of a borrower to
meet its repayment obligations to the Trust or the Operating Partnership in
connection with mortgage loans that may be provided or acquired by it. In the
event of a
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default under such an obligation, the Trust or the Operating Partnership, as the
case may be, may experience substantial delays in enforcing its rights as
mortgagee and may incur substantial costs associated with protecting its
investment. In certain cases, the Trust or the Operating Partnership may be
required to acquire title to a property and thereafter to make substantial
improvements or repairs in order to maximize the property's investment
potential. In such circumstances, the Trust or the Operating Partnership may be
required to attempt to borrow or raise additional funds and may not be able
ultimately to recover its investment.
The Trust or the Operating Partnership may provide or acquire mortgage
loans which provide for the repayment of principal, in whole or in part, in
lump-sum "balloon" payments. The borrower's ability to make such payments may
depend upon its ability to obtain refinancing or sell a particular property
securing the loan. There is no assurance that either replacement financing or a
sale can be obtained or completed by the borrower. The borrower's ability to
refinance or sell its property will depend on general economic conditions, the
value of the property and, in the case of a refinancing, upon the financial
strength of the borrower. In the event the borrower fails to make any necessary
payment upon maturity or scheduled payments as they become due, the Trust or the
Operating Partnership may be compelled to institute foreclosure proceedings.
Each of the Trust and the Operating Partnership expects that mortgage
loans it provides or acquires which are secured by residential apartment
properties would generally be made on a non-recourse basis under which the other
participants in respect of the property would not be responsible for the debt
and it would be able to look only to the unencumbered assets of the property
and/or other assets of the debtor for repayment. In most cases, mortgage
investments made by the Trust or the Operating Partnership are expected to be
Subordinated Mortgages which are subordinated to Senior Mortgages. In that case,
in the event of a default on the Senior Mortgage, the Trust or the Operating
Partnership may find it necessary to make payments to prevent foreclosure on the
Senior Mortgage, without necessarily improving its position with respect to the
underlying real property. Failure to make such payments could result in
foreclosure on the Senior Mortgage and the extinguishment of the Subordinated
Mortgage held by the Trust or the Operating Partnership. In such event, the
entire investment of the Trust or the Operating Partnership in the property
could be lost. In addition, non-payment of any Junior Mortgage Loan that may be
provided or acquired by the Trust or the Operating Partnership may constitute an
event of default to a borrower under the underlying Senior Mortgage Loan(s), and
such Senior Mortgage Loan(s) may have to be repaid by the borrower before
Shareholders and Unitholders will receive any return on their investment in
Common Shares and Units, respectively. Furthermore, Mortgage Loans provided or
acquired by the Trust or the Operating Partnership will not be insured or
guaranteed by governmental agencies or otherwise.
If the Trust or the Operating Partnership owns real property directly, it
may be on a pari passu basis with other investors. In the event of a default
under such an investment, its remedies may be limited by the size of its
investment relative to that of other participants.
No Assurance of Avoiding Operating Losses
There can be no assurance that the Trust or the Operating Partnership will
be able to avoid operating losses in the future in respect of properties in
which it acquires an interest or that a Shareholder's investment in the Trust or
a Unitholder's investment in the Operating Partnership will be recovered. In
order for the Trust and the Operating Partnership to make cash distributions to
Shareholders and Unitholders from revenue generated by residential apartment
properties in which they acquire a direct or indirect equity interest, certain
occupancy percentages and rental rates will need to be achieved and expense
levels maintained in respect of properties. No assurance can be given that these
percentages, rates or expenses can be achieved or maintained. If the properties
do not achieve and maintain such occupancy percentages at such rates, the
ability to make cash distributions to Shareholders and Unitholders may be
eliminated. No assurance can be given that rental increases can be instituted
while maintaining acceptable occupancy levels. If the Trust or the Operating
Partnership fails to generate sufficient gross income, it may find it necessary
to attempt to borrow funds for operating capital or other purposes. The
availability of additional financing to the Trust or the Operating Partnership
is partially dependent upon general economic conditions, the value of property
interests and the financial strength of the Trust and the Operating Partnership.
See " - Debt Service Obligations Could Adversely Affect Cash Flow."
Similarly, in cases where the Trust or the Operating Partnership provides
or acquires a mortgage interest in a property, the borrower's ability to repay
the mortgage loan will depend on the same factors described above.
Adverse Effects of Under-Performing Mortgage Investments
The Trust and the Operating Partnership may invest in mortgages, either by
providing mortgage financing or acquiring mortgages. Mortgage investments are
subject to the risk that borrowers may not be able to make debt service
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payments or pay principal when due, the risk that the value of the mortgaged
property may be less than the amounts owed, and the risk that interest rates
payable to the Trust or the Operating Partnership on the mortgages may be lower
than its cost of funds. If the Trust or the Operating Partnership invested in
mortgages and if any of the above occurred, the ability to make distributions to
Shareholders and Unitholders could be adversely affected.
Subordinated Mortgage Loans to Be Acquired May Not Be Recorded
Any Subordinated Mortgage Loan the Trust or the Operating Partnership may
provide or acquire may or may not be recorded. Substantially all the
Subordinated Mortgage interests to be acquired from the Exchange Partnerships
are not recorded. This is because loan documents executed in connection with the
respective First Mortgage prohibit the recording of mortgages evidencing
subordinated debt. If any particular Mortgage is not recorded, the security
interest of the Trust or the Operating Partnership, as the case may be, in such
Mortgage would not be perfected and until recorded it would be pari passu (i.e.,
on an equal basis) with all other unsecured creditors of the borrower, provided,
however, the security instrument which will be entered into in connection with
any Mortgage Loan proposed to be provided or acquired by the Trust or the
Operating Partnership will generally restrict the borrower's ability to enter
into a subsequent loan arrangement with third parties which would be senior to
or pari passu with the Mortgage to be held by it.
Several Factors Could Have Possible Adverse Effects
on Distributions to Shareholders and Unitholders
Distributions to Shareholders and Unitholders will be based principally on
cash available for distributions from property interests in which the Trust and
the Operating Partnership invest. Increases in rents under leases of properties
acquired will increase the cash available for distribution to Shareholders and
Unitholders. In contrast, the amount available to make distributions may
decrease if rental rates are lowered or if properties acquired yield lower than
expected returns. See also "Several Factors Could Have Possible Adverse Effects
on Operations of Properties."
The distribution requirements for REITs under federal income tax laws may
limit the ability of the Trust and the Operating Partnership to finance future
acquisitions and capital improvements of property interests without additional
debt or equity financing. If the Trust or the Operating Partnership incurs
indebtedness in the future, it will require additional funds to service such
indebtedness and, as a result, amounts available to make distributions may
decrease. Distributions by the Trust and the Operating Partnership will also be
dependent on a number of other factors, including the financial condition of the
Trust and the Operating Partnership, any decision to reinvest funds rather than
to distribute such funds, capital expenditures, the annual distribution
requirements under the REIT provisions of the Code, and such other factors as
the Trust deems relevant. In addition, the Trust and the Operating Partnership
may issue from time to time additional Common Shares, Preferred Shares, Units or
debt securities in connection with the acquisition of property interests or in
certain other circumstances. No prediction can be made as to the number of such
securities which may be issued, if any, and, if issued, the effect on cash
available for distribution, on a per Share or per Unit basis, to Shareholders
and Unitholders, respectively. Such issuances, if any, could have a dilutive
effect on cash available for distribution on a per Share and per Unit basis to
Shareholders and Unitholders, respectively.
To obtain the favorable tax treatment associated with REITs, the Trust
generally will be required to distribute to its Shareholders at least 95% of its
taxable income (determined without regard to the dividends paid deduction and by
excluding net capital gains) each year. The Trust will be subject to tax at
regular corporate rates to the extent that it distributes less than 100% of its
taxable income (including net capital gains). The Trust will also be subject to
a 4% non-deductible excise tax on the amount, if any, by which certain
distributions paid by it with respect to any calendar year, are less than the
sum of 85% of its ordinary income, 95% of its capital gain net income, and 100%
of its undistributed income from prior years. The Trust may elect to retain
rather than distribute its net long-term capital gains. The effect of such
election is that (i) the Trust is required to pay the tax on such gains, (ii)
Shareholders, while required to include their proportionate share of the
undistributed long-term capital gains in income, will receive a credit or refund
for their share of the tax paid by the Trust, and (iii) the tax basis of a
Shareholder's Shares would be increased by the amount of undistributed long-term
capital gains (less the amount of capital gains tax paid by the Trust) included
in the Shareholder's long-term capital gains.
The Trust intends to make distributions to its Shareholders to comply with
the distribution requirements of the Code and to reduce exposure to federal
income taxes and the non-deductible excise tax. Differences in the timing
between the receipt of income and the payment of expenses in arriving at taxable
income and the effect of required debt amortization payments, could require the
Trust to borrow funds on a short-term basis to meet the distribution
requirements that are necessary to achieve the tax benefits associated with
qualifying as a REIT. See Section 1.9 of the Declaration of Trust.
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Distributions to Shareholders and Unitholders Adversely Affected
by Poor Operating Results of Operating Partnership
Net cash proceeds from the issuance of Common Shares by the Trust in
connection with the Cash Offering and net cash proceeds of any subsequent
issuance of Common Shares will be contributed by the Trust to the Operating
Partnership in exchange for an equivalent number of Units. The Trust's ownership
of Units in the Operating Partnership will entitle it to share in cash
distributions from, and in the profits and losses of, the Operating Partnership
in proportion to its percentage ownership of Units. The Trust in turn will
distribute such cash distributions to the Shareholders of the Trust. The other
Unitholders of the Operating Partnership, including the Original Investors and
Offerees in the Exchange Offering who elect to receive Units in exchange for
their respective limited partnership interests in real estate limited
partnerships, will own the remaining economic interest in the Operating
Partnership (other than the Trust's 1% interest as General Partner of the
Operating Partnership).
Distributions of available cash flow to Shareholders of the Trust and
Unitholders of the Operating Partnership will be dependent upon the operating
profits generated by the Operating Partnership. Assuming the Cash Offering and
the Exchange Offering are completed in full under the terms currently
contemplated and no other transactions have taken place (including, without
limitation, any additional issuances of Common Shares or Units, any conversion
of Units into Common Shares or any exercise of Common Share purchase warrants
issued by the Trust to the Dealer Manager and participating broker-dealers in
the Cash Offering), immediately upon the completion of the offerings, the
Shareholders (including Shareholders who acquire Common Shares in the Cash
Offering and certain broker-dealers who effect transactions in connection with
the Exchange Offering and receive unregistered Common Shares as commissions)
would receive approximately 41.5% of any distributions made by the Operating
Partnership; the Unitholders (including Offerees who accept the Exchange
Offering and the Original Investors) would receive the remaining approximately
58.5% of such distributions. The actual percentage allocation of any cash
distributions between the Shareholders and the Unitholders will depend upon the
number of Common Shares and Units outstanding as of the date of the particular
cash distribution, which in turn will depend upon (i) the actual mix of the
number of Common Shares which are issued in the Cash Offering and the number of
Units which are issued in the Exchange Offering and (ii) the number of issued
Units which have been exchanged by their holders into Common Shares as of the
date of the particular cash distribution. See "THE TRUST AND THE OPERATING
PARTNERSHIP - Ownership of the Trust and the Operating Partnership."
Competition
The Trust and the Operating Partnership will be competing for suitable
investments with other financial institutions such as banks, insurance
companies, savings and loan associations, mortgage bankers, pension funds, real
estate investment trusts and other real estate developers, managers, owners, and
investment vehicles, which may have investment objectives similar to those of
the Trust and the Operating Partnership. See "INVESTMENT OBJECTIVES AND
POLICIES." Many of these competitors will have greater resources than the Trust
and the Operating Partnership and some may have, or may have access to, more
extensive real estate and financial experience than do the Managing Shareholder
(wholly owned and controlled, along with the Corporate General Partner of each
Exchange Partnership, by Mr. McGrath), the Independent Trustees, any other
members of the Board of the Trust, and executive officers of the Trust, the
Operating Partnership and the Managing Shareholder.
It is expected that all properties in which the Trust and the Operating
Partnership will invest will be located in developed areas that include other
residential apartment properties. Certain of these competitive apartment
properties may be owned by limited partnerships managed by affiliates of the
Managing Shareholder. The number of competitive apartment properties in a
particular area could have a material effect on the ability of the Trust and
Operating Partnership to lease apartment units to tenants at such properties and
on the rents charged. The Trust and the Operating Partnership may be competing
for tenants with others that have greater resources than the Trust and the
Operating Partnership and whose officers and directors have more experience than
the officers of the Trust and the Operating Partnership and members of the Board
of the Trust, including the Managing Shareholder and the Independent Trustees.
In addition, other forms of multifamily residential properties provide housing
alternatives to potential tenants of residential apartment properties.
Lack of Liquidity of Real Estate
Real estate investments are relatively illiquid, and, therefore, the Trust
and the Operating Partnership will have limited ability to vary their portfolio
quickly in response to changes in economic or other conditions. In addition, the
prohibitions in the Code and related regulations on a REIT holding property for
sale may affect the ability of the Trust and the Operating Partnership to sell
properties without adversely affecting distributions to the Shareholders and
Unitholders. See "FEDERAL INCOME TAX CONSIDERATIONS - Taxation of the Trust -
Gross Income Tests."
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Cash Distributions Could be Reduced by Cost of Capital Improvements
Properties in which the Trust and the Operating Partnership may invest
will vary in age and require capital improvements regularly. The cost of such
capital improvements (including capital improvements that may be required in
respect of properties in which the Trust and the Operating Partnership intend to
acquire an interest from real estate limited partnerships managed by affiliates
of the Managing Shareholder (wholly owned and controlled, along with the
Corporate General Partner of each Exchange Partnership, by Mr. McGrath) in
connection with the Exchange Offering) may be funded out of the net proceeds of
the Cash Offering and other securities offerings, available cash flow of the
Trust and the Operating Partnership or borrowed funds. If the costs of
improvement, whether required to attract and maintain tenants or to comply with
governmental requirements, substantially increases, cash available for
distribution to Shareholders and Unitholders could be reduced.
Real Estate Investments May Fail to Perform to Expected Level
The Trust and the Operating Partnership intend to actively seek to acquire
interests in residential apartment properties to the extent they can be acquired
on advantageous terms and meet their investment criteria. See "INVESTMENT
OBJECTIVES AND POLICIES." Acquisitions in respect of such properties entail
risks that investments will fail to perform in accordance with expectations.
Estimates of the costs of improvements to bring acquired property up to
standards established for the market position intended for that property may
prove inaccurate. In addition, there are general investment risks associated
with any real estate investment.
The Trust and the Operating Partnership will acquire property interests
from time to time in exchange for cash or unissued Units, Common Shares or other
securities. They will obtain appraisals with respect to the market value and
replacement cost new of each property interest that they acquire or an opinion
as to the fairness of the allocation of Units in the Operating Partnership or
other consideration payable to sellers of property interests. Appraisals and
fairness opinions are only estimates of value and replacement cost and should
not be relied upon as precise measures of true worth or realizable value or
replacement cost. There can be no assurance that the value of the aggregate
percentage interests in the Operating Partnership paid to persons contributing
assets to it in exchange for Units is equivalent to the value the Trust and the
Operating Partnership will realize from those contributions, that the initial
public offering price of the Cash Offering will reflect the fair market value of
the Common Shares purchased in the Cash Offering or that the cash price for any
property interests acquired by the Trust and the Operating Partnership is fair
and reasonable.
Subject to the REIT provisions of the Code and regulations issued
thereunder and certain limitations set forth in Section 1.9 of the Declaration
of Trust, the Trust and the Operating Partnership are also authorized to invest
in raw land, stocks, bonds, notes, partnership interests and other securities,
and thus will be dependent to a lesser extent upon the satisfactory performance
of such assets and securities. See "FEDERAL INCOME TAX CONSIDERATIONS" for a
description of the REIT provisions of the Code and regulations issued thereunder
and Section 7.4 of the Declaration of Trust regarding such permitted
investments.
Debt Service Obligations Could Adversely Affect Cash Flow
The Trust and the Operating Partnership will be subject to the risks
normally associated with debt financing, including the risks that cash flow will
be insufficient to meet required payments of principal and interest on any
indebtedness incurred by them, the risk that the interest rates on any
adjustable interest rate indebtedness will increase, the risk that indebtedness
secured by properties in which the Trust or the Operating Partnership own an
interest will not be refinanced at maturity or the risk that the terms of such
refinancing will not be as favorable as the terms of such indebtedness. If the
Trust or the Operating Partnership were unable to refinance its indebtedness on
acceptable terms, if at all, it might be forced to dispose of one or more of its
properties upon disadvantageous terms, which might result in losses to it and
might adversely affect the cash available for distribution to Shareholders and
Unitholders. If prevailing interest rates or other factors at the time of the
refinancing result in higher interest rates on refinancings, the interest
expense of the Trust or the Operating Partnership, as the case may be, would
increase, which would adversely affect its cash flow and its ability to pay
distributions to Shareholders and Unitholders. Further, if a property is
mortgaged to secure payment of indebtedness, and the Trust or the Operating
Partnership is not able to meet mortgage payments, or is in default under the
related mortgage or deed of trust, such property could be transferred to the
mortgagee or the mortgagee could foreclose upon the property, appoint a receiver
and receive an assignment of rents and leases, or pursue other remedies, all
with the consequence of loss of income and asset value to the Trust or the
Operating Partnership. Foreclosures could also create taxable income without
accompanying cash proceeds, thereby hindering the Trust's ability to meet the
REIT distribution requirements of the Code.
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In connection with the acquisition by the Trust or the Operating
Partnership of an equity interest in a given property, it may assume the
seller's obligations under any underlying Mortgage Loan or obtain Mortgage
financing in connection with the acquisition. Any such loan would be secured by
the property acquired and may require a "balloon" payment upon the maturity of
its term. The ability of the Trust or the Operating Partnership to repay such
obligation may be dependent on its ability to obtain adequate long-term
refinancing or equity financing or to sell the property at or prior to the
maturity date. There is no assurance that either replacement debt or equity
financing or a sale could be obtained, and the Trust or the Operating
Partnership could suffer a complete loss of its investment if neither a sale nor
such replacement financing could be obtained. The ability to obtain refinancing
will depend upon general economic conditions, the value of the property and the
financial strength of the Trust and the Operating Partnership. There is no
assurance that any such property could be refinanced upon the maturity of any
replacement debt. Failure to obtain the refinancing necessary to make the
foregoing payment when due, or to make any scheduled payments due with respect
to any obligation secured in whole or in part by the property, could result in a
foreclosure and loss of the property, and the Trust or the Operating Partnership
could suffer a complete loss of its investment in the property. See "THE TRUST
AND THE OPERATING PARTNERSHIP" and "INVESTMENT OBJECTIVES AND POLICIES."
Under the Declaration of Trust, the Trust and the Operating Partnership
may incur aggregate borrowings in an amount up to 300% of the amount of their
respective net assets, except where the Trust determines that a higher level of
borrowing is appropriate. Therefore, the Trust and the Operating Partnership
could become highly leveraged, increasing the risks of leverage as described
above. There can be no assurance that the ratio of debt to any measure of asset
value of the Trust and the Operating Partnership will maximize the level of
distributions to Shareholders and Unitholders.
Possible Adverse Effects as a Result of Loss of Key Management
The Trust and the Operating Partnership will be dependent upon the efforts
of management of the Trust, the Operating Partnership and the Managing
Shareholder (wholly owned and controlled, along with the Corporate General
Partner of each Exchange Partnership, by Mr. McGrath) (primarily Gregory K.
McGrath, Robert S. Geiger, Robert L. Astorino and Mark L. Wilson) and other
members of management (including, without limitation, the Independent Trustees
and any other members of the Board of the Trust). While the Trust believes that
it could find replacements for such management, the loss of their services could
have an adverse effect on the business, financial condition and operating
results of the Trust and the Operating Partnership. In addition, each of Mr.
McGrath and Mr. Geiger has other business interests and neither will devote full
business time to the Trust, the Operating Partnership or the Managing
Shareholder.
Uncertainty of Successful Completion of Cash Offering and Exchange Offering
In the Cash Offering the Trust is offering for sale to the public
2,500,000 Common Shares at $10.00 per share (maximum gross proceeds of
$25,000,000). In the Exchange Offering, the Operating Partnership will offer to
issue registered Units in exchange for limited partnership interests in limited
partnerships which own direct or indirect interests in residential apartment
properties. To facilitate the Exchange Offering, the Operating Partnership has
registered with the Commission 2,500,000 Units, and the Trust has registered an
additional 2,500,000 Common Shares into which holders of Units may exchange such
Units, subject to certain conditions.
The Operating Partnership will conduct all of the Trust's real estate
operations and hold title to property interests acquired. The Trust will
contribute to the Operating Partnership the net cash proceeds from the sale of
Common Shares in the Cash Offering in exchange for an equivalent number of
Units. The Operating Partnership will use a portion of the net cash proceeds of
the Cash Offering, unissued Units or a combination of net cash proceeds and
unissued Units (i) to acquire interests in residential apartment properties or
interests in other partnerships or other entities substantially all of whose
assets consist of residential apartment property interests, (ii) for capital
improvements which may be required on properties in which the Trust or the
Operating Partnership acquires an interest and (iii) for working capital
purposes. Therefore, the successful performance of the Operating Partnership
will be largely dependent upon the successful completion of the Cash Offering.
It is unlikely that the cash proceeds from the sale in the Cash Offering
of only a minimum number of Common Shares will be sufficient to meet the
investment objectives of the Trust. In addition, during the period of the Cash
Offering and the Exchange Offering there may be ongoing unregistered private
offerings by real estate limited partnerships sponsored and managed by
affiliates of the Managing Shareholder (wholly owned and controlled, along with
the Corporate General Partner of each Exchange Partnership, by Mr. McGrath).
Therefore, despite the different nature and scope of proposed activities of the
Trust and such partnerships, the Trust would be competing with such unregistered
offerings to sell investment securities to prospective Investors with the
possible adverse effect that the Trust will sell fewer Common Shares in the Cash
Offering than otherwise might be the case absent such unregistered offerings.
See " - Conflicts of Interest."
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As a Unitholder, the Trust will have an economic interest in the Operating
Partnership which will entitle it to share in cash distributions from, and in
the profits and losses of, the Operating Partnership. The Trust in turn will
distribute such cash distributions to the Shareholders of the Trust. Thus, the
performance of an investment in Common Shares will depend in large part upon
successful completion of the Exchange Offering and profitable operating results
of the properties in which the Operating Partnership acquires an interest.
In addition, the Operating Partnership will not complete the Exchange
Offering in respect of any particular Exchange Partnership unless limited
partners holding at least 90% of the limited partnership interests in the
partnership affirmatively elect to accept the offering. Moreover, the Operating
Partnership will not complete any transaction in the offering whatsoever unless
a sufficient number of offerees accept the offering such that the offering
involves the issuance of Operating Partnership Units which have been arbitrarily
assigned an initial value of at least $6,000,000. There can be no assurance that
a significant number of Offerees will accept the terms of the Exchange Offering
or that property interests acquired in the Exchange Offering will generate
operating profits sufficient to permit the Trust and the Operating Partnership
to make cash distributions to Shareholders and Unitholders. See " - Several
Factors Could Have Possible Adverse Effects on Operation of Properties," " -
Real Estate Investments May Fail to Perform to Expected Level" and " - No
Assurance of Avoiding Operating Losses."
In addition, the Trust and the Operating Partnership will incur
significant operating expenses. Among such expenses is total annual cash
compensation payable to the executive officers of the Trust and the Operating
Partnership of $496,000. The amount of executive compensation and other payroll
expenses will remain significant in relation to the net asset value and
operating cash flow of the Operating Partnership until the Trust sells a
substantial portion of the Common Shares being offered in the Cash Offering and
the Exchange Partnership completes transactions in the Exchange Offering in
respect of a substantial number of properties. Furthermore, regardless of the
operating results of the Trust and the Operating Partnership, the Managing
Shareholder will be entitled to be reimbursed up to $1,000,000 (an amount not to
exceed 4% of gross offering proceeds in the Cash Offering) for expenses incurred
prior to and during the Cash Offering for investigating, evaluating and
consummating investments and up to $500,000 (an amount not to exceed 1% of gross
proceeds in the Cash Offering plus 1% of initial assigned value of Units issued
in the Exchange Offering) for expenses incurred each year relating to the
operations of the Trust and the Operating Partnership. The ability of the Trust
and the Operating Partnership to continue to cover operating expenses will be
dependent upon the success of the Cash Offering and the Exchange Offering and
the performance of property interests acquired.
Limited Marketability of Units and Common Shares
Although Operating Partnership Units to be issued in the Exchange Offering
and Trust Common Shares issued and to be issued in the Cash Offering have been
registered under the Securities Act of 1933, as amended (the "Securities Act"),
and will be freely transferable (subject to certain restrictions described
below), a public market is not expected to develop for such Units, and such
Common Shares have not yet been registered under the Securities Exchange Act of
1934, as amended (the "Exchange Act"), or listed on a national stock exchange.
The Trust intends to apply for listing on a national stock exchange of Common
Shares issued and to be issued in connection with the Cash Offering and Common
Shares into which Units issued in the Exchange Offering will be exchangeable.
However, there can be no assurance that the Common Shares will qualify for
listing on any stock exchange and, if so, of the timing of the effectiveness of
any such listing. Thus, there can be no assurance that an active trading market
will develop after the offerings.
Accordingly, an Offeree should participate in the Exchange Offering only
as a long-term investment and should be prepared to remain a Unitholder or
Shareholder indefinitely. In addition, to facilitate the Trust's continued
compliance with federal tax laws and regulations governing REIT's, the
Declaration of Trust contains significant restrictions relating to the ownership
and transfer of Shares. See " - Limits on Ownership and Transfers of Shares,"
"CAPITAL STOCK OF THE TRUST - Restrictions on Ownership and Transfer," and
Article 2A of the Declaration of Trust.
Furthermore, the initial public offering price of Common Shares being
offered in the Cash Offering and the initial assigned value of the Units to be
issued in the Exchange Offering may not be indicative of the market price for
Common Shares after completion of the Cash Offering and the Exchange Offering.
Possible Adverse Effect on Market Price as a Result of
Availability of Units and Common Shares for Future Sale
Future sales or issuances of a substantial number of Common Shares and/or
Units following the completion of the Cash Offering and the Exchange Offering,
or the perception that such sales or issuances could occur, could adversely
affect
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then prevailing market prices for Common Shares. In addition to up to 2,500,000
Common Shares to be issued in the Cash Offering, up to 1,202,160 Units
(exchangeable into an equivalent number of Common Shares subject to conditions
described at "THE TRUST AND THE OPERATING PARTNERSHIP- Formation Transactions")
have been subscribed for by the Original Investors in the Operating Partnership
in connection with its initial capitalization. The Original Investors have
deposited their Units into a security escrow account for a period of six to nine
years following the date of the Cash Offering Prospectus (May 15, 1998), subject
to earlier release if the Trust achieves certain operating results described at
"THE TRUST AND THE OPERATING PARTNERSHIP- Formation Transactions." The practical
effect of such escrow arrangement is that the Original Investors may not
exchange such Units for an equivalent number of Common Shares and then sell such
Common Shares while the Units are subject to such arrangement.
In addition, up to 2,500,000 Units (exchangeable into an equivalent number
of Common Shares) may be issued in the Exchange Offering to Offerees who are
limited partners in limited partnerships which own direct or indirect interests
in residential apartment properties, in exchange for their limited partnership
interests. Such Units may be exchanged by their holders into an equivalent
number of Common Shares following the Exchange Offering. The Executive
Compensation Committee of the Board of the Trust may also vote to reserve
additional Common Shares or Units for issuance in connection with employee and
management option plans that may be adopted by the committee. See "MANAGEMENT -
Option Plan" and "THE TRUST AND THE OPERATING PARTNERSHIP - Ownership of the
Trust and the Operating Partnership."
Possible Adverse Effect of Market Interest Rates on Common Share Prices
One of the factors that may influence the price of the Common Shares in
public markets will be the annual yield from dividend distributions made by the
Trust and the Operating Partnership to Shareholders and Unitholders,
respectively. Thus, following the completion of the Cash Offering and the
Exchange Offering, an increase in market interest rates may lead future
purchasers of Common Shares to demand a higher annual yield, which could
adversely affect the market price of the Common Shares.
Potential Adverse Tax Consequences
Unfavorable resolution of any of a number of tax issues could adversely
affect Unitholders and Shareholders. The following is a summary of the principal
tax risks of an investment in the Operating Partnership and the Trust,
respectively. For a more detailed description of the Federal income tax
consequences and the tax-related risks of an investment in the Operating
Partnership and the Trust, respectively, see "FEDERAL INCOME TAX
CONSIDERATIONS." Neither the Trust nor the Operating Partnership has obtained or
expects to request a letter ruling from the IRS as to the classification and
treatment of the Operating Partnership and the Trust, respectively, for federal
tax considerations described herein, or any other tax matters. The Trust has
obtained the opinion of its special tax counsel that, based on the organization
and proposed operation of the Trust and based on certain other assumptions and
representations, it will qualify as a REIT for federal income tax purposes. The
Operating Partnership has obtained the opinion of its special tax counsel that,
based on the organization and proposed operation of the Operating Partnership
and based on certain other assumptions and representations, it will be
classified as a partnership for federal income tax purposes. Neither of these
opinions is binding on the IRS or on any court, and no assurance can be given
that the IRS will not challenge the conclusions in such opinion. Offerees are
advised to consult with and rely upon their own legal, tax and investment
advisor regarding how an investment in the Operating Partnership and the Trust
will affect them.
Taxation of the Trust as a Corporation if It Fails to Qualify as a REIT
The Trust intends to operate and has elected to qualify as a REIT under
the Code, commencing with its taxable year ending December 31, 1998. Although
the Managing Shareholder believes that the Trust will be organized and will
operate in such a manner, no assurance can be given that the Trust will be
organized or will be able to operate in a manner so as to qualify or remain so
qualified. Qualification as a REIT involves the satisfaction of numerous
requirements (some on an annual and others on a quarterly basis) established
under highly technical and complex Code provisions of which there are only
limited judicial and administrative interpretations, and involves the
determination of various factual matters and circumstances not entirely within
the Trust's control. For example, in order to qualify as a REIT, at least 95% of
the Trust's gross income in any year must be derived from qualifying sources and
the Trust must pay distributions to Shareholders aggregating annually at least
95% of its REIT taxable income (determined without regard to the dividends paid
deduction and by excluding net capital gains). The complexity of these
provisions and the applicable Treasury Regulations that have been promulgated
under the Code is greater in the case of a REIT that holds its assets in
partnership form (as the Trust will do). No assurance can be given that
legislation, new regulations, administrative interpretations or court decisions
will not significantly change the tax laws with respect to qualification as a
REIT or the federal income tax consequences of such qualification. No assurance
can be given that actual operating results will meet the REIT requirements.
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Notwithstanding that the Trust currently intends to operate in a manner
designed to enable it to qualify as a REIT, future economic, market, legal, tax,
or other considerations may cause the Managing Shareholder to determine that it
is in the best interests of the Trust, the Operating Partnership, the
Shareholders and the Unitholders to revoke its REIT election.
If the Trust fails to qualify for taxation as a REIT in any taxable year
and no relief provisions apply, the Trust will be subject to tax (including any
applicable alternative minimum tax) on its taxable income at regular corporate
rates. Distributions to Shareholders in any such year will not be deductible by
the Trust nor will they be required to be made. In such event, to the extent of
current or accumulated earnings and profits, all distributions to Shareholders
will be taxed as ordinary income. Moreover, unless entitled to relief under
certain statutory provisions, the Trust also would be disqualified from
treatment as a REIT for the four taxable years following the year during which
qualification is lost. This treatment would reduce the net earnings of the Trust
available for investment or distribution to Shareholders because of the
additional tax liability to the Trust for the years involved. In addition,
distributions to Shareholders would no longer be required to be made. "FEDERAL
INCOME TAX CONSIDERATIONS - Taxation of the Trust."
REIT Requirements With Respect to Shareholder Distributions
To qualify as a REIT under the Code, the Trust generally will be required each
year to distribute as dividends to its Shareholders at least 95% of its "REIT
taxable income" (determined without regard to the dividends paid deduction and
excluding capital gains). Failure to comply with this requirement would result
in the Trust's income being subject to tax at regular corporate rates. In
addition, the Trust will be subject to a nondeductible 4% excise tax on the
amount, if any, by which certain distributions considered as paid by it with
respect to any calendar year are less than the sum of 85% of its ordinary income
for the calendar year, 95% of its capital gains net income for the calendar
year, and any undistributed taxable income from prior periods.
Potential Legislation Regarding REIT's
From time to time a variety of legislative proposals are advanced in
Congress by the Administration concerning the tax rules applicable to REITs. It
is not possible to predict in advance what legislative proposals might arise in
the future, but it is possible that such proposals (if enacted) could adversely
affect the Trust's ability to qualify as a REIT or the tax consequences to the
Trust or the Shareholders of such continued qualification.
Taxation of the Operating Partnership as a Corporation if It Fails to be
Classified as a Partnership
If the Operating Partnership were taxed as a corporation in any taxable
year, its items of income, gain, loss and deduction would be reflected only on
its tax return rather than being passed through to the Unitholders, and its net
income would be taxed to the Operating Partnership at corporate rates currently
ranging to a maximum of 35%. In addition, any distribution made to a Unitholder
would be treated as either taxable dividend income at a rate currently ranging
to a maximum of 39.6% (to the extent of the Operating Partnership's current or
accumulated earnings and profits) or (in the absence of earnings and profits) a
non-taxable return of capital (to the extent of the Unitholder's tax basis in
his Units) or taxable capital gain (after the Unitholder's tax basis in the
Units has been reduced to zero). Accordingly, treatment of the Operating
Partnership as an association taxable as a corporation would result in a
material reduction in a Unitholder's cash flow and after-tax return and thus
would likely result in a substantial reduction of the value of the Units.
Deferral of Gain from Exchange Offering Subject to Certain Exceptions
Deferral of recognition of gain upon the contribution to the Operating
Partnership of Exchange Partnership Units by an Exchange Limited Partner in
exchange for Operating Partnership Units (the "Exchange") will not apply in all
circumstances. If any of the following circumstances apply, gain will be
recognized currently rather than being deferred:
1. Any decrease in an Exchange Limited Partner's share of liabilities of an
Exchange Partnership, if not offset by a corresponding increase in the
Exchange Limited Partner's share of Operating Partnership liabilities,
could cause the Exchange Limited Partner to recognize taxable gain as a
result of the Exchange Limited Partner being deemed to have received a
cash distribution from the Exchange Limited Partnership in excess of the
Exchange Limited Partner's tax basis. This recognition of gain could occur
even if the decrease arose in connection with a contribution or
distribution that would otherwise qualify for tax-free treatment under
Section 721 or Section 731 of the Code. A decrease in an Exchange Limited
Partner's share of Operating Partnership liabilities (and the resulting
deemed cash distribution) might occur upon a repayment of part or all of
the liabilities of an Exchange Partnership following the Exchange.
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2. A contribution of Exchange Partnership Units that is treated in whole or
in part as a "disguised sale" of the contributed property under the Code.
3. A distribution of "marketable securities" under Section 731(c) of the
Code.
4. Recapture under Section 465(e) of the Code.
5. A contribution of Exchange Partnership Units if the Operating Partnership
would be treated as an investment company (within the meaning of Section
351) if the Operating Partnership were incorporated.
See "FEDERAL INCOME TAX CONSIDERATIONS - Exchange of Exchange Partnership Units
for Operating Partnership Units."
Termination of Exchange Partnerships
If the Exchange Offering is completed and the required number of limited
partners of an Exchange Partnership exchange their interests in the Exchange
Partnership for Operating Partnership Units, a termination of the Exchange
Partnership will occur for purposes of Section 708 of the Code. Under Section
168(i)(7) of the Code, such Exchange Partnership must depreciate their
properties as if they were newly-acquired properties using the same depreciation
system used by the terminated partnership. In other words, the depreciable lives
of the properties will be reset and the depreciation schedules will be
lengthened as a result.
Investors Liable for State and Local Taxes
Each Investor will also be liable for state and local income taxes payable
in the state or locality in which the Investor is a resident or doing business
or in a state or locality in which the Trust or the Operating Partnership
conducts or is deemed to conduct business. Depending upon the state in question,
an Investor who pays such taxes in a foreign state may be entitled to receive a
credit for all or a portion of such amount paid against any income taxes payable
in his state of residence. Thus each Investor will likely be required to file
multiple state income tax returns as a result of his investment in the Trust or
the Operating Partnership.
EACH OFFEREE IS URGED AND EXPECTED TO CONSULT WITH HIS PERSONAL TAX
ADVISOR WITH RESPECT TO THE TAX CONSEQUENCES RELATED TO AN INVESTMENT IN
THE TRUST AND THE OPERATING PARTNERSHIP.
Non-participating Limited Partners in Participating Exchange Partnerships
Will Have Significant Influence over Certain Actions of the Partnerships
Following the completion of the Exchange Offering, each Exchange Limited
Partner in a Participating Exchange Partnership who has not accepted the
Exchange Offering ("Non-participating Limited Partner") will retain his existing
interest in the partnership. The Non-participating Partners will retain all of
their economic and voting rights, rights to receive reports and substantially
all other rights as set forth in their respective partnership agreement. See
"COMPARISON OF RIGHTS OF HOLDERS OF EXCHANGE PARTNERSHIP UNITS, OPERATING
PARTNERSHIP UNITS AND TRUST COMMON SHARES." Although Non-participating Limited
Partners in any particular Participating Exchange Partnership together will hold
no more than 10% of the limited partnership interest in the partnership, they
will have significant influence over certain activities of the partnership and
the Operating Partnership by virtue of certain partnership agreement amendments
in favor of the Non-participating Limited Partners which will be made upon
completion of the Exchange Offering. The purpose of the amendments is to permit
Non-participating Limited Partners in Participating Exchange Partnerships the
opportunity to vote as a class whether to approve certain actions which the
Operating Partnership might otherwise unilaterally cause a particular
Participating Exchange Partnership to take by exercising the Operating
Partnership's voting rights in its capacity as a majority holder of limited
partnership interests in the partnership following the Exchange Offering.
As described in further detail in this Prospectus at "AMENDMENTS TO
PARTNERSHIP AGREEMENTS OF PARTICIPATING EXCHANGE PARTNERSHIPS WITH
NON-PARTICIPATING LIMITED PARTNERS," following the Exchange Offering, the
partnership agreement of each Participating Exchange Partnership which has one
or more Non-participating Limited Partners will be amended so that such partners
will be entitled to vote as a class in respect of all matters as to which
limited partners are entitled to vote under the partnership agreement relating
to the partnership prior to the
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completion of the Exchange Offering, with certain exceptions. In addition, the
Trust and the Operating Partnership have agreed that in respect of certain
proposed actions, the Participating Exchange Partnership must obtain the prior
approval of Non-participating Limited Partners holding a majority of the limited
partnership interests held by all Non-participating Limited Partners in the
partnership. For example, the partnership may not sell its existing property
interest, acquire any additional property interests or cease to exist without
such approval.
As a result of such amendments, Non-participating Limited Partners in a
Participating Exchange Partnership will have the ability to veto certain actions
of the partnership, such as the sale of the partnership's property, which might
be in the best interest of the partnership, the Operating Partnership, the Trust
or the holders of securities of the Trust and the Operating Partnership. There
can be no assurance that Non-participating Limited Partners will not use such
voting power in a manner which may have an adverse effect on the operations of
the Trust or the Operating Partnership.
Possible Dilution as a Result of Issuance of Additional Securities
The Trust and the Operating Partnership have authority to offer authorized
but unissued Shares (which may be comprised of Common Shares and/or Preferred
Shares in the discretion of the Trust), debt securities and Units in exchange
for property, cash or otherwise. In order to facilitate the Exchange Offering,
the Operating Partnership has registered with the Commission 2,500,000 Units and
the Trust has registered an additional 2,500,000 Common Shares into which such
Units are exchangeable by their holders, subject to certain restrictions. In
addition, the Trust intends to investigate making an additional public or
private offering of Common Shares and/or Units within the 12-month period
following the commencement of the Exchange Offering if management determines
that suitable property acquisition opportunities are available at attractive
prices and such an offering would fulfill its cost of funds requirements.
Offerees who acquire Operating Partnership Units in connection with the Exchange
Offering and Shareholders of the Trust will not have any preemptive rights to
acquire any such additional Shares, debt securities or Units, and could suffer
dilution as a result of subsequent issuances of securities. See Article 2 of the
Declaration of Trust and Section 4.2 of the Operating Partnership Agreement.
In addition, in connection with the formation of the Trust and the
Operating Partnership, each of Mr. McGrath and Mr. Geiger, the Original
Investors, has subscribed for an amount of Units in the Operating Partnership
which are exchangeable (subject to escrow restrictions described at "THE TRUST
AND THE OPERATING PARTNERSHIP - Formation Transactions") into 9.5% of the Common
Shares outstanding as of the earlier to occur of the completion of the Cash
Offering and the Exchange Offering or November 30, 1999, calculated on a fully
diluted basis assuming that all then outstanding Units (other than those owned
by the Trust) have been exchanged into an equivalent number of Common Shares.
Each of the Original Investors paid $50,000 for 601,080 Units assuming that all
2,500,000 Common Shares are sold by November 30, 1999 and all 2,500,000 Units
being offered in the Exchange Offering are issued by such date. Assuming the
initial assigned value of $10.00 per unit, Units subscribed for by each Original
Investor would be valued at $6,010,800. In addition, Gregory K. McGrath, as
Chief Executive Officer of the Trust, Operating Partnership and Managing
Shareholder, will be paid compensation for the first year in the form of Common
Shares or Units not to exceed 25,000 shares or 25,000 Units to be determined by
the Executive Compensation Committee based upon his performance. The other
founder, Robert S. Geiger, serves as Chief Operating Officer of the Trust,
Operating Partnership and Managing Shareholder and his initial annual salary
will be $100,000.
Purchasers of Common Shares in the Cash Offering and Offerees who accept
the Exchange Offering will pay a higher price per Common Share and Unit than the
Original Investors paid for their Units. As a result of the issuance of such
Units to the Original Investors and the use of a portion of the gross proceeds
of the Cash Offering to cover expenses of the Cash Offering and the Exchange
Offering and to reimburse the Managing Shareholder for reimbursable expenses
incurred prior to and during the Cash Offering for investigating, evaluating and
consummating investments of the Trust and the Operating Partnership, purchasers
of Common Shares in the Cash Offering and Offerees who accept the Exchange
Offering will experience immediate dilution in their investment in the Trust and
the Operating Partnership, respectively.
To the extent that the Trust and the Operating Partnership issue
additional securities in the future (including, without limitation, Common
Shares purchased by broker-dealers who exercise warrants to purchase Common
Shares received as partial compensation for their services in connection with
the Cash Offering), there will be further dilution. See "THE TRUST AND THE
OPERATING PARTNERSHIP - Ownership of the Trust and the Operating Partnership."
In addition, the property interests owned by the Exchange Partnerships involved
in the initial transactions of the Exchange Offering have not previously been
put on the market for sale by the Exchange Partnerships, and the acquisition of
beneficial ownership of such property interests by the Operating Partnership at
their estimated value may result in the property interests being carried at a
value above or below what may be obtainable in the market. Moreover, any
acquisition of property interests in the Exchange
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Offering above their carrying value would result in deferred gains to the
sellers and could reduce the potential returns on investment results for the
Operating Partnership.
Limits on Ownership and Transfers of Common Shares and Units
Which May Delay or Prevent a Takeover Offering a Premium Price
In order for the Trust to maintain its qualification as a REIT, not more
than 50% in value of the outstanding Shares and Units may be owned, actually or
constructively, by five or fewer individuals (as defined in the Code to include
certain entities) during the last half of a taxable year (other than the first
year for which the election to be treated as a REIT has been made). Furthermore,
after the first taxable year for which a REIT election is made, the Trust's
Shares must be held by a minimum of 100 persons for at least 335 days of a
12-month taxable year (or a proportionate part of a short tax year). In
addition, if the Trust, or an owner of 10% or more of the Trust, actually or
constructively, owns 10% or more of a tenant of the Trust (or a tenant of any
partnership in which the Trust is a partner), the rent received by the Trust
(either directly or indirectly through any such partnership) from such tenant
will not be qualifying income for purposes of the REIT gross income tests of the
Code. See "FEDERAL INCOME TAX CONSIDERATIONS - Taxation of the Trust." In order
to protect the Trust against the risk of losing REIT status due to a
concentration of ownership among Shareholders and Unitholders, the Declaration
of Trust limits actual or constructive ownership of Shares and Units by any
single Shareholder (other than the Original Investors) to 5% (the "Limit") of
the then outstanding Shares. See "CAPITAL STOCK OF THE TRUST - Restrictions on
Ownership and Transfer." The Managing Shareholder (upon receipt of a ruling from
the Internal Revenue Service (the "Service") or an opinion of counsel or other
evidence satisfactory to the Managing Shareholder and upon such other conditions
as the Managing Shareholder may require) may in its discretion waive the Limit
depending on the then existing facts and circumstances surrounding the proposed
transfer, including without limitation, the identity of the party requesting
such waiver, the number and extent of Share ownership of other Shareholders, the
aggregate number of outstanding Shares and the extent of any contractual
restrictions (other than that contained in the Declaration of Trust) on any
Shareholders relating to transfer of their Shares. See Section 2A.12 of the
Declaration of Trust. The Managing Shareholder will waive the Limit with respect
to a particular Shareholder if it is satisfied, based upon the foregoing, that
ownership by such Shareholder in excess of the Limit would not jeopardize the
Trust's status as a REIT and the Managing Shareholder otherwise decided that
such action would be in the best interests of the Trust.
Actual or constructive ownership of Shares in excess of the Limit, or with
the consent of the Managing Shareholder, such other limit, will cause the
violative transfer or ownership to be void with respect to the transferee or
owner as to that number of Shares in excess of the Limit, or, with the consent
of the Managing Shareholder, such other limit, as applicable. Such purported
transferee or owner would have no right to vote such Shares or be entitled to
dividends or other distributions with respect to such Shares. See "CAPITAL STOCK
OF THE TRUST - Restrictions on Ownership and Transfer" and Article 2A of the
Declaration of Trust for additional information regarding the Limit.
The foregoing ownership limitations could have the effect of delaying,
deferring or preventing a takeover or other transaction in which holders of
some, or a majority, of the Common Shares might receive a premium for their
Common Shares over the then prevailing market price or which such holders might
believe to be otherwise in their best interest. See "CAPITAL STOCK OF THE TRUST
- - Restrictions on Ownership and Transfer" and Article 2A of the Declaration of
Trust for additional information regarding the ownership limitations.
Lack of Liquidity of Retained Interest in an
Exchange Partnership Following the Exchange Offering
Exchange Limited Partners who have not accepted the Exchange Offering will
retain their limited partnership interest in their respective Exchange
Partnership with substantially the same rights they had prior to the offering.
Following the Exchange Offering, limited partnership interests retained in any
Participating Exchange Partnership by Non-participating Limited Partners are
likely to remain extremely illiquid because such interests will represent a
small minority interest (10% or less) in the partnership and because of the
uncertainty whether the property interest would be sold in the near future due
to the REIT and other provisions of the Code which would penalize the Trust and
possibly Exchange Limited Partners in such partnership who accept the Exchange
Offering if the Trust sold a property interest in the short term.
No Operating History
Operating Partnership Units being offered in the Exchange Offering and
Trust Common Shares into which such Units are exchangeable must be considered
speculative investments, and there can be no assurance that the Trust will
fulfill its investment objectives. The Trust, the Operating Partnership and the
Managing Shareholder (wholly owned and controlled, along with the Corporate
General Partner of each Exchange Partnership, by Mr. McGrath) have no
significant
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operating history. In addition, the assets of the Trust and the Operating
Partnership will consist primarily of direct or indirect equity or debt
investments they may make in respect of particular residential apartment
properties and thus will be largely dependent upon the successful operation of
such properties. Management of the Trust, the Operating Partnership and the
Managing Shareholder, however, has substantial prior experience in and knowledge
of the residential apartment property market and its financing, and has
significant experience in the management of investment programs.
Limited Participation Rights of Shareholders and Unitholders in Management
Management of the Trust and the Operating Partnership is vested in the
Managing Shareholder, subject to the general supervision and review by the
Independent Trustees and the Managing Shareholder acting together as the Board
of the Trust and subject to prior approval of the Board and the Independent
Trustees in respect of certain activities of the Trust and the Operating
Partnership. Shareholders and Unitholders will generally not have the right to
participate in the management of the Trust and the Operating Partnership and
their property interests or in the decisions of management relating to their
investments. See Sections 1.9, 6.1 and 7.1 of the Declaration of Trust. Although
the members of the Board of the Trust owe fiduciary duties to the Trust, their
failure to enforce the material terms of any agreements entered into by the
Trust and the Operating Partnership, particularly the indemnification provisions
and remedy provisions for breaches of representations and warranties, could
result in a substantial monetary loss to the Trust and the Operating
Partnership.
Regulatory Non-compliance Could Result in Fines or Judgments
Fair Housing Amendments Act of 1988. The Fair Housing Amendments Act of
1988 (the "FHA") requires residential apartment properties first occupied after
March 13, 1990 to be accessible to the handicapped. Non-compliance with the FHA
could result in the imposition of fines or an award of damages to private
litigants. Each of the Trust and the Operating Partnership will use its best
efforts to ensure that properties subject to the FHA in which it acquires an
interest will be in compliance with such law.
Americans with Disabilities Act. Properties in which the Trust or the
Operating Partnership acquire an interest must comply with Title III of the
Americans with Disabilities Act (the "ADA") to the extent that such properties
are "public accommodations" and/or "commercial facilities" as defined by the
ADA. Compliance with the ADA regulations requires that public accommodations
"reasonably accommodate" individuals with disabilities, which includes removal
of structural barriers to handicapped access in certain public areas of the
properties of the Trust and the Operating Partnership, where such removal is
readily achievable, and that new construction or alterations made to "commercial
facilities" conform to accessibility guidelines unless "structurally
impracticable" for new construction, or exceeds 20% of the cost of the
alteration for existing structures. The ADA does not, however, consider
residential properties, such as residential apartment properties, to be public
accommodations or commercial facilities except to the extent portions of such
facilities, such as a leasing office, are open to the public. Each of the Trust
and the Operating Partnership will use its best efforts to ensure that its
properties comply with all present requirements under the ADA and applicable
state laws. Noncompliance with the ADA could result in imposition of injunctive
relief, fines or an award of damages.
Compliance with Environmental Laws. Under various federal, state and local
laws, ordinances and regulations, an owner or operator of real property may
become liable for the costs of removal or remediation of certain hazardous
substances released on or in its property. Such laws often impose such liability
without regard to whether the owner or operator knew of, or was responsible for,
the release of such hazardous substances. The presence of such substances, or
the failure to properly remediate such substances, when released, may adversely
affect the owner's ability to sell such real estate or to borrow using such real
estate as collateral.
In order to address these issues, the Trust intends, where necessary, to
retain an unaffiliated consultant to conduct a Phase I environmental audit of
any property in which it or the Operating Partnership intends to acquire an
interest. The Phase I audit generally consists of an on-site inspection of the
land and improvements; a review of the building plans and specifications to
determine the construction materials and procedures used; a review of EPA and
other governmental agency files to determine if the subject property or any
other properties in its vicinity have been the subject of any investigations,
reports or classifications that would indicate potential environmental risks;
and a review of the chain of title of the subject property to determine the
ownership history of the property. Phase I audits do not include soil sampling
or subsurface investigations. Thus, a Phase I audit is not comprehensive or
exhaustive and will not identify all possible hazardous substances. The Trust
and the Operating Partnership will obtain Phase II environmental audits where
matters disclosed in the Phase I audit warrant further investigation. No
assurances can be given, however, that the environmental studies undertaken with
respect to any particular property will reveal all potential environmental
liabilities, that any prior owner of a property did not create any material
environmental conditions not known to the Trust or the Operating Partnership, or
that a material environmental condition does not otherwise exist as to any
particular property in which the Trust or the Operating
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Partnership acquires an interest. If it is ever determined that hazardous
substances are present, the Trust or the Operating Partnership could be required
to pay all costs of any necessary clean-up work, although under certain
circumstances claims against other responsible parties could be made by it.
Shareholders and Unitholders Could be Adversely Affected
by Limited Liability and Indemnification of the Managing Persons
Although the Managing Shareholder (wholly owned and controlled, along with
the Corporate General Partner of each Exchange Partnership, by Mr. McGrath),
Independent Trustees and any other members of the Board will be accountable to
the Trust and the Operating Partnership as fiduciaries and, consequently, will
be required to exercise good faith and integrity in handling the assets and
affairs of the Trust and the Operating Partnership, the Declaration of Trust and
the Operating Partnership Agreement provide that such persons and their
respective officers, directors, shareholders, partners, agents and employees
will not be liable to the Trust, the Operating Partnership or any of the
Shareholders for errors in judgment or for actions or omissions taken without
negligence or bad faith, provided they acted within the scope of the Declaration
of Trust and the Operating Partnership Agreement. Moreover, the Declaration of
Trust and the Operating Partnership Agreement provide that the Trust and the
Operating Partnership will indemnify the Managing Shareholder, Independent
Trustees, other members of the Board and such other persons against all
liabilities, costs and expenses (including legal fees and expenses) incurred by
the Managing Shareholder or any such persons arising out of or incidental to the
Exchange Offering or the Cash Offering or the operation of the Trust and the
Operating Partnership on certain conditions. See Section 3.7 of the Declaration
of Trust and Section 7.7 of the Operating Partnership Agreement. As a result,
the Shareholders and Unitholders will have more limited rights against the
Managing Shareholder and such persons than they would have absent the
limitations in the Declaration of Trust and the Operating Partnership Agreement.
See "FIDUCIARY RESPONSIBILITY" and "SUMMARY OF DECLARATION OF TRUST - Liability
and Indemnification."
No Assurance of Shareholder Limited Liability
for Activities of Delaware Business Trust
The Trust has been organized as a Delaware business trust having limited
liability of the Shareholders of the Trust. Many states have enacted legislation
recognizing the limited liability provisions of the Delaware business trust.
Other states have not enacted such legislation, although it is expected
(although not assured) that most of such states will also recognize the limited
liability of the Shareholders. Accordingly, there is a risk that Shareholders
will not have limited liability for activities of the Trust in any other state
in which the Trust may conduct activities which does not recognize the limited
liability of beneficiaries of a Delaware business trust. Such risk is
substantially mitigated by the Trust conducting its activities and holding its
interest in properties in the Operating Partnership.
No Assurance of Profitable Sale of Trust and Operating Partnership Property
The Trust will periodically review the portfolio of assets which the Trust
and the Operating Partnership may acquire. The Trust has no current intention to
dispose of any interest in properties to be acquired, although it reserves the
right to do so. There is no assurance as to the timing of any sales of property
or that if the Trust determines to attempt to sell a particular property it will
be able to do so on favorable terms, if at all. A successful sale of any
property will depend upon, among other things, the operating history of the
property and prospects for the property, the number of potential purchasers, the
economics of any bids made by such potential purchasers and the state of the
market for residential properties of the type sought to be sold. The management
of the Trust and the Operating Partnership will have full discretion to
determine whether the properties should be sold and the timing, price and other
terms of any such sales. In addition, the prohibitions in the Code and related
regulations on a REIT holding property for sale may affect the Trust's ability
to sell properties without adversely affecting distributions to Shareholders and
Unitholders. See "FEDERAL INCOME TAX CONSIDERATIONS - Taxation of the Trust."
Property Losses May Not be Insurable
Properties in which the Trust and the Operating Partnership invest are
expected to be covered by adequate comprehensive liability and all-risk
insurance provided by reputable companies and with commercially reasonable
deductibles, limits and policy specifications customarily carried for similar
properties. Certain types of losses, however, may be either uninsurable or not
economically insurable, such as losses due to earthquakes, floods, riots or acts
of war, or may be insured subject to certain limitations including large
deductibles or co-payments. Should an uninsured loss or a loss in excess of
insured limits occur, the Trust or the Operating Partnership could lose its
investment in and anticipated profit and cash flow from a property and would
continue to be obligated on any mortgage indebtedness or other obligations
related to such
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properties. Any such loss would adversely affect the Trust and the Operating
Partnership and their ability to make distributions to Shareholders and
Unitholders.
Possible Lack of Independent Assessment of
Prior Operating Results of Acquired Property Interests
In making an investment decision in respect of any given property, the
Trust and the Operating Partnership may rely on financial statements covering
the operations of the property which may have been prepared by the then current
owner or property manager of the property and which may have not been compiled,
reviewed or audited by independent public accountants or reviewed by counsel to
the Trust, the Operating Partnership or the Managing Shareholder. In any such
case, therefore, there will not have been any independent assessment of any of
such financial statements and accordingly the Trust and the Operating
Partnership would be subject to the risk that such financial statements do not
properly reflect the prior operation of the property.
Initial Value Assigned to Operating Partnership Units Offered in Exchange for
Exchange Partnership Units Exceeds Current Book Value of Exchange Partnerships
The $13,518,420 aggregate book value of the 23 Exchange Partnerships
initially targeted for acquisition in the Exchange Offering is less than the
$24,980,606 total of the initial value assigned to the Operating Partnership
Units being offered for the Exchange Partnership Units. This discrepancy is due
to depreciation taken against the original price paid by the Exchange Equity
Partnerships and Exchange Hybrid Partnerships for direct or indirect equity
interests in the properties and the appreciation of the properties since such
purchase. As a result, the return on investment of the Exchange Partnerships
based on the initial value assigned to Units offered for Exchange Partnership
Units in such partnerships in connection with the Exchange Offering will be less
than the return on investment of the partnerships based on their book value.
Changes in Laws Could Increase Operating Expenses
Increased costs resulting from changes in real estate taxes or other
governmental requirements may generally not be passed directly through to
tenants, inhibiting the ability of the Trust and Operating Partnership to
recover such increased costs. An attempt to pass through any substantial
increases in such costs by increasing rental rates may affect tenants' ability
to pay rent, causing increased delinquency and vacancy. Similarly, increases in
income or transfer taxes generally are not passed through to tenants and may
adversely affect the ability of the Trust and the Operating Partnership to make
distributions to Shareholders and Unitholders. Changes in laws increasing
potential liability for environmental conditions or increasing the restrictions
on discharges or other conditions may result in significant unanticipated
expenditures, which would adversely affect the ability of the Trust and the
Operating Partnership to make distributions to Shareholders and Unitholders.
No Rights of Dissent
Offerees who elect not to accept the Exchange Offering will retain their
existing limited partnership interest in their respective Exchange Partnership
on substantially the same terms and conditions as their original investment.
Upon the completion of the Exchange Offering, the limited partnership interests
in each Participating Exchange Partnership will be owned by the Operating
Partnership and any Non-participating Limited Partners in the partnership.
Neither applicable law nor the limited partnership agreement relating to any
Exchange Partnership provides any rights of dissent or appraisal to Offerees who
do not elect to accept the Exchange Offering.
Possible Lack of Diversification in Property Investments
Although the Trust and the Operating Partnership are expected to invest in
several residential apartment properties, the number of properties in which they
ultimately invest may be insufficient to afford adequate diversification against
the risk that their investments will not be profitable or return their invested
capital. There can be no assurance that the properties invested in will earn a
return or that the returns on the investments will be sufficient to permit
distributions to Shareholders and Unitholders.
Other Participants May Fail to Fulfill Obligations
In certain cases, the Trust and the Operating Partnership will jointly
participate with one or more other entities in respect of their property
investments, including without limitation developers, property owners, and First
Mortgage lenders and other financing sources. If any such other participants
fail to fulfill their obligations, have divergent interests or are in a
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position to take action contrary to the policies or objectives of the Trust or
the Operating Partnership, the interest of the Trust or the Operating
Partnership, as the case may be, in such project may be adversely affected. The
successful operation of certain property interests acquired will, to a certain
extent, be determined by the quality and performance of other participants.
Extended and Uncertain Investing Period Could Adversely Affect Returns
The use of the net proceeds of the Cash Offering and Units in the
Operating Partnership to acquire interests in one or more residential apartment
properties may occur over an extended period, including the offering period,
during which the Trust and the Operating Partnership will face risks of changes
in interest rates and adverse changes in the real estate market. Similarly,
during periods in which net proceeds of the Cash Offering are invested in
interim investments prior to such application, the Trust and the Operating
Partnership may be affected by changes in prevailing interest rate levels. Such
interim investments would be expected to earn rates of return which are lower
than those earned on real estate investments made.
Possible "Year 2000" Problems
Although the computer systems of the Trust and the Operating Partnership
have been tested for year 2000 problems and management believe that such systems
are year 2000 compatible, it is possible that certain computer systems or
software products of their suppliers may experience year 2000 problems and that
such problems could adversely affect their operations. The Trust is in the
process of inquiring as to the progress of the principal suppliers of the Trust
and the Operating Partnership in identifying and addressing problems that their
computer systems will face in correctly processing date information as the year
2000 approaches. However, there can be no assurance that the Trust and the
Operating Partnership will identify the future date-handling problems of their
suppliers in advance of the occurrence of such problems, or that such parties
will be able to successfully remedy any problems that are discovered. The
failure to identify and solve all year 2000 problems affecting them could have
an adverse effect on the business, financial condition and results of operations
of the Trust and the Operating Partnership.
THE EXCHANGE OFFERING
All of the Units being offered by the Operating Partnership pursuant to
this Prospectus are being offered in connection with the Exchange Offering. In
the Exchange Offering, the Operating Partnership is offering to issue registered
Units to individual limited partners in limited partnerships which directly or
indirectly own equity and/or debt interests in residential apartment properties,
in exchange for the limited partners' limited partnership interests.
As its initial investment targets in the Exchange Offering, the Operating
Partnership is offering to acquire direct or indirect equity and/or subordinated
mortgage and other debt interests in 26 residential apartment properties (the
"Exchange Properties") directly or indirectly owned by 23 real estate limited
partnerships managed by Corporate General Partners affiliated with the Managing
Shareholder (wholly owned and controlled, along with the Corporate General
Partner of each Exchange Partnership, by Mr. McGrath) (collectively, the
"Exchange Partnerships" and individually, an "Exchange Partnership"). Certain of
the Exchange Partnerships directly or indirectly own equity interests in 16
Exchange Properties which consist of an aggregate of 1,012 residential units
(comprised of studio and one, two, three and four-bedroom units). Certain of the
Exchange Partnerships directly or indirectly own Subordinated Mortgage interests
in 10 Exchange Properties, which consist of an aggregate of 813 existing
residential units (studio and one and two bedroom units) and 164 units (two and
three bedroom units) under development. Of the Exchange Properties, 21
properties are located in Florida, three properties in Ohio and one property
each in Georgia and Indiana.
The sole asset of each of 13 of the Exchange Partnerships (individually,
an "Exchange Equity Partnership" and collectively, the "Exchange Equity
Partnerships") is record title to a residential apartment property or the entire
limited partnership or other equity interests in a limited partnership or other
entity which owns record title to a property. The sole assets of each of six of
the Exchange Partnerships (individually, an "Exchange Mortgage Partnership" and
collectively, the "Exchange Mortgage Partnerships") are the entire or an
undivided Subordinated Mortgage interest in one or more properties (and in one
case, unsecured debt interests). Each of the remaining four Exchange
Partnerships (individually, an "Exchange Hybrid Partnership" and collectively,
the "Exchange Hybrid Partnerships") own a combination of (i) all or a portion of
the direct or indirect equity interest in one or more properties and (ii) an
undivided Subordinated Mortgage loan in one or more properties (and in one case,
unsecured debt interests). Such property interests are described in further
detail at "DESCRIPTION OF EXCHANGE PARTNERSHIPS," "INITIAL REAL ESTATE
INVESTMENTS" and in Exhibit B hereto. See also "MANAGEMENT'S DISCUSSION AND
ANALYSIS OR PLAN OF OPERATION" and "COMPARISON
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OF RIGHTS OF HOLDERS OF EXCHANGE PARTNERSHIP UNITS, OPERATING PARTNERSHIP UNITS
AND TRUST COMMON SHARES."
Each Exchange Partnership is a real estate investment program which owns
directly or indirectly either all or a portion of the record title to and/or a
Subordinated Mortgage and other debt interest in an Exchange Property or all or
a portion of the limited partnership interest or beneficial interest in a
limited partnership or other entity which owns such an interest. The Operating
Partnership will indirectly acquire interests in the Exchange Properties by
offering to issue registered Units in exchange for limited partnership interests
("Exchange Partnership Units") held by individual limited partners in the
Exchange Partnerships (individually, an "Exchange Limited Partner" and
collectively, the "Exchange Limited Partners"). The Original Investors
(comprised of Gregory K. McGrath and Robert S. Geiger) do not hold limited
partnership interests in any of the Exchange Partnerships. Mr. McGrath is the
sole stockholder, director and executive officer of each of the Corporate
General Partners of the Exchange Partnerships. Affiliates of Mr. McGrath are
also the corporate general partners of limited partnerships which are debtors
under Subordinated Mortgage Loans and other debt interests owned by certain of
the Exchange Partnerships, and in such capacity, Mr. McGrath holds an indirect
minority economic interest in such partnerships which is subordinate to the
preferred returns of their limited partners. See "MANAGEMENT."
Any Offeree who is a limited partner of an Exchange Partnership and does
not desire to participate in the Exchange Offering will be entitled to retain
his limited partnership interest in his respective Exchange Partnership on
substantially the same terms as his original investment. The Operating
Partnership will not complete the Exchange Offering in respect of any particular
Exchange Partnership unless limited partners holding at least 90% of the limited
partnership interests in the Exchange Partnership affirmatively elect to accept
the offering. In addition, the Operating Partnership will not complete any
transaction in the offering whatsoever unless a sufficient number of Offerees
accept the offering such that the offering involves the issuance of Operating
Partnership Units with an initial assigned value of at least $6,000,000. An
Offeree must exchange all of his units of limited partnership in an Exchange
Partnership in order to participate in the Exchange Offering.
Partial exchanges will not be accepted.
The aggregate appraised market value of 16 Exchange Properties in which
Exchange Equity Partnerships and Exchange Hybrid Partnerships directly or
indirectly own an equity interest (net to the partnerships' interest, less the
current principal balance of mortgage loans secured by such properties) was
approximately $16,515,480 at March 31, 1999. The current aggregate balance due
(including current aggregate principal balances of Subordinated Mortgage Loans
and other debt and accrued unpaid interest thereon) on the debt interests owned
by Exchange Mortgage Partnerships and Exchange Hybrid Partnerships in respect of
11 Exchange Properties was approximately $7,437,727 at March 31, 1999.
The current book value of the 23 Exchange Partnerships was
approximately $13,518,420 at March 31, 1999. If exchanges are consummated for
all Exchange Partnership Units in the partnerships in connection with the
Exchange Offering, the partnership interests acquired will have a purchase
price totaling approximately $24,980,606, comprised of Operating Partnership
Units to be issued with an initial assigned value in that amount. The
property interests to be acquired with the balance of the Operating
Partnership Units to be offered in the Exchange Offering have not yet been
finally determined. The Trust intends to investigate other investment
opportunities for the Exchange Offering, including interests held in
additional properties by unaffiliated parties and by other limited
partnerships managed by affiliates of the Managing Shareholder. See also
"PRIOR PERFORMANCE BY AFFILIATES OF MANAGING SHAREHOLDER."
In June and July 1998, the Operating Partnership acquired beneficial
ownership of a 67-unit residential apartment property located in Orlando,
Florida and an 80-unit property located in Lakeland, Florida. In September 1998,
the Operating Partnership acquired beneficial ownership of a 50-unit residential
apartment property located in New Smyrna Beach, Florida. In October 1998, the
Operating Partnership acquired an approximately 12.3% limited partnership
interest in a limited partnership which is the owner and developer of a 168-unit
residential apartment property under construction in Alexandria, Kentucky.
Subsequently, the Operating Partnership acquired additional limited partnership
units; and as of May 14, 1999, the Operating Partnership owns an approximately
37.2% limited partnership interest in this limited partnership. Ninety eight of
the 168 residential units (approximately 58%) have been completed as of March
31, 1999 and are in the rent-up stage. The acquisitions described above, which
had a total cash purchase price of $3,448,506, were paid out of the net proceeds
of the Trust's ongoing Cash Offering.
In July 1998, the Operating Partnership made capital contributions in the
range of $2,900 to $83,300 (aggregate amount approximately $341,000) to 13 real
estate partnerships managed by affiliates of the Managing Shareholder, including
certain of the Exchange Partnerships, in exchange for a limited partnership
interest in such partnerships (less than 4% in each case). In September 1998,
the Trust entered into an agreement to acquire two luxury residential apartment
properties (total of 652 units) upon the completion of construction for an
aggregate purchase price in the range of $41,000,000 to $43,000,000. See
"INITIAL REAL ESTATE INVESTMENTS."
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Other than as described above, the remaining net cash proceeds of the Cash
Offering (approximately $_________ as of the date of this Prospectus) and future
net proceeds from the Cash Offering have not yet been committed to specific
properties. Offerees will not have any vote in the selection of property
investments after they accept the Exchange Offering. Therefore, Offerees who
elect to accept the Exchange Offering may not have available any information on
any additional properties to be acquired in the Exchange Offering and properties
to be acquired with net proceeds of the Cash Offering, in which case they will
be required to rely on management's judgment regarding those purchases.
The commencement of the Exchange Offering in respect of the 23 Exchange
Partnerships was approved by the Independent Trustees of the Trust, who together
with the Managing Shareholder (wholly owned and controlled, along with the
Corporate General Partner of each Exchange Partnership, by Mr. McGrath), serve
as the members of the Board of the Trust. The Managing Shareholder abstained
from voting since Gregory K. McGrath, the sole stockholder, director and
executive officer of the Corporate General Partner of each of the Exchange
Partnerships, is also one of the founders of the Trust and the Operating
Partnership, the sole stockholder and director of the Managing Shareholder, and
Chief Executive Officer of the Trust, the Operating Partnership and the Managing
Shareholder. As described above, affiliates of Mr. McGrath are also the
corporate general partners of limited partnerships which are debtors under
Subordinated Mortgage Loans and other debt interests owned by certain of the
Exchange Partnerships.
The Corporate General Partner of each Exchange Partnership recommends that
the Offerees elect to accept the Exchange Offering based on an analysis of the
benefits and disadvantages of the offering to Offerees and the Exchange
Partnerships and an analysis of possible alternative transactions. See below at
" - Background of the Exchange Offering" and " - Effects of the Formation
Transactions, Cash Offering and Exchange Offering."
The number of Units being offered to each Exchange Limited Partner in a
particular Exchange Partnership per $1,000 of his original investment is
indicated on the table set forth on page 32 of this Prospectus, on page 3 of the
accompanying Prospectus Supplement and at the bottom of the table relating to
such partnership set forth at Exhibit B to this Prospectus. The number of Units
being offered to each Exchange Limited Partner in exchange for his interest in a
given Exchange Partnership have been assigned an initial value in the range of
103% to 169% of the amount of an Exchange Limited Partner's original investment
in the partnership. For purposes of the Exchange Offering, each Unit has been
arbitrarily assigned an initial value of $10.00 per Unit, which corresponds to
the offering price of each Trust Common Share offered in the Cash Offering. The
value of each outstanding Unit and Common Share will be substantially identical
since Unitholders, including recipients of Units in the Exchange Offering, may
exchange their Units into an equivalent number of Common Shares at any time,
subject to certain conditions.
The number of Units being offered by the Operating Partnership in the
Exchange Offering in respect of each Exchange Equity Partnership and each
Exchange Hybrid Partnership (to the extent of its direct or indirect equity
interest in the property) differs based upon the following factors: (a) the
estimated appraised market value of the underlying property determined by
qualified and licensed independent appraisal firms; (b) the operating history of
the property; (c) the current principal balance of first mortgage and other
indebtedness to which the property is subject; (d) the amount of distributable
cash flow currently being generated by the property; plus (e) additional factors
which the Managing Shareholder believes are appropriate to consider including,
among others, the property's overall current condition and prospects for the
property based upon improvements made or to be made to the property and, in
certain cases, the combination of two or more phases of the property, which are
expected to be owned upon completion of the Exchange Offering and the actual or
potential benefits to be obtained by the sub-metering of utilities in order to
pass costs from the owner of the property to individual tenants. The number of
Units being offered in respect of each of the Exchange Mortgage Partnerships and
each of the Exchange Hybrid Partnerships (to the extent of its mortgage
interests in properties and other debt interests) differs based upon the
following factors: (i) the current principal balance of the amount of debt which
is senior to the mortgage interest to be acquired and other indebtedness to
which the property is subject; (ii) the estimated appraised market value of the
underlying property determined by qualified and licensed independent appraisal
firms; (iii) the operating history of the property; (iv) the amount of
distributable cash flow currently being generated by the property; plus (v)
additional factors which the Managing Shareholder believes are appropriate to
consider including, among others, the property's overall current condition and
prospects for the property based upon improvements made or to be made to the
property and, in certain cases, the combination of two or more phases of the
property, which are expected to be owned upon completion of the Exchange
Offering and the actual or potential benefits to be obtained by the sub-metering
of utilities in order to pass costs from the owner of the property to individual
tenants. Each Exchange Property in which the Operating Partnership intends to
acquire an interest has been appraised by a qualified and licensed independent
appraisal firm and each additional property in which it intends to acquire an
interest will be appraised in advance. See " - Exchange Property Appraisals."
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In connection with the completion of the Exchange Offering in respect of
each Participating Exchange Partnership, (i) Mr. McGrath will either grant the
Board of the Trust a management proxy coupled with an interest to vote the
shares of its Corporate General Partner (wholly owned and controlled, along with
the Managing Shareholder of the Trust, by Mr. McGrath) or contract to assign all
of the stock in the Corporate General Partner to the Trust for nominal
consideration; (ii) the Corporate General Partner will assign to the Operating
Partnership all of its residual economic interest in the partnership; and (iii)
Mr. McGrath will cause the Corporate General Partner to waive its right to
receive from the partnership any ongoing fees, effective at the time of
exchange.
A description of certain differences among the terms and conditions of (i)
the Exchange Partnership Units currently owned by Exchange Limited Partners,
(ii) the Operating Partnership Units being offering in the Exchange Offering and
(iii) the Trust Common Shares into which the Operating Partnership Units are
exchangeable, is set forth below under "COMPARISON OF RIGHTS OF HOLDERS OF
EXCHANGE PARTNERSHIP UNITS, OPERATING PARTNERSHIP UNITS AND TRUST COMMON
SHARES."
As a Unitholder, each recipient of Units in the Exchange Offering will be
entitled to exchange all or a portion of his Units at any time and from time to
time for an equivalent number of Trust Common Shares, so long as the exchange
would not cause the exchanging party to own (taking into account certain
ownership attribution rules) in excess of 5% of the then outstanding Shares in
the Trust, subject to the Trust's right to cash out any holder of Units who
requests an exchange (at a price equal to the average of the daily market price
for the 10 consecutive trading days immediately preceding the date the Trust
receives the exchange notice, or, in the absence of a public trading market, at
a price determined in good faith by the Trust) and subject to certain other
exceptions. To facilitate such exchanges of Units into Common Shares, 2,500,000
Common Shares (in addition to the 2,500,000 Common Shares being offered by the
Trust in the Cash Offering) have been registered with the Commission. The Trust
intends to apply for listing on a national stock exchange of the Common Shares
being offered in the Cash Offering and the Common Shares into which Units issued
in the Exchange Offering will be exchangeable. There can be no assurance that
such securities will qualify for listing or the timing of such listing. See
"TERMS OF THE CASH OFFERING."
The Trust and the Operating Partnership intend to investigate making an
additional public or private offering of Common Shares and/or Units within the
12-month period following the commencement of the Exchange Offering if the
Managing Shareholder determines that suitable property acquisition opportunities
are available to the Trust at attractive prices and that such an offering would
fulfill its cost of funds requirements. The issuance by the Trust and the
Operating Partnership of additional Shares and Units subsequent to the
completion of the Cash Offering and the Exchange Offering could have a dilutive
effect on Offerees who accept this Exchange Offering and Shareholders of the
Trust.
Accounting Treatment
Subject to the completion of the Exchange Offering, the Trust and the
Operating Partnership will account for the acquisition of the limited
partnership interests in Participating Exchange Partnerships on the purchase
method and therefore record the assets acquired and the liabilities assumed at
their fair value at the date of acquisition.
Background of the Exchange Offering
In the first quarter of 1997, the Original Investors determined that a
single integrated structure of ownership by the Exchange Partnerships and
administration of the property interests which were controlled by them and which
were projected to be acquired by future affiliated programs would be far more
efficient, cost effective and advantageous for operations and for the various
program investors. In anticipation of its growth and change in structure, the
organization developed by the Original Investors has been able to attract highly
experienced management and financial personnel capable of managing a
substantially larger real estate portfolio. See "MANAGEMENT - Officers of the
Trust and the Operating Partnership."
The Original Investors did not wish to exclude any investors in any of the
investment programs managed by affiliates of the Managing Shareholder (wholly
owned and controlled, along with the Corporate General Partner of each Exchange
Partnership, by Mr. McGrath), including the Exchange Partnerships, which have
been privately placed in the last four years from the opportunity to diversify
their real estate ownership interest by an exchange of their existing limited
partnership units for an ownership interest in a publicly structured
organization with the ultimate potential of receiving the benefit of holding the
interest in a marketable form of security. At the same time, the Original
Investors have structured the Exchange Offering to afford each limited partner
in the Exchange Partnerships the opportunity, if desired, to continue with the
investment as originally purchased and in an entirely undisturbed manner.
Moreover, unless at least 90% of the limited partners of any Exchange
Partnership affirmatively elects to accept the Exchange Offering, the Operating
Partnership will not acquire any limited partnership interests in that
partnership. In addition, the Operating Partnership will not complete any
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transaction in the offering whatsoever unless a sufficient number of Offerees
accept the offering such that the offering involves the issuance of Units with
an initial assigned value of at least $6,000,000. Following the completion of
the Exchange Offering, each Exchange Partnership will continue to own and
operate its respective Exchange Property interest without significant
modification.
The amount of capital raised from limited partners in the original private
placement offering of each Exchange Partnership is set forth at "PRIOR
PERFORMANCE OF AFFILIATES OF MANAGING SHAREHOLDER" and the VALUATION TABLE on
page 32 and in the respective table in Exhibit B to this Prospectus. The entire
net proceeds from each of the original offerings have been invested in the
property interest which the particular Exchange Partnership currently holds. The
funds were invested as planned. Each of the partnerships was formed with the
objectives to generate current cash flow for distribution to partners from the
rental of residential apartments and interest income and, where applicable, to
provide the opportunity for capital appreciation from the future sale of the
residential apartment property. The Exchange Partnership Corporate General
Partners (wholly owned and controlled, along with the Managing Shareholder of
the Trust, by Mr. McGrath) believe these objectives have been substantially
achieved. Neither the Corporate General Partners of the Exchange Partnerships
nor any affiliated person materially dependent upon its compensation arrangement
with an Exchange Partnership has experienced, since the most recently completed
fiscal year, or is likely to experience, any material adverse financial
development.
The Corporate General Partners of the Exchange Partnerships considered
various alternatives to the Exchange Offering, including continuation of the
partnerships in accordance with their existing business plans and sale or
liquidation of the partnership interest or assets held. In the case of each
Exchange Partnership, its Corporate General Partner has determined that the
Exchange Offering provides equal or greater value to the Exchange Limited
Partners compared with any other considered alternative. In the case of certain
affiliated income producing partnerships which are not included in the Exchange
Offering, the Corporate General Partner concluded otherwise, determining that
the Operating Partnership could not offer sufficient value for the exchange.
Continuation of the existing business plans of the Exchange Partnerships
has been determined by their Corporate General Partners (wholly owned and
controlled, along with the Managing Shareholder of the Trust, by Mr. McGrath) to
be disadvantageous for their respective limited partners compared with the
opportunity to participate in the Exchange Offering. Each of the Exchange
Partnerships is a "stand-alone" entity with an interest in one or more
residential apartment properties. As a result, the Exchange Partnerships have
higher personnel and other operating and financing expenses on a per-unit basis
than the combined enterprise will have. In addition, the combined enterprise
will afford the Exchange Partnerships highly experienced management and
financial personnel that, for the individual partnerships acting alone, would
not be cost effective. Moreover, no market exists for the limited partnership
interests of the Exchange Limited Partners, and therefore such interests are not
currently liquid.
Liquidation has been determined by the Corporate General Partners of the
Exchange Partnerships to be impractical and disadvantageous for their respective
limited partners. In the case of each Exchange Partnership, its Corporate
General Partner has either explored the sale of the partnership assets or has
determined that such a sale would be premature as it would not maximize investor
value.
The Original Investors initiated the Exchange Offering, and the Corporate
General Partners of the Exchange Partnerships (wholly owned and controlled,
along with the Managing Shareholder of the Trust, by Mr. McGrath) participated
in the structuring of the offering. The Corporate General Partner of each
Exchange Partnership believes that the Exchange Offering is fair to the Exchange
Limited Partners (regardless of whether all Exchange Partnerships receive the
requisite limited partner acceptance to allow them to participate in the
offering) and recommends that they accept the Exchange Offering for the
following reasons:
o The Units to be issued in the Exchange Offering have been valued
based upon a qualified independent third party appraisal of the
Exchange Partnership's property interests and certain additional
factors which the Managing Shareholder believes are appropriate to
consider and reflect a value greater than the original investments
of the Exchange Limited Partners in the partnership.
o The Exchange Offering has been structured to permit each Exchange
Limited Partner, if desired, to decide not to accept the offering
and instead retain his existing interest in his current partnership
on substantially the same terms and conditions as those of his
original investment.
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o The Operating Partnership will not complete the offering in respect
of any Exchange Partnership unless limited partners holding at least
90% of the limited partnership interests therein affirmatively elect
to accept the offering. In addition, the Operating Partnership will
not complete any transaction in the offering whatsoever unless a
sufficient number of Offerees accept the offering such that the
offering involves the issuance of Operating Partnership Units with
an initial assigned value of at least $6,000,000.
o The Exchange Offering will provide each Exchange Limited Partner
with a significantly more diversified interest in income producing
real property with a greater opportunity that the interest received
will be marketable in the future.
o The Trust and the Operating Partnership have been able to attract
highly experienced management and financial personnel capable of
managing a substantially larger real estate portfolio.
o Upon the completion of the Exchange Offering it is anticipated (but
not assured) that the large number of residential units to be owned
by the Operating Partnership will provide the Exchange Partnership
with a lower operating cost per residential unit and, as a
consequence, increase operating performance.
o The Corporate General Partners (wholly owned and controlled, along
with the Managing Shareholder of the Trust, by Mr. McGrath) believe
that a single integrated structure of ownership by the Exchange
Partnerships and administration of the property interests which are
controlled by them and which were projected to be acquired by future
affiliated programs would be far more efficient, cost effective and
advantageous for operations and for the various program investors.
o The Exchange Offering has been designed to afford Exchange Limited
Partners who accept the offering the benefit of a deferral of any
recognition of taxable gain until they exercise their right to
exchange the Units received in the offering for an equivalent number
of Common Shares of the Trust. The exchange into Common Shares may
be made at any time at the sole discretion of each Exchange Limited
Partner.
o The Corporate General Partners considered various alternatives to
the Exchange Offering, including continuation of the existing
business plans of the Exchange Partnerships and sale or liquidation
of the partnership assets held, and have determined that the
Exchange Offering provides equal or greater value to the Exchange
Limited Partners compared with any other considered alternative.
Effects of the Formation Transactions, Cash Offering and Exchange Offering
The formation transactions, the Cash Offering and Exchange Offering will
have various beneficial effects on the operations of the Trust, the Operating
Partnership and the Participating Exchange Partnerships, including the operation
of the Exchange Properties and other property interests to be acquired, but may
have certain disadvantages for the purchasers of Common Shares in the Cash
Offering and Offerees who accept the Exchange Offering.
The principal benefits include the following:
o The Exchange Limited Partners will be able to participate in a more
diversified investment in a more advantageous form of ownership with
a greater potential for marketability of the security.
o The Operating Partnership has been able to attract highly
experienced management and financial personnel capable of managing a
substantially larger real estate portfolio.
o The Trust and the Operating Partnership, on the one hand, and each
of the Exchange Partnerships, on the other hand, will benefit from a
highly qualified management team which has been assembled and the
economy of scale attendant to operation of the Exchange Properties
as part of a single business entity. The Corporate General Partners
of the Exchange Partnerships (wholly owned and controlled, along
with the Managing Shareholder of the Trust, by Mr. McGrath) believe
that a single integrated structure of ownership by the Exchange
Partnerships and administration of the property interests which are
controlled by them and which were projected to be acquired by future
affiliated programs would be far more efficient, cost effective and
advantageous for operations and for the various program investors.
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o The Trust and the Operating Partnership will be able to acquire
interests in residential apartment properties with cash and Units.
o The Operating Partnership and the Trust will have enhanced ability
to obtain more favorable terms for the financing of their assets
including, where appropriate, the Exchange Properties.
o The Exchange Offering has been designed to afford Exchange Limited
Partners who accept the offering the benefit of a deferral of any
recognition of taxable gain until they exercise their right to
exchange all or a portion of their Units for an equivalent number of
Common Shares of the Trust. The exchange to Common Shares may be
made at any time at the sole discretion of each Exchange Limited
Partner.
o The Corporate General Partners of the Exchange Partnerships
considered various alternatives to the Exchange Offering, including
continuation of the existing business plans of the Exchange
Partnerships and sale or liquidation of the partnership assets held,
and have determined that the Exchange Offering provides equal or
greater value to the Exchange Limited Partners compared with any
other considered alternative. Liquidation has been determined to be
impractical and disadvantageous for the Exchange Limited Partners.
The Corporate General Partners have either explored the sale of
partnership assets or determined that such a sale would be premature
as it would not maximize investor value.
The principal disadvantages are as follows (see "RISK FACTORS"):
o Conflicts of interests among the Trust, the Operating Partnership,
the Managing Shareholder and the Original Investors with respect to
the formation and future operations of the Trust and the Operating
Partnership.
o The significant influence of the Original Investors over the affairs
of the Trust and the Operating Partnership by virtue of their
collective ownership of Operating Partnership Units.
o Purchasers of Common Shares in the Cash Offering and Offerees who
accept the Exchange Offering will pay greater consideration per
Common Share and per Operating Partnership Unit than the Original
Investors paid for their Operating Partnership Units.
Exchange Property Appraisals
In connection with the refinancing of first mortgage financing or to
obtain evidence of current valuation, the Corporate General Partners of the
Exchange Partnerships (wholly owned and controlled, along with the Managing
Shareholder of the Trust, by Mr. McGrath) retained Consortium Appraisal, Inc.
("CAI"), and its affiliate, Consortium Appraisal and Consulting Services, Inc.
("CACSI"), both of Winter Park, Florida, Richards Appraisal Service, Inc.
("RAS"), Melbourne, Florida, Dennis J. Voyt ("Voyt"), Winter Park, Florida, and
Strickland & Wright ("S&W"), Cincinnati, Ohio, to prepare appraisal reports as
to the fair market value and/or replacement cost new of each of the Exchange
Properties in which the Operating Partnership proposes to acquire a direct or
indirect equity or debt interest in connection with the initial transactions of
the Exchange Offering. CAI or CACSI prepared appraisal reports in respect of 19
of the Exchange Properties, RAS prepared an appraisal report in respect of four
of the properties, S&W prepared an appraisal report in respect of two properties
and Voyt prepared an appraisal report in respect of one property. The number of
Operating Partnership Units which will be issued to each Offeree who elects to
accept the Exchange Offering will be based on the appraisal relating to the
respective property and other considerations. The appraisal firms were retained
based on their experience in connection with preparing appraisals for resident
apartment properties, as well as their familiarity with the relevant property
markets. CAI and CACSI are familiar with certain of the Exchange Properties they
appraised, having completed appraisals for previous acquisitions and/or
financings of such properties.
The appraisal firms have delivered their written appraisals in respect of
each of the Exchange Properties to the effect that, as of the appraisal date and
based on the matters described therein, each Exchange Property has an estimated
fair market value and replacement cost new stated therein. The appraised value
and replacement cost new of each Exchange Property are set forth on the
applicable table contained in Exhibit B to this Prospectus which sets forth
information relating to the property interest, first mortgage indebtedness
relating thereto and the limited partnership program which owns a direct or
indirect interest in the property. The appraisal reports constitute only the
opinion of the respective appraisal firm as to the estimated fair market values
and replacement cost new of the properties each of them appraised, and do not
constitute a recommendation as to whether or not an Exchange Limited Partner
should accept the Operating Partnership's Exchange
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Offering. Compensation paid or payable to the appraisal firms is not contingent
upon the completion or level of acceptance of the Exchange Offering.
The summary of the appraisal reports set forth in this Prospectus is
qualified in its entirety by reference to each report. The appraisals are
available for inspection and copying at the Trust's principal executive offices
during its regular business hours by any interested Offeree or his
representative who has been so designated in writing by the Offeree. A copy of
any appraisal report will be delivered by the Trust to any interested Offeree or
his authorized representative upon written request and payment by the requesting
Offeree of $25 to cover copying and administrative expenses relating thereto.
Offerees are urged to review such appraisal reports carefully and in their
entirety for a description of the procedures followed, the factors considered
and the assumptions made by the appraisal firm.
The table in Exhibit F to this Prospectus sets forth the appraised value
and replacement cost new of each Exchange Property determined by the respective
appraisal firm and the value of each property determined by it under the three
traditional property valuation methods described below.
CAI and CACSI
CAI or CACSI prepared appraisal reports as to the fair market value and
the replacement cost new of 19 of the Exchange Properties in which the Operating
Partnership will offer to acquire a direct or indirect equity or debt interest
in connection with the initial transactions of the Exchange Offering. The number
of Operating Partnership Units which will be issued to each Offeree who elects
to accept the Exchange Offering will be based on these appraisals and other
considerations described above. CAI and CACSI were retained based on their
experience in connection with preparing appraisals for residential apartment
properties, as well as their familiarity with the relevant property markets, in
general, and familiarity with the Exchange Properties appraised, in specific,
having completed appraisals for previous acquisitions and/or financings of
several of the Exchange Properties.
In connection with the preparation of its appraisal reports, CAI or CACSI,
as the case may be, among other things: (i) physically inspected each Exchange
Property appraised (but did not inspect occupied units); (ii) reviewed a site
and building plan for each property; (iii) discussed with county planning,
zoning and tax officials the current zoning, future land use designation and
real estate assessments applicable to each property; (iv) reviewed the property
appraiser's records for the preceding five-year sales history of each property;
(v) analyzed the metropolitan area, market area and neighborhood in which each
property is located, including past and present development trends and current
market conditions; (vi) reviewed past sales and current listings involving
similar properties; and (vii) analyzed rental rates and terms for similar
properties located in each property's general market area, operating expenses of
each property compared to similar properties in its general market area, and the
property's historic operations. CAI and CACSI did not review sub-soil,
structural, mechanical or other engineering reports (and recommended that such
reports be obtained) relating to the current condition of any property, and
CAI's and CACSI's appraisals are based on there being no such conditions which
would materially adversely affect the value of any property.
In preparing their appraisal reports, CAI and CACSI employed the three
traditional property valuation methods: the cost approach, the direct sales
comparison approach, and the income approach. The "cost approach" is based on
the principle that an informed purchaser would pay no more than the cost of
building a comparable property. This approach involves the estimation of the
current market value of the land and the replacement cost of improvements.
Accrued depreciation of the improvements is then calculated and deducted from
such estimation to indicate the value of the property. Generally, the land value
is determined using the direct sales comparison approach described below. The
replacement cost of improvements is estimated based on current prices for
building materials, less depreciation, after analyzing the deficiencies of the
existing building compared to a new building.
Subject to certain exceptions, the Trust and the Operating Partnership are
authorized to provide or acquire mortgage loans as long as, among other things,
the aggregate amount of all mortgage loans outstanding on any particular
underlying property, including the loan of the Trust or the Operating
Partnership, as applicable, would not exceed an amount equal to 80% of the
appraised replacement cost new of the property. Replacement cost new refers to
the estimated cost new of the improvements on a property (estimated on the basis
of current prices for the component parts of a building) without taking into
account the deficiencies of the existing building compared to a new building,
plus the estimated current market value of the underlying land (generally
determined using the direct sales comparison approach).
The Trust and the Operating Partnership have relied upon appraisals
performed by independent appraisal firms in respect of the replacement cost new
of properties in which Exchange Partnerships involved in the Exchange Offering
own a Subordinated Mortgage Interest. In certain cases, the appraised
replacement cost new of a property in which an Exchange
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Partnership owns a mortgage interest significantly exceeds the appraised value
of the property determined under the three traditional real property valuation
approaches, the income approach, the comparison approach and the cost approach
(which takes into account deficiencies of the existing improvements compared to
a new building). Offerees should note that appraisals are only opinions of value
or replacement cost new and cannot be relied upon as measures of realizable
value or replacement cost new.
The "income approach" is based on the principle that value is created by
the expectation of economic benefits to be derived in the future. This approach
to valuation takes into account the amount of income a property is expected to
earn in the future and its present value. Under this approach, net income before
payment of debt service obligations is first estimated. That amount is then
converted into present value through a process called capitalization, which
involves dividing the net income by a capitalization rate. Factors such as risk,
time, interest on the capital investment and the recapture of the depreciating
assets are taken into account to determine the capitalization rate. The
selection of an appropriate capitalization rate is one of the most important
factors to be analyzed under the income approach of valuation. One important
method to determine the capitalization rate is to extract the rate based on
comparable residential apartment properties.
The "direct sales comparison" approach is based on the principle that an
informed purchaser will pay no more for a property than the cost of acquiring an
existing property with the same characteristics. The appraiser first gathers
data relating to sales of comparable properties and then analyzes the nature and
condition of each comparable sale, making adjustments for dissimilar
characteristics. To determine land value, the price per acre or price per unit
is the common denominator. For improvements, the common denominator may be price
per square foot, price per unit or room, or a gross rent multiplier (i.e., a
comprehensive unit of comparison based on the relationship between gross
potential rental income and value).
The final step in CAI's and CACSI's appraisal process is reconciling the
values estimated under the three approaches. CAI and CACSI consider the relative
applicability of each approach, examine the range between the estimated values
and emphasize the approach that appears to produce the most reliable estimate.
According to CAI and CACSI, the income and direct sales comparison approaches
are considered by most purchasers and sellers to be the most relevant when
valuing income-producing properties such as the Exchange Properties. CAI and
CACSI give the least consideration to the cost approach because purchasers and
sellers are more responsive to acquiring income-producing properties based on
attractive overall capitalization rates that incorporate favorable rates of
return.
CAI and CACSI are to be paid fees ranging from $3,000 to $6,000 by the
respective Exchange Partnership or the mortgage lender for each appraisal report
prepared in connection with the initial transactions of the Exchange Offering,
or a total not exceeding $95,000. CAI or CACSI has completed or commenced
additional appraisal reports in connection with the acquisition and/or financing
of property interests by other real estate limited partnerships managed by
affiliates of the Managing Shareholder, several of which partnerships may be
involved in later stages of the Exchange Offering. It is anticipated that CAI
and CACSI will perform additional appraisal services for the Trust and its
affiliates in the future.
RAS
RAS prepared appraisal reports as to the fair market value of three
different configurations of four Exchange Properties, which consist of four
phases of a residential apartment community referred to as the Forest Glen
Apartments. RAS researched the subject market area and selected three recent
sales of properties which are similar and in close proximity to the subject
properties. RAS principally relied upon the direct sales comparison approach as
described above under " - CAI and CACSI." Its appraisal estimate was supported
by the cost approach and the income approach. An RAS representative inspected
the interior and exterior areas of each subject property and the exterior of the
three comparable properties. According to RAS, the subject property is in good
condition and there appears to be no adverse conditions on the site or in the
vicinity of the site. RAS has been paid a fee of $300 for its appraisal
services. It is not expected to provide appraisal reports for any additional
properties in connection with the Exchange Offering.
S&W
S&W prepared an appraisal report as to (i) the estimated market value of a
72-unit residential apartment property located in Anderson, Indiana known as
Steeplechase Apartments and (ii) the estimated "as is" value and prospective
market value of a 164-townhome residential apartment property (appraised for use
as a condominium) under development in Cincinnati, Ohio. S&W inspected the
subject properties and made a study of the neighborhood data relating to the
properties and competing properties. In estimating each property's market value,
S&W relied upon the income approach and direct sales comparison approach as
described above under " - CAI and CACSI." S&W also assumed structural integrity
of the subject buildings and no existing environmental contamination. In
addition, as to the Indiana property, S&W assumed that the condition of units
that were not inspected is similar to that of the inspected units and that water
and sewer charges for the
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individual units are recouped by the property owner. In estimating the
prospective market value of the Cincinnati property as of January 1, 2000, the
projected date of completion, S&W assumed the completion of construction as
proposed by the developer with satisfactory workmanship and materials and full
rent-up of the property as of such date. S&W has been paid a fee of $5,000 for
its appraisal services. It is not expected to provide appraisal reports for any
additional properties in connection with the Exchange Offering.
Voyt
Voyt prepared an appraisal report as to the fair market value of two
different configurations of a 56-unit residential apartment property (appraised
for use as a condominium) known as Laurel Oaks (formerly Grove Hamlet)
Apartments located in Deland, Florida. Voyt researched the subject market area
and selected three recent sales of properties which are similar and in close
proximity to the subject property. Voyt exclusively relied upon the direct sales
comparison approach as described above under " - CAI and CACSI." Voyt inspected
the interior and exterior areas of the subject property and public records in
respect of the three comparable properties. According to Voyt, the subject
property is in good condition and there appears to be no adverse environmental
conditions on the site or in the vicinity of the site. Voyt assumed structural
integrity of the subject buildings and no existing environmental contamination.
The appraisal is subject to completion of the planned renovation of certain
units with new carpeting, vinyl, wallpaper and painting. Voyt has been paid a
fee of $_______ for its appraisal services. Voyt is not expected to provide
appraisal reports for any additional properties in connection with the Exchange
Offering.
Historical Cash Distributions and Corporate General Partner Compensation
On an aggregate basis, the limited partners in the 23 Exchange
Partnerships have received the following approximate amount of cash
distributions during the periods indicated: 1995: $563,370, 1996: $1,049,051,
1997: $1,408,402, 1998: $1,279,259, through March 31, 1999: $111,590, and all
such periods combined: $4,411,672. The Corporate General Partners of the
Exchange Partnerships (wholly owned and controlled, along with the Managing
Shareholder of the Trust, by Mr. McGrath) and affiliates have received
compensation during such periods in the aggregate amount of approximately
$2,806,104 (including commissions and fees relating to the original private
offering). During such period, the Corporate General Partner and affiliates have
not received any cash distributions from the partnerships. If the compensation
structure to be in effect after each Participating Exchange Partnership's
participation in the Exchange Offering had been in effect during such period,
for serving as Chief Executive Officer of the Trust and the Operating
Partnership, Mr. McGrath would have received as compensation in the initial year
up to 25,000 Common Shares of the Trust or up to 25,000 Units of the Operating
Partnership (amount to be determined by the Executive Compensation Committee of
the Trust) and health benefits and thereafter, compensation and benefits
determined annually by the committee. Mr. McGrath also would have received
distributions from the Participating Exchange Partnerships in the aggregate
amount of approximately $380,528 (9.5% of all distributions) on Units subscribed
for by him in connection with the formation of the Operating Partnership and the
Trust.
Terms of the Exchange Offering
The Operating Partnership hereby offers, upon the terms and subject to the
conditions set forth in this Prospectus and in the accompanying Letter of
Transmittal and Election Form, to exchange up to 2,500,000 Operating Partnership
Units for all Exchange Partnership Units held by all Offerees properly tendered
on or prior to the Expiration Date. The Operating Partnership will issue,
promptly after the Expiration Date, up to 2,500,000 Operating Partnership Units
in exchange for Exchange Partnership Units tendered and accepted in connection
with the Exchange Offering. As of the date of this Prospectus, 1,212,170
Operating Partnership Units are outstanding; of such Units, ten are held by the
Trust and 1,212,160 are held by the Original Investors (subject to adjustment as
described at "THE TRUST AND THE OPERATING PARTNERSHIP - Formation
Transactions").
This Prospectus and the accompanying Transmittal Letter and Election Form
are first being sent to Offerees in connection with the Exchange Offering on or
about the date indicated on the Election Form. Offerees who elect to accept the
Exchange Offering are required to indicate their acceptance of the offering in
the space provided on the accompanying green Election Form and sign and return
it, together with certificates representing their Exchange Partnership Units, to
the Exchange Agent by the Expiration Date. The Election Forms will be tabulated
effective the Expiration Date. An Offeree's Election Form bearing the latest
date that is either post-marked on or before the Expiration Date or physically
received by the Exchange Agent by the close of business on the Expiration Date
will constitute the Offeree's election.
Assuming satisfaction or waiver of the closing conditions of the Exchange
Offering (described below at " Conditions to the Exchange Offering"), from and
after the Expiration Date, each Exchange Limited Partner in a Participating
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Exchange Partnership who accepts the Exchange Offering will be entitled to
receive the number of Operating Partnership Units per $1,000 of his original
investment indicated on page _____ of this Prospectus, on page 3 of the
Prospectus Supplement relating to his partnership and on the bottom of the table
of Exhibit B to this Prospectus relating to his partnership. As soon as
practicable after the Expiration Date, the Exchange Agent will mail to each
Offeree who delivers to the Exchange Agent a completed and signed copy of the
Election Form indicating his acceptance of the offering (together with the
certificate(s) representing his Exchange Partnership Units), certificates
representing the number of Operating Partnership Units to which the Offeree is
entitled.
Assuming satisfaction or waiver of the closing conditions of the Exchange
Offering, Exchange Limited Partners in a Participating Exchange Partnership who
accept the Exchange Offering will not be entitled to receive any dividends or
other distributions on his Exchange Partnership Units from and after
____________. Each such Offeree will be entitled to receive distributions on his
Operating Partnership Units which are payable as of any record date occurring
after he has exchanged his Exchange Partnership Units.
Assuming satisfaction or waiver of the closing conditions of the Exchange
Offering from and after the Expiration Date, the Operating Partnership will be
registered as the owner of all Exchange Partnership Units in Participating
Exchange Partnerships owned prior to the completion of the Exchange Offering by
Exchange Limited Partners who accept the Exchange Offering. Similarly, Exchange
Limited Partners who accept the Exchange Offering will be registered as the
owner of all Operating Partnership Units received in connection with the
offering.
If any Operating Partnership Units are to be issued in a name other than
that in which the corresponding Exchange Partnership Units are registered, it is
a condition to the exchange that the Exchange Limited Partner involved comply
with applicable transfer requirements and pay any applicable transfer or other
taxes.
The Operating Partnership will not complete the Exchange Offering in
respect of any particular Exchange Partnership unless limited partners holding
at least 90% of the limited partnership interests in the partnership
affirmatively elect to accept the offering. In addition, the Operating
Partnership will not complete any transaction in the offering whatsoever unless
a sufficient number of Offerees accept the offering such that the offering
involves the issuance of Operating Partnership Units with an initial assigned
value of at least $6,000,000. An Offeree must exchange all of his Exchange
Partnership Units in order to participate in the Exchange Offering. Partial
exchanges will not be accepted.
Any Offeree who is a limited partner of an Exchange Partnership and does
not desire to participate in the Exchange Offering will be entitled to retain
his limited partnership interest in his respective Exchange Partnership on terms
substantially the same as those of his original investment. Except as described
herein, Offerees who do not affirmatively elect to accept the offering
("Non-participating Limited Partners") will retain their limited partnership
interest in their respective Exchange Partnership on substantially the same
terms and conditions as their original investment in the partnership. Upon the
completion of the Exchange Offering in respect of a Participating Exchange
Partnership, Non-participating Limited Partners and the Operating Partnership
will constitute all the limited partners of such partnership. As described in
further detail in this Prospectus at "AMENDMENTS TO PARTNERSHIP AGREEMENTS OF
PARTICIPATING EXCHANGE PARTNERSHIPS WITH NON-PARTICIPATING LIMITED PARTNERS,"
the original partnership agreement of each Participating Exchange Partnership
with one or more Non-participating Limited Partners following the closing of the
Exchange Offering will be amended to require the prior approval (majority or
unanimous, as the case may be) of Non-participating Limited Partners voting as a
class in respect of substantially all matters as to which limited partners are
entitled to vote under the partnership agreement prior to the completion of the
Exchange Offering. The partnership agreement, as amended, will continue in full
force and effect after the completion of the offering as long as any
Non-participating Partners remain limited partners of the Exchange Partnership.
Holders of Exchange Partnership Units do not have any appraisal or
dissenters' rights in connection with the Exchange Offering. Exchange
Partnership Units that are not tendered for or are tendered but not accepted in
connection with the Exchange Offering will remain outstanding and be entitled to
the benefits of the partnership agreement pertaining to the holder's respective
Exchange Partnership . If any tendered Exchange Partnership Units are not
accepted for an exchange because of an invalid tender, the occurrence of certain
other events set forth herein or otherwise, certificates received by the
Exchange Agent for any such unaccepted Exchange Partnership Units will be
returned, without expense, to the tendering holder thereof promptly after the
Expiration Date.
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Expiration Date, Extensions, and Amendments
The term "Expiration Date" means 5:00 p.m., New York City time, on the
date specified in the Election Form unless the Exchange Offering is extended by
the Operating Partnership (in which case the term "Expiration Date" shall mean
the latest date and time to which the Exchange Offering is extended).
The Operating Partnership expressly reserves the right in its sole and
absolute discretion, subject to applicable law, at any time and from time to
time, (i) to delay the acceptance of the Exchange Partnership Units for
exchange, (ii) to terminate the Exchange Offering (whether or not any Exchange
Partnership Units have theretofore been accepted for exchange) if the Operating
Partnership determines, in its sole and absolute discretion, that any of the
events or conditions referred to below under " - Conditions to the Exchange
Offering" have occurred or exist or have not been satisfied, (iii) to extend the
Expiration Date of the Exchange Offering and retain all Exchange Partnership
Units tendered pursuant to the Exchange Offering, and (iv) to waive any
condition or otherwise amend the terms of the Exchange Offering in any respect.
If the Exchange Offering is amended in a manner determined by the Operating
Partnership to constitute a material change, or if the Operating Partnership
waives a material condition of the Exchange Offering, the Operating Partnership
will promptly disclose such amendment by means of a prospectus supplement that
will be distributed to the holders of the Exchange Partnership Units, and the
Operating Partnership will extend the Exchange Offering to the extent required
by Rule 14e-1 under the Securities Exchange Act of 1934, as amended (the
"Exchange Act").
Any such delay in acceptance, extension, termination or amendment will be
followed promptly by oral or written notice thereof to the Exchange Agent and by
making a public announcement thereof, and such announcement in the case of an
extension will be made no later than 9:00 a.m., New York City time, on the next
Business Day following the previously scheduled Expiration Date. Without
limiting the manner in which the Operating Partnership may choose to make any
public announcement and subject to applicable laws, the Operating Partnership
shall have no obligation to publish, advertise or otherwise communicate any such
public announcement other than by issuing a release to an appropriate news
agency.
Acceptance for Exchange and Issuance of Operating Partnership Units
Upon the terms and subject to the conditions of the Exchange Offering,
promptly after the Expiration Date, the Operating Partnership will exchange, and
will issue to the Exchange Agent, Operating Partnership Units for Exchange
Partnerships Units validly tendered. In all cases, delivery of Operating
Partnership Units in exchange for Exchange Partnership Units tendered and
accepted for exchange pursuant to the Exchange Offering will be made only after
timely receipt by the Exchange Agent of certificates representing such Exchange
Partnership Units, the Election Form (or facsimile thereof), properly completed
and duly executed, and any other documents required by the Letter of
Transmittal.
Subject to the terms and conditions of the Exchange Offering, the
Operating Partnership will be deemed to have accepted for exchange, and thereby
exchanged, Exchange Partnership Units validly tendered as if and when the
Operating Partnership gives oral or written notice to the Exchange Agent (any
such oral notice to be promptly confirmed in writing) of the Operating
Partnership's acceptance of such Exchange Partnership Units for exchange
pursuant to the Exchange Offering. The Exchange Agent will act as agent for the
Operating Partnership for the purpose of receiving tenders of certificates
representing Exchange Partnership Units, Election Forms and related documents,
and as agent for tendering holders for the purpose of receiving certificates
representing Exchange Partnership Units, Election Forms and related documents
and transmitting Operating Partnership Units to validly tendered holders. Such
exchange will be made promptly after the Expiration Date. If for any reason
whatsoever, acceptance for exchange or the exchange of any Exchange Partnership
Units tendered pursuant to the Exchange Offering is delayed (whether before or
after the Operating Partnership's acceptance for exchange of Exchange
Partnership Units) or the Operating Partnership extends the Exchange Offering or
is unable to accept for exchange or exchange Exchange Partnership Units tendered
pursuant to the Exchange Offering, then, without prejudice to the Operating
Partnership's rights set forth herein, the Exchange Agent may, nevertheless, on
behalf of the Operating Partnership and subject to Rule 14e-1 under the Exchange
Act, retain tendered Exchange Partnership Units and such Exchange Partnership
Units may not be withdrawn.
Pursuant to the Election Form, a holder of Exchange Partnership Units will
warrant and agree that he has full power and authority to tender, exchange,
sell, assign and transfer Exchange Partnership Units, that the Operating
Partnership will acquire good, marketable and unencumbered title to the tendered
Exchange Partnership Units, free and clear of all liens, restrictions, charges
and encumbrances, and the Exchange Partnership Units tendered for exchange are
not subject to any adverse claims or proxies. The holder also will warrant and
agree that he will, upon request, execute and deliver any additional documents
deemed by the Operating Partnership or the Exchange Agent to be necessary or
desirable to complete the exchange, sale, assignment, and transfer of the
Exchange Partnership Units tendered pursuant to the Exchange Offering.
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Procedures for Tendering Exchange Partnership Units
Valid Tender
Except as set forth herein, in order for Exchange Partnership Units to be
validly tendered pursuant to the Exchange Offering a properly completed and duly
executed Election Form (or facsimile thereof), with any other required
documents, must be received by the Exchange Agent at its address set forth below
under "- Exchange Agent," and tendered Exchange Partnership Units must be
received by the Exchange Agent.
THE METHOD OF DELIVERY OF THE CERTIFICATES, THE ELECTION FORM AND ALL
OTHER REQUIRED DOCUMENTS IS AT THE OPTION AND SOLE RESPONSIBILITY OF THE
TENDERING HOLDER, AND DELIVERY WILL BE DEEMED MADE ONLY WHEN ACTUALLY RECEIVED
BY THE EXCHANGE AGENT. IF DELIVERY IS BY MAIL, REGISTERED MAIL, RETURN RECEIPT
REQUESTED, PROPERLY INSURED, OR AN OVERNIGHT DELIVERY SERVICE IS RECOMMENDED. IN
ALL CASES, SUFFICIENT TIME SHOULD BE ALLOWED TO ENSURE TIMELY DELIVERY.
Certificates
Certificates representing Exchange Partnership Units as well as the
Election Form (or facsimile thereof), properly completed and duly executed, with
any other documents required by the Letter of Transmittal must be received by
the Exchange Agent at its address set forth under " - Exchange Agent" on or
prior to the Expiration Date in order for such tender to be effective.
Delivery
The method of delivery of the certificates representing tendered Exchange
Partnership Units, the Election Form, and all other required documents is at the
option and sole responsibility of the tendering holder, and delivery will be
deemed made only when actually received by the Exchange Agent. If delivery is by
mail, registered mail, return receipt requested, properly insured, or an
overnight delivery service is recommended. In all cases, sufficient time should
be allowed to ensure timely delivery.
Notwithstanding any other provisions hereof, the delivery of Operating
Partnership Units in exchange for Exchange Partnership Units tendered and
accepted for exchange pursuant to the Exchange Offering will in all cases be
made only after timely receipt by the Exchange Agent of certificates
representing Exchange Partnership Units and a properly completed and duly
executed Election Form (or facsimile thereof), together with any other documents
required by the Letter of Transmittal. Accordingly, the delivery of Operating
Partnership Units might not be made to all tendering holders at the same time,
and will depend upon when certificates representing Exchange Partnership Units
and other required documents are received by the Exchange Agent.
Determination of Validity
All questions as to the form of documents, validity, eligibility
(including time of receipt) and acceptance for exchange of any tendered Exchange
Partnership Units will be determined by the Operating Partnership in its sole
discretion, whose determination shall be final and binding on all parties. The
Operating Partnership reserves the absolute right, in its sole and absolute
discretion, to reject any and all tenders determined by it not to be in proper
form or the acceptance of which, or exchange for, may, in the opinion of counsel
to the Operating Partnership, be unlawful. The Operating Partnership also
reserves the absolute right, subject to applicable law, to waive any of the
conditions of the Exchange Offering as set forth below under " - Conditions to
the Exchange Offering" or any condition or irregularity in any tender of
Exchange Partnership Units of any particular holder whether or not similar
conditions or irregularities are waived in the case of other holders.
The interpretation by the Operating Partnership of the terms and
conditions of the Exchange Offering (including the Letter of Transmittal and the
Election Form) will be final and binding. No tender of Exchange Partnership
Units will be deemed to have been validly made until all irregularities with
respect to such tender have been cured or waived. None of the Operating
Partnership, the Trust, any affiliates or assigns of the Operating Partnership
or the Trust, the Exchange Agent or any other person shall be under any duty to
give any notification of any irregularities in tenders or incur any liability
for failure to give any such notification.
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If any Election Form, endorsement, bond power, power of attorney, or any
other document required by the Letter of Transmittal is signed by a trustee,
executor, administrator, guardian, attorney-in-fact, officer of a corporation or
other person acting in a fiduciary or representative capacity, such person
should so indicate when signing, and unless waived by the Operating Partnership,
proper evidence satisfactory to the Operating Partnership, in its sole
discretion, of such person's authority to so act must be submitted.
Conditions to the Exchange Offering
The Operating Partnership will not complete the Exchange Offering in
respect of any particular Exchange Partnership unless limited partners holding
at least 90% of the limited partnership interests in the partnership
affirmatively elect to accept the offering. In addition, the Operating
Partnership will not complete any transaction in the offering whatsoever unless
a sufficient number of Offerees accept the offering such that the offering
involves the issuance of Operating Partnership Units with an initial assigned
value of at least $6,000,000. Notwithstanding any other provisions of the
Exchange Offering, or any extension of the Exchange Offering, the Operating
Partnership will not be required to accept for exchange, or to exchange, any
Exchange Partnership Units for any Operating Partnership Units and, as described
herein, may terminate the Exchange Offering (whether or not any Exchange
Partnership Units have theretofore been accepted for exchange) or may waive any
conditions to or amend the Exchange Offering, if any of the following additional
conditions have occurred or exists or have not been satisfied:
(i) Any law, statute, rule or regulation shall have been adopted or
enacted which, in the judgment of Operating Partnership or the Trust, would
reasonably be expected to impair its ability to proceed with the Exchange
Offering, or
(ii) A stop order shall have been issued by the Commission or any state
securities authority suspending the effectiveness of the Registration Statement,
or proceedings shall have been initiated or, to the knowledge of the Operating
Partnership, threatened for that purpose, or any governmental approval has not
been obtained, which approval the Operating Partnership shall, in its sole
discretion, deem necessary for the consummation of the Exchange Offering as
contemplated hereby.
If the Operating Partnership determines in its sole and absolute
discretion that any of the foregoing events or conditions has occurred or exists
or has not been satisfied, it may, subject to applicable law, terminate the
Exchange Offering (whether or not any Exchange Partnership Units have
theretofore been accepted for exchange) or may waive any such condition or
otherwise amend the terms of the Exchange Offering in any respect. If such
waiver or amendment constitutes a material change to the Exchange Offering, the
Operating Partnership will promptly disclose such waiver or amendment by means
of a prospectus supplement that will be distributed to the registered holders of
the Exchange Partnership Units and will extend the Exchange Offering to the
extent required by Rule 14e-1 under the Exchange Act.
Exchange Agent
American Stock Transfer & Trust Company has been appointed as Exchange
Agent for the Exchange Offering. Delivery of the Election Form, certificates
representing tendered Exchange Partnership Units and any other required
documents, questions, requests for assistance, and requests for additional
copies of this Prospectus, Prospectus Supplement, or of the Letter of
Transmittal or Election Form should be directed to the Exchange Agent as
follows:
For Information Call:
American Stock Transfer & Trust Company
40 Wall Street
New York, New York 10005
(212) 936-5100
Fax: (718) 236-4588
Confirm: ________________________
Delivery to other than the above address or facsimile number will not
constitute a valid delivery.
Fees and Expenses of the Exchange Offering
The Operating Partnership has agreed to pay the Exchange Agent reasonable
and customary fees for its services and will reimburse it for its reasonable
out-of-pocket expenses in connection therewith. The Operating Partnership will
also pay
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brokerage houses and other custodians, nominees and fiduciaries the reasonable
out-of-pocket expenses incurred by them in forwarding copies of this Prospectus
and related documents to the beneficial owners of Exchange Partnership Units and
in handling or tendering their customers.
All legal, accounting, due diligence and other expenses incurred by each
of the Exchange Partnerships and the Operating Partnership incident to the
Exchange Offering will be paid by the party incurring such expense, except that
all of the expenses incurred in connection with the preparation, filing,
printing and distributing of the Registration Statement, of which this
Prospectus is a part, and completion of the transactions described therein
(estimated to be approximately $683,000) will be paid by the Operating
Partnership out of the net proceeds of the Trust's Cash Offering and net
available cash flow. No special fees or commissions were or will be paid to the
Managing Shareholder (wholly owned and controlled, along with the Corporate
General Partner of each Exchange Partnership, by Mr. McGrath), any Corporate
General Partner of an Exchange Partnership, or any of their respective
affiliates, in connection with the Exchange Offering. As of the date of this
Prospectus, in connection with the Exchange Offering, each Exchange Partnership
has paid out of available cash flow an estimated amount in the range of $10,000
to $24,000 of expenses for professional fees. The Exchange Partnerships are not
expected to incur any significant additional expenses related to the offering.
Any broker-dealer who assists the Operating Partnership in consummating
the Exchange Offering with individual Offerees who accept the offering will be
paid a commission equal to a number of unregistered Common Shares of the Trust
having a value equal to 5% of the initial assigned value of Operating
Partnership Units exchanged in the particular transactions.
PRIOR PERFORMANCE OF
AFFILIATES OF MANAGING SHAREHOLDER
This section provides certain historical information regarding 51 private
real estate limited partnerships sponsored and/or managed by affiliates of the
Trust's Managing Shareholder (wholly owned and controlled, along with the
Corporate General Partner of each Exchange Partnership, by Mr. McGrath).
Offerees should be aware that: (i) the inclusion of the following information
and information set forth in the tables which comprise Exhibit A hereto does not
imply that the Trust or the Operating Partnership will experience results
similar to those reflected below and in the tables or that an Offeree who
acquires Units in this Exchange Offering or any Shareholder in the Trust
(including without limitation any Unitholder who exchanges his Units for Common
Shares) will receive returns, if any, comparable to those experienced by
investors in such limited partnerships; (ii) except as otherwise described in
this Prospectus, Offerees who acquire Units in the Exchange Offering and
Shareholders of the Trust will not acquire any direct or indirect ownership
interest in any of the prior limited partnerships; and (iii) the following
information and information set forth in the tables is given solely to enable
Offerees to evaluate the experience of the Managing Shareholder and its
affiliates and, in certain cases, to evaluate certain properties in which the
Operating Partnership may acquire an interest in connection with the Exchange
Offering.
Exhibit A sets forth certain historical information relating to the
offerings of 41 of such prior limited partnerships, compensation paid to the
general partners of such partnerships and their affiliates in connection
therewith, operating results of such partnerships, sales of properties and
results of completed programs. Exhibit A is comprised of the following tables:
Table I Baron Advisors and Affiliates Experience in Raising and Investing
Funds
Table II Compensation to Baron Advisors Affiliates from Prior Funds
Table III Operating Results of Prior Programs
Table IV Results of Completed Programs
Table V Sales or Disposals of Properties
Gregory K. McGrath, the sole director and sole stockholder of the Managing
Shareholder and the Chief Executive Officer of the Trust, the Operating
Partnership and the Managing Shareholder has substantial experience in the real
estate industry. See "MANAGEMENT." Since 1994, Affiliates of the Managing
Shareholder and of Mr. McGrath have sponsored and/or managed 51 prior real
estate investment limited partnership offerings, certain of them with investment
objectives similar to those of the Trust. The limited partner interests in these
prior partnerships were offered without registration under the Securities Act of
1933, as amended, in reliance upon the non-public offering exemption from
registration. The first such offering sponsored by an Affiliate of the Managing
Shareholder commenced in September 1994. As of April 30, 1999, the prior
partnerships had raised aggregate capital contributions of approximately
$34,897,000 from approximately 1,440 investors (including investors who have
invested in two or more programs). The annual rate of return on investment for
the twelve months ended December 31, 1998 generated by the prior partnerships
ranged between ten and twelve percent. Distributions were not made during these
periods by certain of the partnerships because (i) certain apartment units were
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withdrawn from the rental market, and net available cash flow was applied, to
prepare them for sale as individual condominium units (which plan was later
abandoned) or to convert them from long-term rentals to short-term corporate
rentals or (ii) net available cash flow was applied to pay certain expenses in
connection with this Exchange Offering and the Cash Offering.
As of the date of this Prospectus, the prior partnerships have acquired
interests in 54 properties, 29 of which are located in Florida (Bartow, Brandon,
Clearwater, Cocoa, Cocoa Beach, Crystal River, Daytona Beach, Deland,
Jacksonville, Kissimmee, Lakeland, Melbourne, Orlando, Port Orange, St.
Petersburg, Seminole, Tampa and Titusville); one of which is located in Georgia
(Statesboro); one in Indiana (Anderson); 17 in Kentucky (Alexandria, Burlington,
Independence and Louisville); and six in Ohio (Bellefontaine, Cincinnati and
Mansfield). The aggregate dollar amount of property interests acquired and
initial cash reserves held was approximately $34,230,164 at March 31, 1999. The
property interests acquired have consisted of the following: direct or indirect
equity interests in 21 residential apartment properties comprised of 1,311
units; mortgage financing interests in 17 residential apartment properties
comprised of 2,052 units; mortgage financing interests in four residential
condominium properties comprised of 578 units; mortgage financing interests in
six single-family housing developments relating to approximately 981 homes; a
mortgage financing interest in 8.2 acres of land for development into a 195-unit
condominium property; a mortgage financing interest in 4.0 acres of land for
development into a shopping center; a mortgage financing interest in respect of
the conversion of a 144-unit residential apartment property into an
extended-stay hotel; mortgage financing interests in land zoned for 147
residential units in Crystal River, Florida; and mortgage financing interests in
land zoned for 360 residential units in Gulf Harbor, Florida. Each of the
properties is subject to first mortgage financing. Substantially all of the
Mortgage and other debt interests owned by the prior partnerships relate to
properties owned by other limited partnerships or other entities affiliated with
Mr. McGrath. One property interest has been sold as of the date of this
Prospectus. See the balance of this section and Exhibit A hereto for more
detailed information relating to the individual property interests owned by
certain of the prior partnerships. Additional information relating to the
original acquisitions of such property interests is included in Part II of the
Form S-4 registration statement filed with the Commission by the Operating
Partnership in connection with the Exchange Offering. The Trust will provide
such information at no charge to any Offeree who requests it. Exhibit B hereto
sets forth certain information concerning the Exchange Properties and the
Exchange Partnerships which will be involved in the initial transactions of the
Exchange Offering.
In the initial transactions of the Exchange Offering, the Operating
Partnership will offer to acquire limited partnership interests held by
individual limited partners in 23 of the prior partnerships. The Operating
Partnership intends to investigate other investment opportunities to exchange
the balance of the Units for property interests in other Exchange Offering
transactions, including property interests held by unaffiliated limited
partnerships and interests held by other limited partnerships managed by
Affiliates of the Managing Shareholder, which may include certain of the
partnerships described below.
Commencing September 1994, Baron Capital of Florida, Inc. (formerly named
Sigma Financial Capital VI, Inc.), at that time an Affiliate of Sigma Financial
Corporation, the Dealer Manager of the Cash Offering, sponsored an offering of
up to 2,100 units of limited partner interest in Central Florida Income
Appreciation Fund, Ltd., a Florida limited partnership, at a purchase price of
$500 per unit (maximum gross proceeds of $1,050,000). The offering was fully
subscribed and closed in October 1995. The partnership invested the net proceeds
of its offering to acquire all of the limited partnership interest in a limited
partnership which owns fee simple title to a 56-unit residential apartment
community located in Deland, Florida known as Laurel Oaks (formerly Grove
Hamlet) Apartments. In August 1998, Gregory K. McGrath acquired all of the
equity of the general partner of the partnership. As one of its initial
acquisition candidates in connection with the Exchange Offering, the Operating
Partnership will offer to acquire partnership interests in this partnership
owned by the partners thereof. Additional information relating to the property
interests owned by this partnership and to the Exchange Offering is included at
"DESCRIPTION OF EXCHANGE PARTNERSHIPS," "THE EXCHANGE OFFERING" and "INITIAL
REAL ESTATE INVESTMENTS" and in Exhibits A and B to this Prospectus.
Commencing September 1994, Baron Capital I, Inc., an Affiliate of the
Managing Shareholder, sponsored an offering of up to 1,050 units of limited
partner interest in Tampa Capital Income Fund, Ltd., a Florida limited
partnership, at a purchase price of $1,000 per unit (maximum gross proceeds of
$1,050,000). The offering was fully subscribed and closed in August 1995. The
partnership invested the net proceeds of its offering to acquire title to an
83-unit residential apartment community located in Brandon, Florida. The
partnership sold the property in February 1997 in exchange for cash and a
purchase money mortgage taken back by the partnership.
Commencing November 1994, Baron Capital II, Inc., an Affiliate of the
Managing Shareholder, sponsored an offering of up to 1,614 units of limited
partner interest in Florida Capital Income Fund, Ltd., a Florida limited
partnership, at a purchase price of $500 per unit (maximum gross proceeds of
$807,000). The offering was fully subscribed and closed in
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June 1995. The partnership invested the net proceeds of its offering to acquire
title to a 77-unit residential apartment community located in Port Orange,
Florida known as Eagle Lake Apartments. As one of its initial acquisition
candidates in connection with the Exchange Offering, the Operating Partnership
will offer to acquire partnership interests in this partnership owned by the
partners thereof. Additional information relating to the property interests
owned by this partnership and to the Exchange Offering is included at
"DESCRIPTION OF EXCHANGE PARTNERSHIPS," "THE EXCHANGE OFFERING" and "INITIAL
REAL ESTATE INVESTMENTS" and in Exhibits A and B to this Prospectus.
In January 1995, Baron Capital IV, Inc., an Affiliate of the Managing
Shareholder, became general partner of Florida Income Appreciation Fund I, Ltd.,
a Florida limited partnership, which commencing in April 1994 sold 205 units of
limited partnership interest in the partnership (gross proceeds of $205,000) and
invested the net proceeds of its offering to acquire a beneficial interest in a
land trust owning title to an eight-unit residential apartment community located
in Daytona Beach, Florida known as Forest Glen Apartments-Phase IV. As one of
its initial acquisition candidates in connection with the Exchange Offering, the
Operating Partnership will offer to acquire partnership interests in this
partnership owned by the partners thereof. Additional information relating to
the property interests owned by this partnership and to the Exchange Offering is
included at "DESCRIPTION OF EXCHANGE PARTNERSHIPS," "THE EXCHANGE OFFERING" and
"INITIAL REAL ESTATE INVESTMENTS" and in Exhibits A and B to this Prospectus.
In January 1995, Baron Capital IV, Inc., an Affiliate of the Managing
Shareholder, became general partner of Florida Income Advantage Fund I, Ltd., a
Florida limited partnership, which commencing in February 1994 sold 940 units of
limited partnership interest in the partnership (gross proceeds of $940,000) and
invested the net proceeds of its offering to acquire a beneficial interest in a
land trust owning title to a 26-unit residential apartment community located in
Daytona Beach, Florida known as Forest Glen Apartments-Phase III. As one of its
initial acquisition candidates in connection with the Exchange Offering, the
Operating Partnership will offer to acquire partnership interests in this
partnership owned by the partners thereof. Additional information relating to
the property interests owned by this partnership and to the Exchange Offering is
included at "DESCRIPTION OF EXCHANGE PARTNERSHIPS," "THE EXCHANGE OFFERING" and
"INITIAL REAL ESTATE INVESTMENTS" and in Exhibits A and B to this Prospectus.
In January 1995, Baron Capital IV, Inc., an Affiliate of the Managing
Shareholder, became general partner of Realty Opportunity Income Fund VIII,
Ltd., a Florida limited partnership, which commencing in March 1994 sold 944
units of limited partnership interest in the partnership (gross proceeds of
$944,000) and invested the net proceeds of its offering to acquire a beneficial
interest in a land trust owning title to a 30-unit residential apartment
community located in Daytona Beach, Florida known as Forest Glen
Apartments-Phase II. As one of its initial acquisition candidates in connection
with the Exchange Offering, the Operating Partnership will offer to acquire
partnership interests in this partnership owned by the partners thereof.
Additional information relating to the property interests owned by this
partnership and to the Exchange Offering is included at "DESCRIPTION OF EXCHANGE
PARTNERSHIPS," "THE EXCHANGE OFFERING" and "INITIAL REAL ESTATE INVESTMENTS" and
in Exhibits A and B to this Prospectus.
In May 1995, Baron Capital IV, Inc., an Affiliate of the Managing
Shareholder, became general partner of Florida Capital Income Fund II, Ltd., a
Florida limited partnership, which commencing in May 1994 sold 1,840 units of
limited partnership interest in the partnership (gross proceeds of $920,000) and
invested the net proceeds of its offering to acquire a beneficial interest in a
land trust owning title to a 52-unit residential apartment community located in
Daytona Beach, Florida known as Forest Glen Apartments-Phase I. The partnership
also issued 160 units (valued at $80,000) to four investors in exchange for
property interests acquired by them in an earlier program which was terminated.
As one of its initial acquisition candidates in connection with the Exchange
Offering, the Operating Partnership will offer to acquire partnership interests
in this partnership owned by the partners thereof. Additional information
relating to the property interests owned by this partnership and to the Exchange
Offering is included at "DESCRIPTION OF EXCHANGE PARTNERSHIPS," "THE EXCHANGE
OFFERING" and "INITIAL REAL ESTATE INVESTMENTS" and in Exhibits A and B to this
Prospectus.
Commencing in May 1995, Baron Capital VI, Inc., an Affiliate of the
Managing Shareholder, sponsored an offering of up to 626 units of limited
partner interest in Florida Tax Credit Fund, Ltd., a Florida limited
partnership, at a purchase price of $1,000 per unit (maximum gross proceeds of
$626,000). The offering was fully subscribed and closed in May 1996. The
partnership invested the net proceeds of its offering to acquire an equity
interest in a limited partnership that owns title to a 78-unit residential
apartment community located in Tampa, Florida.
Commencing in August 1995, Baron Capital III, Inc., an Affiliate of the
Managing Shareholder, sponsored an offering of up to 800 units of limited
partner interest in Florida Opportunity Income Partners, Ltd., a Florida limited
partnership, at a purchase price of $1,000 per unit (maximum gross proceeds of
$800,000). The offering was fully subscribed and closed in December 1995. The
partnership invested the net proceeds of its offering to acquire title to a
60-unit residential apartment community located in Daytona Beach, Florida known
as Camellia Court Apartments. As one of its initial
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acquisition candidates in connection with the Exchange Offering, the Operating
Partnership will offer to acquire partnership interests in this partnership
owned by the partners thereof. Additional information relating to the property
interests owned by this partnership and to the Exchange Offering is included at
"DESCRIPTION OF EXCHANGE PARTNERSHIPS," "THE EXCHANGE OFFERING" and "INITIAL
REAL ESTATE INVESTMENTS" and in Exhibits A and B to this Prospectus.
Commencing in June 1995, Baron Capital VII, Inc., an Affiliate of the
Managing Shareholder, sponsored an offering of up to 1,600 units of limited
partner interest in Florida Capital Income Fund III, Ltd., a Florida limited
partnership, at a purchase price of $500 per unit (maximum gross proceeds of
$800,000). The offering was fully subscribed and closed in November 1995. The
partnership invested the net proceeds of its offering to acquire title to a
48-unit residential apartment community located in Jacksonville, Florida known
as Bridgepoint Apartments. As one of its initial acquisition candidates in
connection with the Exchange Offering, the Operating Partnership will offer to
acquire partnership interests in this partnership owned by the partners thereof.
Additional information relating to the property interests owned by this
partnership and to the Exchange Offering is included at "DESCRIPTION OF EXCHANGE
PARTNERSHIPS," "THE EXCHANGE OFFERING" and "INITIAL REAL ESTATE INVESTMENTS" and
in Exhibits A and B to this Prospectus.
Commencing in December 1995, Baron Capital VIII, Inc., an Affiliate of the
Managing Shareholder, sponsored an offering of up to 1,000 units of limited
partner interest in Baron First Time Homebuyer Mortgage Fund, Ltd., a Florida
limited partnership, at a purchase price of $500 per unit (maximum gross
proceeds of $500,000). The offering was fully subscribed and closed in May 1996.
The partnership invested the net proceeds of its offering to make a Subordinated
Mortgage Loan to the developer of approximately 200 single-family home sites
located in Louisville, Kentucky.
Commencing in January 1995, Baron Capital V, Inc., an Affiliate of the
Managing Shareholder, sponsored an offering of up to 3,640 units of limited
partner interest in Florida Capital Income Fund IV, Ltd., a Florida limited
partnership, at a purchase price of $500 per unit (maximum gross proceeds of
$1,820,000). The offering was fully subscribed and closed in June 1996. The
partnership invested the net proceeds of its offering to acquire title to a
144-unit residential apartment community located in St. Petersburg, Florida
known as Glen Lake Apartments. As one of its initial acquisition candidates in
connection with the Exchange Offering, the Operating Partnership will offer to
acquire partnership interests in this partnership owned by the partners thereof.
Additional information relating to the property interests owned by this
partnership and to the Exchange Offering is included at "DESCRIPTION OF EXCHANGE
PARTNERSHIPS," "THE EXCHANGE OFFERING" and "INITIAL REAL ESTATE INVESTMENTS" and
in Exhibits A and B to this Prospectus.
Commencing in May 1995, Baron Capital X, Inc., an Affiliate of the
Managing Shareholder, sponsored an offering of up to 2,000 units of limited
partner interest in GSU Stadium Student Apartments, Ltd., a Florida limited
partnership, at a purchase price of $500 per unit (maximum gross proceeds of
$1,000,000). The offering was fully subscribed and closed in February 1996. The
partnership invested the net proceeds of its offering to acquire title to a
60-unit student residential apartment community located in Statesboro, Georgia
known as Stadium Club Apartments. As one of its initial acquisition candidates
in connection with the Exchange Offering, the Operating Partnership will offer
to acquire partnership interests in this partnership owned by the partners
thereof. Additional information relating to the property interests owned by this
partnership and to the Exchange Offering is included at "DESCRIPTION OF EXCHANGE
PARTNERSHIPS," "THE EXCHANGE OFFERING" and "INITIAL REAL ESTATE INVESTMENTS" and
in Exhibits A and B to this Prospectus.
Commencing in January 1995, Baron Capital XI, Inc., an Affiliate of the
Managing Shareholder, sponsored an offering of up to 2,300 units of limited
partner interest in Florida Income Growth Fund V, Ltd., a Florida limited
partnership, at a purchase price of $500 per unit (maximum gross proceeds of
$1,150,000). The offering was fully subscribed and closed in February 1997. The
partnership invested the net proceeds of its offering to acquire title to a
70-unit residential apartment community located in Orlando, Florida known as
Blossom Corners Apartments-Phase I. As one of its initial acquisition candidates
in connection with the Exchange Offering, the Operating Partnership will offer
to acquire partnership interests in this partnership owned by the partners
thereof. Additional information relating to the property interests owned by this
partnership and to the Exchange Offering is included at "DESCRIPTION OF EXCHANGE
PARTNERSHIPS," "THE EXCHANGE OFFERING" and "INITIAL REAL ESTATE INVESTMENTS" and
in Exhibits A and B to this Prospectus.
Commencing in January 1996, Baron Capital XII, Inc., an Affiliate of the
Managing Shareholder, sponsored an offering of up to 575 units of limited
partner interest in Brevard Mortgage Program, Ltd., a Florida limited
partnership, at a purchase price of $1,000 per unit (maximum gross proceeds of
$575,000). The offering was fully subscribed and closed in April 1996. The
partnership invested the net proceeds of its offering to provide or acquire two
Subordinated Mortgage Loans secured by a 64-unit residential apartment community
located in Melbourne, Florida known as Meadowdale Apartments. As one of its
initial acquisition candidates in connection with the Exchange Offering, the
Operating Partnership will offer to acquire partnership interests in this
partnership owned by the partners thereof. Additional information relating to
the property interests owned by this partnership and to the Exchange Offering is
included at "DESCRIPTION OF EXCHANGE
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PARTNERSHIPS," "THE EXCHANGE OFFERING" and "INITIAL REAL ESTATE INVESTMENTS" and
in Exhibits A and B to this Prospectus.
Commencing in January 1996, Baron Capital XV, Inc., an Affiliate of the
Managing Shareholder, sponsored an offering of up to 1,000 units of limited
partner interest in Baron First Time Home Buyer Mortgage Fund II, Ltd., a
Florida limited partnership, at a purchase price of $500 per unit (maximum gross
proceeds of $500,000). The offering was fully subscribed and closed in July
1996. The partnership invested the net proceeds of its offering to make a
subordinated mortgage loan to the developer of 39 single-family home sites
located in Louisville, Kentucky.
Commencing in February 1996, Baron Capital XVI, Inc., an Affiliate of the
Managing Shareholder, sponsored an offering of up to 1,500 units of limited
partner interest in Clearwater First Time Home Buyer Program, Ltd., a Florida
limited partnership, at a purchase price of $500 per unit (maximum gross
proceeds of $750,000). The offering was fully subscribed and closed in September
1996. The partnership invested the net proceeds of its offering to provide
Subordinated Mortgage financing to a developer for the acquisition of 8.2 acres
of land located in Clearwater, Florida for a 195-unit residential condominium
development.
Commencing in April 1996, Baron Capital IX, Inc., an Affiliate of the
Managing Shareholder, sponsored an offering of up to 700 units of limited
partner interest in Lamplight Court of Bellefontaine Apartments, Ltd., a Florida
limited partnership, at a purchase price of $1,000 per unit (maximum gross
proceeds of $700,000). The offering was fully subscribed and closed in November
1996. The partnership invested the net proceeds of its offering (i) to acquire a
31.7% limited partnership interest in a limited partnership that owns title to
an 80-unit residential apartment community located in Bellefontaine, Ohio known
as Lamplight Apartments and (ii) to provide or acquire two unrecorded
Subordinated Mortgage Loans secured by such property. As one of its initial
acquisition candidates in connection with the Exchange Offering, the Operating
Partnership will offer to acquire partnership interests in this partnership
owned by the partners thereof. Additional information relating to the property
interests owned by this partnership and to the Exchange Offering is included at
"DESCRIPTION OF EXCHANGE PARTNERSHIPS," "THE EXCHANGE OFFERING" and "INITIAL
REAL ESTATE INVESTMENTS" and in Exhibits A and B to this Prospectus.
Commencing in May 1996, Baron Capital XXVI, Inc., an Affiliate of the
Managing Shareholder, sponsored an offering of up to 1,800 units of limited
partner interest in Baron Strategic Vulture Fund I, Ltd., a Florida limited
partnership, at a purchase price of $500 per unit (maximum gross proceeds of
$900,000). The offering was fully subscribed and closed in October 1996. The
partnership invested the net proceeds of its offering to provide or acquire an
undivided 73.7% interest in four unrecorded Subordinated Mortgage Loans secured
by an 81-unit residential apartment community located in Tampa, Florida known as
Curiosity Creek Apartments. As one of its initial acquisition candidates in
connection with the Exchange Offering, the Operating Partnership will offer to
acquire partnership interests in this partnership owned by the partners thereof.
Additional information relating to the property interests owned by this
partnership and to the Exchange Offering is included at "DESCRIPTION OF EXCHANGE
PARTNERSHIPS," "THE EXCHANGE OFFERING" and "INITIAL REAL ESTATE INVESTMENTS" and
in Exhibits A and B to this Prospectus.
Commencing in April 1996, Baron Capital XXVII, Inc., an Affiliate of the
Managing Shareholder, sponsored an offering of up to 1,000 units of limited
partner interest in Baron First Time Home Buyer Mortgage Fund III, Ltd., a
Florida limited partnership, at a purchase price of $500 per unit (maximum gross
proceeds of $500,000). The offering was fully subscribed and closed in September
1996. The partnership invested the net proceeds of its offering to make a
Subordinated Mortgage Loan to the developer of approximately 100 condominium
units located in Independence, Kentucky.
Commencing in June 1996, Baron Capital XXVIII, Inc., an Affiliate of the
Managing Shareholder, sponsored an offering of up to 1,000 units of limited
partner interest in Baron First Time Home Buyer Mortgage Fund IV, Ltd., a
Florida limited partnership, at a purchase price of $500 per unit (maximum gross
proceeds of $500,000). The offering was fully subscribed and closed in November
1996. The partnership invested the net proceeds of its offering to make a
Subordinated Mortgage Loan to the developer of approximately 82 single-family
homes in Louisville, Kentucky.
Commencing May 1996, Baron Capital XXIX, Inc., an Affiliate of the
Managing Shareholder, sponsored an offering of up to 1,000 units of limited
partner interest in Baron First Time Home Buyer Mortgage Fund V, Ltd., a Florida
limited partnership, at a purchase price of $500 per unit (maximum gross
proceeds of $500,000). The offering was fully subscribed and closed in September
1996. The partnership invested the net proceeds of its offering to make a
Subordinated Mortgage Loan to the developer of the second phase of an 84-unit
residential condominium development in Independence, Kentucky.
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Commencing in July 1996, Baron Capital XXXI, Inc., an Affiliate of the
Managing Shareholder, sponsored an offering of up to 1,600 units of limited
partner interest in Baron Strategic Investment Fund II, Ltd., a Florida limited
partnership, at a purchase price of $500 per unit (maximum gross proceeds of
$800,000). The offering was fully subscribed and closed in October 1996. The
partnership invested the net proceeds of its offering to acquire an equity
interest in a 72-unit residential apartment community located in Anderson,
Indiana known as Steeplechase Apartments. As one of its initial acquisition
candidates in connection with the Exchange Offering, the Operating Partnership
will offer to acquire partnership interests in this partnership owned by the
partners thereof. Additional information relating to the property interests
owned by this partnership and to the Exchange Offering is included at
"DESCRIPTION OF EXCHANGE PARTNERSHIPS," "THE EXCHANGE OFFERING" and "INITIAL
REAL ESTATE INVESTMENTS" and in Exhibits A and B to this Prospectus.
Commencing in June 1996, Baron Capital XXXII, Inc., an Affiliate of the
Managing Shareholder, sponsored an offering of up to 2,400 units of limited
partner interest in Baron Strategic Investment Fund, Ltd., a Florida limited
partnership, at a purchase price of $500 per unit (maximum gross proceeds of
$1,200,000). The offering was fully subscribed and closed in December 1996. The
partnership invested the net proceeds of its offering to provide or acquire (i)
three unrecorded Subordinated Mortgage Loans secured by a 68-unit residential
apartment community located in Orlando, Florida known as Blossom Corners
Apartments - Phase II and (ii) an unrecorded Subordinated Mortgage Loan secured
by a 164 townhouse community under development in Cincinnati, Ohio known as
Villas at Lake Sycamore. As one of its initial acquisition candidates in
connection with the Exchange Offering, the Operating Partnership will offer to
acquire partnership interests in this partnership owned by the partners thereof.
Additional information relating to the property interests owned by this
partnership and to the Exchange Offering is included at "DESCRIPTION OF EXCHANGE
PARTNERSHIPS," "THE EXCHANGE OFFERING" and "INITIAL REAL ESTATE INVESTMENTS" and
in Exhibits A and B to this Prospectus.
Commencing in August 1996, Baron Capital XXIX, Inc., an Affiliate of the
Managing Shareholder, sponsored an offering of up to 1,500 units of limited
partner interest in Baron Income Property Mortgage Fund VI, Ltd., a Florida
limited partnership, at a purchase price of $500 per unit (maximum gross
proceeds of $750,000). The offering was fully subscribed and closed in July
1997. The partnership invested the net proceeds of its offering to make a
Subordinated Mortgage Loan to the developer of a 150-unit apartment community
located in Independence, Kentucky.
Commencing in April 1996, Baron Capital of Ohio III, Inc. (formerly named
Sigma Financial Capital VI, Inc.), at that time an Affiliate of Sigma Financial
Corporation, the Dealer Manager of the Cash Offering, sponsored an offering of
up to 600 units of limited partner interest in Midwest Income Growth Fund VI,
Ltd., a Florida limited partnership, at a purchase price of $500 per unit
(maximum gross proceeds of $300,000). The offering was fully subscribed and
closed in October 1996. The partnership invested the net proceeds of its
offering to acquire all of the limited partnership interest in a limited
partnership which owns fee simple title to a 66-unit residential apartment
community located in Mansfield, Ohio known as Brookwood Way Apartments. In
August 1998, Gregory K. McGrath acquired all of the equity of the general
partner of the partnership. As one of its initial acquisition candidates in
connection with the Exchange Offering, the Operating Partnership will offer to
acquire partnership interests in this partnership owned by the partners thereof.
Additional information relating to the property interests owned by this
partnership and to the Exchange Offering is included at "DESCRIPTION OF EXCHANGE
PARTNERSHIPS," "THE EXCHANGE OFFERING" and "INITIAL REAL ESTATE INVESTMENTS" and
in Exhibits A and B to this Prospectus.
Commencing in September 1996, Baron Capital XXXIV, an Affiliate of the
Managing Shareholder, sponsored an offering of up to 620 units of limited
partner interest in Florida Tax Credit Fund II, Ltd., a Florida limited
partnership, at a purchase price of $500 per unit (maximum gross proceeds of
$310,000). The offering was fully subscribed and closed in May 1998. The
partnership has invested the net proceeds of its offering to acquire title to a
47-unit residential apartment community located in Bartow, Florida.
Commencing in November 1996, Baron Capital XVII, Inc., an Affiliate of the
Managing Shareholder, sponsored an offering of up to 2,000 units of limited
partner interest in Baron Strategic Investment Fund IV, Ltd., a Florida limited
partnership, at a purchase price of $500 per unit (maximum gross proceeds of
$1,000,000). The offering was fully subscribed and closed in March 1997. The
partnership has invested the net proceeds of its offering to provide or acquire
two unrecorded Subordinated Mortgage Loans secured by a 73-unit residential
apartment community located in Tampa, Florida known as Country Square
Apartments-Phase I. As one of its initial acquisition candidates in connection
with the Exchange Offering, the Operating Partnership will offer to acquire
partnership interests in this partnership owned by the partners thereof.
Additional information relating to the property interests owned by this
partnership and to the Exchange Offering is included at "DESCRIPTION OF EXCHANGE
PARTNERSHIPS," "THE EXCHANGE OFFERING" and "INITIAL REAL ESTATE INVESTMENTS" and
in Exhibits A and B to this Prospectus.
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Commencing in November 1996, Baron Capital XXXVII, Inc., an Affiliate of
the Managing Shareholder, sponsored an offering of up to 1,400 units of limited
partner interest in Baron Mortgage Development Fund VII, Ltd., a Florida limited
partnership, at a purchase price of $500 per unit (maximum gross proceeds of
$700,000). The offering was fully subscribed and closed in July 1997. The
partnership invested the net proceeds of its offering to make a Subordinated
Mortgage Loan to the developer of an 84-unit residential apartment community in
Alexandria, Kentucky.
Commencing in October 1996, Baron Capital XXXVIII, Inc., an Affiliate of
the Managing Shareholder, sponsored an offering of up to 1,300 units of limited
partner interest in Baron Mortgage Development Fund VIII, Ltd., a Florida
limited partnership, at a purchase price of $500 per unit (maximum gross
proceeds of $650,000). The offering was fully subscribed and closed in August
1998. The partnership has invested the net proceeds of its offering to make a
Subordinated Mortgage Loan to the developer of a 114-unit residential apartment
community located in Louisville, Kentucky.
Commencing in November 1996, Baron Capital XL, Inc., an Affiliate of the
Managing Shareholder, sponsored an offering of up to 2,400 units of limited
partner interest in Baron Strategic Investment Fund V, Ltd., a Florida limited
partnership, at a purchase price of $500 per unit (maximum gross proceeds of
$1,200,000). The offering was fully subscribed and closed in June 1997. The
partnership invested the net proceeds of its offering to provide or acquire (i)
an unrecorded Subordinated Mortgage Loan secured by a 33-unit residential
apartment property located in Tampa, Florida known as Candlewood
Apartments-Phase II, (ii) an undivided 26.3% interest in four unrecorded
Subordinated Mortgage Loans secured by an 81-unit residential apartment
community located in Tampa, Florida known as Curiosity Creek Apartments and
(iii) four unrecorded Subordinated Mortgage Loans secured by a 60-unit
residential apartment property located in Titusville, Florida known as Sunrise
Apartments-Phase I and an unsecured loan associated with such property. As one
of its initial acquisition candidates in connection with the Exchange Offering,
the Operating Partnership will offer to acquire partnership interests in this
partnership owned by the partners thereof. Additional information relating to
the property interests owned by this partnership and to the Exchange Offering is
included at "DESCRIPTION OF EXCHANGE PARTNERSHIPS," "THE EXCHANGE OFFERING" and
"INITIAL REAL ESTATE INVESTMENTS" and in Exhibits A and B to this Prospectus.
Commencing in November 1996, Baron Capital XXXI, Inc., an Affiliate of the
Managing Shareholder, sponsored an offering of up to 2,400 units of limited
partner interest in Baron Strategic Investment Fund VI, Ltd., a Florida limited
partnership, at a purchase price of $500 per unit (maximum gross proceeds of
$1,200,000). The offering was fully subscribed and closed in April 1997. The
partnership has invested the net proceeds of its offering (i) to acquire a
52.44% limited partnership interest in a limited partnership which owns record
title to a 91-unit residential apartment community in Orlando, Florida known as
Pineview Apartments, (ii) to provide or acquire an unrecorded Subordinated
Mortgage Loan secured by a 33-unit residential apartment property located in
Tampa, Florida known as Candlewood Apartments-Phase II, (iii) to provide or
acquire an undivided 20% interest in a Subordinated Mortgage Loan secured by a
91-unit residential property located in Tampa, Florida known as Garden Terrace
Apartments-Phase III and (iv) to make a secured loan to an affiliated
partnership, Baron Capital Strategic Investment Fund IV, Ltd., which in turn
used such loan proceeds to make a Subordinated Mortgage Loan secured by a
73-unit residential apartment community located in Tampa, Florida known as
Country Square Apartments-Phase I. As one of its initial acquisition candidates
in connection with the Exchange Offering, the Operating Partnership will offer
to acquire partnership interests in this partnership owned by the partners
thereof. Additional information relating to the property interests owned by this
partnership and to the Exchange Offering is included at "DESCRIPTION OF EXCHANGE
PARTNERSHIPS," "THE EXCHANGE OFFERING" and "INITIAL REAL ESTATE INVESTMENTS" and
in Exhibits A and B to this Prospectus.
Commencing in January 1997, Baron Capital XLI, Inc., an Affiliate of the
Managing Shareholder, sponsored an offering of up to 3,800 units of limited
partner interest in Baron Strategic Investment Fund VII, Ltd., a Florida limited
partnership, at a purchase price of $500 per unit (maximum gross proceeds of
$1,900,000). The offering was fully subscribed and closed in December 1997. The
partnership has invested the net proceeds of its offering to purchase
receivables associated with three properties comprising 145 residential
apartment units located in Cocoa Beach, Lakeland and Titusville, Florida.
Commencing in November 1996, Baron Capital XLIII, Inc., an Affiliate of
the Managing Shareholder, sponsored an offering of up to 1,600 units of limited
partner interest in Baron Mortgage Development Fund X, Ltd., a Florida limited
partnership, at a purchase price of $500 per unit (maximum gross proceeds of
$800,000). The offering was fully subscribed and closed in December 1997. The
partnership invested the net proceeds of its offering to make a Subordinated
Mortgage Loan to the developer of 226 condominium units in Cincinnati, Ohio.
Commencing in January 1997, Baron Capital XLII, Inc., an Affiliate of the
Managing Shareholder, sponsored an offering of up to 1,600 units of limited
partner interest in Baron Development Fund IX, Ltd., a Florida limited
partnership, at a purchase price of $500 per unit (maximum gross proceeds of
$800,000). The offering was fully subscribed and closed in
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September 1997. The partnership has invested the net proceeds of its offering to
make a Subordinated Mortgage Loan to the developer of a 320 single-family home
site located in Louisville, Kentucky.
Commencing in March 1997, Baron Capital XXXIII, Inc., an Affiliate of the
Managing Shareholder, sponsored an offering of up to 1,600 units of limited
partner interest in Baron Mortgage Development Fund XI, Ltd., a Florida limited
partnership, at a purchase price of $500 per unit (maximum gross proceeds of
$800,000). The offering was fully subscribed and closed in August 1997. The
partnership has invested the net proceeds of its offering to make a Subordinated
Mortgage Loan to the developer of 168 residential condominium units in
Cincinnati, Ohio.
Commencing in April 1997, Baron Capital XLIV, Inc., an Affiliate of the
Managing Shareholder, sponsored an offering of up to 2,400 units of limited
partner interest in Baron Strategic Investment Fund VIII, Ltd., a Florida
limited partnership, at a purchase price of $500 per unit (maximum gross
proceeds of $1,200,000). The offering was fully subscribed and closed in
February 1998. The partnership has invested the net proceeds of its offering to
provide or acquire (i) an undivided 58% interest in an unrecorded second
mortgage loan secured by a 41-unit residential apartment community located in
Kissimmee, Florida known as Heatherwood Apartments-Phase II and three unsecured
loans associated with such property, (ii) three unrecorded second mortgage loans
secured by a 59-unit residential apartment property located in Cocoa, Florida
known as Longwood Apartments-Phase I, and (iii) an unrecorded Subordinated
Mortgage Loan secured by a 164-townhome community under development in
Cincinnati, Ohio known as Villas at Lake Sycamore. As one of its initial
acquisition candidates in connection with the Exchange Offering, the Operating
Partnership will offer to acquire partnership interests in this partnership
owned by the partners thereof. Additional information relating to the property
interests owned by this partnership and to the Exchange Offering is included at
"DESCRIPTION OF EXCHANGE PARTNERSHIPS," "THE EXCHANGE OFFERING" and "INITIAL
REAL ESTATE INVESTMENTS" and in Exhibits A and B to this Prospectus.
Commencing in May 1997, Baron Capital XLVII, Inc., an Affiliate of the
Managing Shareholder, sponsored an offering of up to 2,000 units of limited
partner interest in Baron Mortgage Development Fund XIV, Ltd., a Florida limited
partnership, at a purchase price of $500 per unit (maximum gross proceeds of
$1,000,000). The offering was fully subscribed and closed in March 1998. The
partnership has invested the net proceeds of its offering to make a Subordinated
Mortgage Loan to the developer of a 396-unit luxury residential apartment
community in Cincinnati, Ohio.
Commencing in April 1997, Baron Capital XLVI, Inc., an Affiliate of the
Managing Shareholder, sponsored an offering of up to 2,000 units of limited
partner interest in Baron Mortgage Development Fund XII, Ltd., a Florida limited
partnership, at a purchase price of $500 per unit (maximum gross proceeds of
$1,000,000). The offering was fully subscribed and closed in August 1998. The
partnership has invested the net proceeds of its offering to make a Subordinated
Mortgage Loan to the developer of a 111,000 square-foot shopping center located
in Burlington, Kentucky.
Commencing in June 1997, Baron Capital XLVIII, Inc., an Affiliate of the
Managing Shareholder, sponsored an offering of up to 1,400 units of limited
partner interest in Baron Mortgage Development Fund XV, Ltd., a Florida limited
partnership, at a purchase price of $500 per unit (maximum gross proceeds of
$700,000). The offering was fully subscribed and closed in February 1998. The
partnership has invested the net proceeds of its offering to make a Subordinated
Mortgage Loan to the developer of an 88-unit residential apartment community
located in Alexandria, Kentucky.
Commencing in May 1997, Baron Capital LX, Inc., an Affiliate of the
Managing Shareholder, sponsored an offering of up to 2,000 units of limited
partner interest in Baron First Mortgage Development Fund XVI, Ltd., a Florida
limited partnership, at a purchase price of $500 per unit (maximum gross
proceeds of $1,000,000). The offering was fully subscribed and closed in June
1998. The partnership has invested the net proceeds of its offering to make a
First Mortgage Loan to the developer of approximately 200 entry-level
single-family homes in Cincinnati, Ohio.
Commencing in May 1997, Baron Capital LXI, Inc., an Affiliate of the
Managing Shareholder, sponsored an offering of up to 2,000 units of limited
partner interest in Baron First Mortgage Development Fund XVII, Ltd., a Florida
limited partnership, at a purchase price of $500 per unit (maximum gross
proceeds of $1,000,000). The offering has raised $906,500 as of May 4, 1999 and
continues in progress. The partnership has invested the net proceeds of its
offering to make a First Mortgage Loan to the developer of approximately 140
entry-level single-family homes in Crystal River, Florida.
Commencing in June 1997, Baron Capital LXII, Inc., an Affiliate of the
Managing Shareholder, sponsored an offering of up to 2,400 units of limited
partner interest in Baron Strategic Investment Fund IX, Ltd., a Florida limited
partnership, at a purchase price of $500 per unit (maximum gross proceeds of
$1,200,000). The offering was fully subscribed and closed in May 1998. The
partnership has invested the net proceeds of its offering (i) to acquire a
44.96% limited partnership interest in a limited partnership which owns record
title to a 72-unit residential apartment property in Lakeland, Florida known as
Crystal Court Apartments, (ii) to provide or acquire an unrecorded Subordinated
Mortgage Loan secured by
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a 33-unit residential apartment property located in Tampa, Florida known as
Candlewood Apartments-Phase II, (iii) to provide or acquire an undivided 25%
interest in a Subordinated Mortgage Loan secured by a 91-unit residential
apartment property located in Tampa, Florida known as Garden Terrace
Apartments-Phase III, and (iv) to provide or acquire an unrecorded Second
Mortgage Loan secured by a 164-townhome community located in Cincinnati, Ohio
known as Villas at Lake Sycamore. As one of its initial acquisition candidates
in connection with the Exchange Offering, the Operating Partnership will offer
to acquire partnership interests in this partnership owned by the partners
thereof. Additional information relating to the property interests owned by this
partnership and to the Exchange Offering is included at "DESCRIPTION OF EXCHANGE
PARTNERSHIPS," "THE EXCHANGE OFFERING" and "INITIAL REAL ESTATE INVESTMENTS" and
in Exhibits A and B to this Prospectus.
Commencing in July 1997, Baron Capital LXIV, Inc., an Affiliate of the
Managing Shareholder, sponsored an offering of up to 2,400 units of limited
partner interest in Baron Strategic Investment Fund X, Ltd., a Florida limited
partnership, at a purchase price of $500 per unit (maximum gross proceeds of
$1,200,000). The offering was fully subscribed and closed in March 1998. The
partnership has invested the net proceeds of its offering (i) to acquire a
47.59% limited partnership interest in a limited partnership which owns record
title to a 72-unit residential apartment property located in Lakeland, Florida
known as Crystal Court Apartments, (ii) to acquire a 39.56% limited partnership
interest in a limited partnership which owns record title to a 91-unit
residential apartment property located in Orlando, Florida known as Pineview
Apartments, (iii) to provide or acquire an unrecorded Subordinated Mortgage Loan
secured by a 41-unit residential apartment property located in Kissimmee,
Florida known as Heatherwood Apartments-Phase II and three unsecured loans
associated with such property, and (iv) to provide or acquire an undivided 55%
interest in a Subordinated Mortgage Loan secured by a 91-unit residential
apartment property located in Tampa, Florida known as Garden Terrace
Apartments-Phase III. As one of its initial acquisition candidates in connection
with the Exchange Offering, the Operating Partnership will offer to acquire
partnership interests in this partnership owned by the partners thereof.
Additional information relating to the property interests owned by this
partnership and to the Exchange Offering is included at "DESCRIPTION OF EXCHANGE
PARTNERSHIPS," "THE EXCHANGE OFFERING" and "INITIAL REAL ESTATE INVESTMENTS" and
in Exhibits A and B to this Prospectus.
Commencing in July 1997, Baron Capital LXV, Inc., an Affiliate of the
Managing Shareholder, sponsored an offering of up to 1,600 units of limited
partner interest in Baron Mortgage Development Fund XVIII, L.P., a Delaware
limited partnership, at a purchase price of $500 per unit (maximum gross
proceeds of $800,000). The offering was fully subscribed and closed in November
1997. The partnership has invested the net proceeds of its offering to make a
Subordinated Mortgage Loan to the developer of a 150-unit residential apartment
community in Independence, Kentucky.
Commencing in September 1997, Baron Capital LXVI, Inc., an Affiliate of
the Managing Shareholder, sponsored an offering of up to 2,000 units of limited
partner interest in Baron Mortgage Development Fund XIX, L.P., a Delaware
limited partnership, at a purchase price of $500 per unit (maximum gross
proceeds of $1,000,000). The offering was fully subscribed and closed in
November 1998. The partnership has invested the net proceeds of its offering to
make a Subordinated Mortgage Loan to the developer of four approximately
one-acre out parcels of land adjacent to a shopping center development to be
constructed in Burlington, Kentucky.
Commencing in September 1997, Baron Capital LXVII, Inc., an Affiliate of
the Managing Shareholder, sponsored an offering of up to 2,000 units of limited
partner interest in Baron Mortgage Development Fund XX, L.P., a Delaware limited
partnership, at a purchase price of $500 per unit (maximum gross proceeds of
$1,000,000). The offering was fully subscribed and closed in July 1998. The
partnership has invested the net proceeds of its offering to make a Subordinated
Mortgage Loan to finance the conversion of a 144-unit residential apartment
community located in St. Petersburg, Florida into an extended-stay hotel.
Commencing in November 1997, Baron Capital LXVIII, Inc., an Affiliate of
the Managing Shareholder, sponsored an offering of up to 2,000 units of limited
partner interest in Baron Mortgage Development Fund XXI, L.P., a Delaware
limited partnership, at a purchase price of $500 per unit (maximum gross
proceeds of $1,000,000). The offering was fully subscribed and closed in July
1998. The partnership has invested the net proceeds of its offering to make a
Subordinated Mortgage Loan to a developer to finance land acquisition,
development and construction in respect of two phases of a 396-unit luxury
residential apartment community to be constructed in four phases in Burlington,
Kentucky, a suburb of Cincinnati, Ohio.
Commencing in January 1999, Baron Capital LXXXVII, Inc., an Affiliate of
the Managing Shareholder, sponsored an offering of up to 120 units of limited
partner interest in Baron Mezzanine Fund XXXVI, Ltd., a Florida limited
partnership, at a price of $10,000 per unit, 2 units minimum purchase (maximum
gross proceeds $1,200,000). The offering has raised $935,500 as of May 6, 1999
and continues in progress. The partnership has been organized to provide or
acquire
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loans to one or more companies in the principal business of building,
rehabilitating and developing multi-family residential and commercial properties
that might include high technology features such as local and long distance
communications, Internet access, cable and satellite television, and utility
sub-metering. This fund has initially been allocated to a 147 unit apartment
community to be developed in Crystal River, Florida.
Commencing in January 1999, Baron Capital LXXXVIII, Inc., an Affiliate of
the Managing Shareholder, sponsored an offering of up to 120 units of limited
partner interest in Baron Mezzanine Fund XXXVII, Ltd., a Florida limited
partnership, at a price of $10,000 per unit, 2 units minimum purchase (maximum
gross proceeds $1,200,000). The partnership has raised $495,467 as of May 6,
1999 and continues in progress. The partnership has been organized to provide or
acquire loans to one or more companies in the principal business of building,
rehabilitating and developing multi-family residential and commercial properties
that might include high technology features such as local and long distance
communications, Internet access, cable and satellite television, and utility
sub-metering. This fund has been initially allocated to a 164 unit town home
property in Independence, Kentucky.
Commencing in April 1999, Baron Capital LXXXIX, Inc., an Affiliate of the
Managing Shareholder, sponsored an offering of up to 120 units of limited
partner interest in Baron Mezzanine Fund XXXVIII, Ltd., a Florida limited
partnership, at a price of $10,000 per unit, 2 units minimum purchase (maximum
gross proceeds $1,200,000). The partnership has raised $11,000 as of May 6, 1999
and continues in progress. The partnership has been organized to provide or
acquire loans to one or more companies in the principal business of building,
rehabilitating and developing multi-family residential and commercial properties
that might include high technology features such as local and long distance
communications, Internet access, cable and satellite television, and utility
sub-metering. This fund has been initially allocated to a 168 unit apartment
community being developed in greater Cincinnati.
There have been no major adverse business developments or conditions
experienced to date by any of the prior limited partnerships (other than those
described below under "Management's Discussion and Analysis or Plan of
Operation") that would be material to Offerees who acquire Units in this
Exchange Offering or any Shareholder in the Trust (including without limitation
any Unitholder who exchanges his Units for Common Shares). Offerees should note
that certain of the prior limited partnerships described above and in the tables
comprising Exhibit A hereto were only recently organized, that certain
partnerships have only recently commenced operations, and that others are still
in the development stage. Accordingly, it would be premature to draw conclusions
based upon the current stages of operations or development of certain of the
prior limited partnerships.
MANAGEMENT
As Managing Shareholder of the Trust, Baron Advisors, Inc. ("Baron
Advisors") will have direct and exclusive discretion in management and control
of the affairs of the Trust and the Operating Partnership, subject to general
supervision and review by the Independent Trustees and the Managing Shareholder
acting together as the Board of the Trust and to prior approval authority of a
majority of the Board and a majority of the Independent Trustees in respect of
certain specified actions. The Corporate Trustee, Baron Properties (an affiliate
of the Managing Shareholder), will act on the instructions of the Managing
Shareholder, and will not take independent discretionary action on behalf of the
Trust. The Managing Shareholder, the Corporate Trustee and the Corporate General
Partner of each Exchange Partnership are wholly owned and controlled by Mr.
McGrath, a founder of the Trust and the Operating Partnership. The audited
balance sheets of the Trust and the Operating Partnership as of December 31,
1998, the audited balance sheet of the Managing Shareholder as of December 31,
1998, and statements of operations, statements of shareholders' capital and
statements of cash flow for the year then ended for the Trust and Operating
Partnership and the Managing Shareholder, together with the unaudited balance
sheets of the Trust, the Operating Partnership and the Management Shareholder,
as of March 31, 1999 and statements of operations, statements of shareholders'
capital, and statements of cash flow for the three-month period then ended for
the Trust, Operating Partnership and the Managing Shareholder are included in
this Prospectus at Exhibit C.
The Board of the Trust and the Independent Trustees will act only where
their consent and participation is required under the Declaration of the Trust.
See "SUMMARY OF DECLARATION OF TRUST - Control of Operations." The members of
the Board and the Independent Trustees are under a fiduciary duty similar to
that of corporation directors to act in the Trust's best interests and may
compel action by the Managing Shareholder to carry out that duty if necessary,
but ordinarily they have no duty to manage or direct the management of the Trust
outside their enumerated duties.
Although the Managing Shareholder will be in control of the Trust and the
Operating Partnership (subject to the powers and obligations of the Board and
the Independent Trustees), it will have no liability to the Trust, the Operating
Partnership, Shareholders or Unitholders for losses or liabilities except in
cases of its negligence, misconduct or breach of the Declaration. See "FIDUCIARY
RESPONSIBILITY."
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Managing Shareholder
Baron Advisors, Inc., the Managing Shareholder of the Trust, was
incorporated in July 1997 as a Delaware corporation. The management of Baron
Advisors has substantial prior experience in and knowledge of the residential
apartment property and single-family housing market and its financing and
experience in the management of investment programs and in directing their
operations. The Chief Executive Officer, sole director and sole shareholder of
Baron Advisors is Gregory K. McGrath (who also wholly owns and controls the
Corporate General Partner of each Exchange Partnership) and its Chief Operating
Officer is Robert S. Geiger. The Trust will reimburse the Managing Shareholder
on a monthly basis during the term of the Trust Management Agreement for its
operating expenses relating to the business of the Trust and the Operating
Partnership, in an annual amount up to 1% of the gross proceeds of the Cash
Offering plus 1% of the initial value of Units issued in connection with the
proposed Exchange Offering (annual maximum $500,000). The Managing Shareholder
in its sole discretion may elect to receive payment for its services in the form
of Common Shares with an equivalent value.
Officers and employees of the Managing Shareholder who perform services on
behalf of the Trust will not be paid any additional compensation by the Trust
for such services. Such officers and employees generally will serve in the same
capacity for the Trust or the Operating Partnership and will be compensated by
the Trust or the Operating Partnership in amounts determined by the Managing
Shareholder, in the case of employees, and by the Executive Compensation
Committee described below, in the case of officers. See " - Trust Management
Agreement." Set forth below is certain information concerning Mr. McGrath and
Mr. Geiger.
Gregory K. McGrath, age 38, is one of the founders of the Trust and the
Operating Partnership and serves as the Chief Executive Officer of the Trust and
the Operating Partnership. He is also the Chief Executive Officer, sole director
and sole shareholder of Baron Advisors, the Managing Shareholder of the Trust.
Affiliates of Mr. McGrath are also the corporate general partners of limited
partnerships which are debtors under Subordinated Mortgage Loans and other debt
interests owned by certain of the Exchange Partnerships, and in such capacity,
Mr. McGrath holds an indirect minority economic interest in such partnerships
which is subordinate to the preferred returns of their limited partners.
Mr. McGrath has over 10 years experience in all aspects of the real estate
industry, including site selection and acquisition, arrangement and closing of
mortgage financing, and property acquisition and management. Between January
1993 and June 1994, Mr. McGrath served as Senior Vice President of Realty
Capital, Inc., a Florida corporation which sponsored real estate limited
partnerships. Mr. McGrath is also the President, sole director and sole
shareholder of Baron Real Estate Services, Inc. ("Baron"), an Ohio corporation
headquartered in Cincinnati, Ohio, which he co-founded in 1989. Under Mr.
McGrath's leadership, Baron grew from the property manager of a single site in
Ohio to managing over 40 residential apartment properties containing over 3,000
units which have a current value in excess of $100 million, and commercial
space. In January 1997, substantially all of Baron's property management
operations were sold to Affirmative Management, Inc., an Affiliate of
Affirmative Equities Company, L.P., a New York City-based owner, operator and
manager of multi-family residential apartment properties. Mr. McGrath is also a
principal of The Baron Organization, Inc., a Delaware corporation which asset
manages an approximately $100 million real estate portfolio. In addition to the
affiliations described below, Mr. McGrath is also a principal in a number of
other related business entities which are involved in various aspects of the
real estate industry. Mr. McGrath attended Miami University.
Mr. McGrath is also the President, sole director and sole shareholder of
each of ten Delaware or Florida corporations which is the sole general partner
of one of ten separate real estate investment limited partnerships organized in
Delaware or Florida since 1994 to invest in real estate located in the
midwestern and southeastern portions of the United States. The name of each such
corporation and the limited partnership sponsored by it are listed on the last
page of Exhibit A hereto. Each of these limited partnerships is currently
offering limited partner interests in private securities offerings and/or has
not commenced significant operations yet. One of a group of 37 separate
affiliates of the Managing Shareholder identified above in "PRIOR PERFORMANCE OF
AFFILIATES OF MANAGING SHAREHOLDER" (and in Table I at the beginning of Exhibit
A hereto) is also the sole general partner of one of 41 additional real estate
investment limited partnerships formed in Florida or Delaware which have
commenced operations. Mr. McGrath is the President, sole director and sole
shareholder of each of such affiliated corporations. These partnerships have
provided financing in respect of residential apartment properties and other real
estate located in the midwestern and southeastern portions of the United States.
Each of the partnerships has completed its private placement offering and
invested the net proceeds thereof. Attached hereto at the beginning of Exhibit A
are five tables (Tables I through V) which summarize certain information about
such offerings, compensation paid to the general partners of such programs and
their affiliates in connection therewith, operating results of such programs,
the application of net offering proceeds to real estate investments, and sales
of properties.
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Robert S. Geiger, age 48, is one of the founders of the Trust and the
Operating Partnership and serves as the Chief Operating Officer of the Trust,
the Operating Partnership and the Managing Shareholder. Since August 1, 1998,
Mr. Geiger, an attorney, has operated his own law firm. Between 1986 and July
1998, Mr. Geiger was managing director of the law firm of Geiger Kasdin Heller
Kuperstein Chames & Weil, P.A., a Miami, Florida law firm which had a general
practice, and its predecessor firms. Mr. Geiger's practice is concentrated in
complex commercial and real property transactions and business reorganizations.
He has served as general counsel for national, regional and small business
corporations engaged in a wide range of business activities, including regulated
industry matters. Mr. Geiger's firms have performed and his current firm is
expected to continue to perform legal services for the Trust and affiliates of
the Managing Shareholder. Compensation received by the firms for such services
has not represented a material portion of the revenues of the firms. Mr. Geiger
will continue in his current law practice after the Offering. Prior to 1986, Mr.
Geiger practiced law at private law firms. Mr. Geiger is a member of the Panel
of Arbitrators, American Arbitration Association, Dade County and American Bar
Associations, The Florida Bar (member, Corporation, Business and Banking Law),
and the International Bar Association. Mr. Geiger earned a law degree from the
University of Florida in 1974 and a Bachelor of Arts degree from Hobart College
in 1972. Mr. Geiger maintains an "av" rating, the highest recognized by the
Martindale-Hubbell directory of American lawyers.
Mr. McGrath and Mr. Geiger are the founders of the Trust and the Operating
Partnership. Each of them has contributed $50,000 for the initial capitalization
of the Operating Partnership in exchange for an amount of Units which are
exchangeable (subject to escrow restrictions described below at "THE TRUST AND
THE OPERATING PARTNERSHIP - Formation Transactions") into 9.5% of the Common
Shares outstanding as of the earlier to occur of the completion of the Cash
Offering and the Exchange Offering or November 30, 1999, calculated on a fully
diluted basis assuming that all then outstanding Units (other than those
acquired by the Trust) have been exchanged into an equivalent number of Common
Shares. Such Units are exchangeable into an equivalent number of Common Shares,
subject to a security escrow agreement among Mr. McGrath, Mr. Geiger, the Trust
and an institutional escrow agent. See "THE TRUST AND THE OPERATING PARTNERSHIP
- - Formation Transactions." Such Units and the Common Shares into which they are
exchangeable are in addition to the 2,500,000 Common Shares which the Trust is
offering for sale in the Cash Offering and the 2,500,000 Units which the
Operating Partnership will offer in connection with the Exchange Offering (and
the equivalent number of Common Shares into which such Units are exchangeable).
See "THE TRUST AND THE OPERATING PARTNERSHIP - Ownership of the Trust and the
Operating Partnership."
The holders of at least 10% of the Common Shares may propose the removal
of the Managing Shareholder, either by calling a meeting or soliciting consents
in accordance with the terms of the Declaration. Removal of the Managing
Shareholder requires either the affirmative vote of a majority of the Common
Shares (excluding Common Shares held by the Managing Shareholder which is the
subject of the vote or by its affiliates) or the affirmative vote of a majority
of the Independent Trustees. The Shareholders entitled to vote thereon may
replace a removed Managing Shareholder or fill a vacancy by vote of a majority
in interest of such Shareholders. See "SUMMARY OF DECLARATION OF TRUST - Removal
and Resignation of the Managing Shareholder."
Trust Management Agreement
The Trust has entered into a Trust Management Agreement with the Managing
Shareholder (wholly owned and controlled, along with the Corporate General
Partner of each Exchange Partnership, by Mr. McGrath) under which the Managing
Shareholder is obligated to provide management, administrative and investment
advisory services to the Trust from the commencement of the Cash Offering. The
Trust Management Agreement has been approved by the Board of the Trust. The
services to be rendered include, among other things, communicating with and
reporting to Investors, administering accounts, providing to the Trust of office
space, equipment and facilities and other services necessary for the Trust's
operation, and representing the Trust in its relations with custodians,
depositories, accountants, attorneys, brokers and dealers, corporate
fiduciaries, insurers, banks and others, as required. The Managing Shareholder
is also responsible for determining which real estate investments and non-real
estate investments (including the temporary investment of the Trust's available
funds prior to their commitment to particular real estate investments) the Trust
will make and for making divestment decisions, subject to the provisions of the
Declaration of Trust.
The Trust will reimburse the Managing Shareholder on a monthly basis
during the term of the Trust Management Agreement for its operating expenses
relating to the business of the Trust and the Operating Partnership, in an
amount up to 1% of the gross proceeds of the Cash Offering plus 1% of the
initial value of Units issued in connection with the Exchange Offering (annual
maximum $500,000). The Managing Shareholder in its sole discretion may elect to
receive payment for its services in the form of Common Shares with an equivalent
value.
The Trust Management Agreement has an initial term of one year and may be
extended on a year-to-year basis on approval of (i) the Board or a Majority of
the Shareholders entitled to vote on such matter or (ii) a majority of the
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Independent Trustees. The Agreement has been extended for an additional year by
the Independent Trustees. The Independent Trustees have responsibility for
determining that the reimbursable amount payable to the Managing Shareholder
under the Trust Management Agreement is reasonable. The agreement may be
terminated without cause or penalty at any time on 60 days' prior notice by a
majority of the Independent Trustees, by a Majority of the Shareholders entitled
to vote on such matter or by the Managing Shareholder. Amendment of the
agreement requires the approval of (i) a majority of the Trustees or a Majority
of the Shareholders entitled to vote on such matter and (ii) a majority of the
Independent Trustees. Shareholders entitled to vote on such matters will be
entitled to vote whether or not to amend or terminate the agreement or to extend
it for an additional one-year period only if such item is called for a
Shareholder vote at the annual meeting of Shareholders or a special meeting of
Shareholders by either the Managing Shareholder, a majority of the Independent
Trustees, any officer of the Trust or Shareholders who hold 10% or more of the
Common Shares then outstanding.
Officers of the Trust and the Operating Partnership
The Declaration provides that the Managing Shareholder will appoint
officers of the Trust and the Operating Partnership who may act and sign
documents on their respective behalf as authorized by the Managing Shareholder
and who will have the duties and powers usually applicable to similar officers
of a Delaware corporation in carrying out Trust or Operating Partnership
business, as the case may be. Officers act under the supervision and control of
the Managing Shareholder, which can remove any officer at any time for any or no
reason. Unless otherwise specified by the Managing Shareholder, the Chief
Executive Officer of the Trust will have full power to act on behalf of the
Trust. Gregory K. McGrath, a founder of the Trust and the Operating Partnership,
serves as Chief Executive Officer of the Trust, the Operating Partnership and
the Managing Shareholder. He has agreed to serve as Chief Executive Officer for
the first year in exchange for compensation in the form of Common Shares or
Units in an amount not to exceed 25,000 shares or Units to be determined by the
Executive Compensation Committee based upon his performance, in addition to
benefits, including without limitation health, disability and life insurance,
and eligibility for participation in any option plan and bonus incentive
compensation plan which may be implemented by the Trust.
Robert S. Geiger, the other founder of the Trust and the Operating
Partnership, serves as the Chief Operating Officer of the Trust, the Operating
Partnership and the Managing Shareholder. His initial annual salary has been set
at $100,000 (in addition to benefits, including without limitation health,
disability and life insurance, and eligibility for participation in any Common
Share option plan and bonus incentive compensation plan which may be implemented
by the Trust).
Officers and employees of the Managing Shareholder who perform services on
behalf of the Trust will not be paid any additional compensation by the Trust
for such services. Such officers and employees generally will serve in the same
capacity for the Trust or the Operating Partnership and will be compensated by
the Trust or the Operating Partnership, as the case may be, in amounts
determined by the Managing Shareholder, in the case of employees, and by the
Executive Compensation Committee described below, in the case of officers.
Information concerning Mr. McGrath and Mr. Geiger is set forth above at "
- - Managing Shareholder." Information concerning the other executive officers of
the Trust and the Operating Partnership is set forth below.
Robert L. Astorino, age 52, has served as President - Property of the
Operating Partnership since May 25, 1998. From February 1998 through May 25,
1998, he served as President - Property of Strategic Management Inc., a real
estate management company affiliated with Mr. McGrath. From 1992 through January
1998, he served as President of The Housing Partnership, Inc., a Louisville,
Kentucky-based real estate investment and consulting company. Between 1991 and
1992, Mr. Astorino served as Assistant Vice President, Real Estate Operations at
Great Western Bank in Beverly Hills, California, where his responsibilities
included the operation and sale of residential and commercial real estate
obtained in foreclosure. Between 1986 and 1991, Mr. Astorino was employed by
Lexford, Inc. ("Lexford") (formerly Cardinal Realty Services, Inc. and prior to
that Cardinal Industries, Inc.), where he served first as the Regional Director
of Apartment Management and then as the Vice President of Operations. Lexford is
a publicly traded company headquartered in Reynoldsburg, Ohio which has
sponsored numerous real estate investment limited partnerships. Prior to 1986,
Mr. Astorino was employed by National Housing Partnership in Washington, D.C.
where he served as an Executive Vice President of NCHP Property Management and
then as Vice President of Property Management. He has also served as a Director
of the Housing Authority of Louisville and in various positions for other
municipal and rural real estate development programs. Mr. Astorino is a member
of the Kentucky Bar Association, the National Association of Realtors and the
National Association of Homebuilders. He is also a member of the Kentucky
Housing Association, where he served as president in 1982 and as a legislative
chairman in 1980, 1981 and 1983, and is a member of Louisville Housing Services,
where he served on the Board of Directors from 1984 through 1988. Mr. Astorino
received a law degree from the University of Louisville, a Masters degree in
Public Administration from Syracuse University and an undergraduate degree from
the University of Massachusetts, Amherst. He has also completed the Senior
Public Executive Program at Harvard University.
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Mr. Astorino's initial annual salary has been set at $150,000, in addition
to benefits, including without limitation health, disability and life insurance,
and eligibility to participate in any option plan and bonus incentive plan which
may be implemented by the Executive Compensation Committee.
Mark L. Wilson, age 52, was elected Interim Chief Financial Officer of the
Operating Partnership in November 1998 and became Chief Financial Officer and
Secretary in May 1999. Mr. Wilson replaced David E. Williams, who served as
Chief Financial Officer of the Operating Partnership from May 1998 until his
resignation in November 1998 to devote his complete attention to other business
activities of The Baron Organization, an affiliate of Mr. McGrath. Between 1989
and 1997, Mr. Wilson served as Vice President of Baron Real Estate Services,
Inc., an affiliate of Mr. McGrath. Mr. Wilson was responsible for financial
control, accounting and tax functions for that company in addition to financial
control and accounting for all of the properties which it managed. In addition,
Mr. Wilson served as President of The Baron Companies, a registered securities
broker-dealer which served as the dealer manager of numerous private offerings
of limited partnerships affiliated with Mr. McGrath. Prior to that time, Mr.
Wilson served in various financial and accounting capacities at five other
entities, including the position of Chief Financial Officer of two publicly
traded companies. Mr. Wilson, an attorney and Certified Public Accountant,
earned a Bachelor of Science degree from the University of Maryland; an MBA, Cum
Laude, from the University of California at Berkeley; and a Juris Doctorate, Cum
Laude, from Capital University.
Mr. Wilson's initial annual salary has been set at $110,000, in addition
to benefits, including without limitation health, disability and life insurance,
and eligibility to participate in any option plan and bonus incentive plan which
may be implemented by the Executive Compensation Committee.
The Board of the Trust, Committees and Trustees
As Managing Shareholder of the Trust, Baron Advisors will have discretion
in management and control of the affairs of the Trust and the Operating
Partnership, subject to general supervision and review by the Independent
Trustees and the Managing Shareholder acting together as the Board of the Trust
and to prior approval authority of the Board and the Independent Trustees in
respect of certain actions specified in the Declaration and described at
"SUMMARY OF THE DECLARATION - Control of Operations."
The Board of the Trust
The Board of the Trust has continuing exclusive authority over the
management of the Trust, the conduct of its affairs and, with certain
limitations, the management and disposition of the Trust property. The Board of
the Trust has general supervisory authority over the activities of the Managing
Shareholder and prior approval authority in respect of certain actions under the
Declaration. A majority of the members of the Board must be Independent
Trustees. The initial Board of the Trust is comprised of the Managing
Shareholder and two individuals described below who serve as the initial
Independent Trustees. Each member of the Board must have adequate experience in
the residential real estate industry. The term of each member of the Board is
one year. Each member of the Board (other than the initial members and any
member who is elected to fill the unexpired term of another member no longer
serving) must be elected by vote of the Shareholders entitled to vote on such
matter at the annual meeting of Shareholders. Mid-term vacancies may be filled
by a majority of the remaining members of the Board. Each member may serve an
unlimited number of terms.
The Board may establish such committees as it deems appropriate, provided,
the majority of the members of any such committee are Independent Trustees. The
Board of the Trust has established an Audit Committee, Executive Compensation
Committee, and Nominating Committee. The members of the Audit Committee and the
Nominating Committee are the Managing Shareholder and the Independent Trustees.
The members of the Executive Compensation Committee are the Independent
Trustees. The Audit Committee will make recommendations concerning the
engagement of independent public accountants, review with the independent public
accountants the plans and results of the audit engagement, approve professional
services provided by the independent public accountants, review the independence
of the independent public accountants, consider the range of audit and non-audit
fees and review the adequacy of the internal accounting controls of the Trust
and the Operating Partnership. The Executive Compensation Committee will
determine compensation for the executive officers of the Trust and the Operating
Partnership and implement a Common Share option plan and bonus incentive
compensation plan for members of management and key employees of the Trust and
the Operating Partnership. The Nominating Committee will nominate the members of
the Board of the Trust to be presented to Shareholders for election at each
annual meeting beginning in 1999.
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The Trust will pay its Independent Trustees an annual fee of $6,000. The
Executive Compensation Committee will consider from time to time adjustments in
the compensation payable to members of the Board and the possibility of
permitting the members of the Board to participate in any option plans which the
Trust may adopt. Mr. McGrath, the Chief Executive Officer of the Trust, the
Operating Partnership and the Managing Shareholder, will not be paid any fees
for serving on the Board on behalf of the Managing Shareholder. In addition, the
Trust will reimburse all members of the Board for expenses incurred in attending
meetings.
The Board will meet at least annually, and, except to the extent
conflicting with the Delaware Act or the Declaration, the law of Delaware
governing meetings of directors of corporations shall govern such meetings,
voting and consents by the members of the Board. The Executive Compensation
Committee of the Board may review the compensation payable to the Independent
Trustees and other members of the Board (other than the Managing Shareholder,
which will not be compensated for serving on the Board) annually and may
increase or decrease it as the committee deems reasonable. Any member of the
Board may resign by giving notice to the Trust, and may be removed (i) for cause
by the action of at least two-thirds of the remaining members of the Board or
(ii) with or without cause by action of the holders of at least a majority of
the then outstanding Shares entitled to vote thereon. Shares in the Trust owned
by the Managing Shareholder, the Trustees, other members of the Board of the
Trust, the Original Investors and any of their respective affiliates may not
vote regarding the removal of the Managing Shareholder, the Trustees or any
other member of the Board or any transaction between the Trust (or the Operating
Partnership) and any of them.
Independent Trustees
The Trust is required to have at least two Independent Trustees, and such
Independent Trustees must constitute a majority of the Board. To qualify to
serve the Trust as an Independent Trustee, a person may not be associated or
have been associated within the last two years with the Managing Shareholder (or
any successor advisor to the Trust). A person is deemed to be associated with
the Managing Shareholder if he (i) owns an interest in, is employed by, or is an
officer, director or trustee of the Managing Shareholder or any of its
affiliates; (ii) performs services, other than as an Independent Trustee, for
the Trust; (iii) is a trustee for more than three REITs organized or advised by
the Managing Shareholder; or (iv) has any material business or professional
relationship with the Managing Shareholder or any of its affiliates.
The term of each Independent Trustee is one year, and each Independent
Trustee (other than the initial Independent Trustees and any Independent Trustee
who has been elected to fill the unexpired term of another Independent Trustee
who no longer serves in such capacity) must be elected by a vote of the
Shareholders. Mid-term vacancies may be filled by a majority of the remaining
members of the Board. Any person may serve an unlimited number of terms. The
Independent Trustees will nominate replacements for vacancies created in the
authorized number of Independent Trustees prior to the end of a term. An
Independent Trustee may resign by giving notice to the Trust, and may be removed
(i) for cause by the action of at least two-thirds of the remaining members of
the Board or (ii) with or without cause by action of the holders of at least a
majority of the then outstanding Shares entitled to vote thereon. The
Independent Trustees are not obligated to persons other than Shareholders for
the obligations of the Trust. See "SUMMARY OF DECLARATION OF TRUST - Liability
and Indemnification."
James H. Bownas and Peter M. Dickson serve as the initial Independent
Trustees of the Trust. Set forth below is certain information concerning these
individuals, who are not otherwise affiliated with the Trust, the Operating
Partnership, the Managing Shareholder or any of their respective affiliates. In
performing their responsibilities to the Trust, the Independent Trustees are
under a fiduciary duty and obligation to act in the best interests of the Trust.
In interpreting the scope of this obligation, the Independent Trustees will have
the responsibilities of, and will be entitled to, the defenses of directors of a
Delaware corporation.
James H. Bownas, age 51, is a principal in Gamble Hartshorn Johnson Co.
LPA, a Columbus, Ohio law firm with a general practice. Mr. Bownas's practice is
concentrated in securities, real estate, taxation, corporate and estate
planning. Between 1989 and January 1996, Mr. Bownas served as General Counsel,
Vice President and Secretary of Lexford, Inc. ("Lexford") (formerly Cardinal
Realty Services, Inc. and prior to that Cardinal Industries, Inc.), a publicly
traded company headquartered in Reynoldsburg, Ohio which has sponsored numerous
real estate investment limited partnerships. At Lexford, Mr. Bownas developed
significant experience in the syndication of real estate investment limited
partnerships, negotiated the resolution of over $2 billion of creditors' claims
in connection with the bankruptcy reorganization of Cardinal Industries, Inc.,
and coordinated the transition of Cardinal Industries, Inc. from a bankruptcy
creditor to a successful publicly traded company. Since 1995, Lexford has
engaged in several arms-length transactions (none of which represented a
material portion of Lexford's assets, liabilities, revenues or expenditures)
with affiliates of the Managing Shareholder, including certain of the Exchange
Partnerships involved in the Exchange Offering, pursuant to which equity and
debt interests in multi-family real estate were sold to, purchased from and
managed by and for such entities. Prior to 1989, Mr. Bownas served as
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General Counsel and Vice President of Alliance Corporate Resources, Inc.,
Dublin, Ohio, a third party equipment lessor, and practiced law at private law
firms. Mr. Bownas is a member of the American Bar Association, the Ohio State
Bar Association and the Columbus Bar Association. Mr. Bownas earned a law degree
from Harvard University in 1971 and a Bachelor of Science degree from Xavier
University in 1968.
Since 1991, Peter M. Dickson, age 49, has been managing director of the
Guardian Management Company Limited, a global financial services corporation
based in Bermuda. In addition, since 1994 Mr. Dickson has served as a director
to Grosvenor Trust Company Limited, another Bermuda-based financial services
corporation. Between 1985 and 1990, Mr. Dickson served as the Executive Vice
President of Finance for The Wraxall Group, Bermuda. Between 1979 and 1985, Mr.
Dickson held several positions with Peat, Marwick, Bermuda, beginning as a
Senior Accountant/Supervisor, before being promoted to Manager, then to Senior
Manager, and finally to Director of Accounting Services. Prior to 1979, Mr.
Dickson was a Senior Accountant with Deloitte, Haskin & Sells in Manchester,
with whom he was Articled. Mr. Dickson qualified as a Chartered Accountant in
1974 with the Institute of Chartered Accountants in England and Wales. Mr.
Dickson is a member of the Bermuda Institute of Chartered Accountants, Chartered
Institute of Marketing, and The Offshore Institute. He is a member of the
Institute of Chartered Accountants in England & Wales, Institute of Cost and
Executive Accountants, Association of Financial Controllers Managers and
Association of Business Executives. Mr. Dickson serves as Fellow of the
Institute of Chartered Accountants in England & Wales, Faculty of Corporate
Executive Secretaries, Institute of Directors, Faculty of Business Administrator
and Institute of Financial Accountants. Mr. Dickson earned his undergraduate
degree from Wrekin College, Shropshire, England in 1969.
Corporate Trustee
The Corporate Trustee of the Trust is Baron Capital Properties, Inc.
("Baron Properties"), a Delaware corporation formed in July 1997 and an
Affiliate of the Managing Shareholder. The primary duty of the Corporate Trustee
will be to operate an office in the State of Delaware as the Delaware Act
requires that at least one of the trustees of a Delaware business trust (such as
the Trust) have an office in Delaware. Legal title to Trust or Operating
Partnership Property will be in the name of the Trust or the Operating
Partnership, if possible, or Baron Properties as trustee. Baron Properties, as
Corporate Trustee of the Trust, will act only at the direction of the Managing
Shareholder, and will not take independent discretionary action on behalf of the
Trust. The Corporate Trustee will not be compensated for its services, but will
be reimbursed only for its reasonable out-of-pocket expenses in serving in such
capacity which are approved in advance by the Managing Shareholder. Such
expenses are expected to be limited to those incurred in connection with the
operation of its Delaware office. Baron Properties may be a trustee of other
similar entities that may organized by the Managing Shareholder, Baron Capital,
Inc., and any of their affiliates. The President, sole director and sole
stockholder of Baron Properties is Gregory K. McGrath. See " - Managing
Shareholder." The principal office of Baron Properties is at 1105 North Market
Street, Suite 1300, Wilmington, Delaware 19899. The Corporate Trustee is not
obligated to persons other than Shareholders for the obligations of the Trust.
See "SUMMARY OF THE DECLARATION."
THE TRUST AND THE OPERATING PARTNERSHIP
The Trust and the Operating Partnership constitute an affiliated real
estate company which has been organized to indirectly acquire equity interests
in residential apartment properties located in the United States and to provide
or acquire mortgage loans secured by such types of property. The Trust intends
to acquire, own, operate, manage and improve residential apartment property
interests for long-term ownership, and thereby to seek to maximize current and
long-term income and the value of its assets. See "INVESTMENT OBJECTIVES AND
POLICIES" below. The management of the Trust has been involved in the
residential apartment business for over 10 years.
The Trust and the Operating Partnership intend to make regular quarterly
distributions to their Shareholders and Unitholders of net income generated from
their investments. The Trust intends to operate as a real estate investment
trust (a "REIT") for federal income tax purposes, provided, however, that if the
Managing Shareholder (wholly owned and controlled, along with the Corporate
General Partner of each Exchange Partnership, by Mr. McGrath) determines, with
the affirmative vote of a Majority of Shareholders entitled to vote on such
matter approving the Managing Shareholder's determination, that it is no longer
in the best interests of the Trust to continue to qualify as a REIT, the
Managing Shareholder may revoke or otherwise terminate the Trust's REIT election
pursuant to applicable federal tax law.
The Operating Partnership
The operations of the Trust will be carried on through the Operating
Partnership (and any other subsidiaries the Trust may have in the future), among
other reasons, in order to (i) enhance the ability of the Trust to qualify as a
REIT under the Code, (ii) enable the Trust to indirectly acquire interests in
residential apartment properties in exchange transactions, such
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as the Exchange Offering, that involve the issuance of Units of limited
partnership interest in the Operating Partnership in exchange for limited
partnership interests in limited partnerships which own such property interests
and thereby provide an opportunity for the deferral until a later date of any
tax liabilities that sellers of partnership interests otherwise would incur if
they received cash or Common Shares in connection therewith. See "FEDERAL INCOME
TAX CONSIDERATIONS." Substantially all of the Trust's assets (including the
property interests acquired) will be held by, and its operations conducted
through, the Operating Partnership. As its sole General Partner, the Trust will
control the Operating Partnership as well as hold Units representing an economic
interest in the Operating Partnership. The Operating Partnership will be
responsible for, and pay when due, its share of all administrative and operating
expenses of properties in which it acquires an interest.
Net cash proceeds from the issuance of Common Shares of the Trust in
connection with the Cash Offering and net cash proceeds of any subsequent
issuance of Common Shares will be contributed by the Trust to the Operating
Partnership in exchange for an equivalent number of units of limited partnership
interest in the Operating Partnership ("Units"). The Operating Partnership will
use net cash proceeds of the Cash Offering, unissued Units or a combination of
net cash proceeds and unissued Units to acquire interests in residential
apartment properties or interests in other partnerships or entities
substantially all of whose assets consist of residential apartment property
interests. See " - Ownership of the Trust and the Operating Partnership."
In the Exchange Offering, the Operating Partnership is offering to issue
Units in exchange for units of limited partnership interest in limited
partnerships which directly or indirectly own equity and/or mortgage interests
in residential apartment properties. As its initial investment targets in the
Exchange Offering, the Operating Partnership will offer to acquire limited
partnership interests owned by individual limited partners in 23 real estate
limited partnerships (individually, an "Exchange Partnership" and collectively,
the "Exchange Partnerships") managed by Corporate General Partners affiliated
with the Managing Shareholder which directly or indirectly own equity and/or
Subordinated Mortgage interests in 26 residential apartment properties (the
"Exchange Properties"). The Exchange Properties are described in further detail
at "DESCRIPTION OF EXCHANGE PARTNERSHIPS," "INITIAL REAL ESTATE INVESTMENTS" and
Exhibit B hereto. If exchanges are consummated for all Exchange Partnership
Units in the partnerships in connection with the Exchange Offering, the
partnership interests acquired will have a purchase price totaling approximately
$24,980,606, comprised of Operating Partnership Units to be issued with an
initial assigned value in that amount. The property interests to be acquired
with the balance of the Operating Partnership Units to be offered in the
Exchange Offering have not yet been finally determined. The Trust intends to
investigate other investment opportunities for the Exchange Offering, including
interests held in additional properties by unaffiliated parties and by other
limited partnerships managed by affiliates of the Managing Shareholder. See also
"PRIOR PERFORMANCE BY AFFILIATES OF MANAGING SHAREHOLDER."
In the initial transactions of the Exchange Offering, the Operating
Partnership is offering to issue Operating Partnership Units to each individual
limited partner in an Exchange Partnership (individually, an "Exchange Limited
Partner" and collectively, the "Exchange Limited Partners") in exchange for his
respective limited partnership interest in the Exchange Partnership. The number
of Operating Partnership Units to be offered to each Exchange Limited Partner
for his interest in a given Exchange Partnership has been assigned an initial
value in the range of 103% to 169% of the amount of an Exchange Limited
Partner's original investment in the partnership. For such purpose, each
Operating Partnership Unit will be initially valued at $10.00, the same offering
price of each Trust Common Share offered in the Cash Offering. The value of
Units and Common Shares is substantially identical since holders of Operating
Partnership Units may exchange their Units into an equivalent number of Common
Shares at any time, subject to certain conditions described below. Any Exchange
Limited Partner who does not desire to participate in the Exchange Offering will
be entitled to retain his limited partnership interest in his partnership on
substantially the same terms and conditions as his original investment. As part
of the transaction, the Operating Partnership will either acquire the Corporate
General Partner's equity interest in each of the Exchange Partnerships involved
or the Board of the Trust will receive a management proxy. See "THE EXCHANGE
OFFERING."
The number of Units being offered by the Operating Partnership in the
Exchange Offering in respect of each Exchange Equity Partnership and each
Exchange Hybrid Partnership (to the extent of its direct or indirect equity
interest in the property) differs based upon the following factors: (a) the
estimated appraised market value of the underlying property determined by
qualified and licensed independent appraisal firms; (b) the operating history of
the property; (c) the current principal balance of first mortgage and other
indebtedness to which the property is subject; (d) the amount of distributable
cash flow currently being generated by the property; plus (e) additional factors
which the Managing Shareholder believes are appropriate to consider including,
among others, the property's overall current condition and prospects for the
property based upon improvements made or to be made to the property and, in
certain cases, the combination of two or more phases of the property, which are
expected to be owned upon completion of the Exchange Offering and the actual or
potential benefits to be obtained by the sub-metering of utilities in order to
pass costs from the owner of the property to individual tenants. The number of
Units being offered in respect of each of the Exchange Mortgage Partnerships and
each of the Exchange Hybrid Partnerships (to the extent of its mortgage
interests in properties and other debt interests) differs based upon the
following
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factors: (i) the current principal balance of the amount of debt which is senior
to the mortgage interest to be acquired and other indebtedness to which the
property is subject; (ii) the estimated appraised market value of the underlying
property determined by qualified and licensed independent appraisal firms; (iii)
the operating history of the property; (iv) the amount of distributable cash
flow currently being generated by the property; plus (v) additional factors
which the Managing Shareholder believes are appropriate to consider including,
among others, the property's overall current condition and prospects for the
property based upon improvements made or to be made to the property and, in
certain cases, the combination of two or more phases of the property, which are
expected to be owned upon completion of the Exchange Offering and the actual or
potential benefits to be obtained by the sub-metering of utilities in order to
pass costs from the owner of the property to individual tenants. Each Exchange
Property in which the Operating Partnership intends to acquire an interest has
been appraised by a qualified and licensed independent appraisal firm and each
additional property in which it intends to acquire an interest will be appraised
in advance. See " - Exchange Property Appraisals."
To facilitate the Exchange Offering, the Operating Partnership has
registered with the Commission 2,500,000 Units. Unitholders of the Operating
Partnership, including recipients of Units in the Exchange Offering, will be
entitled to exchange all or a portion of the Units held by them for an
equivalent number of Common Shares at any time and from time to time, so long as
the exchange would not cause the exchanging party to own (taking into account
certain ownership attribution rules) in excess of 5% of the then outstanding
Shares, subject to the Trust's right to cash out any holder of Units who
requests an exchange (at a price equal to the average of the daily market price
for the 10 consecutive trading days immediately preceding the date the Trust
receives the exchange notice, or, in the absence of a public trading market, at
a price determined in good faith by the Trust) and subject to certain other
exceptions. Therefore, in conjunction with the registration of the Common Shares
being offered in the Cash Offering, the Trust has registered 2,500,000 Common
Shares (in addition to the 2,500,000 Common Shares being offered in the Cash
Offering) for issuance to holders of Units who request the Trust to exchange
Units for Common Shares.
The Trust and the Operating Partnership intend to investigate making an
additional public or private offering of Common Shares and/or Units within the
12-month period following the commencement of the Exchange Offering if the
Managing Shareholder determines that suitable property acquisition opportunities
are available to the Trust at attractive prices and that such an offering would
fulfill its cost of funds requirements. The issuance by the Trust and the
Operating Partnership of additional Shares and Units subsequent to the
completion of the Cash Offering and the Exchange Offering could have a dilutive
effect on purchasers of Common Shares in the Cash Offering and Unitholders.
The Trust's ownership of Units in the Operating Partnership will entitle
it to share in cash distributions from, and in the profits and losses of, the
Operating Partnership. The Trust, in turn, will distribute such cash
distributions to the Shareholders of the Trust. The other Unitholders (i.e.,
other Limited Partners) of the Operating Partnership, including the Original
Investors and recipients of Units in the Exchange Offering, will own the
remaining economic interest in the Operating Partnership. Subject to certain
percentage limitations on ownership, Units may be transferred by Limited
Partners without restriction (other than Original Investors who are subject to
escrow restrictions described below), although the transferee may only be
admitted as a Unitholder with the consent of the Trust as General Partner. As
described below at " - Formation Transactions," the Original Investors have
entered into a security escrow agreement with the Trust under which they have
deposited into an escrow account with an institutional escrow agent for a period
of six to nine years (subject to their earlier release if the Trust meets
certain specified operating criteria) all Units issued to them in connection
with the formation of the Trust and the Operating Partnership. The effect of the
escrow arrangement is that, as long as their Units are held in the escrow
account, the Original Investors will not be able to cash out their investment in
the Operating Partnership by exchanging their Units into Common Shares and then
selling any Common Shares. As Unitholders exchange their Units for Common
Shares, the Trust's percentage interest in the Operating Partnership will
increase.
The Trust will contribute to the Operating Partnership the net proceeds
from the sale of Common Shares of the Trust in the Cash Offering and of any
other issuance of Common Shares in exchange for an equivalent number of Units.
The Trust will hold one Unit in the Operating Partnership for (i) each Common
Share that it sells in the Cash Offering, (ii) each Common Share that it issues
in exchange for a Unit at the request of a Unitholder, and (iii) each Unit it
elects to cash out in lieu of an exchange described in item (ii) above.
As the General Partner of the Operating Partnership, the Trust will have
the exclusive power under the Operating Partnership Agreement to manage and
conduct the business of the Operating Partnership. Baron Advisors, Inc., the
Trust's Managing Shareholder (wholly owned and controlled, along with the
Corporate General Partner of each Exchange Partnership, by Mr. McGrath), has
complete discretion in the day to day management and control of the Trust and
the Operating Partnership (subject to the general supervision and review by the
Independent Trustees and the Managing Shareholder acting together as the Board
of the Trust and subject to prior approval of the Board and the Independent
Trustees in respect of certain activities of the Trust and the Operating
Partnership). Gregory K. McGrath, the Chief Executive Officer
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of the Trust, the Operating Partnership and the Managing Shareholder, and Robert
S. Geiger, the Chief Operating Officer of the Trust, the Operating Partnership
and the Managing Shareholder, and James H. Bownas and Peter M. Dickson, the
initial Independent Trustees of the Trust, will make investment decisions for
the Trust. The Independent Trustees and the Managing Shareholder comprise all
the initial members of the Board of the Trust. The Operating Partnership will
terminate on December 31, 2098 unless terminated earlier in connection with a
merger or a sale of all or substantially all of the assets of the Operating
Partnership or upon a vote of the Partners or upon the occurrence of various
other events. The Operating Partnership will be responsible for, and pay when
due, its share of all administrative and operating expenses of property
interests it acquires.
Formation Transactions
Set forth below is a description of transactions relating to the formation
of the Trust and the Operating Partnership. Gregory K. McGrath and Robert S.
Geiger are the founders of the Trust and the Operating Partnership (the
"Original Investors"). Mr. McGrath serves as the Chief Executive Officer of the
Trust and the Operating Partnership and is the Chief Executive Officer, sole
shareholder and sole director of Baron Advisors, Inc., the Trust's Managing
Shareholder, which will manage the day to day operations of the Trust and the
Operating Partnership. McGrath is also the President, sole shareholder and sole
director of the corporate general partners of 51 real estate investment limited
partnerships, including the Exchange Partnerships, which since 1994 have
acquired interests in residential and commercial properties. See "MANAGEMENT"
and "PRIOR PERFORMANCE OF AFFILIATES OF MANAGING SHAREHOLDER." As described
below at "DESCRIPTION OF EXCHANGE PARTNERSHIPS," and "INITIAL REAL ESTATE
INVESTMENTS," certain of the prior partnerships, including the Exchange
Partnerships, own interests in properties which the Trust may acquire in
connection with the Exchange Offering. Mr. Geiger serves the Trust, the
Operating Partnership and the Managing Shareholder as their Chief Operating
Officer.
In connection with the formation of the Trust and the Operating
Partnership, Mr. McGrath and Mr. Geiger, the Original Investors, each subscribed
for 601,080 Units. In consideration for the Units subscribed for by them, the
Original Investors made a $100,000 capital contribution to the Operating
Partnership. If the Cash Offering and the Exchange Offering are fully
subscribed, the Units owned by each Original Investor would represent 9.5% of
the total Common Shares outstanding after completion of the Cash Offering by the
Trust and the Exchange Offering by the Operating Partnership of 2,500,000 of its
Units for units of limited partnership interest in real estate limited
partnerships (including any exchange completed pursuant to the Exchange
Offering), calculated on a fully diluted basis assuming all then outstanding
Units (other than those acquired by the Trust) have been exchanged into an
equivalent number of Common Shares. If, however, as of November 30, 1999, the
Cash Offering and/or the Exchange Offering has been completed and the number of
Units subscribed for by each Original Investor represents a percentage greater
than 9.5% of the then outstanding Common Shares, calculated on a fully diluted
basis assuming that all then outstanding Units (other than those acquired by the
Trust) have been exchanged into an equivalent number of Common Shares, each
Original Investor has agreed to return any excess Units to the Operating
Partnership for cancellation. As described further below, Mr. McGrath and Mr.
Geiger have deposited Units subscribed for by them into a security escrow
account for six to nine years, subject to earlier release under certain
conditions.
Under the subscription agreement, the Original Investors agreed to waive
future administrative fees for managing Participating Exchange Partnerships
(i.e., Exchange Partnerships whose limited partners holding at least 90% of the
limited partnership interests therein elect to accept the proposed Exchange
Offering); agreed to assign to the Operating Partnership the right to receive
all residual economic rights attributable to the general partner interests in
Participating Exchange Partnerships; and, in order to permit management of the
Exchange Properties by the Operating Partnership, caused the Exchange
Partnerships to cancel the partnerships' prior property management agreements
and agreed to forego the right to have a property management firm controlled by
the Original Investors assume the property management role in respect of
properties in which the Trust or the Operating Partnership invest.
As noted above, under a security escrow agreement with American Stock
Transfer & Trust Company ("ASTTC") (the transfer agent and registrar for the
Common Shares being offered in the Cash Offering and the Units being offered in
the Exchange Offering), the Original Investors have deposited into an escrow
account with ASTTC the Units issued to them in connection with the formation of
the Trust and the Operating Partnership. Under the agreement, 25% of the
escrowed Units may be released from the escrow account on the sixth, seventh,
eighth and ninth anniversary dates of the commencement of the Cash Offering,
provided that the escrowed Units may be released in their entirety earlier if
either (i) the Trust achieves annual net earnings per Common Share of at least
$.50 (i.e., 5% of the public offering price per share), after taxes and
excluding extraordinary items, for any consecutive two-year period following the
commencement of the Cash Offering, or (ii) the Trust achieves average annual net
earnings per share of at least $.50 (after taxes and excluding extraordinary
items) for any consecutive five-year period following the commencement of the
Cash Offering, or (iii) the Common Shares have traded on a national stock market
at a price per share of at least $17.50 (i.e., 175% of the public offering price
per share) for
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at least 90 consecutive trading days following the first anniversary of the
commencement of the Cash Offering (May 15, 1998). In addition, the Original
Investors' Units will be subject to the trading restrictions under Rule 144
issued under the Securities Act of 1933, as amended.
The effect of the escrow arrangement described above is that as long as
their Units are held in the escrow account, the Original Investors will not be
able to cash out their investment in the Operating Partnership by exchanging
their Units into Common Shares and then selling the Common Shares. The Original
Investors will retain any voting rights to which the escrowed Units (and/or
Common Shares into which escrowed Units have been exchanged) are entitled, as
long as the Units (and/or such Common Shares) are escrowed, provided that, until
November 30, 1999, each Original Investor may vote Units (and/or Common Shares)
owned by him and held in escrow which represent 9.5% of the then outstanding
Common Shares, calculated on a fully diluted basis assuming all then outstanding
Units (other than those acquired by the Trust) have been exchanged into an
equivalent number of Common Shares. While Units (and/or Common Shares) owned by
them are held in escrow, the Original Investors are entitled to receive
dividends and distributions based on the amount of such securities they may vote
at the time of such payments. Any dividends paid on the escrowed securities
(less amounts required to pay tax obligations of the Original Investors in
respect of the escrowed securities) will be held in the escrow account and
available for distribution of the assets of the Operating Partnership (such as
its dissolution, liquidation, merger or sale of substantially all of its assets)
to the extent that the other Shareholders and Unitholders otherwise would not
receive in connection with such transaction, distributions in an amount equal to
at least the initial public offering price of the Common Shares.
Assuming the Exchange Offering and the Cash Offering are completed in full
by November 30, 1999 under the terms currently contemplated and no other
transactions have taken place (including, without limitation, any additional
issuances of Common Shares or Units, any exchange of Units into Common Shares or
any exercise of Common Share purchase warrants to be issued to the Dealer
Manager and participating broker-dealers in connection with the Cash Offering),
immediately upon the completion of the offerings, Mr. McGrath and Mr. Geiger
would each own 601,080 Units of the Operating Partnership, representing
beneficial ownership of 9.5% of the Trust Common Shares. If the Cash Offering is
closed and all or a portion of the 2,500,000 Common Shares being offering
therein are sold prior to that closing, and the Exchange Offering is also
closed, but less than 2,500,000 Units are issued prior thereto, the Original
Investors would own a varying number of Units depending upon the actual number
of Common Shares sold in the Cash Offering and the number of Units issued in the
Exchange Offering, but their collective Common Share beneficial ownership
percentage would remain at 19%. See below at " - Ownership of the Trust and the
Operating Partnership."
Ownership of the Trust and the Operating Partnership
Set forth below is a description of the ownership of the Trust and the
Operating Partnership on a pro forma basis, assuming that the Cash Offering and
the Exchange Offering are completed in their entirety as contemplated herein and
that the Dealer Manager or other participating broker-dealer has not exercised
any Common Share warrants granted to it in connection with the Cash Offering and
that no Unitholders have exercised their right to exchange Units into Common
Shares. Immediately after the completion of the Cash Offering and the Exchange
Offering, there would be 2,625,000 Common Shares and 6,264,808 Units
outstanding. The purchasers of Common Shares in the Cash Offering would own
2,500,000 Common Shares, representing a 95.2% ownership interest in the Trust as
of the closing of the Cash Offering and the Exchange Offering. Broker-dealers
who earn commissions for their services in the Exchange Offering (a number of
Common Shares equal to 5% of the Units issued to Offerees as a result of their
efforts) would own the remaining 125,000, or 4.8%, of the outstanding Common
Shares. On a fully diluted basis assuming that all then outstanding Units (other
than those owned by the Trust) have been exchanged into an equivalent number of
Common Shares, the purchasers of Common Shares in the Cash Offering, recipients
of Units in the Exchange Offering, the Original Investors and broker-dealers who
provide services in the Exchange Offering would have a 39.5%, 39.5%, 19.0% and
2.0% beneficial ownership interest (i.e., have the right to vote or dispose of
such Common Shares or to acquire ownership of Common Shares in exchange for
Units) in the Trust, respectively.
The Trust will contribute net proceeds of the Cash Offering to the
Operating Partnership in exchange for up to 2,500,000 unregistered Units, and in
its capacity as General Partner of the Operating Partnership, the Trust will
also receive a 1% partnership interest in the Operating Partnership. Units held
by the Trust will not be exchangeable into Common Shares.
The two tables below reflect the pro forma allocation of Common Shares and
Units among the participants in the Cash Offering and the Exchange Offering. The
first table assumes the consummation in full of the Cash Offering by itself
without taking into account the Exchange Offering. The second table assumes the
consummation in full of the Cash Offering and the Exchange Offering.
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Cash Offering
-----------------------------------------
Ownership:
Managing Shareholder 0.0%
BARON CAPITAL TRUST Purchasers of Common
Shares in Cash Offering 100.0%
("TRUST")
-----------------------------------------
-----------------------------------------
General Partner
Baron Capital Trust 1.0%
BARON CAPITAL PROPERTIES, L.P. Limited Partners
Baron Capital Trust 80.2%
("OPERATING PARTNERSHIP") Original Investors 18.8%
------
Total 100.0%
-----------------------------------------
If the Trust sells all 2,500,000 Common Shares being offered in the Cash
Offering (gross proceeds of $25,000,000), and, assuming that the Dealer Manager
and participating broker-dealers have not exercised any Common Share warrants
granted to them in connection with the Cash Offering and that no transactions
are effected pursuant to the Exchange Offering, the following would result:
o The Trust would use net proceeds of the Cash Offering (up to
$21,500,000) (remaining after payment of commissions and
reimbursable offering expenses) to acquire 2,500,000 Units in the
Operating Partnership (80.2% of the then outstanding amount). The
Original Investors would own 18.8% of the then outstanding Units
(586,420 Units) and the Trust, in its capacity as general partner of
the Operating Partnership, would own the remaining 1% (31,176
Units).
o The purchasers of Common Shares in the Cash Offering would own 100%
of the equity interest in the Trust, which, in turn, would own an
80.2% limited partnership interest in the Operating Partnership.
(The Managing Shareholder owns 10 Common Shares.)
o The respective ownership percentage interests in the Trust and the
Operating Partnership would remain proportionately the same in the
event the Trust sells less than all Common Shares being offered in
the Cash Offering, even though there would be fewer outstanding
Common Shares and Units.
o The Operating Partnership would use the cash proceeds received from
the Trust to acquire property interests and for working capital and
other general business purposes. Until such time that the election
of the Trust to be treated as a REIT for federal income taxes is
revoked, said uses of the cash proceeds shall exclude the
acquisition of assets that are listed in Section 351(e)(1) of the
Code to the extent that such assets would cause the Operating
Partnership to own more than 78% of the assets that are listed in
Section 351(e)(1) of the Code. The purpose of this requirement is to
prevent the Operating Partnership from being treated as an
"investment company" for federal income tax purposes. "See FEDERAL
INCOME TAX CONSIDERATIONS - Transfer to an Investment Company."
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Cash Offering and Exchange Offering
------------------------------------
Ownership:
Managing Shareholder(1) 0.0%
BARON CAPITAL TRUST Purchasers of Common 95.2%
Shares in Cash Offering
("TRUST") Broker-dealers earning
commissions in Exchange 4.8%
Offering
------
Total 100.0%
------------------------------------
------------------------------------
General Partner
Baron Capital Trust 1.0%
BARON CAPITAL PROPERTIES, L.P. Limited Partners
Baron Capital Trust 39.9%
("OPERATING PARTNERSHIP") Recipients of Units
in Exchange Offering 39.9%
Original Investors 19.2%
------
Total 100.0%
------------------------------------
If the Trust sells all 2,500,000 Common Shares being offered in the Cash
Offering, and the Operating Partnership issues all 2,500,000 registered Units to
complete the Exchange Offering, the following would result:
o The Trust would use net proceeds of the Cash Offering (up to
$21,500,000) (remaining after payment of commissions and
reimbursable offering expenses) to acquire 2,500,000 Units in the
Operating Partnership.
o The Operating Partnership would (i) issue all 2,500,000 registered
Units to individual limited partners of Exchange Partnerships which
directly or indirectly own property interests in exchange for their
limited partnership interests and (ii) acquire additional property
interests with the cash proceeds received from the Trust.
o Each broker-dealer who assists the Operating Partnership in
consummating the Exchange Offering with individual Offerees who
accept the offering will be paid as a commission a number of
unregistered Common Shares of the Trust in an amount equal to 5% of
the number of Operating Partnership Units exchanged in the
respective transactions.
- ----------
(1) Owns 10 Common Shares.
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o Assuming no Unitholders have exercised their right to exchange their
Units for an equivalent number of Common Shares, the purchasers of
Common Shares in the Cash Offering and broker-dealers providing
services in the Exchange Offering would own 95.2% and 4.8%,
respectively, of the equity interest in the Trust, and Unitholders
of the Operating Partnership would own limited partnership interests
in the Operating Partnership as follows:
Number Percentage
of Units Interest
-------- --------
Limited Partners
- ----------------
Baron Capital Trust (as limited partner) 2,500,000 39.9%
Recipients of Units in Exchange Offering 2,500,000 39.9%
Original Investors 1,202,160 19.2%
Baron Capital Trust (as general partner) 62,648 1.0%
--------- -----
Total: 6,264,808 100.0%
Beneficial ownership of the Common Shares of the Trust would be held as
follows:
Number of Common Shares Percentage
Beneficial Owners Beneficially Owned Interest
- ----------------- ------------------ --------
Managing Shareholder 10 0.0%
Purchasers of Common Shares in Cash 2,500,000 39.5%
Offering
Recipients of Units in Exchange Offering 2,500,000 39.5%
Original Investors 1,202,160 19.0%
Broker-dealers earning commissions in
Exchange Offering 125,000 2.0%
--------- -----
Total: 6,327,170 100.0%
If the Cash Offering is closed and all or a portion of the 2,500,000
Common Shares being offering therein are sold prior to that closing, and the
Exchange Offering is also closed, but less than 2,500,000 Units are issued prior
thereto, the purchasers of Common Shares in the Cash Offering and broker-dealers
providing services in the Exchange Offering would still together hold 100% of
the then outstanding Common Shares of the Trust (but in varying percentages
between them, depending upon the number of Units issued), and the Trust and the
recipients of Units in the Exchange Offering would own varying numbers and
percentages of the then outstanding Units, depending upon how many Common Shares
and Units were issued in connection with the respective offerings. The Original
Investors collectively would own a varying number of Units, but their collective
Common Share beneficial ownership percentage would remain at 19%. In addition,
over time as Unitholders exercise their rights to exchange Units for an
equivalent number of Common Shares: (i) the number of outstanding Common Shares
would increase, resulting in changing percentages of ownership among
Shareholders, and (ii) the number of outstanding Units would decrease, resulting
in changing percentages of ownership among Unitholders. However, such exchanges
would not affect the beneficial ownership percentage interests of any
Shareholder or Unitholder.
Regulations
General. Residential apartment communities are subject to various laws,
ordinances and regulations, including regulations relating to recreational
facilities such as swimming pools, activity centers and other common areas. The
Trust will use its best efforts to provide that each property in which it
acquires an interest has the necessary permits and approvals to operate its
business.
Fair Housing Amendments of 1988. The FHA requires residential apartment
communities first occupied after March 13, 1990 to be accessible to the
handicapped. Noncompliance with the FHA could result in the imposition of fines
or an award of damages to private litigants. The Trust will use its best efforts
to provide that properties subject to the FHA in which it acquires an interest
are in compliance with such law.
Americans with Disabilities Act ("ADA"). Properties in which the Trust
acquires an interest must comply with Title III of the ADA to the extent that
such properties are "public accommodations" and/or "commercial facilities" as
defined by the ADA. Compliance with the ADA requirements could require removal
of structural barriers to handicapped access in certain public areas of
properties where such removal is readily achievable. The ADA does not, however,
consider
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residential properties, such as apartment communities, to be public
accommodations, except to the extent portions of such facilities, such as a
leasing office, are open to the public. The Trust will use its best efforts to
provide that properties in which it acquires an interest comply with all present
requirements under the ADA and applicable state laws. Noncompliance could result
in imposition of injunctive relief, fines or an award of damages. If required
changes involve a greater expenditure than the Trust might anticipate, or if
changes must be made on a more accelerated basis than it might anticipate, the
ability of the Trust and the Operating Partnership to make expected
distributions to Shareholders and Unitholders, respectively, could be adversely
affected. The Trust believes that its competitors would face similar costs to
comply with the requirements of the ADA.
Environmental Regulations. The Trust is subject to Federal, state, and
local environmental regulations that apply to the development of real property,
including construction activities, the ownership of real property, and the
operation of multifamily apartment communities.
The Comprehensive Environmental Response, Compensation and Liability Act,
42 U.S.C. 9601, et seq. ("CERCLA"), and applicable state Superfund laws subject
the owner of real property to claims or liability for the costs of removal or
remediation of hazardous substances that are disposed of on real property in
amounts that require removal or remediation. Liability under CERCLA and
applicable state Superfund laws can be imposed on the owner of real property or
the operator of a facility without regard to fault or even knowledge of the
disposal of hazardous substances on the property or at the facility. The
presence of hazardous substances in amounts requiring response action or the
failure to undertake remediation where it is necessary may adversely affect an
owner's ability to sell real estate or borrow money using such real estate as
collateral. In addition to claims for cleanup costs, the presence of hazardous
substances on a property could result in a claim by a private party for personal
injury or a claim by an adjacent property owner for property damage.
The Trust, where required, intends to retain a qualified environmental
consultant to conduct an environmental investigation of each property that it
considers for investment. If there is any indication of contamination, sampling
of the property will be performed by the environmental consultant. The
environmental investigation report will be reviewed by the Trust and counsel
prior to purchase of an interest in any property.
Rent Control Legislation. Although none currently are applicable to any of
the properties in which the Trust and the Operating Partnership are
contemplating an investment, state and local rent control laws in certain
jurisdictions limit a property owner's ability to increase rents and to cover
increases in operating expenses and the costs of capital improvements. Enactment
of such laws has been considered from time to time in other jurisdictions. The
Trust does not presently intend to acquire interests in residential apartment
properties in markets that are either subject to rent control or in which rent
limiting legislation exists.
Employees
The Trust and the Operating Partnership initially expect to employ a total
of approximately 20 employees. The number of employees they will hire will
depend upon the amount of net proceeds raised in the Cash Offering and the
results of the Exchange Offering.
INVESTMENT OBJECTIVES AND POLICIES
General
The Trust and the Operating Partnership have been organized to acquire
equity interests in residential apartment properties located in the United
States and/or to provide or acquire mortgage loans secured by such types of
property. Such investments are expected to consist primarily of: (i) the direct
and indirect acquisition, ownership, operation, management, improvement and
disposition of equity interests in such types of properties and/or (ii) Mortgage
Loans which the Trust and the Operating Partnership provide or acquire which are
secured by mortgages on such types of properties. The Managing Shareholder
(wholly owned and controlled, along with the Corporate General Partner of each
Exchange Partnership, by Mr. McGrath) expects that the proposed investments will
(1) generate current cash flow for distribution to Shareholders and Unitholders
from rental payments from the rental of residential apartment units which the
Trust and the Operating Partnership may acquire and/or principal and interest
payments in respect of Mortgage Loans which the Trust and the Operating
Partnership may provide or acquire and (2), where applicable, provide the
opportunity for capital appreciation of residential apartment properties. The
Trust and the Operating Partnership intend to pay regular quarterly
distributions to the Shareholders and the Unitholders. Properties in which the
Trust and the Operating Partnership acquire an interest are expected to use the
straight-line method of depreciation over 30 years.
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The management of the Trust and the Operating Partnership has been
involved in the residential property business for over 10 years and has
extensive experience and presence in the residential property business which
have enabled it to form key alliances and working relationships with owners of
residential apartment properties and financial institutions.
The Trust and the Operating Partnership intend to acquire, own, operate,
manage, and improve residential apartment property interests for long-term
ownership, and thereby to seek to maximize current and long-term income and the
value of its assets. The strategy of the Trust and the Operating Partnership is
to pursue acquisitions of interests in properties that (i) are available at
prices below estimated replacement cost; (ii) may provide attractive returns
with significant potential growth in cash flow from property operations; (iii)
are strategically located, of high quality and competitive in their respective
markets; (iv) have been under-managed or are otherwise capable of improved
performance through intensive management and leasing that will result in
increased occupancy and rental revenues, and (v) provide anticipated total
returns that will increase distributions by the Trust and the Operating
Partnership and their overall market value. The Trust will make investments in
properties indirectly through the Operating Partnership in which it will hold
all of its real estate assets and conduct all real estate operations. Unless the
context otherwise requires, the term "Trust" as used herein shall collectively
refer to Baron Capital Trust and the Operating Partnership.
The primary business objective of the Trust is to increase distributions
to Shareholders and Unitholders and to increase the value of the Trust's
portfolio of properties in which it acquires an interest. The Trust intends to
achieve these objectives by:
(i) Acquiring interests in residential apartment properties located in the
United States that are available at prices below estimated replacement cost and
capable of enhanced performance, both in terms of cash flow and investment
value, through application of the Trust's management ability and strategic
capital improvements;
(ii) Acquiring Mortgage Loans, including Subordinated Mortgage Loans
secured by Mortgages on existing residential apartment properties located in the
United States;
(iii) Increasing cash flow of the Trust's property interests through
active leasing, rent increases, improvement in tenant retention, expense
controls, effective property management, and regular maintenance and periodic
renovations, including additions to amenities;
(iv) Managing operating expenses through the use of affiliated leasing,
marketing, financing, accounting, legal, and data processing functions; and
(v) Emphasizing capital improvements to enhance the Trust's competitive
advantages in its markets.
The Trust and the Operating Partnership intend to provide or acquire
Subordinated Mortgage Loans which provide for the payment of a fixed or
adjustable rate of interest plus, in certain cases, participation interest that
is payable out of available cash flow remaining after the payment of operating
expenses and debt service requirements and/or out of net proceeds from the sale
or refinancing of such property remaining after the payment of transaction
expenses and indebtedness secured by such property. The repayment of such loans
would be secured by a Subordinated Mortgage on the underlying property. The
Trust will not provide or acquire mortgage loans in respect of any property
where the amount invested by the Trust or the Operating Partnership plus the
amount of any existing indebtedness in respect of such property exceeds 80% of
the property's estimated replacement cost new unless substantial justification
exists.
The Exchange Partnerships which are the initial targets of the Exchange
Offering collectively manage the properties in which they have an interest and
share property management expenses. Other properties in which the Trust acquires
an interest will be similarly managed.
After the Trust has invested net proceeds of the Cash Offering and
completed the Exchange Offering, it intends to utilize one or more sources of
capital for future acquisitions and capital improvements, which may include
undistributed cash flow, borrowings, issuance of debt or equity securities and
other bank and/or institutional borrowings. The Trust intends to investigate
making an additional public or private offering of Common Shares and/or Units
within the 12-month period following the commencement of the Exchange Offering
if the Board of the Trust determines that suitable property acquisition
opportunities which meet its investment criteria are available to the Trust at
attractive prices and such an offering would fulfill its cost of funds
requirements. There can be no assurance, however, that the Trust will be able to
obtain capital for any such acquisitions or improvements on terms favorable to
the Trust.
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The Trust qualified as a REIT for federal income tax purposes beginning
with its taxable year ending December 31, 1998. See "TAX STATUS OF THE TRUST"
and "FEDERAL INCOME TAX CONSIDERATIONS - Taxation of the Trust."
Trust Policies with Respect to Certain Activities
The following is a discussion of the Trust's policies with respect to
investments, dispositions, financings, and conflicts of interest. These policies
have been determined by the Trust's Managing Shareholder (wholly owned and
controlled, along with the Corporate General Partner of each Exchange
Partnership, by Mr. McGrath) and under the Declaration of Trust may be amended
or revised from time to time at the discretion of the Board with approval of a
majority in interest of the Shareholders entitled to vote on such matters. The
Declaration of Trust contains certain additional limitations on the Trust's
activities. See "SUMMARY OF THE DECLARATION OF TRUST - Control of Operations"
and Section 1.9 of the Declaration.
At all times, the Trust intends to make investments and conduct its
operations in such a manner as to be consistent with the requirements of the
Code for the Trust to qualify as a REIT unless, because of changing
circumstances or changes in the Code (or in Treasury Regulations), the Managing
Shareholder, with the consent of a majority of the Shareholders entitled to vote
on such matter approving the Managing Shareholder's determination, determines
that it is no longer in the best interests of the Trust to qualify as a REIT. No
assurance can be given that the Trust's objectives will be attained.
Investment Policies
The Trust's investment objective is to provide quarterly cash
distributions and achieve long-term appreciation through increases in cash flows
and the value of its property interests. The Trust intends to pursue these
objectives by directly or indirectly acquiring equity interests in residential
apartment properties located in the United States and/or providing or acquiring
Mortgage Loans and other real estate interests related to such types of
properties consistent with its qualification as a REIT. The Trust may invest in
First Mortgage Loans or Subordinated Mortgage Loans and participating or
convertible mortgages if it concludes that it may benefit from the cash flow or
any appreciation in the value of the subject property. Such mortgages are
similar to equity participation. The Trust may also retain a purchase money
mortgage for a portion of the sale price in connection with the disposition of
properties from time to time.
Subject to the percentage of ownership limitations and gross income tests
necessary for REIT qualification, the Trust also may invest in securities of
entities engaged in real estate activities or securities of other issuers,
including for the purpose of exercising control over such entities. See "FEDERAL
INCOME TAX CONSIDERATIONS - Taxation of the Trust." The Trust may acquire all or
substantially all of the securities or assets of other REITs or similar entities
where such investments would be consistent with the Trust's investment policies.
The Trust will not make an equity investment in respect of any property
where the amount invested by it plus the amount of any existing indebtedness or
refinancing indebtedness in respect of such property exceeds the appraised value
of the property. In addition, the Trust will not provide or acquire debt
financing in respect of any property where the amount invested by the Trust plus
the amount of any existing indebtedness in respect of such property exceeds 80%
of the property's estimated replacement cost new as determined by the Managing
Shareholder unless substantial justification exists. Repayment of any Mortgage
Loans provided or acquired by the Trust would typically be secured by a Mortgage
on the land, apartment units, and other improvements financed by the Trust and
be non-recourse to the borrower beyond the underlying property and/or other
assets of the borrower. It is expected that in most cases where it will provide
or acquire a loan, the Trust will provide or acquire a Subordinated Mortgage
Loan that is subordinate to a large-scale First Mortgage Loan provided by a
lending institution. In certain cases, Mortgage Loans provided or acquired by
the Trust may be in the form of First Mortgage Loans.
Subordinated Mortgages securing Subordinated Mortgage Loans to be provided
or acquired by the Trust may or may not be recorded. If any Subordinated
Mortgage in favor of the Trust is not recorded, the Trust's security interest in
the Mortgage would be unperfected and, until the Subordinated Mortgage is
recorded, the Trust would be pari passu (i.e., on an equal basis) with all other
unsecured creditors of the borrower, provided, however, the security instruments
that will be entered into in connection with Mortgage Loans to be provided or
acquired by the Trust will typically restrict the borrower's ability to enter
into a subsequent loan arrangement with third parties which would be senior to
or pari passu with (i.e., equal to) the Mortgage held by the Trust. Non-payment
of any Subordinated Mortgage Loan that may be provided or acquired by the Trust
may constitute an event of default by the borrower under the underlying Senior
Mortgage Loan, and such Senior Mortgage Loan may have to be repaid by the
borrower before Shareholders in the Trust will receive any return on their
investment.
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The Board of the Trust has adopted a policy, described below at " -
Conflicts of Interest Policy," designed to eliminate or minimize potential
conflicts of interest which may arise in respect of any residential apartment
property investment opportunity which an Independent Trustee, any other member
of the Board, an Original Investor or any of their respective affiliates may
wish to pursue for his own account and which might be suitable for the Trust and
the Operating Partnership. Such an opportunity may be pursued only if the Board
is first given a right of first refusal to participate in the investment in
place of the requesting party on the same terms and conditions as originally
proposed and, in addition, either a majority of the disinterested members of the
Board determine that the Trust and the Operating Partnership will not exercise
the right or they fail to respond to the requesting party's proposal within a
specified period.
The Trust will obtain and maintain insurance coverage on property in which
it acquires an equity interest (and, prior to providing or acquiring any
Mortgage Loan in respect of a property, will be listed as an additional insured
or loss payee in respect of such property), protecting against casualty loss up
to replacement cost (with a deductible per loss ranging between $1,000 and
$5,000 except in the case of flood and hurricane damage where the deductible
ranges between 1% to 2% per loss), and against public liability in an amount
that is reasonable taking into account the market value of the property at the
time insurance is obtained. There can be no assurance, however, that the Trust's
property interest would not sustain losses in excess of its applicable insurance
coverage, and it could sustain losses as a result of risks which are
uninsurable. There are certain types of losses (generally of a catastrophic
nature, such as earthquakes, floods and wars) which may be either uninsurable or
not economically insurable. Should such a loss occur, the Trust could lose its
invested capital in the property interest. In that case, the Shareholders and
Unitholders could suffer a complete loss of their investment in the Trust.
Pending the commitment of Trust and Operating Partnership funds for the
purposes described in this Prospectus, for distributions to Shareholders and
Unitholders or for application of reserve funds to their purposes, the Managing
Shareholder (wholly owned and controlled, along with the Corporate General
Partner of each Exchange Partnership, by Mr. McGrath) has full authority and
discretion to make short-term investments in: (i) obligations of banks or
savings and loan associations that either have assets in excess of $5 billion or
are insured in their entirety by the United States government or its agencies
and (ii) obligations of or guaranteed by the United States government or its
agencies. Such short-term investments would be expected to earn rates of return
which are lower than those earned in respect of properties in which the Trust
may invest.
The Trust intends to make investments in such a manner that it will not be
treated as an investment company under the Investment Company Act of 1940.
Disposition Policies
The Managing Shareholder will periodically review the portfolio of assets
which the Trust acquires. The Trust has no current intention to dispose of any
property interests it may acquire, although it reserves the right to do so.
Disposition decisions relating to a particular property will be made based on
(but not limited to) the following factors: (i) potential to continue to
increase cash flow and value; (ii) the sale price; (iii) strategic fit of the
property with the rest of the Trust's portfolio; (iv) potential for, or the
existence of, any environmental or regulatory problems; (v) alternative uses of
capital; and (vi) maintaining qualification as a REIT. Any decision to dispose
of a property will be made by the Managing Shareholder. The prohibitions in the
Code and related regulations on a REIT holding property for sale may affect the
Trust's ability to sell properties without adversely affecting distributions to
Shareholders and Unitholders. See "FEDERAL INCOME TAX CONSIDERATIONS - Taxation
of the Trust."
Financing Policies
The Trust will have the right to borrow funds, and use the Trust's
available assets as security for any such loan, if the Trust's cash requirements
exceed its available cash. Under the Declaration of the Trust, the aggregate
borrowings of the Trust in relation to its net assets may not exceed 300%,
except where the Trust determines that a higher level of borrowing is
appropriate. It is expected that each property in which the Trust invests will
secure a First Mortgage Loan. The principal balance of any such First Mortgage
Loan typically would represent a substantial percentage of the Trust's basis in
any property in which the Trust owns an equity interest.
To the extent that the Managing Shareholder desires that the Trust obtain
additional capital, the Trust may raise such capital through additional public
and private equity offerings, debt financing, retention of cash flow (subject to
satisfying the Trust's distribution requirements under the REIT rules) or a
combination of these methods. The Trust may determine to issue securities senior
to the Common Shares, including Preferred Shares and debt securities (either of
which may be convertible into Common Shares or be accompanied by warrants to
purchase Common Shares). The Trust may also finance acquisitions of properties
or interests in properties through the exchange of properties, the issuance of
Shares, or the issuance of Units of
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limited partnership interest in the Operating Partnership and any other
partnerships the Trust may form or acquire an equity interest in to conduct all
or a portion of its real estate operations.
The proceeds from any borrowings by the Trust may be used to pay
distributions, to provide working capital, to purchase additional interests in
the Operating Partnership, to refinance existing indebtedness or to finance
acquisitions or capital improvements of new properties.
Conflict of Interest Policies
The Trust has adopted certain policies designed to eliminate or minimize
potential conflicts of interest, as described below. However, there can be no
assurance that these policies always will be successful in eliminating the
influences of such conflicts, and if they are not successful, decisions could be
made that might fail to reflect the interests of all Shareholders and
Unitholders.
The Managing Shareholder (wholly owned and controlled, along with the
Corporate General Partner of each Exchange Partnership, by Mr. McGrath) will
have discretion in day to day management and control of the affairs of the Trust
and the Operating Partnership, subject to (i) general supervision and review by
the Independent Trustees and the Managing Shareholder acting together as the
Board of the Trust and (ii) prior approval authority of a majority of the Board
and/or of a majority of the Independent Trustees in respect of certain actions
of the Trust and the Operating Partnership. The Declaration of the Trust
requires that a majority of the Board of the Trust be comprised of Independent
Trustees not affiliated with the Managing Shareholder or its affiliates.
Actions of the Trust and the Operating Partnership requiring approval of
the Board and/or the Independent Trustees include, without limitation, the
payment of compensation to the Managing Shareholder, a Trustee, any other member
of the Board of the Trust or any of their respective affiliates in amounts in
excess of certain specified limits for services performed for the Trust, and the
acquisition of properties from, or the sale of properties to, any such parties.
For example, the Trust may not purchase property from the Managing Shareholder,
a Trustee, any other member of the Board or any of their respective affiliates
unless a majority of the members of the Board and, in addition, a majority of
the Independent Trustees who have no other interest in the particular proposed
transaction (beyond their role on the Board or as Independent Trustees) review
the proposed transaction and determine that it is fair and reasonable to the
Trust and that the purchase price to the Trust for such property is no greater
than the cost of the property to such proposed seller, or if the purchase price
to the Trust is in excess of such cost, that substantial justification for such
excess exists and such excess is reasonable, provided, however, in no event may
the purchase price for the property exceed its then current appraised value. As
of the date of this Prospectus, other than as described herein, the Trust does
not contemplate using any substantial portion of the net proceeds of the Cash
Offering to acquire property interests from the Managing Shareholder, any
Trustee or any other member of the Board of the Trust or any of their respective
affiliates.
The Board of the Trust has adopted a policy designed to eliminate or
minimize potential conflicts of interests which may arise in respect of
investment opportunities suitable for the Trust and the Operating Partnership
which may be presented to the Managing Shareholder, an Independent Trustee, any
other member of the Board, an Original Investor or any of their respective
affiliates. Under the policy, such parties may pursue for their own account a
residential apartment property investment opportunity which may be suitable for
the Trust and the Operating Partnership (i.e., in accordance with the purposes
for which they were organized) only upon fulfillment of the following
conditions. First, the requesting party or parties must deliver to the Board of
the Trust, at least 60 days prior to the consummation of any such transaction, a
written investment proposal identifying the parties to be involved in such
transaction, specifying in reasonable detail the proposed terms and conditions
of the particular investment opportunity intended to be pursued and granting the
Trust and the Operating Partnership a right of first refusal, exercisable within
30 days following the delivery of such proposal, to participate in the proposed
transaction in the place of the requesting party or parties, on the terms and
conditions specified in the written proposal.
In addition, the requesting party or parties either (i) must receive
written notice from a majority of the disinterested members of the Board (i.e.,
those persons who have no other interest in any such transaction beyond their
role on the Board), or an authorized representative acting on their behalf,
which specifies that the Trust and the Operating Partnership have determined not
to participate in the proposed transaction or (y) must have not received from
the disinterested members of the Board, or an authorized representative acting
on their behalf, written notice, within 30 days following the receipt of such
written proposal, which notifies the requesting party or parties that the Trust
or the Operating Partnership elect to exercise their right of first refusal to
participate in the proposed transaction on the terms and conditions specified in
the written proposal. The Board of the Trust and the Independent Trustees are
responsible for overseeing the conflicts policy under the circumstances
described above to insure that it is applied fairly to the Trust. However, there
can be no assurance that the
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policies of the Trust and the Operating Partnership will always be successful in
eliminating or minimizing the influence of such conflicts, and, if they are not
successful, decisions could be made that might fail to reflect fully the
interests of all Shareholders and Unitholders.
For a more detailed description of Trust and Operating Partnership actions
requiring approval of the Board and/or the Independent Trustees, see "SUMMARY OF
DECLARATION OF TRUST - Control of Operations."
INITIAL REAL ESTATE INVESTMENTS
The Acquired Properties
Set forth below is a description of the Operating Partnership's
acquisition between June and November 1998 of beneficial ownership of 67-unit,
80-unit, 50-unit and a 37.2% limited partnership interest in a 168-unit
residential apartment properties located in Orlando, Lakeland and New Smyrna
Beach, Florida, and Alexandria, Kentucky, respectively, and a limited
partnership interest in 13 real estate partnerships managed by affiliates of the
Managing Shareholder, including certain of the Exchange Partnerships, which own
direct or indirect equity or debt interests in residential apartment properties
(less than 4% in each case). The investments were made using net proceeds of the
Trust's Cash Offering. Also described is a purchase agreement recently entered
into by the Trust under which the Trust, subject to certain conditions, will
acquire two residential apartment properties (totaling 652 units) under
development in Burlington and Louisville, Kentucky upon completion of
construction.
Heatherwood Apartments
In June 1998, the Operating Partnership acquired the entire limited
partnership interest in Heatherwood Kissimmee, Ltd., a Florida limited
partnership (the "Heatherwood Partnership") which owns fee simple title to a
67-unit residential apartment property referred to as the Heatherwood Apartments
- - Phase I (the "Heatherwood Property") located at 1005 Airport Road in
Kissimmee, Florida 32741. Set forth below is certain information describing the
property, first mortgage financing to which the property is subject and the
acquisition by the Operating Partnership of beneficial ownership of the
property.
The Heatherwood Property, completed in 1981, consists of 17 studio/one
bathroom units, 45 one bedroom/one bathroom units, and five two bedroom/one
bathroom units. The property is situated on approximately 2.26 acres and has
approximately 35,136 square feet of rentable area. The average unit size of the
studio, one bedroom and two bedroom units is approximately 288, 576 and 864
square feet, respectively. The average monthly rental rate as of April 1, 1999
for each type of unit is approximately $395, $495 and $625, respectively, or
$1.37, $.86 and $.72 per square foot, respectively. The units were approximately
94% occupied as of April 1, 1999. The average monthly occupancy rates for 1994,
1995, 1996, 1997 and 1998 were approximately 91%, 88%, 93%, 97% and 94%,
respectively.
The Operating Partnership acquired the entire limited partnership interest
in the Heatherwood Partnership from an unaffiliated third party, Rylex Capital,
L.L.C., a Florida limited liability company, for a purchase price of $830,000.
The purchase price was determined by the parties in an arm's-length negotiation.
The Heatherwood Property is subject to first mortgage financing with a current
principal balance of approximately $1,239,000. The mortgage is held by GMAC
Commercial Mortgage Corp. The maturity date of the first mortgage loan is
December 2004. Assuming no prepayments of principal, the balance that will be
due at maturity is approximately $1,083,553. The monthly debt service payments
are $8,847, or an annual amount of $106,164. The loan bears a fixed interest
rate of 7.625% and amortizes on a 30-year basis. The loan is prepayable with a
prepayment fee equal to 1% of the then outstanding principal balance.
In March 1998, prior to completion of the acquisition, the property was
appraised by Consortium Appraisal, Inc., an independent appraisal firm in Winter
Park, Florida which estimated the market value of the property at $2,075,000.
The methods employed in appraising the property are discussed at "THE EXCHANGE
OFFERING - Exchange Property Appraisals." The Trust and the Operating
Partnership were not responsible for the payment of any fees or expenses for the
appraisal. The acquisition was unanimously approved in advance by the Board of
the Trust.
Crystal Court Apartments
In July 1998, the Operating Partnership acquired the entire limited
partnership interest in Crystal Court Apartments II, Ltd., a Florida limited
partnership (the "Crystal Court Partnership") which owns fee simple title to an
80-unit residential apartment property referred to as Crystal Court Apartments -
Phase II (the "Crystal Court Property") located in Lakeland,
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Florida. Set forth below is certain information describing the property, first
mortgage financing to which the property is subject and the acquisition by the
Operating Partnership of beneficial ownership of the property.
The Crystal Court Property, completed in 1986, consists of 20 studio/one
bathroom units, 54 one bedroom/one bathroom units, and six two bedroom/one
bathroom units. The property is situated on approximately 6.8 acres and has
approximately 42,048 square feet of rentable area. The average unit size of the
studio, one bedroom and two bedroom units is approximately 288, 576 and 864
square feet, respectively. The average monthly rental rate as of April 1, 1999
for each type of unit is approximately $309, $389 and $504, respectively, or
$1.07, $.68 and $.58 per square foot, respectively. The units were approximately
96% occupied as of April 1, 1999. The average monthly occupancy rates for 1994,
1995, 1996, 1997 and 1998 were approximately 91%, 91%, 90%, 95% and 91%,
respectively.
The Operating Partnership acquired the entire limited partnership interest
in the Crystal Court Partnership from an unaffiliated third party, Rylex
Capital, L.L.C., a Florida limited liability company, for a purchase price of
$704,000. The purchase price was determined by the parties in an arm's-length
negotiation. The Crystal Court Property is subject to first mortgage financing
with a current principal balance of approximately $1,494,000. The mortgage is
held by GMAC Commercial Mortgage Corp. The maturity date of the first mortgage
loan is October 2004. Assuming no prepayments of principal, the balance that
will be due at maturity is approximately $1,366,490. The monthly debt service
payments are $10,446, or an annual amount of $125,355. The loan bears a fixed
interest rate of 7.5% and amortizes on a 30-year basis. The loan is prepayable
with a prepayment fee equal to 1% of the then outstanding principal balance.
In June 1998, prior to completion of the acquisition, the property was
appraised by Consortium Appraisal, Inc., an independent appraisal firm which
estimated the market value of the property at $2,170,000. The Trust and the
Operating Partnership were not responsible for the payment of any fees and
expenses for the appraisal. The acquisition was unanimously approved in advance
by the Board of the Trust.
Riverwalk Apartments
In September 1998, the Operating Partnership acquired the entire limited
partnership interest in Riverwalk Enterprises, Ltd., a Florida limited
partnership ("Riverwalk"), which owns fee simple title to a 50-unit residential
apartment property located at 47 Jacaranda Cay Court, New Smyrna Beach, Florida
32169 (the "Riverwalk Property"). Simultaneously, an affiliate of the Operating
Partnership, Riverwalk, LC, a Florida limited liability company, acquired the
general partnership interest in Riverwalk. Riverwalk, LC was organized for the
express purpose of acquiring such general partnership interest. Gregory K.
McGrath, the Chief Executive Officer of the Operating Partnership and the Trust,
is the manager of Riverwalk, LC. The Operating Partnership owns 99% of the
membership interests in Riverwalk, LC. The remaining 1% membership interest is
nominally held by the Managing Shareholder of the Trust, as agent for the
Operating Partnership.
The Riverwalk Property, completed in 1986, consists of 50 two bedroom
units. Forty-five units have two bathrooms and five have one bathroom. The
property is located directly on the intracoastal waterway and was originally
built for condominium sale. The Operating Partnership will operate the property
as a rental community for the indefinite future. As of April 1, 1999, the
property was 96% occupied. The average year to date occupancy has been 98%. The
average monthly rental rate as of April 1, 1999 is approximately $565 for a one
bath unit and $605 for a two bath unit. The average monthly occupancy for 1998
was 98%. The property has 51,024 square feet of rentable space, or approximately
1,020 square feet per unit. The current rent per square foot is approximately
$.55.
The Operating Partnership acquired the Riverwalk limited partnership
interests from 12 unaffiliated individuals. Riverwalk, LC acquired the Riverwalk
general partnership interest for a purchase price of approximately $700,000 from
Riverwalk Enterprises, Inc., whose principal was Michael Green. Mr. Green is not
affiliated with the Trust or the Operating Partnership. The sale was subject to
a first mortgage of approximately $1,330,000, held by TMG Life Insurance
Company. The mortgage matures in November 2004 and has a current interest rate
of 8.75%. The holder of the first mortgage has a right to adjust the rate in
October 1999 for the remaining five years of the loan, to a rate equal to 200
basis points above the then current rate for five-year treasury notes. The
current principal balance is approximately $1,323,000. Assuming no prepayments
of principal, the balance that will be due at maturity is approximately
$1,151,636. The monthly debt service payments are $11,626, or an annual amount
of $139,510. Prepayment is permitted at any time, subject however to a yield
maintenance termination fee calculated in accordance with the terms of the loan.
The total cost of the acquisition to the Operating Partnership was
approximately $655,000 above the then current principal balance of the
underlying first mortgage loan, which includes costs of the transaction,
including a $200,000 commission paid to Prime One
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Realty Inc. An affiliate of Mr. McGrath received one-half of the commission from
Prime One Realty Inc. The Operating Partnership borrowed $575,000 from I.
Stanley Levine, Trustee, of Miami, Florida, in order to complete the
acquisition. The Levine loan matured in December 1998. The principal amount of
$200,000 was paid and payment of the remaining principal balance of $375,000 was
extended until June 1, 1999. This loan requires current interest payments only
at the annual rate of 18%, and is secured by a pledge of the general and limited
partnership interests acquired in the transaction. The Operating Partnership
funded the acquisition and will satisfy the Levine loan from the net proceeds of
the Trust's sale of Common Shares in the ongoing Cash Offering. The purchase
price was determined by the parties in an arms-length negotiation. The Operating
Partnership relied upon an appraisal of the Riverwalk Property updated as of
July 17, 1998 prepared by Rex-McGill, Inc, an independent appraisal firm, which
valued the property at $2,200,000. The transaction was unanimously approved by
the Independent Trustees of the Trust prior to closing of the acquisition.
Alexandria Property
In October 1998, the Operating Partnership acquired an approximately 12.3%
limited partnership interest in Alexandria Development, L.P. (the "Alexandria
Partnership"), a Delaware limited partnership which is the owner and developer
of a 168-unit residential apartment property under construction in Alexandria,
Kentucky. Ninety eight of the 168 residential units (approximately 58%) have
been completed and are in the rent-up stage. As of May 1, 1999, 32 (or
approximately 34.8%) of the 98 units completed have been rented at an average
monthly rental rate of $682. The Operating Partnership paid $400,000 for the
acquired partnership interest. Subsequently, the Operating Partnership acquired
additional limited partnership units for $810,000, and as of May 14, 1999 it
owns an approximately 37.2% limited partnership interest. The Operating
Partnership retains an option to acquire the remaining limited partnership
interests at the same price per percentage interest (for a total price of
approximately $3,250,000 for the entire limited partnership interest). The
option is exercisable as additional apartment buildings are completed and
rented. An affiliate of Mr. McGrath sold the partnership interest in the
Alexandria Partnership to the Operating Partnership and also serves as its
managing general partner. During the construction stage of the apartment
property, the Operating Partnership's limited partnership interest in the
Alexandria Partnership is entitled to an annual 12% preferential return which is
senior to the other limited partnership interests and the general partner's
nominal 1% interest.
Acquisition of Limited Partnership Interests
In July 1998, the Operating Partnership also was admitted as a limited
partner in 13 real estate limited partnerships managed by affiliates of the
Managing Partnership, including certain of the Exchange Partnerships. The
Operating Partnership acquired the interests in consideration of a capital
contribution ranging from approximately $2,900 to $83,300 in each such
partnership. The aggregate contribution made by the Operating Partnership was
approximately $341,000. The percentage interest acquired by the Operating
Partnership (less than 4% in each case) was calculated at fair market value. In
each instance, the Operating Partnership agreed that its right to receive
distributions from cash flow or from a capital event would be subordinate to the
right of the existing limited partners to receive any preferred return described
in the partnership agreement of the respective partnership. In addition, the
Operating Partnership agreed with the Exchange Partnerships that the acquisition
would not affect the valuation of the limited partnership interests for purposes
of the Exchange Offering. These various partnerships will be accounted for on
the cost method since their respective ownership interests represent less than
20% of the equity ownership therein. In addition, the partnerships will
periodically assess the realizable value of these investments in order to
ascertain that there has been no impairment in their recorded value.
Contract to Purchase Two Additional Properties
In September 1998, the Trust entered in an agreement with three real
estate development companies to acquire two luxury residential apartment
properties in the development stage upon the completion of construction. The
development companies (Brentwood at Southgate, Ltd., Burlington Residential,
Ltd. and The Shoppes at Burlington, Ltd.) are controlled by Gregory K. McGrath.
The properties are scheduled to have a total of 652 units, comprised of studios
and one, two and three bedroom/one or two bathroom apartments. Construction of
one of the properties, located in Louisville, Kentucky, is expected to be
completed prior to the end of 2000, and construction of the other property,
located in Burlington, Kentucky (part of the Cincinnati metropolitan area), is
expected to be completed by the end of 2001. The aggregate purchase price for
the two properties is in the range of approximately $41,000,000 to $43,000,000.
The closing of each acquisition, which is expected to occur shortly following
the completion of construction, is conditioned on, among other things, the
completion of the respective apartment property, the availability of first
mortgage financing and the Trust's raising the balance of the funds necessary
for the acquisition in its ongoing Cash Offering or otherwise having funds
available to make the acquisition.
In connection with the transaction and in exchange for certain benefits
described below, the Trust agreed to co-guarantee (along with Mr. McGrath), up
to 35% (or approximately $12,500,000) of the development portion of long-term
construction loans with an aggregate principal amount of up to $36,000,000 to be
provided by a bank to the development
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companies. As of December 31, 1998, approximately $4,600,000 of such loans had
been drawn down, resulting in outstanding guarantees of approximately
$1,600,000. Subject to the fulfillment of certain closing and funding
conditions, the construction loans will be made to the development companies in
connection with the development and construction of the two apartment properties
and of an 111,000 square foot shopping center being developed in Burlington,
Kentucky. The interest rates on the construction loans range from 7.36% to
7.52%. The Trust also agreed that, if the loans are not repaid prior to the
expiration of the guarantee, it will either buy out the bank's position on the
entire amount of the construction loans or arrange for a third party to do so.
The construction loans are expected to be replaced by a long-term credit
facility.
The Trust expects to receive significant benefits from the transaction in
addition to the acquisition of two large luxury apartment properties located in
attractive communities. First, in exchange for the guarantee of the development
portion of the construction loans, the Trust will receive a discount of
approximately $212,500 (representing a one-half of one percent reduction) on the
purchase price of the properties. The Trust and the development companies are
negotiating a further price reduction which would apply if the development
portion of the loans is not repaid prior to the expiration of the guarantee
period and the Trust is required to buy out or arrange for the buyout of the
lender's position on the loans.
The Exchange Properties
In the Exchange Offering, the Operating Partnership will offer to issue
registered Units in exchange for limited partnership interests owned by
individual limited partners in limited partnerships which directly or indirectly
own equity and/or debt interests in residential apartment properties. As its
initial investment targets in the Exchange Offering, the Operating Partnership
is offering to acquire limited partnership interests from individual limited
partners (collectively, the "Exchange Limited Partners" and individually an
"Exchange Limited Partner") in 23 limited partnerships (collectively referred to
herein as the "Exchange Partnerships" and individually as an "Exchange
Partnership") which directly or indirectly own equity and/or Subordinated
Mortgage interests in 26 residential apartment properties (collectively, the
"Exchange Properties" and individually an "Exchange Property"). The Operating
Partnership will acquire a beneficial ownership interest in all or a portion of
the Exchange Properties by acquiring from Exchange Limited Partners of
Participating Exchange Partnerships their limited partnership interests
("Exchange Partnership Units") in the respective partnership. The Exchange
Partnerships are managed by Corporate General Partners affiliated with the
Managing Shareholder (wholly owned and controlled, along with the Corporate
General Partner of each Exchange Partnership, by Mr. McGrath).
Certain of the Exchange Partnerships own direct or indirect equity
interests in 16 Exchange Properties which consist of an aggregate of 1,012
residential units (comprised of studio and one, two, three and four-bedroom
units). Certain of the Exchange Partnerships own direct or indirect mortgage
interests in 10 Exchange Properties, which consist of an aggregate of 813
existing residential units (studio and one and two bedroom) and 164 units (two
and three bedroom) under development. Of the Exchange Properties, 21 properties
are located in Florida, three properties in Ohio and one property each in
Georgia and Indiana.
The sole asset of each of 13 of the Exchange Partnerships (individually,
an "Exchange Equity Partnership" and collectively, the "Exchange Equity
Partnerships") is record title to a residential apartment property or the entire
limited partnership or other equity interest in a limited partnership or other
entity which owns record title to a property. The sole assets of each of six of
the Exchange Partnerships (individually, an "Exchange Mortgage Partnership" and
collectively, the "Exchange Mortgage Partnerships") are the entire or an
undivided Subordinated Mortgage interest in one or more properties (and in one
case, unsecured debt interests). Each of the remaining four Exchange
Partnerships (individually, an "Exchange Hybrid Partnership" and collectively,
the "Exchange Hybrid Partnerships") own a combination of (i) all or a portion of
the direct or indirect equity interest in one or more properties and (ii) an
undivided Subordinated Mortgage interest in one or more properties (and in one
case, unsecured debt interests).
The aggregate appraised market value of 16 Exchange Properties in which
Exchange Equity Partnerships and Exchange Hybrid Partnerships directly or
indirectly own an equity interest (net to the partnerships' interest, less the
current principal balance of mortgage loans secured by such properties) is
approximately $16,515,480. The total current aggregate balance due (including
current aggregate principal balances of Subordinated Mortgage Loans and other
debt and accrued unpaid interest thereon) on the debt interests owned by
Exchange Mortgage Partnerships and Exchange Hybrid Partnerships in respect of 11
Exchange Properties is approximately $7,437,727.
Certain information relating to the 26 Exchange Properties and mortgage
indebtedness secured thereby is summarized in the four tables set forth below.
Assuming the Exchange Offering is accepted by all Exchange Limited Partners in
all Exchange Partnerships, the aggregate purchase price for the Exchange
Partnership Units would be approximately $24,980,606, comprised of Operating
Partnership Units to be issued with an initial assigned value in that amount.
The Trust and the Operating Partnership will investigate other investment
opportunities for the Exchange Offering,
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including property interests held by unaffiliated owners and by certain other
limited partnerships managed by affiliates of the Managing Shareholder. See also
"PRIOR PERFORMANCE BY AFFILIATES OF MANAGING SHAREHOLDER," "THE TRUST AND THE
OPERATING PARTNERSHIP" and "INVESTMENT OBJECTIVES AND POLICIES."
Upon the completion of the Exchange Offering in respect of each
Participating Exchange Partnership, (i) Gregory K. McGrath, a founder of the
Trust and the Operating Partnership, the Chief Executive Officer of the Trust,
the Operating Partnership and the Managing Shareholder, and the sole
stockholder, director and executive officer of the Corporate General Partner of
each of the Exchange Partnerships, will either grant the Board of the Trust a
management proxy coupled with an interest to vote the shares of the Corporate
General Partner of the Exchange Partnership or contract to assign all of the
stock in the Corporate General Partner to the Trust for nominal consideration;
(ii) the Corporate General Partner will assign to the Operating Partnership all
of its residual economic interest in the partnership; and (iii) Mr. McGrath will
cause the Corporate General Partner to waive its right to receive from the
partnership any ongoing fees, effective at the time of exchange.
In the initial transactions of the Exchange Offering, the Operating
Partnership is offering to issue Units to each individual Exchange Limited
Partner in exchange for his respective limited partnership interest in an
Exchange Partnership. Each Exchange Limited Partner will have the opportunity to
elect on an individual basis either (i) to accept Units in exchange for his
limited partnership interest in his respective Exchange Partnership or (ii) to
retain his interest in the Exchange Partnership on substantially the same terms
and conditions as his original investment. The Operating Partnership will not
complete the Exchange Offering in respect of any particular Exchange Partnership
unless limited partners holding at least 90% of the limited partnership
interests in the partnership affirmatively elect to accept the offering. In
addition, the Operating Partnership will not complete any transaction in the
offering whatsoever unless a sufficient number of Offerees accept the offering
such that the offering involves the issuance of Operating Partnership Units with
an initial value of at least $6,000,000. After the completion of the Exchange
Offering, each Exchange Partnership will continue to own its interest in its
respective Exchange Property, but all of the limited partnership interests in a
given Participating Exchange Partnership would then be owned by the Operating
Partnership, if all Exchange Limited Partners in the partnership elect to accept
the Exchange Offering, or by the Operating Partnership and any Exchange Limited
Partners who elect not to accept the Exchange Offering.
The number of Operating Partnership Units to be offered to each Exchange
Limited Partner for his interest in a given Exchange Partnership have been
assigned an initial value in the range of 103% to 169% of the amount of an
Exchange Limited Partner's original investment in the partnership. For such
purposes, each Operating Partnership Unit will be initially valued at $10.00,
the offering price of each Trust Common Share offered in the Cash Offering. The
value of the Units and the Common Shares are substantially identical since, as
described above, recipients of Operating Partnership Units in the Exchange
Offering may exchange their Units into an equivalent number of Common Shares at
any time, subject to certain conditions. "See "SUMMARY OF THE TRUST AND THE
OPERATING PARTNERSHIP" and "THE EXCHANGE OFFERING."
The number of Units being offered by the Operating Partnership in the
Exchange Offering in respect of each Exchange Equity Partnership and each
Exchange Hybrid Partnership (to the extent of its direct or indirect equity
interest in the property) differs based upon the following factors: (a) the
estimated appraised market value of the underlying property determined by
qualified and licensed independent appraisal firms; (b) the operating history of
the property; (c) the current principal balance of first mortgage and other
indebtedness to which the property is subject; (d) the amount of distributable
cash flow currently being generated by the property; plus (e) additional factors
which the Managing Shareholder believes are appropriate to consider including,
among others, the property's overall current condition and prospects for the
property based upon improvements made or to be made to the property and, in
certain cases, the combination of one or more phases of the property, which are
expected to be owned upon completion of the Exchange Offering and the actual or
potential benefits to be obtained by the sub-metering of utilities in order to
pass costs from the owner of the property to individual tenants. The number of
Units being offered in respect of each of the Exchange Mortgage Partnerships and
each of the Exchange Hybrid Partnerships (to the extent of its mortgage
interests in properties and other debt interests) differs based upon the
following factors: (i) the current principal balance of the amount of debt which
is senior to the mortgage interest to be acquired and other indebtedness to
which the property be subject; (ii) the estimated appraised market value of the
underlying property determined by qualified and licensed independent appraisal
firms; (iii) the operating history of the property; (iv) the amount of
distributable cash flow currently being generated by the property; plus (v)
additional factors which the Managing Shareholder believes are appropriate to
consider including, among others, the property's overall current condition and
prospects for the property based upon improvements made or to be made to the
property and, in certain cases, the combination of one or more phases of the
property, which are expected to be owned upon completion of the Exchange
Offering and the actual or potential benefits to be obtained by the sub-metering
of utilities in order to pass costs from the owner of the property to individual
tenants. Each Exchange Property in which the Operating Partnership intends to
acquire
110
<PAGE>
an interest has been appraised by a qualified and licensed independent appraisal
firm and each additional property in which it intends to acquire an interest
will be appraised in advance. See " - Exchange Property Appraisals."
All expenses incurred in connection with the Exchange Offering to produce,
file, print and distribute the Prospectus will be paid by the Trust and the
Operating Partnership. No special fees or commissions were or will be paid in
connection with the Exchange Offer to the Managing Shareholder (wholly owned and
controlled, along with the Corporate General Partner of each Exchange
Partnership, by Mr. McGrath), any Corporate General Partner of an Exchange
Partnership, or any of their respective affiliates. Broker-dealers who assist
the Operating Partnership in consummating the Exchange Offering with individual
Offerees who accept the offering will be paid as a commission a number of
unregistered Common Shares of the Trust equal to 5% of the Units issued to
Offerees as a result of their efforts.
111
<PAGE>
Equity Property Interests
The table set forth below summarizes certain information relating to each
of the 16 properties in which Exchange Equity Partnerships and Exchange Hybrid
Partnerships involved in the Exchange Offering directly or indirectly own an
equity interest, including (i) the name of the respective partnership and its
general partner, (ii) the name and location of each property, (iii) the year
each property was completed, (iv) the number of units, acreage, rentable area,
average unit size and average rental rate per unit and per square feet of
rentable area as of April 1, 1999, and (v) physical occupancy of each property
as of April 1, 1999. In the Exchange Offering, the Operating Partnership will
offer to issue its Units to limited partners in those partnerships in exchange
for their limited partnership interests in the partnerships and thereby
indirectly acquire such property interests.
<TABLE>
<CAPTION>
Name of
Residential
Apartment
Property (and
type Year Approx.
Partnership GP of interest) Location Completed No. of Units Acres
- ----------- -- ------------ -------- --------- ------------ -----
<S> <C> <C> <C> <C> <C> <C> <C>
Exchange Equity
Partnerships:
Baron Strategic Baron Steeplechase Anderson, 1977 Total 72 3.20
Investment Fund Capital Apartments (1) Indiana 1 BR 12
II, Ltd. XXXI, Inc. 2 BR 60
Central Florida Baron Laurel Oaks Deland, 1986 Total 56 6.21
Income Capital of Apartments (1) Florida 1 BR 11
Appreciation Fund, Florida 2 BR 45
Ltd. Inc.
Florida Capital Baron Eagle Lake Port 1987 Total 77 4.68
Income Fund, Ltd. Capital II, Apartments (1) Orange, 1 BR 73
Inc. Florida 2 BR 4
Florida Capital Baron Forest Glen Daytona 1985 Total 52 6.85
Income Fund II, Capital IV, Apartments Beach, 2 BR 28
Ltd. Inc. (Phase I) (2) Florida 3 BR 24
Florida Capital Baron Bridge Point Jacksonville, 1986 Total 48 3.39
Income Fund III, Capital Apartments Florida Studio 6
Ltd. VII, Inc. (Phase II) (1) 1 BR 37
2 BR 5
Florida Capital Baron Glen Lake St. 1986 Total 144 7.16
Income Fund IV, Capital V, Apartments (1) Petersburg, 1 BR 144
Ltd. Inc. Florida
Florida Income Baron Forest Glen Daytona 1985 Total 26 6.85
Advantage Fund I, Capital IV, Apartments Beach, 2 BR 19
Ltd. Inc. (Phase III) (2) Florida 3 BR 7
Florida Income Baron Forest Glen Daytona 1985 Total 8 6.85
Appreciation Fund Capital IV, Apartments Beach, 2 BR 6
I, Ltd. Inc. (Phase IV) (2) Florida 3 BR 2
<CAPTION>
Approx. Physical
Rentable 4/1/99 Occupancy
Area Avg. Unit Size Average Rental Rates/Month As Of
Partnership (Sq. Ft.)* (Sq. Ft.) (Per Unit) (Per Sq. Ft.) 4/1/99
- ----------- --------- --------- ------------------------ ------
<S> <C> <C> <C> <C> <C> <C>
Exchange Equity
Partnerships:
Baron Strategic 47,`280 Avg. 657 $433 $.66 86%
Investment Fund 1 BR 550
II, Ltd. 2 BR 678
Central Florida 45,216 Avg. 807 $531 $.66 93%
Income 1 BR 576
Appreciation Fund, 2 BR 864
Ltd.
Florida Capital 45,504 Avg. 591 $465 $.78 100%
Income Fund, Ltd. 1 BR 576
2 BR 864
Florida Capital 62,692 Avg. 1,205 $673 $.56 98%
Income Fund II, 2 BR 1,075
Ltd. 3 BR 1,358
Florida Capital 27,360 Avg. 570 $455 $.80 94%
Income Fund III, Studio 288
Ltd. 1 BR 576
2 BR 864
Florida Capital 79,200 Avg. 550 $674 $1.23 76%
Income Fund IV, 1 BR 550
Ltd.
Florida Income 29,931 Avg. 1,151 $656 $.57 92%
Advantage Fund I, 2 BR 1,075
Ltd. 3 BR 1,358
Florida Income 9,166 Avg. 1,146 $655 $.57 100%
Appreciation Fund 2 BR 1,075
I, Ltd. 3 BR 1,358
</TABLE>
112
<PAGE>
<TABLE>
<CAPTION>
Name of
Residential
Apartment
Property (and
type Year Approx.
Partnership GP of interest) Location Completed No. of Units Acres
- ----------- -- ------------ -------- --------- ------------ -----
<S> <C> <C> <C> <C> <C> <C> <C>
Florida Income Baron Blossom Corners Orlando, 1980 Total 70 3.67
Growth Fund V, Ltd. Capital XI, Apartments Florida Studio 15
Inc. (Phase I) (1) 1 BR 49
2 BR 6
Florida Baron Camellia Court Daytona 1982 Total 60 5.15
Opportunity Income Capital Apartments (1) Beach, 1 BR 59
Partners, Ltd. III, Inc. Florida 2 BR 1
GSU Stadium Baron Stadium Club Statesboro, 1987 Total 60 3.50
Student Capital X, Apartments (1) Georgia Studio 2
Apartments, Ltd. Inc. 3 BR 3
4 BR 55
Midwest Income Baron Brookwood Way Mansfield, 1974 Total 66 3.92
Growth Fund VI, Capital of Apartments (1) Ohio Studio 3
Ltd. Ohio III, 1 BR 60
Inc. 2 BR 3
Realty Opportunity Baron Forest Glen Daytona 1985 Total 30 6.85
Income Fund VIII, Capital IV, Apartments Beach, 2 BR 23
Ltd. Inc. (Phase II) (2) Florida 3 BR 7
Exchange Hybrid
Partnerships:
Baron Strategic Baron Pineview Orlando, 1988 Total 91 4.38
Investment Fund Capital Apartments (3) Florida Studio 26
VI, Ltd. XXXI, Inc. 1 BR 59
2 BR 6
Baron Strategic Baron Crystal Court Lakeland, 1982 Total 72 4.5
Investment Fund Capital Phase I (4) Florida 1 BR 64
IX, Ltd. XLII, Inc. 2 BR 8
Baron Strategic Baron Crystal Court Lakeland, 1982 Total 72 4.5
Investment Fund X, Capital Phase I (5) Florida 1 BR 64
Ltd. XLII, Inc. 2 BR 8
Pineview Orlando, 1988 Total 91 4.38
Apartments (6) Florida Studio 26
1 BR 59
2 BR 6
<CAPTION>
Approx. Physical
Rentable 4/1/99 Occupancy
Area Avg. Unit Size Average Rental Rates/Month As Of
Partnership (Sq. Ft.)* (Sq. Ft.) (Per Unit) (Per Sq. Ft.) 4/1/99
- ----------- --------- --------- ------------------------ ------
<S> <C> <C> <C> <C> <C> <C>
Florida Income 39,300 Avg. 561 $481 $.86 93%
Growth Fund V, Ltd. Studio 300
1 BR 600
2 BR 900
Florida 34,848 Avg. 581 $435 $.75 95%
Opportunity Income 1 BR 576
Partners, Ltd. 2 BR 864
GSU Stadium 50,736 Avg. 860 $963 $1.13 70%
Student Studio 288
Apartments, Ltd. 3 BR 880
4 BR 880
Midwest Income 38,016 Avg. 576 $376 $.65 98%
Growth Fund VI, Studio 288
Ltd. 1 BR 576
2 BR 864
Realty Opportunity 34,231 Avg. 1,141 $662 $.58 96%
Income Fund VIII, 2 BR 1,075
Ltd. 3 BR 1,358
Exchange Hybrid
Partnerships:
Baron Strategic 46,656 Avg. 513 $461 $.90 98%
Investment Fund Studio 288
VI, Ltd. 1 BR 576
2 BR 864
Baron Strategic 43,776 Avg. 608 $401 $.66 94%
Investment Fund 1 BR 576
IX, Ltd. 2 BR 864
Baron Strategic 43,776 Avg. 608 $401 $.66 94%
Investment Fund X, 1 BR 576
Ltd. 2 BR 864
46,656 Avg. 513 $461 $.90 98%
1 BR 288
2 BR 576
864
</TABLE>
113
<PAGE>
<TABLE>
<CAPTION>
Name of
Residential
Apartment
Property (and
type Year Approx.
Partnership GP of interest) Location Completed No. of Units Acres
- ----------- -- ------------ -------- --------- ------------ -----
<S> <C> <C> <C> <C> <C> <C> <C>
Lamplight Court of Baron Lamplight Bellefontaine, 1973 Total 80 6.00
Bellefontaine Capital IX, Apartments (7) Ohio Studio 12
Apartments, Ltd. Inc. 1 BR 53
2 BR 15
---------------
TOTAL
PROPERTIES: 1,012** 83.16
===============
<CAPTION>
Approx. Physical
Rentable 4/1/99 Occupancy
Area Avg. Unit Size Average Rental Rates/Month As Of
Partnership (Sq. Ft.)* (Sq. Ft.) (Per Unit) (Per Sq. Ft.) 4/1/99
- ----------- --------- --------- ------------------------ ------
<S> <C> <C> <C> <C> <C> <C>
Lamplight Court of 46,944 Avg. 587 $394 $.67 93%
Bellefontaine Studio 288
Apartments, Ltd. 1 BR 576
2 BR 864
--------- --------------------------------------------
680,856 673 $531 $.80 87%
========= ============================================
</TABLE>
* Includes only residential apartment units and excludes common areas.
** Properties in which more than one partnership has an interest are counted
only once.
(1) Partnership owns the entire limited partnership interest in a limited
partnership which holds fee simple title to the property.
(2) Partnership owns beneficial interest in an unrecorded land trust which holds
fee simple title to the property.
(3) Partnership owns (i) a 52.44% limited partnership interest in a limited
partnership which holds fee simple title to the property and (ii) debt interests
in other property described below in "Mortgage Information - Mortgage
Properties" table.
(4) Partnership owns (i) a 39.56% limited partnership interest in a limited
partnership which holds fee simple title to the property and (ii) debt interests
in other property described below in "Mortgage Information - Mortgage
Properties" table.
(5) Partnership owns (i) a 47.59% limited partnership interest in a limited
partnership which holds fee simple title to the property and (ii) debt interests
in other property described below in "Mortgage Information - Mortgage
Properties" table.
(6) Partnership owns (i) a 39.56% limited partnership interest in a limited
partnership which holds fee simple title to the property and (ii) debt interests
in other property described below in "Mortgage Information - Mortgage
Properties" table.
(7) Partnership owns (i) a 31.7% limited partnership interest in a limited
partnership which holds fee simple title to the property and (ii) a debt
interest in the property described below in "Mortgage Information - Mortgage
Properties" table.
114
<PAGE>
Property Information
Debt Property Interests
The table set forth below summarizes certain information relating to each of the
11 properties in which Exchange Mortgage Partnerships and Exchange Hybrid
Partnerships involved in the Exchange Offering own a mortgage interest,
including (i) the name of the respective partnership and its general partner,
(ii) the name and location of each property, (iii) the year each property was
completed, (iv) the number of units, acreage, rentable area, average unit size
and average rental rate per unit and per square feet of rentable area as of
April 1, 1998, and (v) physical occupancy of each property as of April 1, 1999.
In the Exchange Offering, the Operating Partnership will offer to issue its
Units to limited partners in those partnerships in exchange for their limited
partnership interests in the partnerships and thereby indirectly acquire such
property interests.
<TABLE>
<CAPTION>
Name of
Residential
Apartment
Property (and
type Year Approx.
Partnership GP of interest) Location Completed No. of Units Acres
- ----------- -- ------------ -------- --------- ------------ -----
<S> <C> <C> <C> <C> <C> <C> <C>
Exchange Mortgage
Partnerships:
Baron Strategic Baron Blossom Corners Orlando, 1981 Total 68 3.51
Investment Fund, Capital Apartments Florida Studio 16
Ltd. XXXII, Inc. (Phase II) (1) 1 BR 45
2 BR 7
Villas at Lake Cincinnati, Est. 4th Total 164 20.2
Sycamore (1) Ohio quarter 2 BR
2003 3 BR
Baron Strategic Baron Country Square Tampa, 1981 Total 73 4.56
Investment Fund Capital Apartments Florida Studio 14
IV, Ltd. XVII, Inc. (Phase I) (1) 1 BR 52
2 BR 7
Baron Strategic Baron Candlewood Tampa, 1984 Total 33 2.75
Investment Fund V, Capital XL, Apartments Florida Studio 6
Ltd. Inc. (Phase II) (1) 1 BR 26
2 BR 1
Curiosity Creek Tampa, 1982 Total 81 4.51
Apartments (1) Florida Studio 16
1 BR 59
2 BR 6
Baron Strategic Baron Heatherwood Kissimmee, 1982 Total 41 2.26
Investment Fund Capital Apartments Florida Studio 10
VIII, Ltd. XLIV, Inc. (Phase II) (2) 1 BR/1B 26
<CAPTION>
Approx. Physical
Rentable 4/1/99 Occupancy
Area Avg. Unit Size Average Rental Rates/Month As Of
Partnership (Sq. Ft.)* (Sq. Ft.) (Per Unit) (Per Sq. Ft.) 4/1/99
- ----------- --------- --------- ------------------------ ------
<S> <C> <C> <C> <C> <C> <C>
Exchange Mortgage
Partnerships:
Baron Strategic 38,100 Avg. 557 $512 $.92 88%
Investment Fund, Studio 300
Ltd. 1 BR 600
2 BR 864
217,300 Avg. 1,325 - - -
2 BR
3 BR
Baron Strategic 40,032 Avg. 548 $439 $.80 95%
Investment Fund Studio 288
IV, Ltd. 1 BR 576
2 BR 864
Baron Strategic 17,568 Avg. 532 $433 $.81 82%
Investment Fund V, Studio 288
Ltd. 1 BR 576
2 BR 864
43,776 Avg. 540 $442 $.82 95%
Studio 288
1 BR 576
2 BR 864
Baron Strategic 22,176 Avg. 541 $505 $.94 95%
Investment Fund Studio 288
VIII, Ltd. 1 BR/1B 576
</TABLE>
115
<PAGE>
<TABLE>
<CAPTION>
Name of
Residential
Apartment
Property (and
type Year Approx.
Partnership GP of interest) Location Completed No. of Units Acres
- ----------- -- ------------ -------- --------- ------------ -----
<S> <C> <C> <C> <C> <C> <C> <C>
2 BR/1B 4
2 BR/2B 1
Longwood Cocoa, 1981 Total 59 4.00
Apartments Florida 1 BR 51
(Phase I) (1) 2 BR 8
Villas at Lake Cincinnati, Est. 4th Total 164 20.2
Sycamore (1) Ohio quarter 2 BR
2003 3 BR
Baron Strategic Baron Curiosity Creek Tampa, 1982 Total 81 4.51
Vulture Fund I, Capital Apartments (1) Florida Studio 16
Ltd. XXVI, Inc. 1 BR 59
2 BR 6
Brevard Mortgage Baron Meadowdale Melbourne, 1984 Total 64 4.81
Program, Ltd. Capital Apartments (1) Florida 1 BR 56
XII, Inc. 2 BR 8
Exchange Hybrid
Partnerships
Baron Strategic Baron Candlewood Tampa, 1988 Total 33 2.75
Investment Fund Capital Apartments Florida Studio 6
VI, Ltd. XXXI, Inc. (Phase II) (3) 1 BR 26
2 BR 1
Country Square 1981 Total 73 4.56
Apartments Tampa, Studio 14
(Phase I) (3) Florida 1 BR 52
2 BR 7
Garden Terrace Tampa, 1983 Total 91 6.00
Apartments Florida Studio 8
(Phase III) (3) 1 BR 67
2 BR 16
Baron Strategic Baron Candlewood Tampa, 1984 Total 33 2.75
Investment Fund Capital Apartments Florida Studio 6
IX, Ltd. XLII, Inc. (Phase II) (3) 1 BR 26
<CAPTION>
Approx. Physical
Rentable 4/1/99 Occupancy
Area Avg. Unit Size Average Rental Rates/Month As Of
Partnership (Sq. Ft.)* (Sq. Ft.) (Per Unit) (Per Sq. Ft.) 4/1/99
- ----------- --------- --------- ------------------------ ------
<S> <C> <C> <C> <C> <C> <C>
2 BR/1B 864
2 BR/2B 864
36,288 Avg. 615 $433 $.70 100%
1 BR 576
2 BR 864
217,300 Avg. 1,325 - - -
2 BR
3 BR
Baron Strategic 43,776 Avg. 540 $442 $.82 95%
Vulture Fund I, Studio 288
Ltd. 1 BR 576
2 BR 864
Brevard Mortgage 39,168 Avg. 612 $412 $.67 97%
Program, Ltd. 1 BR 576
2 BR 864
Exchange Hybrid
Partnerships
Baron Strategic 17,568 Avg. 532 $433 $.81 82%
Investment Fund Studio 288
VI, Ltd. 1 BR 576
2 BR 864
40,032 Avg. 548 $439 $.80 95%
Studio 288
1 BR 576
2 BR 864
54,720 Avg. 601 $417 $.69 90%
Studio 288
1 BR 576
2 BR 864
Baron Strategic 17,568 Avg. 532 $433 $.81 82%
Investment Fund Studio 288
IX, Ltd. 1 BR 576
</TABLE>
116
<PAGE>
<TABLE>
<CAPTION>
Name of
Residential
Apartment
Property (and
type Year Approx.
Partnership GP of interest) Location Completed No. of Units Acres
- ----------- -- ------------ -------- --------- ------------ -----
<S> <C> <C> <C> <C> <C> <C> <C>
2 BR 1
Garden Terrace Tampa, 1983 Total 91 6.00
Apartments Florida Studio 8
(Phase III) (3) 1 BR 67
2 BR 16
Villas at Lake Cincinnati, est. 4th Total 164 20.2
Sycamore (3) Ohio quarter
2003
Baron Strategic Baron Garden Terrace Tampa, 1983 Total 91 6.00
Investment Fund X, Capital Apartments Florida Studio 8
Ltd. XLIV, Inc. (Phase III) (3) 1 BR 67
2 BR 16
Heatherwood Kissimmee, 1982 Total 41 2.26
Apartments Florida Studio 10
(Phase II) (2) 1 BR 26
2 BR/1B 4
2 BR/2B 1
Lamplight Court of Baron Lamplight Bellefontaine, 1973 Total 80 6.00
Bellefontaine Capital IX, Apartments (4) Ohio Studio 12
Apartments, Ltd. Inc. 1 BR 53
2 BR 15
-------------------
TOTAL
PROPERTIES(5): 650 42.48
===================
<CAPTION>
Approx. Physical
Rentable 4/1/99 Occupancy
Area Avg. Unit Size Average Rental Rates/Month As Of
Partnership (Sq. Ft.)* (Sq. Ft.) (Per Unit) (Per Sq. Ft.) 4/1/99
- ----------- --------- --------- ------------------------ ------
<S> <C> <C> <C> <C> <C> <C>
2 BR 864
54,720 Avg. 601 $417 $.69 90%
Studio 288
1 BR 576
2 BR 864
217,300 Avg. 1,325 - - -
Baron Strategic 54,720 Avg. 601 $417 $.69 90%
Investment Fund X, Studio 288
Ltd. 1 BR 576
2 BR 864
22,176 Avg. 541 $505 $.94 95%
Studio 288
1 BR 576
2 BR/1B 864
2 BR/2B 864
Lamplight Court of 46,944 Avg. 587 $394 $.67 95%
Bellefontaine Studio 288
Apartments, Ltd. 1 BR 576
2 BR 864
---------- ------------------------------------------------
375,060 569 $434 $.76 84%
========== ================================================
</TABLE>
- ----------
* Includes only residential apartment units and excludes common areas.
1. The Partnership's sole real estate assets consist of an undivided second
mortgage interest in the property or properties described in this table.
The second mortgage interests are described below at "Mortgage
Information-Mortgage Properties" and in the table in Exhibit B pertaining
to the Partnership.
2. The Partnership owns an undivided second mortgage interest in the property
and unsecured indebtedness associated therewith. The indebtedness is
described below at "Mortgage Information-Mortgage Properties" and in the
table in Exhibit B pertaining to the Partnership.
3. The Partnership owns (i) an undivided second mortgage interest in the
property or properties described in this table and (ii) a direct or
indirect equity interest in one or more properties. The second mortgage
interests are described below at "Mortgage Information-Mortgage
Properties" and in the table in Exhibit B pertaining to the Partnership
and the equity interest is described above at "Property Information-Equity
Property Interests" and in such Exhibit B table.
4. The Partnership owns (i) an undivided second mortgage interest in the
property described in this table and (ii) an undivided limited partnership
interest in the limited partnership which owns fee simple title to the
property. The second mortgage interest is described below at "Mortgage
Information-Mortgage Properties" and in the table in Exhibit B pertaining
to the Partnership, and the equity interest is described above at
"Property Information-Equity Property Interests" and in such Exhibit B
table.
5. Does not include information for Lake Sycamore, which is under
development.
117
<PAGE>
Mortgage Information
Equity Property Interests
The table below sets forth certain information relating to the first mortgage
(and in one case, second mortgage) indebtedness secured by or associated with
the 16 properties in which Exchange Equity Partnerships and Exchange Hybrid
Partnerships involved in the Exchange Offering directly or indirectly own an
equity interest, including (i) name of partnership and its general partner, (ii)
name and location of the properties, (iii) principal balances as of April 1,
1999, (iv) interest rates, (v) annual debt service, (vi) amortization term,
(vii) maturity dates, (viii) balances due on maturity, (ix) monthly payments,
and (x) name of lending institution. In the Exchange Offering, the Operating
Partnership will offer to issue its Units to limited partners in those
partnerships in exchange for their limited partnership interests in the
partnerships and thereby indirectly acquire such property interests
<TABLE>
<CAPTION>
4/1/99 Annual
Principal Interest Debt
Partnership GP Property Location Balance Rate Payment
- ----------- -- -------- -------- ------- ---- -------
<S> <C> <C> <C> <C> <C> <C>
Exchange
Equity
Partnerships
Baron Strategic Baron Capital Steeplechase Anderson, $1,260,000 Yrs. 1-2: $97,644
Investment Fund XXXI, Inc. Apartments Indiana 7.25%
II, Ltd. Yrs. 3-4:
7.75%
Yrs. 5-10:
8.25%
Central Florida Baron Capital Laurel Oaks Deland, 1,592,583 6.54% 121,863
Income of Ohio III, Apartments Florida
Appreciation Inc.
Fund, Ltd.
Florida Capital Baron Capital Eagle Lake Port 1,433,616 8.56% 145,669
Income Fund, Ltd. II, Inc. Apartments Orange,
Florida
Florida Capital Baron Capital Forest Glen Daytona 1,778,043 7.01% 125,696
Income Fund II, IV, Inc. Apartments Beach,
Ltd. (Phase I) Florida
Florida Capital Baron Capital Bridge Point Jacksonville, 713,208 9.52% 77,183
Income Fund III, VII, Inc. Apartments Florida
Ltd. (Phase II)
Florida Capital Baron Capital Glen Lake St. 2,690,614 9.55% 296,046
Income Fund IV, V, Inc. Apartments Petersburg, 353,854 8.00% 34,728
Ltd. Florida (second
mortgage)
<CAPTION>
Balance
Monthly Amortization Maturity Due On
Partnership Payment Term Date Maturity Lender
- ----------- ------- ---- ---- -------- ------
<S> <C> <C> <C> <C> <C>
Exchange
Equity
Partnerships
Baron Strategic $8,138 30 years 10/1/06 $1,099,557 Crown Bank
Investment Fund
II, Ltd.
Central Florida 10,155 30 years 12/1/28 -0- Prudential Mortgage
Income Capital
Appreciation
Fund, Ltd.
Florida Capital 12,139 25 years 11/1/05 1,244,562 Column Financial, Inc.
Income Fund, Ltd.
Florida Capital 10,475 30 years 3/05 1,681,926 Prudential Mortgage
Income Fund II, Capital
Ltd.
Florida Capital 6,431 25 years 7/1/06 625,327 Huntington Mortgage Co.
Income Fund III,
Ltd.
Florida Capital 24,670 25 years 5/18/00 2,652,341 Republic Bank
Income Fund IV, 2,894 25 years 5/1/05 343,772 Glen Lake Arms
Ltd. Joint Venture
</TABLE>
118
<PAGE>
<TABLE>
<CAPTION>
4/1/99 Annual
Principal Interest Debt
Partnership GP Property Location Balance Rate Payment
- ----------- -- -------- -------- ------- ---- -------
<S> <C> <C> <C> <C> <C> <C>
Exchange
Equity
Partnerships
(continued)
Florida Income Baron Capital Forest Glen Daytona 273,545 7.01% 19,337
Appreciation IV, Inc. Apartments Beach,
Fund I, Ltd. (Phase IV) Florida
Florida Income Baron Blossom Corners Orlando, 1,020,990 9.04% 106,084
Growth Fund V, Capital XI, Apartments Florida
Ltd. Inc. (Phase I)
Florida Baron Capital Camellia Court Daytona 1,069,633 9.04% 111,132
Opportunity III, Inc. Apartments Beach,
Income Partners, Florida
Ltd.
GSU Stadium Baron Capital Stadium Club Statesboro, 1,718,457 7.87% 160,346
Student X, Inc. Apartments Georgia
Apartments, Ltd.
Midwest Income Baron Capital Brookwood Way Mansfield, 1,046,599 9.04% 108,612
Growth Fund VI, of Ohio III, Apartments Ohio
Ltd. Inc.
Realty Baron Capital Forest Glen Daytona 1,025,794 7.01% 72,517
Opportunity IV, Inc. Apartments Beach,
Income Fund (Phase II) Florida
VIII, Ltd.
Exchange Hybrid
Partnerships
Baron Strategic Baron Capital Pineview Orlando, 1,599,549 7.75% 139,271
Investment Fund XXXI, Inc. Apartments Florida
VI, Ltd.
Baron Strategic Baron Capital Crystal Court Lakeland, 1,205,806 7.50% 102,533
Investment Fund XLII, Inc. Apartments Florida
IX, Ltd. (Phase I)
Baron Strategic Baron Capital Crystal Court Lakeland, 1,205,806 7.50% 102,533
Investment Fund XLIV, Inc. Apartments Florida
X, Ltd. (Phase I)
Pineview Orlando, 1,599,549 7.75% 139,271
Apartments Florida
<CAPTION>
Balance
Monthly Amortization Maturity Due On
Partnership Payment Term Date Maturity Lender
- ----------- ------- ---- ---- -------- ------
<S> <C> <C> <C> <C> <C>
Exchange
Equity
Partnerships
(continued)
Florida Income 1,611 30 years 3/05 216,712 Prudential Mortgage
Appreciation Capital
Fund I, Ltd.
Florida Income 8,840 25 years 11/1/06 $882,430 Column Financial, Inc.
Growth Fund V,
Ltd.
Florida 9,261 30 years 11/1/06 984,430 Column Financial, Inc.
Opportunity
Income Partners,
Ltd.
GSU Stadium 13,362 30 years 10/1/05 1,615,458 GMAC
Student
Apartments, Ltd.
Midwest Income 9,051 25 years 12/1/06 890,263 Mellon Bank
Growth Fund VI,
Ltd.
Realty 6,043 30 years 3/05 981,813 Prudential Mortgage
Opportunity Capital
Income Fund
VIII, Ltd.
Exchange Hybrid
Partnerships
Baron Strategic 11,606 30 years 11/04 1,493,008 GMAC
Investment Fund
VI, Ltd.
Baron Strategic 8,544 30 years 11/04 1,126,207 GMAC
Investment Fund
IX, Ltd.
Baron Strategic 8,544 30 years 11/04 1,126,207 GMAC
Investment Fund
X, Ltd.
11,606 30 years 11/04 1,493,008 GMAC
</TABLE>
119
<PAGE>
<TABLE>
<CAPTION>
4/1/99 Annual
Principal Interest Debt
Partnership GP Property Location Balance Rate Payment
- ----------- -- -------- -------- ------- ---- -------
<S> <C> <C> <C> <C> <C> <C>
Exchange
Equity
Partnerships
(continued)
Lamplight Court Baron Capital Lamplight Court Bellefontaine 1,363,062 9.04% 135,660
of Bellefontaine IX, Inc. Ohio
Apts., Ltd.
------------- ------------
TOTAL
PROPERTIES: $21,034,374 $1,917,169
============= ============
<CAPTION>
Balance
Monthly Amortization Maturity Due On
Partnership Payment Term Date Maturity Lender
- ----------- ------- ---- ---- -------- ------
<S> <C> <C> <C> <C> <C>
Exchange
Equity
Partnerships
(continued)
Lamplight Court 11,305 25 years 11/1/06 1,158,349 Column Financial
of Bellefontaine
Apts., Ltd.
------------ ---------------
$159,761 $17,778,899
============ ===============
</TABLE>
120
<PAGE>
Mortgage Information
Mortgage Properties
The table below sets forth certain information relating to the second
mortgage loans (and in one case other debt interests) owned by each of the six
Exchange Mortgage Partnerships and the four Exchange Hybrid Partnerships whose
limited partnership interests the Operating Partnership will offer to acquire in
connection with the Exchange Offering, including (i) the name of the lending
Exchange Partnership, (ii) the name, location and number of units of the
underlying residential apartment property securing the first and second
mortgages, (iii) the name of the debtor, (iv) the original principal amount of
the second mortgage loan(s) held by the Exchange Partnership and the principal
balance as of March 31, 1999 and due at maturity, (v) the undivided interests of
other Exchange Partnerships in the second mortgage loans or the principal
balance as of March 31, 1999 of other second mortgage loans secured by the
property and owned by other Exchange Partnerships, (vi) the appraised
replacement cost new and the appraised value of the property determined under
the income method, (vii) the second mortgage loan interest rate, maturity date,
annual and monthly interest payable and participation features, if any, and
(viii) the principal balance of the institutional first mortgage loan secured by
the property as of April 30, 1999 and the terms thereof.
Additional information relating to the underlying residential apartment
property securing each second mortgage loan described and the first mortgage
loan with a senior position ahead of the second mortgage loan is set forth above
at "--Property Information Debt Property Interests." The debtors of
substantially all of the second mortgage loans and other loans provided or
acquired by the Exchange Mortgage Partnerships and the Exchange Hybrid
Partnerships are limited partnerships which own fee simple title to the property
which secures such mortgage loans. Affiliates of Mr. McGrath are the corporate
general partners of the debtor partnerships and in such capacity own a minority
economic interest (2%-20%) in such partnerships which is subordinate to the
preferred returns of the limited partners in such partnerships. Each second
mortgage note described is non-recourse beyond the property and/or other assets
owned by the debtors.
121
<PAGE>
EXCHANGE MORTGAGE PARTNERSHIPS
Baron Strategic Investment Fund, Ltd.
(GP: Baron Capital XXXII, Inc.)
This Exchange Partnership owns (i) three unrecorded second mortgage loans
secured by the Blossom Corners Property-Phase II and (ii) an unrecorded
second mortgage loan secured by the Lake Sycamore Property. The interest
of the Exchange Partnership in the second mortgage loans, terms of the
first mortgage loan secured by the property, and other information are
described below.
1. Blossom Corners Second Mortgage Loans:
Residential apartment property
securing mortgages (number of
units and location): Blossom Corners Apartments - Phase II
(68 units) Orlando, Florida
Debtor: Blossom Corners Apartments II, Ltd.
Original principal amount of
Exchange Partnership's 100%
interest in loans: $977,645
3/31/99 principal balance
(accrued unpaid interest): $850,966 ($43,113)
Balance due at maturity: $850,966
Appraised replacement cost new
of property: $3,390,187
Appraised value of property -
income approach: $2,322,000
Mortgage interest and
amortization provisions: (i) Fixed interest rate of 6% as to $622,103
of principal (plus non-cumulative
participation interest at the rate of 3% on
the unpaid principal balance to the extent of
any available cash flow during the year and
additional non-cumulative participation
interest equal to 30% of any remaining
available cash flow during the year), (ii)
adjustable interest rate of 1% over the prime
rate (current adjustable rate of 8.75%) as to
$68,861 of principal, and (iii) fixed interest
rate of 12% as to $160,002 of principal. The
loans require payments of interest only until
maturity.
Maturity date: 4/02
Annual interest payable: $62,552 (plus any participation interest
payable)
Monthly interest payable: $5,213
Prepayment provisions: Prepayable without penalty.
4/30/99 principal balance of
first mortgage loan secured by
property and other terms: $1,098,951; the loan matures in 3/02, has a
balance due at maturity of $1,050,024, bears
interest at a fixed annual rate of 8.24%, has
annual and monthly debt service requirements
of $106,824 and $8,902, respectively,
amortizes on a 25-year basis, and is
prepayable subject to a prepayment penalty
equal to 1% of amount prepaid prior to third
anniversary of loan.
Other matters: Prior to 12/15/98, the second mortgage loans
consisted of an unrecorded second mortgage
note with a principal balance of $622,103, an
unsecured promissory note with a principal
balance of $68,861, an unsecured demand note
with a principal balance of $130,270 and
advances of $29,732. On 12/15/98, the debtor
restated and amended the $622,103 second
mortgage note and the $68,861 unsecured
promissory note and made a new promissory note
in favor of the Exchange Partnership in the
original principal amount of $160,002 (to
consolidate the $130,270 demand note and
advances of $29,732). The debtor and the
Exchange Partnership also entered into a
mortgage modification agreement. Pursuant to
the arrangement, the Exchange Partnership
agreed to set the maturity date on the
unsecured notes at the same maturity date as
the second mortgage note, in exchange for the
debtor's agreement to secure its repayment
obligations on the unsecured notes with a
second mortgage on the property.
122
<PAGE>
Baron Strategic Investment Fund, Ltd.
(cont'd)
2. Lake Sycamore Second Mortgage Loan:
Residential apartment property
securing mortgages (number of
units and location): Villas at Lake Sycamore (164 townhomes under
development) Cincinnati, Ohio
Debtor: Sycamore Real Estate Development, Ltd.
Original principal amount of
Exchange Partnership's 100%
interest in loan: $230,000
3/31/99 principal balance of
Exchange Partnership's 100%
interest in loan (accrued
unpaid interest): $230,000 ($20,415)
Balance due at maturity: $230,000
3/31/99 aggregate principal
balance of other second mortgage
loans secured by property and
owned by other Exchange
Partnerships (accrued unpaid
interest): $341,500 ($9,887)
Appraised replacement cost new
of property (under development): $9,376,039
Appraised value of property -
"As is" value: $1,080,000
Prospective market value: $14,312,000 (assuming completion of project
as planned, full rent up and satisfactory
environmental-quality test)
Mortgage interest and
amortization provisions: Fixed interest rate of 12%; requires
quarterly payments of interest only until
maturity.
Maturity date: 12/03
Annual interest payable: $27,600
Monthly interest payable: $2,300
Prepayment provisions: Prepayable without penalty
4/30/99 principal balance of first
mortgage loan secured by
property and other terms: $1,021,362; approved maximum $2,000,000; the
loan matures in 11/01, bears interest at an
annual adjustable rate equal to lender's
prime rate plus 1% (currently 8.75%), has
current annual and monthly debt service
requirements of $89,369 and $7,447,
respectively, requires payments of interest
only until maturity and is prepayable
without penalty.
Other matters: Two other Exchange Partnerships, Baron
Strategic Investment Fund VIII, Ltd. and
Baron Strategic Investment Fund IX, Ltd.,
own separate second mortgage notes secured
by the property with the same terms except
that they are in the principal amounts of
$98,000 and $243,500 (with accrued unpaid
interest in the amounts of $2,683 and
$7,204), respectively. The lending parties
have agreed to share the benefits of the
second mortgage on a pari passu basis.
123
<PAGE>
Baron Strategic Investment Fund IV, Ltd.
(GP: Baron Capital XVII, Inc.)
This Exchange Partnership owns two unrecorded second mortgage loans
secured by the Country Square Property-Phase I described below. The
Exchange Partnership's interest in the second mortgage loans, terms of the
first mortgage loan secured by the property, and other information are
described below.
Country Square Second Mortgage Loans:
Residential apartment property
securing mortgages (number of
units and location): Country Square Apartments - Phase I
(73 units) Tampa, Florida
Debtor: Country Square Apartments, Ltd.
Original principal amount of
Exchange Partnership's 100%
interest in loans: $1,372,237
3/31/99 principal balance
(accrued unpaid interest): $1,364,549 ($166,140)
Balance due at maturity: $1,364,549
Second mortgage loan interests of
another Exchange Partnership: In 3/97, the Exchange Partnership received a
loan with a current principal balance of
$259,639 (with accrued unpaid interest of
$46,934) from Baron Strategic Investment
Fund VI, Ltd. ("Baron Fund VI"). The
Exchange Partnership, in turn, lent the loan
proceeds to the debtor as part of the
Country Square Second Mortgage Loans. The
loan from Baron Fund VI bears interest at
the rate of 15%, payable monthly, matures in
9/02 and is secured by the Exchange
Partnership's interest in two second
mortgage notes and a second mortgage.
Appraised replacement cost new
of property: $3,554,776
Appraised value of property -
income approach: $2,281,000
Mortgage interest and
amortization provisions: Fixed interest rate of 12%; requires
payments of interest only until maturity.
Maturity date: 4/08
Annual interest payable: $163,746
Monthly interest payable: $13,645
Prepayment provisions: Prepayable without penalty.
4/30/99 principal balance of first
mortgage loan secured by
property and other terms: $1,584,989; the loan matures in 3/08, has a
balance due at maturity of $1,385,953, bears
interest at a fixed annual rate of 7.41%,
has annual and monthly debt service
requirements of $133,068 and $11,089,
respectively, amortizes on a 30-year basis
and is prepayable after the fourth
anniversary of the loan, subject to yield
maintenance until the sixth month prior to
maturity, when it can be prepaid at par.
Other matters: Prior to 12/15/98, the second mortgage loans
consisted of a second mortgage note with a
principal balance of $1,192,987 and an
unsecured demand note with a principal
balance of $179,250. On 12/15/98, the debtor
restated and amended the notes and the
debtor and the Exchange Partnership entered
into a mortgage modification agreement.
Pursuant to the arrangement, the Exchange
Partnership agreed to set the maturity date
on the demand note at the same maturity date
as the second mortgage note, in exchange for
the debtor's agreement to secure its
repayment obligation on the demand note with
a second mortgage on the Country Square
Property.
124
<PAGE>
Baron Strategic Investment Fund V, Ltd.
(GP: Baron Capital XL, Inc.)
The Exchange Partnership owns (i) an unrecorded second mortgage loan
secured by the Candlewood Property-Phase II, (ii) an undivided interest in
three unrecorded second mortgage loans and a 100% interest in an
unrecorded second mortgage loan secured by the Curiosity Creek Property
and (iii) four unrecorded second mortgage loans secured by the Sunrise
Property-Phase I. The interest of the Exchange Partnership and other
Exchange Partnerships in the second mortgage loans, terms of the first
mortgage loans secured by the properties, and other information are
described below.
1. Candlewood Second Mortgage Loan:
Residential apartment property
securing mortgages (number of
units and location): Candlewood Apartments - Phase II (33 units)
Tampa, Florida
Debtor: Baron Strategic Investment Fund III, Ltd.
Original principal amount of
Exchange Partnership's 100%
interest in loan: $21,000
3/31/99 principal balance
(accrued unpaid interest): $21,000 ($2,472)
Balance due at maturity: $21,000
3/31/99 aggregate principal
balance of other second mortgage
loans secured by property and
owned by other Exchange
Partnerships (accrued unpaid
interest): $143,500 ($16,283)
Second mortgage interests of other
Exchange Partnerships in
property: Baron Strategic Investment Fund VI, Ltd.
("Baron Fund VI") and Baron Strategic
Investment Fund IX, Ltd. ("Baron Fund IX")
own separate second mortgage loans secured
by the Candlewood Property. The original
principal balance, aggregate 3/31/99
principal balance, and balance due at
maturity in respect of Baron Fund VI's and
Baron Fund IX's second mortgage loans are
$68,000 (accrued unpaid interest of $7,926)
and $75,500 (accrued unpaid interest of
$8,357), respectively; the annual (and
monthly) payments due them are $8,160 ($680)
and $9,060 ($755), respectively. The other
terms relating to Baron Fund VI's and Baron
Fund IX's second mortgage loans are the same
as stated herein in respect of the Exchange
Partnership's loan.
Appraised replacement cost new
of property (12.8% of amount,
representing the percentage of
the current principal balance of
the Exchange Partnership's
second mortgage loan in relation
to the aggregate current
principal balance of all second
mortgage loans secured by the
property): $1,590,447 ($203,577);
Appraised value of property -
income approach (12.8% of
amount): $ 922,000 ($118,016)
Mortgage interest and
amortization provisions: Fixed interest rate of 12%; requires
payments of interest only until maturity.
Maturity date: 3/03
Annual interest payable: $2,520
Monthly interest payable: $210
Prepayment provisions: Prepayable without penalty.
125
<PAGE>
Baron Strategic Investment Fund V, Ltd.
(cont'd)
4/30/99 principal balance of
first mortgage loan secured by
property (12.8% of amount)
and other terms: $589,671 ($75,478); the loan matures in
2/03, has a balance due at maturity of
$533,678, bears interest at a fixed
annual rate of 7.79%, payable quarterly,
has annual and monthly debt service
requirements of $56,153 and $4,679,
respectively, amortizes on a 25-year
basis and is prepayable without penalty.
Other matters: Prior to 12/15/98, the Candlewood Second
Mortgage Loan consisted of an unsecured
demand note with a principal balance of
$21,000. On 12/15/98, the debtor and the
Exchange Partnership entered into a
second mortgage agreement under which
the debtor agreed to secure its
repayment obligation on the note with a
second mortgage on the Candlewood
Property. At the same time, the debtor
agreed to secure the loans in favor of
Baron Fund VI and Baron Fund IX with
separate second mortgages on the
property. The lending parties have
agreed to share the benefits of the
second mortgages on a pari passu basis.
2. Curiosity Creek Second Mortgage Loans:
Residential apartment property
securing mortgages (number of
units and location): Curiosity Creek Apartments (81 units)
Tampa, Florida
Debtor: Curiosity Creek Apartments, Ltd.
Original principal amount of
Exchange Partnership's
undivided
26.3% interest in three loans and $474,703
a 100% interest in one loan:
3/31/99 principal balance
(accrued unpaid interest): $474,703 ($22,837)
Balance due at maturity: $474,703
3/31/99 principal balance of other
Exchange Partnership's
undivided
73.7% in three loans and a 100%
interest in one loan $1,243,847 ($108,473)
(accrued unpaid interest):
Interests of other Exchange
Partnerships in second mortgage
loans: Baron Strategic Vulture Fund I, Ltd.
("Baron Vulture Fund") owns the
remaining undivided 73.7% interest in
three second mortgage loans and a 100%
interest in one second mortgage loan
secured by the Curiosity Creek Property
("Curiosity Creek Second Mortgage
Loans"). The aggregate original
principal balance, aggregate 3/31/99
principal balance, and aggregate balance
due at maturity in respect of Baron
Vulture Fund's interest in the loans is
$1,243,847 (accrued unpaid interest of
$103,664); the aggregate annual and
monthly payments due it are $105,149 and
$8,762, respectively. The other terms
relating to Baron Vulture Fund's
interest in the loans are the same as
stated herein.
Appraised replacement cost new
of property (26.3% of amount): $3,941,164 ($1,036,526)
Appraised value of property -
income approach (26.3% of
amount): $2,552,000 ($ 671,176)
126
<PAGE>
Baron Strategic Investment Fund V, Ltd.
(cont'd)
Mortgage interest and
amortization provisions: (i) Fixed interest rate of 6% as to
$212,227 of principal (plus
non-cumulative participation interest at
the rate of 3% on the unpaid principal
to the extent of available cash flow,
plus additional non-cumulative
participation interest equal to 30% of
any remaining available cash flow), (ii)
adjustable interest rate of prime plus
1% (currently 8.75%) as to $108,899 of
principal, (iii) fixed interest rate of
12.5% as to $109,325 of principal and
(iv) fixed interest rate of 12% as to
$44,253 of principal. The loans require
payments of interest only until
maturity.
Maturity date: 4/07
Annual interest payable: $41,238 (plus any participation interest
payable)
Monthly interest payable: $3,437
Prepayment provisions: Prepayable without penalty.
4/30/99 principal balance of first
mortgage loan secured by
property (26.3% of amount)
and other terms: $1,288,568 ($338,893); the loan matures
in 4/08, has a balance due at maturity
of $1,122,800, bears interest at the
fixed annual rate of 7.28%, has annual
and monthly debt service requirements of
$106,737 and $8,895, respectively,
amortizes on a 30-year basis, and is
prepayable after the fourth anniversary
of the loan, subject to yield
maintenance until the sixth month prior
to maturity, when it may be prepaid at
par.
Other matters: Prior to 12/15/98, the Curiosity Creek
Second Mortgage Loans consisted of a
second mortgage note with a principal
balance of $807,560, two unsecured
demand notes with a an aggregate
principal balance of $830,360 and
advances in the amount of $66,171. On
12/15/98, the debtor, the Exchange
Partnership and Baron Vulture Fund
entered into a mortgage modification
agreement pursuant to which the Exchange
Partnership and Baron Vulture Fund
agreed to set the maturity date on the
demand notes and the advances at the
same maturity date as the second
mortgage note, in exchange for the
debtor's agreement to secure its
repayment obligations on the unsecured
notes and advances with a second
mortgage on the Curiosity Creek
Property.
3. Sunrise Second Mortgage Loans:
Residential apartment property
securing mortgages (number of
units and location): Sunrise Apartments - Phase I (60 units)
Titusville, Florida
Debtor: Sunrise Apartments I, Ltd.
Original principal amount of
Exchange Partnership's 100%
interest in loans: $1,036,450
3/31/99 principal balance
(accrued unpaid interest): $1,031,801 ($15,893)
Balance due at maturity: $1,031,801
Appraised replacement cost new
of property: $2,700,611
Appraised value of property -
income approach: $1,424,000
Mortgage interest and (i) Fixed interest rate of 6% as to
amortization provisions: $335,000 of principal (plus
non-cumulative participation interest at
the rate of 3% on the unpaid principal
to the extent of available cash flow
plus additional non-cumulative
participation interest equal to 20% of
any remaining available cash flow), (ii)
fixed interest rate of 4% as to $621,515
of principal, and (iii) fixed interest
rate of 12% as to $16,000 of principal.
The loans require payments of interest
only until maturity.
Maturity date: 10/07
Annual interest payable: $53,995 (plus any participation interest
payable)
Monthly interest payable: $4,500
127
<PAGE>
Baron Strategic Investment Fund V, Ltd.
(cont'd)
Prepayment provisions: Prepayable without penalty.
4/30/99 principal balance of
first mortgage loan secured by $1,024,937; the loan matures in 1/05,
property and other terms: has a balance due at maturity of
$932,217, bears interest at a fixed
annual rate of 7.5%, has annual and
monthly debt service requirements of
$174,020 and $14,502, respectively,
amortizes on a 30-year basis, and is
payable after the fourth anniversary of
the loan, subject to yield maintenance
until the sixth month prior to maturity,
when it can be prepaid at par.
Other matters: Prior to 12/15/98, the second mortgage
loans secured by the Sunrise Property
(the "Sunrise Second Mortgage Loans")
consisted of a second mortgage note with
a principal balance of $335,000, two
unsecured demand notes with an aggregate
principal balance of $622,982 and
advances in the amount of $73,819. On
12/15/98, the debtor restated and
amended the second mortgage note and the
demand notes and created a new
promissory note in favor of the Exchange
Partnership in the original principal
amount of $16,000 (to cover prior
advances). The debtor and the
Partnership also entered into a mortgage
modification agreement. Pursuant to the
arrangement, the Exchange Partnership
agreed to set the maturity date on the
demand notes and the advances at the
same maturity date as the second
mortgage note, in exchange for the
debtor's agreement to secure its
repayment obligations on the unsecured
notes and advances with a second
mortgage on the Sunrise Property.
128
<PAGE>
Baron Strategic Investment Fund VIII, Ltd.
(GP: Baron Capital XLIV, Inc.)
The Exchange Partnership owns (i) an undivided interest in an unrecorded
second mortgage loan secured by the Heatherwood Property-Phase II, and
three unsecured loans associated with such property, (ii) three unrecorded
second mortgage loans secured by the Longwood Property-Phase I and (iii)
an unrecorded second mortgage loan secured by the Lake Sycamore Property
(under development). The interest of the Exchange Partnership and other
Exchange Partnerships in the second mortgage loans, terms of the first
mortgage loans secured by each property, and other information are
described below.
1. Heatherwood Second Mortgage Loans:
Residential apartment property
securing mortgages (number of
units and location): Heatherwood Apartments - Phase II (41
units) Kissimmee, Florida
Debtor: Heatherwood Apartments II, Ltd.
Original principal amount of
Exchange Partnership's
undivided $206,260
58% interest in loans:
3/31/99 principal balance
(accrued unpaid interest): $206,260 ($1,955)
Balance due at maturity: $206,260
3/31/99 principal balance of other
Exchange Partnership's
undivided
42% in loans (accrued unpaid $155,787 ($5,645)
interest):
Interests of other Exchange
Partnership in second mortgage Baron Strategic Investment Fund X, Ltd.
loans: ("Baron Fund X") owns the remaining
undivided 42% interest in the second
mortgage loans secured by the
Heatherwood Property and in the
unsecured loans associated with the
property ("Heatherwood Loans"). The
aggregate original principal balance,
aggregate 3/31/99 principal balance, and
aggregate balance due at maturity in
respect of Baron Fund X's interest in
the Heatherwood Loans is $155,787
(accrued unpaid interest of $5,645); the
aggregate annual (and monthly) payments
due it are $9,710 ($809). The other
terms relating to Baron Fund X's
interest in the Heatherwood Loans are
the same as stated herein.
Appraised replacement cost new
of property (58% of amount): $1,862,475 ($1,080,236)
Appraised value of property -
income approach (58% of
amount): $1,259,000 ($730,220)
Mortgage interest and
amortization provisions: (i) Fixed interest rate of 6% as to
$188,500 of principal (plus
non-cumulative participation interest at
the rate of 3% on the unpaid principal
to the extent of available cash flow
plus additional non-cumulative
participation interest equal to 30% of
any remaining available cash flow), (ii)
adjustable interest rate of 1% over
prime rate (currently 8.75%) as to
$1,010 of principal, and (iii) fixed
interest rate of 12% as to $16,749 of
principal. The loans require payments of
interest only until maturity.
Maturity date: 10/04
Annual interest payable: $13,408 (plus any participation interest
payable)
Monthly interest payable: $1,117
129
<PAGE>
Baron Strategic Investment Fund VIII, Ltd.
(cont'd)
Prepayment provisions: Prepayable without penalty.
4/30/99 principal balance of first
mortgage loan secured by $701,026 ($406,595); the loan matures in
property (58% of amount) and 11/04, has a balance due at maturity of
other terms: $655,856, bears interest at a fixed
annual rate of 7.75%, has annual and
monthly debt service requirements of
$61,038 and $5,087, respectively,
amortizes on a 30-year basis, and is
prepayable after the fourth anniversary
of the loan, subject to yield
maintenance until the sixth month prior
to maturity, when it can be prepaid at
par.
2. Longwood Second Mortgage Loans:
Residential apartment property
securing mortgages (number of
units and location): Longwood Apartments - Phase I (59 units)
Cocoa, Florida
Debtor: Longwood Apartments I, Ltd.
Original principal amount of
Exchange Partnership's 100%
interest in loans: $969,268
3/31/99 principal balance
(accrued unpaid interest ): $969,268 ($43,432)
Balance due at maturity: $969,268
Appraised replacement cost new
of property: $2,666,862
Appraised value of property -
income approach: $1,788,000
Mortgage interest and
amortization provisions: (i) Fixed interest rate of 6% as to
$368,558 of principal (plus
non-cumulative participation interest at
the rate of 3% on the unpaid principal
to the extent of available cash flow
plus additional non-cumulative
participation interest equal to 30% of
any remaining available cash flow), (ii)
adjustable interest rate of 1% over
prime rate (currently 8.75%) as to
$526,465 of principal, and (iii) fixed
interest rate of 12% as to $74,245 of
principal. The loans require payments of
interest only until maturity.
Maturity date: 10/07
Annual interest payable: $77,088 (plus any participation interest
payable)
Monthly interest payable: $6,424
Prepayment provisions: Prepayable without penalty.
4/30/99 principal balance of first
mortgage loan secured by
property and other terms: $1,023,894; the loan matures in 11/04,
has a balance due at maturity of
$1,204,545, bears interest at a fixed
annual rate of 7.75%, has annual and
monthly debt service requirements of
$89,150 and $7,429, respectively,
amortizes on a 30-year basis, and is
prepayable after the fourth anniversary
of the loan, subject to yield
maintenance until the sixth month prior
to maturity, when it can be prepaid at
par.
Other matters: Prior to 12/15/98, the Longwood Second
Mortgage Loans consisted of a second
mortgage note with a principal balance
of $368,558, an unsecured demand note
with a principal balance of $526,465,
and advances of $74,245. On 12/15/98,
the debtor restated and amended the
second mortgage note and the demand note
and created a new promissory note in the
original principal amount of $74,245 (to
cover prior advances). The debtor and
the Exchange Partnership also entered
into a mortgage modification agreement.
Pursuant to the arrangement, the
Exchange Partnership agreed to set the
maturity date on the demand note and the
advances at the same maturity date as
the second mortgage note, in exchange
for the debtor's agreement to secure its
repayment obligations on the demand note
and advances with a second mortgage on
the Longwood Property.
130
<PAGE>
Baron Strategic Investment Fund VIII, Ltd.
(cont'd)
3. Lake Sycamore Second Mortgage Loan:
Residential apartment property
securing mortgages (number of
units and location): Villas at Lake Sycamore (164 townhomes
under development) Cincinnati, Ohio
Debtor: Sycamore Real Estate Development, Ltd.
Original principal amount of
Exchange Partnership's 100%
interest in loan: $98,000
3/31/99 principal balance
(accrued unpaid interest): $98,000 ($2,683)
Balance due at maturity: $98,000
3/31/99 aggregate principal
balance of other second
mortgage
loans secured by property and
owned by other Exchange
Partnerships (accrued unpaid
interest): $473,500 ($27,619)
Appraised replacement cost new
of property (under
development): $9,376,039
Appraised value of property -
"As is" value: $1,080,000
Prospective market value: $14,312,000 (assuming completion of
project as planned, full rent up and
satisfactory environmental-quality test)
Mortgage interest and
amortization provisions: Fixed interest rate of 12%; requires
quarterly payments of interest only
until maturity.
Maturity date: 12/03
Annual interest payable: $11,760
Monthly interest payable: $980
Prepayment provisions: Prepayable without penalty
4/30/99 principal balance of first
mortgage loan secured by
property and other terms: $1,021,362; approved maximum $2,000,000;
the loan matures in 11/01, bears
interest at an annual adjustable rate
equal to lender's prime rate plus 1%
(currently 8.75%), has current annual
and monthly debt service requirements of
$89,369 and $7,447, respectively,
requires payments of interest only until
maturity and is prepayable without
penalty.
Other matters: Two other Exchange Partnerships, Baron
Strategic Investment Fund, Ltd. and
Baron Strategic Investment Fund IX,
Ltd., own separate second mortgage notes
secured by the property with the same
terms except that they have principal
amounts of $230,000 and $243,500 (and
accrued unpaid interest of $20,415 and
$7,204), respectively. The lending
parties have agreed to share the
benefits of the second mortgage on a
pari passu basis.
131
<PAGE>
Baron Strategic Vulture Fund I, Ltd.
(GP: Baron Capital XXVI, Inc.)
The Exchange Partnership owns an undivided interest in three unrecorded
second mortgage loans and a 100% interest in one second mortgage loan
secured by the Curiosity Creek Property described below. The interest of
the Exchange Partnership and a separate Exchange Partnership in the second
mortgage loans, terms of the first mortgage loan secured by the property,
and other information are described below.
Curiosity Creek Second Mortgage Loans:
Residential apartment property
securing mortgages (number of
units and location): Curiosity Creek Apartments (81 units)
Tampa, Florida
Debtor: Curiosity Creek Apartments, Ltd.
Original principal amount of
Exchange Partnership's
undivided 73.7% interest in
three loans and 100%
interest in one loan: $1,243,847
3/31/99 principal balance
(accrued unpaid interest): $1,243,847 ($108,473)
Balance due at maturity: $1,243,847
3/31/99 principal balance of other
Exchange Partnership's
undivided 26.3% in three
loans and 100% interest in
one loan (accrued unpaid
interest): $474,703 ($22,837)
Interests of other Exchange
Partnership in second Baron Strategic Investment Fund V, Ltd.
mortgage loans: ( "Baron Fund V") owns the remaining
undivided 26.3% interest in three second
mortgage loans and a 100% interest in
one second mortgage loan secured by the
Curiosity Creek Property ("Curiosity
Creek Second Mortgage Loans"). The
aggregate original principal balance,
aggregate 3/31/99 principal balance, and
aggregate balance due at maturity in
respect of Baron Fund V's interest in
the Curiosity Creek Second Mortgage
Loans is $474,703 (accrued unpaid
interest of $22,837); the aggregate
annual and monthly payments due it are
$41,238 and $3,437, respectively. The
other terms relating to Baron Fund V's
interest in the Curiosity Creek Second
Mortgage Loans are the same as stated
herein.
Appraised replacement cost new
of property (73.7% of amount): $3,941,164 ($2,904,638)
Appraised value of property -
income approach (73.7% of
amount): $2,552,000 ($1,880,824)
Mortgage interest and
amortization provisions: (i) Fixed interest rate of 6% as to
$595,333 of principal (plus
non-cumulative participation interest at
the rate of 3% on the unpaid principal
to the extent of available cash flow
plus additional non-cumulative
participation interest equal to 30% of
any remaining available cash flow), (ii)
adjustable interest rate of prime plus
1% (currently 8.75%) as to $305,407 of
principal, (iv) fixed interest rate of
12.5% as to $306,675 of principal, and
(iii) fixed interest rate of 12% as to
$36,431 of principal. The loans require
payments of interest only until
maturity.
Maturity date: 4/07
Annual interest payable: $105,149 (plus any participation
interest payable)
Monthly interest payable: $8,762
132
<PAGE>
Baron Strategic Vulture Fund I, Ltd.
(cont'd)
Prepayment provisions: Prepayable without penalty.
4/30/99 principal balance of first
mortgage loan secured by $1,288,568 ($949,675); the loan matures
property (73.7% of amount) in 4/08, has a balance due at maturity
and other terms: of $1,122,800, bears interest at the
fixed annual rate of 7.28%, has annual
and monthly debt service requirements of
$106,737 and $8,895, respectively,
amortizes on a 30-year basis, and is
prepayable after the fourth anniversary
of the loan, subject to yield
maintenance until the sixth month prior
to maturity, when it may be prepaid at
par.
Other matters: Prior to 12/15/98, the Curiosity Creek
Second Mortgage Loans consisted of a
second mortgage note with a principal
balance of $807,560, two unsecured
demand notes with an aggregate principal
balance of $830,360 and advances in the
amount of $66,171. On 12/15/98, the
debtor, the Exchange Partnership and
Baron Fund V entered into a mortgage
modification agreement pursuant to which
the Exchange Partnership and Baron Fund
V agreed to set the maturity date on the
demand notes and the advances at the
same maturity date as the second
mortgage note, in exchange for the
debtor's agreement to secure its
repayment obligations on the unsecured
notes and advances with a second
mortgage on the Curiosity Creek
Property.
133
<PAGE>
Brevard Mortgage Program, Ltd.
(GP: Baron Capital XII, Inc.)
The Exchange Partnership owns three unrecorded second mortgage loans
secured by the Meadowdale Property described below. The Exchange
Partnership's interest in the Second Mortgage Loans, terms of the first
mortgage loan secured by the property, and other information are described
below.
Meadowdale Second Mortgage Loans:
Residential apartment property
securing mortgages (number of
units and location): Meadowdale Apartments (64 units)
Melbourne, Florida
Debtor: Florida Opportunity Income Fund III,
Ltd.
Original principal amount of
Exchange Partnership's 100%
interest in loans: $1,048,861
3/31/99 principal balance
(accrued unpaid interest): $1,048,861 ($107,151)
Balance due at maturity: $1,048,861
Appraised replacement cost new
of property: $3,084,043
Appraised value of property -
income approach: $1,629,000
Mortgage interest and
amortization provisions: (i) Fixed interest rate of 6% as to
$752,747 of principal (plus
non-cumulative participation interest at
the rate of 3% on the unpaid principal
to the extent of available cash flow
plus additional non-cumulative
participation interest equal to 20% of
any remaining available cash flow), (ii)
adjustable interest rate of 1% over
prime rate (currently 8.75%) as to
$271,923 of principal and (iii) fixed
rate of 12% as to $24,191 of principal.
Maturity date: 10/07
Annual interest payable: $71,861 (plus any participation interest
payable)
Monthly interest payable: $ 5,988
Prepayment provisions: Prepayable without penalty.
4/30/99 principal balance of first
mortgage loan secured by
property and other terms: $947,936; the loan matures in 7/01, has
a balance due at maturity of $905,918,
bears interest at a fixed annual rate of
8.75%, has annual and monthly debt
service requirements of $93,935 and
$7,828, respectively, amortizes on a
22-year basis, and is prepayable without
penalty.
Other matters: Prior to 12/15/98, the second mortgage
loans consisted of a second mortgage
note with a principal balance of
$752,747, an unsecured demand note with
a principal balance of $271,923 and
advances of $24,191. On 12/15/98, the
debtor restated and amended the second
mortgage note and the demand note and
created a new promissory note in favor
of the Exchange Partnership in the
original principal amount of $24,191 (to
cover the prior advances). The debtor
and the Exchange Partnership also
entered into a mortgage modification
agreement. Pursuant to the arrangement,
the Exchange Partnership agreed to set
the maturity date on the demand note and
the advances at the same maturity date
as the second mortgage note, in exchange
for the debtor's agreement to secure its
repayment obligations on the demand note
and the advances with a second mortgage
on the Meadowdale Property.
134
<PAGE>
EXCHANGE HYBRID PARTNERSHIPS
Baron Strategic Investment Fund VI, Ltd.
(GP: Baron Capital XXXI, Inc.)
The Exchange Partnership owns (1) a 52.44% limited partnership interest in
a limited partnership which holds fee simple title to the Pineview
Property, (2) an unrecorded second mortgage loan secured by the Candlewood
Property-Phase II, (3) an undivided interest in two recorded second
mortgage loans secured by the Garden Terrace Property-Phase III, and (4) a
note receivable from another Exchange Partnership which is secured by two
unrecorded second mortgage notes and a second mortgage on the Country
Square Property-Phase I. Information concerning the Pineview Property and
the first mortgage indebtedness secured by it is included above in the
tables entitled "Property Information - Equity Property Interests" and
"Mortgage Information - Equity Property Interests." The interest of the
Exchange Partnership and other Exchange Partnerships in the second
mortgage loans, the note payable to the Exchange Partnership from another
Exchange Partnership, terms of the respective first mortgage loan and the
Exchange Partnership's second mortgage loans secured by the three
properties described below, and other information are described below.
1. Candlewood Second Mortgage Loan:
Residential apartment property
securing mortgages (number of
units and location): Candlewood Apartments - Phase II (33
units) Tampa, Florida
Debtor: Baron Strategic Investment Fund III,
Ltd.
Original principal amount of
Exchange Partnership's interest
in loan: $68,000
3/31/99 principal balance
(accrued unpaid interest): $68,000 ($7,927)
Balance due at maturity: $68,000
3/31/99 principal balance of other
second mortgage loans secured by
the property and owned by other
Exchange Partnerships (accrued
unpaid interest): $96,500 ($10,829)
Second mortgage interests of other
Exchange Partnerships in the
property: Baron Strategic Investment Fund V, Ltd.
("Baron Fund V") and Baron Strategic
Investment Fund IX, Ltd. ("Baron Fund
IX") own separate second mortgage loans
secured by the Candlewood Property. The
original principal balance, aggregate
3/31/99 principal balance, and balance
due at maturity in respect of Baron Fund
V's and Baron Fund IX's loans are
$21,000 (accrued unpaid interest of
$2,472) and $75,500 (accrued unpaid
interest of $8,357), respectively; the
annual (and monthly) payments due them
are $2,520 ($210) and $9,060 ($755),
respectively. The other terms relating
to Baron Fund V's and Baron Fund IX's
loans are the same as stated herein in
respect of the Exchange Partnership's
loan.
Appraised replacement cost new
of property (41.3% of amount,
representing the percentage of the
current principal balance of the
Exchange Partnership's second
mortgage loan in relation to the
aggregate current principal
balance of all second mortgage
loans secured by the property): $1,590,447 ($656,855)
Appraised value of property -
income approach (41.3% of
amount): $ 922,000 ($380,786)
135
<PAGE>
Baron Strategic Investment Fund VI, Ltd.
(cont'd)
Mortgage interest and
amortization provisions: Fixed interest rate of 12%; requires
payments of interest only until
maturity.
Maturity date: 3/03
Annual interest payable: $8,160
Monthly interest payable: $680
Prepayment provisions: Prepayable without penalty.
4/30/99 principal balance of first
mortgage loan secured by
property (41.3% of amount) and
other terms: $589,671 ($243,534); the loan matures in
2/03, has a balance due at maturity of
$533,678, bears interest at a fixed
annual rate of 7.79%, payable quarterly,
has annual and monthly debt service
requirements of $56,153 and $4,679,
respectively, amortizes on a 25-year
basis and is prepayable without penalty.
Other matters: Prior to 12/15/98, the Candlewood Second
Mortgage Loan consisted of an unsecured
demand note with a principal balance of
$68,000. On 12/15/98, the debtor and the
Exchange Partnership entered into a
second mortgage agreement under which
the debtor agreed to secure its
repayment obligation on the note with a
second mortgage on the Candlewood
Property. At the same time, the debtor
agreed to secure the loans in favor of
Baron Fund V and Baron Fund IX with
separate mortgages on the property. The
lending parties have agreed to share the
benefits of the second mortgages on a
pari passu basis.
2. Garden Terrace Second Mortgage Loans:
Residential apartment property
securing mortgages (number of
units and location): Garden Terrace Apartments - Phase III
(91 units) Tampa, Florida
Debtor: Garden Terrace Apartments III, Ltd.
Original principal amount of
Exchange Partnership's undivided
20% interest in loan: $248,353
3/31/99 principal balance
(accrued unpaid interest): $248,353 ($5,607)
Balance due at maturity: $248,353
3/31/99 principal balance of other
Exchange Partnerships' undivided
80% in loan (accrued unpaid
interest): $993,414 ($23,378)
Interests of other Exchange
Partnerships in second mortgage
loans: Baron Strategic Investment Fund IX, Ltd.
("Baron Fund IX") and Baron Strategic
Investment Fund X, Ltd. ("Baron Fund X")
own the remaining undivided 80% interest
in the second mortgage loans secured by
the Garden Terrace Property ("Garden
Terrace Second Mortgage Loans"). The
original principal balance, 3/31/99
principal balance, and balance due at
maturity in respect of Baron Fund IX's
and Baron Fund X's interest in the
Garden Terrace Second Mortgage Loans is
$310,442 (accrued unpaid interest of
$7,246) and $682,972 (accrued unpaid
interest of $16,132), respectively; the
annual (and monthly) payments due them
are $27,940 ($2,328) and $61,467
($5,122), respectively. The other terms
relating to Baron Fund IX's and Baron
Fund X's interest in the Garden Terrace
Second Mortgage Loans are the same as
stated herein.
Appraised replacement cost new
of property (20% of amount): $4,297,897 ($859,579)
Appraised value of property -
income approach (20% of
amount): $1,782,000 ($356,400)
136
<PAGE>
Baron Strategic Investment Fund VI, Ltd.
(cont'd)
Mortgage interest and
amortization provisions: (i) Fixed interest rate of 2% as to
$147,000 of principal if cash flow
available (plus non-cumulative
participation interest at the rate of 7%
on the unpaid principal to the extent of
available cash flow, plus additional
participation interest equal to 30% of
any remaining cash flow (payable only to
holders of note referred to in (ii)
below) and (ii) fixed interest rate of
9% as to $101,353 of principal, payable
only from excess cash flow after payment
of 2% minimum interest and 7%
participation interest due on the note
referred to in (i) above. The loans
require payments of interest only until
maturity.
Maturity date: 1/07
Annual interest payable: $22,353 (plus any additional
participation interest)
Monthly interest payable: $1,863
Prepayment provisions: Prepayable without penalty.
4/30/99 principal balance of first $967,012 ($193,402); the loan matures in
mortgage loan secured by 5/05, has a balance due at maturity of
property (20% of amount) and $822,063, bears interest at the fixed
other terms: annual rate of 8.31%, has annual and
monthly debt service requirements of
$96,047 and $8,004, respectively,
amortizes on a 25-year basis and may be
prepaid beginning 4/99 with a 5%
prepayment fee, which decreases 1% per
year until maturity.
3. Note Payable by Baron Strategic Investment
Fund IV, Ltd. ("Baron Fund IV"):
3/31/99 principal balance owed to
Exchange Partnership
collateralized by security interest
in Baron Fund IV's second
mortgage on Country Square
Property - Phase I- see above
under table for "Baron Strategic
Investment Fund IV, Ltd.")
(accrued unpaid interest payable to
Exchange Partnership): $259,639 ($46,934)
3/31/99 principal balance of Baron
Fund IV's second mortgage loans
secured by property
(accrued unpaid interest ): $1,364,549 ($166,140)
Appraised replacement cost new
of property: $3,554,776
Appraised value of property -
income approach: $2,281,000
4/30/99 principal balance of
first mortgage loan $1,584,989; the loan matures in 3/08,
secured by property: has a balance due at maturity of
$1,385,953, bears interest at a fixed
annual rate of 7.41%, has annual and
monthly debt service requirements of
$133,068 and $11,089, respectively,
amortizes on a 30-year basis, and is
prepayable after the fourth anniversary
of the loan, subject to yield
maintenance until the sixth month prior
to maturity, when it can be prepaid at
par.
Other matters: In 3/97, the Exchange Partnership
provided a loan with a current principal
balance of $259,639 to another Exchange
Partnership, Baron Strategic Investment
Fund IV, Ltd. ("Baron Fund IV"). Baron
Fund IV, in turn, lent the loan proceeds
to the borrower as part of the Country
Square Second Mortgage Loans. The loan
from Baron Fund VI to Baron Fund IV
bears interest at the annual rate of
15%, payable monthly, matures in 9/02
and is secured by Baron Fund IV's
interest in the second mortgage note and
second mortgage.
137
<PAGE>
Baron Strategic Investment Fund IX, Ltd.
(GP: Baron Capital LXII, Inc.)
The Partnership owns (i) a 44.96% limited partnership interest in a
limited partnership which holds fee simple title to the Crystal Court
Property-Phase I, (ii) an undivided interest in an unrecorded second
mortgage loan secured by the Candlewood Property, (iii) an undivided
interest in two recorded second mortgage loans secured by the Garden
Terrace Property-Phase III, and (iv) an unrecorded second mortgage loan
secured by the Lake Sycamore Property (under development). Information
concerning the Crystal Court Property and the first mortgage indebtedness
secured by it is included above in the tables entitled "Property
Information - Equity Property Interests" and "Mortgage Information -
Equity Property Interests." The interest of the Exchange Partnership and
other Exchange Partnerships in the respective second mortgage loans, terms
of the respective first mortgage loan secured by the Candlewood Property,
the Garden Terrace Property and the Lake Sycamore Property, and other
information are described below.
1. Candlewood Second Mortgage Loan:
Residential apartment property
securing mortgages (number of
units and location): Candlewood Apartments - Phase II (33
units) Tampa, Florida
Debtor: Baron Strategic Investment Fund III,
Ltd.
Original principal amount of
Exchange Partnership's 100%
interest in loan: $75,500
3/31/99 principal balance
(accrued unpaid interest): $75,500 ($8,357)
Balance due at maturity: $75,500
3/31/99 aggregate principal
balance of other second mortgage
loans secured by property and
owned by other Exchange
Partnerships (accrued unpaid
Interest): $89,000 ($10,399)
Second mortgage interests of other
Exchange Partnerships in
property: Baron Strategic Investment Fund V, Ltd.
("Baron Fund V") and Baron Strategic
Investment Fund VI, Ltd. ("Baron Fund
VI") own separate second mortgage loans
secured by the Candlewood Property. The
original principal balance, aggregate
3/31/99 principal balance, and balance
due at maturity in respect of Baron Fund
V's and Baron Fund VI's loans are
$21,000 (accrued unpaid interest of
$2,472) and $68,000 (accrued unpaid
interest of $7,927), respectively; the
annual (and monthly) payments due them
are $2,520 ($210) and $8,160 ($680),
respectively. The other terms relating
to Baron Fund V's and Baron Fund VI's
loans are the same as stated herein in
respect of the Exchange Partnership's
loan.
Appraised replacement cost new
of property (45.9% of amount,
representing the percentage of the
current principal balance of the
Exchange Partnership's second
mortgage loan in relation to the
aggregate current principal
balance of all second mortgage
loans secured by the property): $1,590,447 ($730,015)
Appraised value of property -
income approach (45.9% of
amount): $ 922,000 ($423,198)
Mortgage interest and
amortization provisions: Fixed interest rate of 12%; requires
payments of interest only until
maturity.
Maturity date: 3/03
Annual interest payable: $9,060
138
<PAGE>
Baron Strategic Investment Fund IX, Ltd.
(cont'd)
Monthly interest payable: $755
Prepayment provisions: Prepayable without penalty.
4/30/99 principal balance of first
mortgage loan secured by
property (45.9% of amount)
and other items: $589,671 ($270,659); the loan matures in
2/03, has a balance due at maturity of
$533,678, bears interest at a fixed
annual rate of 7.79%, payable quarterly,
has annual and monthly debt service
requirements of $56,153 and $4,679,
respectively, amortizes on a 25-year
basis and is prepayable without penalty.
Other matters: Prior to 12/15/98, the Candlewood Second
Mortgage Loan consisted of an unsecured
demand note with a principal balance of
$75,500. On 12/15/98, the debtor and the
Exchange Partnership entered into a
second mortgage agreement under which
the debtor agreed to secure its
repayment obligation on the note with a
second mortgage on the Candlewood
Property. At the same time, the debtor
agreed to secure the loans in favor of
Baron Fund V and Baron Fund VI with
separate second mortgages on the
property. The lending parties have
agreed to share the benefits of the
second mortgages on a pari passu basis.
2. Garden Terrace Second Mortgage Loans:
Residential apartment property
securing mortgages (number of
units and location): Garden Terrace Apartments - Phase III
(91 units) Tampa, Florida
Debtor: Garden Terrace Apartments III, Ltd.
Original principal amount of
Exchange Partnership's
undivided 25% interest in $310,442
loans:
3/31/99 principal balance
(accrued unpaid interest): $310,442 ($7,246)
Balance due at maturity: $310,442
3/31/99 principal balance of other
Exchange Partnerships'
undivided 75% interest in loans
(accrued unpaid interest): $931,325 ($21,739)
Interests of other Exchange
Partnerships in second mortgage
loans: Baron Strategic Investment Fund VI, Ltd.
("Baron Fund VI") and Baron Strategic
Investment Fund X, Ltd. ("Baron Fund X")
own the remaining undivided 75% interest
in the second mortgage loans secured by
the Garden Terrace Property ("Garden
Terrace Second Mortgage Loans"). The
original principal balance, 3/31/99
principal balance, and balance due at
maturity in respect of Baron Fund VI's
and Baron Fund X's interest in the
Garden Terrace Second Mortgage Loans is
$248,353 (accrued unpaid interest of
$5,607) and $682,972 (accrued unpaid
interest of $16,132), respectively, the
annual (and monthly) payments due them
are $22,352 ($1,863) and $61,467
($5,122), respectively. The other terms
relating to Baron Fund VI's and Baron
Fund X's interest in the Garden Terrace
Second Mortgage Loan are the same as
stated herein.
Appraised replacement cost new
of property (25% of amount): $4,297,897 ($1,074,474)
Appraised value of property -
income approach (25% of
amount): $1,782,000 ($445,500)
139
<PAGE>
Baron Strategic Investment Fund IX, Ltd.
(cont'd)
Mortgage interest and
amortization provisions: (i) Fixed interest rate of 2% as to
$183,750 of principal if cash flow
available (plus non-cumulative
participation interest at the rate of 7%
on the unpaid principal to the extent of
available cash flow plus additional
participation interest equal to 30% of
any remaining cash flow (payable only to
holders of note referred to in (ii)
below) and (ii) fixed interest rate of
9% as to $126,692 of principal, payable
only from excess cash flow after payment
of 2% minimum interest and 7%
participation interest due on the note
referred to in (i) above. The loan
requires payments of interest only until
maturity.
Maturity date: 1/07
Annual interest payable: $27,940 (plus any additional
participation interest)
Monthly interest payable: $2,328
Prepayment provisions: Prepayable without penalty.
4/30/99 principal balance of first
mortgage loan secured by $967,012 ($241,753); the loan matures in
property (25% of amount) and 5/05, has a balance due at maturity of
other terms: $822,063, bears interest at the fixed
annual rate of 8.31%, has annual and
monthly debt service requirements of
$96,047 and $8,004, respectively,
amortizes on a 25-year basis and may be
prepaid beginning 4/99 with a 5%
prepayment fee, which decreases 1% per
year until maturity.
3. Lake Sycamore Second Mortgage Loan:
Residential apartment property
securing mortgages (number of
units and location): Villas at Lake Sycamore (164 townhomes
under development) Cincinnati, Ohio
Debtor: Sycamore Real Estate Development, Ltd.
Original principal amount of
Exchange Partnership's 100%
interest in loan: $243,500
3/31/99 principal balance
(accrued unpaid interest): $243,500 ($7,204))
Balance due at maturity: $243,500
3/31/99 aggregate principal
balance of other second mortgage
loans secured by property and
owned by other Exchange
Partnerships (accrued unpaid $328,000 ($23,098)
interest):
Appraised replacement cost new
of property (under development): $9,376,039
Appraised value of property -
"As is" value: $1,080,000
Prospective market value: $14,312,000 (assuming completion of
project as planned, full rent up and
satisfactory environmental-quality test)
Mortgage interest and
amortization provisions: Fixed interest rate of 12%; requires
quarterly payments of interest only
until maturity.
Maturity date: 12/03
Annual interest payable: $29,220
Monthly interest payable: $2,435
Prepayment provisions: Prepayable without penalty
4/30/99 principal balance of first
mortgage loan secured by
property and other items: $1,021,362; approved maximum $2,000,000;
the loan matures in 11/01, bears
interest at the annual adjustable rate
equal to lender's prime rate plus 1%
(currently 8.75%), has current annual
and monthly debt service requirements of
$89,369 and $7,447, respectively,
requires payments of interest only until
maturity and is prepayable without
penalty.
140
<PAGE>
Baron Strategic Investment Fund IX, Ltd.
(cont'd)
Other matters: Two other Exchange Partnerships, Baron
Strategic Investment Fund, Ltd. and
Baron Strategic Investment Fund VIII,
Ltd., own separate second mortgage notes
secured by the property with the same
terms except that they have principal
amounts of $230,000 and $98,000 (accrued
unpaid interest of $20,415 and $2,683),
respectively. The lending parties have
agreed to share the benefits of the
second mortgage on a pari passu basis.
141
<PAGE>
Baron Strategic Investment Fund X, Ltd.
(GP: Baron Capital LXIV, Inc.)
The Partnership owns (i) a 47.59% limited partnership interest in a
limited partnership which holds fee simple title to the Crystal Court
Property-Phase I, (2) a 39.56% limited partnership interest in a limited
partnership which holds fee simple title to the Pineview Property, (3) an
undivided interest in two recorded second mortgage loans secured by the
Garden Terrace Property-Phase III, and (4) an undivided interest in an
unrecorded second mortgage loan secured by the Heatherwood Property-Phase
II and in three unsecured loans associated with such property. Information
concerning the Crystal Court Property and the Pineview Property and the
first mortgage indebtedness secured respectively by them is included above
in the tables entitled "Property Information - Equity Property Interests"
and "Mortgage Information - Equity Property Interests." The interest of
the Exchange Partnership and other Exchange Partnerships in the respective
second mortgage loans, terms of the respective first mortgage loans
secured by the Garden Terrace Property and the Heatherwood Property, and
other information are described below.
1. Heatherwood Second Mortgage Loans:
Residential apartment property
securing mortgages (number of
units and location): Heatherwood Apartments - Phase II (41
units) Kissimmee, Florida
Debtor: Heatherwood Apartments II, Ltd.
Original principal amount of
Exchange Partnership's
undivided 42% interest in loans: $149,361
3/31/99 principal balance
(accrued unpaid interest): $149,361 ($5,645)
Balance due at maturity: $149,361
3/31/99 principal balance of other
Exchange Partnership's
undivided 58% in loans (accrued
unpaid interest): $206,260 ($1,955)
Interests of other Exchange
Partnership in second mortgage
loans: Baron Strategic Investment Fund VIII,
Ltd. ("Baron Fund VIII") owns the
remaining undivided 58% interest in the
second mortgage loans secured by the
Heatherwood Property and in the
unsecured loans associated with the
property ("Heatherwood Loans"). The
aggregate original principal balance,
aggregate 3/31/99 principal balance, and
aggregate balance due at maturity in
respect of Baron Fund VIII's interest in
the Heatherwood Loans is $206,260 (no
accrued unpaid interest); the aggregate
annual (and monthly) payments due it are
$13,408 ($1,117). The other terms
relating to Baron Fund VIII's interest
in the Heatherwood Loans are the same as
stated herein.
Appraised replacement cost new
of property (42% of amount): $1,862,475 ($782,240)
Appraised value of property -
income approach (42% of
amount): $1,259,000 ($528,780)
Mortgage interest and
amortization provisions: (i) Fixed interest rate of 6% as to
$136,500 of principal (plus
non-cumulative participation interest at
the rate of 3% on the unpaid principal
to the extent of available cash flow
plus additional non-cumulative
participation interest equal to 30% of
any remaining available cash flow), (ii)
adjustable interest rate of 1% over
prime rate (currently 8.75%) as to $732
of principal, and (iii) fixed interest
rate of 12% as to $12,130 of principal.
The loans require payments of interest
only until maturity.
Maturity date: 10/04
Annual interest payable: $9,710 (plus any participation interest
payable)
Monthly interest payable: $809
Prepayment provisions: Prepayable without penalty.
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Baron Strategic Investment Fund X, Ltd.
(cont'd)
4/30/99 principal balance of first
mortgage loan secured by
property (42% of amount) and
other terms: $701,026 ($294,431); the loan matures in
11/04, has a balance due at maturity of
$655,856, bears interest at a fixed
annual rate of 7.75%, has annual and
monthly debt service requirements of
$61,038 and $5,087, respectively,
amortizes on a 30-year basis, and is
prepayable after the fourth anniversary
of the loan, subject to yield
maintenance until the sixth month prior
to maturity, when it can be prepaid at
par.
Other matters: The Heatherwood Loans consist of a
second mortgage note secured by the
Heatherwood Property with a principal
balance $325,000 and unsecured loans in
the aggregate principal amount of
$24,121.
2. Garden Terrace Second Mortgage Loans:
Residential apartment property
securing mortgages (number of
units and location): Garden Terrace Apartments - Phase III
(91 units) Orlando, Florida
Debtor: Garden Terrace Apartments III, Ltd.
Original principal amount of
Exchange Partnership's
undivided 55% interest in loan: $682,972
3/31/99 principal balance
(accrued unpaid interest): $682,972 ($16,132)
Balance due at maturity: $682,972
3/31/99 principal balance of other
Exchange Partnerships'
undivided 45% in loan (accrued
unpaid interest): $558,795 ($12,853)
Interests of other Exchange
Partnerships in second Baron Strategic Investment Fund VI, Ltd.
mortgage loans: ("Baron Fund VI") and Baron Strategic
Investment Fund IX, Ltd. ("Baron Fund
IX") own the remaining undivided 45%
interest in the second mortgage loans
secured by the Garden Terrace Property
("Garden Terrace Second Mortgage
Loans"). The original principal balance,
3/31/99 principal balance, and balance
due at maturity in respect of Baron Fund
VI's and Baron Fund IX's interest in the
Garden Terrace Second Mortgage Loans is
$248,353 (accrued unpaid interest of
$5,607) and $310,442, (accrued unpaid
interest of $7,246), respectively; the
annual (and monthly) payments due them
are $22,352 ($1,863) and $27,940
($2,328), respectively. The other terms
relating to Baron Fund VI's and Baron
Fund IX's interest in the Garden Terrace
Second Mortgage Loans are the same as
stated herein.
Appraised replacement cost new
of property (55% of amount): $4,297,897 ($2,363,843)
Appraised value of property -
income approach (55% of
amount): $1,782,000 ($980,100)
Mortgage interest and
amortization provisions: (i) Fixed interest rate of 2% as to
$404,250 of principal if cash flow
available (plus non-cumulative
participation interest at the rate of 7%
on the unpaid principal to the extent of
available cash flow, (plus additional
participation interest equal to 30% of
any remaining cash flow (payable only to
holders of note referred to in (ii)
below) and (ii) fixed interest rate of
9% as to $278,222 of principal, payable
only from excess cash flow after payment
of 2% minimum interest and 7%
participation interest due on the note
referred to in (i) above. The loans
require payments of interest only until
maturity.
Maturity date: 1/07
Annual interest payable: $61,467 (plus any additional
participation interest)
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Baron Strategic Investment Fund X, Ltd.
(cont'd)
Monthly interest payable: $5,122
Prepayment provisions: Prepayable without penalty.
4/30/99 principal balance of first
mortgage loan secured by $967,012 ($531,857); the loan matures in
property (55% of amount) 5/05, has a balance due at maturity of
and other items: $822,063, bears interest at the fixed
annual rate of 8.31%, has annual and
monthly debt service requirements of
$96,047 and $8,004, respectively,
amortizes on a 25-year basis and may be
prepaid beginning 4/99 with a 5%
prepayment fee, which decreases 1% per
year until maturity.
Other matters: The Exchange Partnership paid a note
(the "Note") with a current principal
balance of $400,000 to the seller in
connection with its acquisition of an
undivided 75% interest in the Garden
Terrace Second Mortgage Loans. The
partnership in turn sold an undivided
20% interest (and retained a 55%
interest) in the loans. The Note bears
an annual interest rate of 10%, has a
maturity date of 1/1/07 and is secured
by a collateral assignment of the
partnership's interest in the loans and
a second mortgage on the property.
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Lamplight Court of Bellefontaine Apartments, Ltd.
(GP: Baron Capital IX, Inc.)
The Exchange Partnership owns (1) a 31.7% limited partnership interest in
a limited partnership which holds fee simple title to the Lamplight
Property and (2) two unrecorded second mortgage loans secured by the
Lamplight Property. Additional information concerning the Lamplight
Property and the first mortgage indebtedness secured by it is included
above in the tables entitled "Property Information - Equity Property
Interests" and "Mortgage Information - Equity Property Interests." The
interest of the Exchange Partnership in the second mortgage loans and
other information are described below.
Lamplight Court Second Mortgage Loans:
Residential apartment property
securing mortgages (number of
units and location): Lamplight Court Apartments (80 units)
Bellefontaine, Ohio
Debtor: Independence Village, Ltd.
Original principal amount of
Exchange Partnership's 100%
interest in loans: $678,302
3/31/99 principal balance
(accrued unpaid interest): $678,302 ($125,554)
Balance due at maturity: $678,302
Appraised replacement cost new
of property: $3,727,599
Appraised value of property -
income approach: $2,214,000
Mortgage interest and
amortization provisions: (i) Adjustable interest rate of 1% over
prime rate (currently 8.75%) as to
$585,000 of principal, and (ii) fixed
interest rate of 12% as to $93,302 of
principal. The loans require payments of
interest only until maturity.
Maturity date: 12/06
Annual interest payable: $60,634
Monthly interest payable: $5,053
Prepayment provisions: Prepayable without penalty.
4/30/99 principal balance of first
mortgage loan secured by
property and other terms: $1,359,962; the loan matures in 11/06,
has a balance due at maturity of
$1,158,349, bears interest at a fixed
annual rate of 9.04%, has annual and
monthly debt service requirements of
$141,445 and $11,787, respectively,
amortizes on a 25-year basis, and is
prepayable after the fifth anniversary
of the loan, provided that in the sixth
and seventh years prepayment requires a
fee equal to the greater of 1% of the
prepaid amount or yield maintenance.
Other matters: Prior to 12/15/98, the Lamplight Court
Second Mortgage Loans consisted of a
second mortgage note with a principal
balance of $585,000 and an unsecured
demand note with a principal balance of
$93,302. On 12/15/98, the debtor and the
Exchange Partnership entered into a
mortgage modification agreement under
which the Exchange Partnership agreed to
set the maturity date on the demand note
at 12/06, the same maturity date as the
second mortgage note, in exchange for
the agreement of the debtor to secure
its repayment obligations on the demand
note with a second mortgage on the
Lamplight Court Property.
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Property Description
The Exchange Properties are primarily garden style, one and two-story
residential apartment dwellings which range in size from eight units to 144
units. The Trust believes that the Exchange Properties generally occupy
strategic locations in growing sub-markets. The average unit size for properties
is 635 square feet, with 26% of the units having two or more bedrooms. A
majority of the units have washer/dryer connections and walk-in closets. The
Exchange Equity Partnerships and Exchange Hybrid Partnerships have improved the
attractiveness of the Exchange Properties in which they own an equity interest
by investing in extensive landscaping and rehabilitating certain units. Other
features frequently included in certain Exchange Properties are swimming pools,
playgrounds, volley ball courts, fitness centers and community rooms.
The Operating Partnership does not intend to acquire an interest in any
property which requires major maintenance unless (i) sufficient amounts have
been reserved to complete such maintenance and, in connection with the
acquisition, the Operating Partnership will receive the benefit of such reserves
or (ii) the acquisition price for the property interest reflects the cost of
required major maintenance items and the Operating Partnership has the ability
to fund such maintenance from its resources. Following the Exchange Offering,
the Operating Partnership intends to review each of the properties in which it
acquires an interest to determine the costs and benefits of undertaking any
capital improvements which may increase the property's profitability. The
Operating Partnership does not intend to undertake any capital improvement in
respect of a property unless the investment is projected to result in a rate of
return of 20% or more on the investment.
Lease Agreements
The Exchange Partnerships use a variety of lease forms to comply with
applicable state and local laws and customs. At some properties, the Exchange
Partnerships use leases provided or recommended by state or local apartment
associations. At other properties, the Exchange Partnerships use a standard
company lease modified if necessary to comply with local law or custom. The term
of a lease varies with local market conditions; however, one-year leases are
most common. Generally, the leases provide that unless the parties agree in
writing to a renewal, the tenancy will convert at the end of a lease term to a
month-to-month tenancy, subject to the terms and conditions of the lease, unless
either party gives the other party at least 30 days' prior notice of
termination. All leases are terminable by the Exchange Partnerships for
nonpayment of rent, violation of property rules and regulations, or other
specified defaults.
Competition
In general, there are numerous other residential apartment properties
located in close proximity to each of the Exchange Properties. The number of
units available in any target metropolitan market could have a material effect
on a property's capacity to rent units and on the rents charged. In addition, in
many of the Trust's proposed sub-markets, institutional investors and owners and
developers of residential apartment properties compete for the acquisition and
leasing of properties. Many of these persons have substantial resources and
experience. See "RISK FACTORS - Competition."
Insurance
The Managing Shareholder (wholly owned and controlled, along with the
Corporate General Partner of each Exchange Partnership, by Mr. McGrath) believes
that all of the Exchange Properties are adequately insured; however, an
uninsured loss could result in loss of capital investment and anticipated
profits. See "RISK FACTORS - Property Losses May Not be Insurable."
Property Management
In June 1998, the Exchange Partnerships and other real estate partnerships
managed by affiliates of the Managing Shareholder entered into an agreement to
terminate property management agreements with the prior property manager. Since
the transaction, the Exchange Partnerships and other partnerships have managed
the properties in which they have an interest and shared property management
expenses. The Exchange Properties and other properties in which the Trust and
the Operating Partnership acquire an interest will be similarly managed. During
1997, the Exchange Equity Partnerships paid a total of approximately $190,313 in
property management fees and $50,700 in accounting fees. In 1998 the Exchange
Equity Partnerships paid a total of approximately $209,947
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in property management fees and $50,700 in accounting fees. Upon completion of
the Exchange Offering it is anticipated (but not assured) that the large number
of residential units to be owned by the Operating Partnership will provide the
Exchange Partnership with a lower operating cost per residential unit, and as a
consequence, increase operating performance.
MANAGEMENT'S DISCUSSION AND
ANALYSIS OR PLAN OF OPERATION
Plan of Operation
The Trust and the Operating Partnership (which conducts all of the Trust's
real estate operations and holds title to all of its real estate assets and of
which the Trust is the sole general partner and a limited partner) commenced
operations in February 1998. Since June 1998, the Operating Partnership has
applied net proceeds of the Trust's Cash Offering to acquire property interests.
In June 1998, the Operating Partnership acquired beneficial ownership of a
67-unit residential apartment property located in Kissimmee, Florida known as
the Heatherwood Apartments - Phase I. The purchase price for the acquisition was
$830,000 above the then current principal balance of the First Mortgage Loan to
which the property is subject. In July 1998, the Operating Partnership acquired
beneficial ownership of an 80-unit residential apartment property located in
Lakeland, Florida known as the Crystal Court Apartments - Phase II. The purchase
price for the acquisition was $704,000 above the then current principal balance
of the First Mortgage Loan to which the property is subject.
In July 1998, the Operating Partnership also acquired a limited
partnership interest (less than 4% in each case) in 13 real estate limited
partnerships, including certain of the Exchange Partnerships, managed by
affiliates of Mr. McGrath (a founder and Chief Executive Officer of the Trust
and the Operating Partnership) in consideration of a capital contribution
ranging from $2,900 to $83,300 in each such partnership (aggregate amount
approximately $341,000). These various partnerships will be accounted for on the
cost method since their respective ownership interests represent less than 20%
of the equity ownership therein. In addition, the partnerships will periodically
assess the realizable value of these investments in order to ascertain that
there has been no impairment in their recorded value.
In September 1998, the Operating Partnership acquired beneficial ownership
of a 50-unit residential apartment property located in New Smyrna Beach, Florida
known as the Riverwalk Apartments. The purchase price for the acquisition was
$700,000 above the then current principal balance of the first mortgage loan to
which the property is subject. In September 1998, the Trust entered into an
agreement to acquire two luxury residential apartment properties (total 652
units) in Louisville and Burlington, Kentucky upon the completion of
construction for an aggregate purchase price in the range of approximately
$41,000,000 to $43,000,000. In connection therewith, the Trust agreed to
co-guarantee (along with Mr. McGrath), for a period of 60 days (plus any
extensions which may be granted), up to $3,000,000 of the development portion of
long-term construction loans to be made by an institutional lender to three
development companies controlled by Mr. McGrath in connection with the
development and construction of the two residential apartment properties and a
shopping center in Burlington, Kentucky.
Between October 1998, and May 1999 the Operating Partnership acquired an
approximately 37.2% limited partnership interest in a limited partnership which
is the owner and developer of a 168-unit residential apartment property under
construction in Alexandria, Kentucky known as Alexandria Apartments. The
aggregate purchase price for the acquired partnership interest was $1,210,000.
An affiliate of Mr. McGrath sold the partnership interest to the Operating
Partnership and also serves as the limited partnership's managing general
partner. Ninety eight of the 168 residential units (approximately 58%) have been
completed and are in the rent-up stage.
The property interests acquired by Operating Partnership to date are
described in further detail above at "INITIAL REAL ESTATE INVESTMENTS."
The Trust and the Operating Partnership intend to continue to acquire
similar property interests using proceeds from the Trust's Cash Offering,
securities of the Trust and the Operating Partnership, including Units
registered in connection with the Exchange Offering, and available operating
cash flow and financing from other sources.
The operating results of the Trust and the Operating Partnership will
depend primarily upon income from the residential apartment properties in which
they directly or indirectly acquire an equity or Subordinated Mortgage
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Interest. Operating results in respect of equity interests will be substantially
influenced by the demand for and supply of residential apartment units in their
primary market and sub-markets, and operating expense levels. Operating results
in respect of mortgage and other debt interests will depend upon interest
income, including, in certain cases, participation interest, whose payment will
depend upon the operating performance, sale or refinancing of the underlying
properties. The operating results of the Trust and the Operating Partnership
will also depend upon the pace and price at which they can acquire and improve
additional property interests.
The target metropolitan markets and sub-markets have benefited in recent
periods from demographic trends (including population and job growth) which
increase the demand for residential apartment units, while financing constraints
(specifically, reduced availability of development capital) have limited new
construction to levels significantly below construction activity in prior years.
Consequently, rental rates for residential apartment units have increased at or
above the inflation rate for the last two years and are expected to continue to
experience such increases for the next 18 months based on market statistics made
available to management of the Trust in terms of occupancy rates, supply,
demographic factors, job growth rates and recent rental trends. Expense levels
also influence operating results, and rental expenses (other than real estate
taxes) for residential apartment properties have generally increased at
approximately the rate of inflation for the past three years and are expected to
increase at the rate of inflation for the next 18 months.
The Trust believes that known trends, events or uncertainties which will
or are reasonably likely to affect the short-term and long-term liquidity and
current and future prospects of the Trust and the Operating Partnership include
the performance of the economy and the building of new apartment communities.
Although the Trust cannot reliably predict the effects of these trends, events
and uncertainties on the property investments of the Trust and the Operating
Partnership as a whole, some of the reasonably anticipated effects might include
downward pressure on rental rates and occupancy levels.
Generally, there are no seasonal aspects of the operations of the Trust or
the Operating Partnership which might have a material effect on their financial
condition or results of operation. However, for the last 36 months, one 60-unit
student housing property owned by one of the Exchange Partnerships involved in
the Exchange Offering has had an average occupancy rate of 93% for nine months
of the year and 40% for the remaining three months of the year.
The Trust and the Operating Partnership have the ability to satisfy their
cash requirements for the foreseeable future. However, it will be necessary to
raise additional capital during the next 12 months to make acquisitions and to
meet management's revenue and cash flow goals. The Trust and the Operating
Partnership intend to investigate making an additional public or private
offering of Common Shares and/or Units within the 12-month period following the
commencement of the Exchange Offering.
The Trust and the Operating Partnership expect no material change in the
number of employees over the next 12 months.
See also "THE EXCHANGE OFFERING," "THE TRUST AND THE OPERATING
PARTNERSHIP," "INVESTMENT OBJECTIVES AND POLICIES" and "INITIAL REAL ESTATE
INVESTMENTS."
Year 2000
The computer systems of the Trust and the Operating Partnership have been
tested for year 2000 problems and the Trust and the Operating Partnership
believe that such systems are year 2000 compatible. It is possible, however,
that certain computer systems or software products of their suppliers may
experience year 2000 problems and that such problems could adversely affect
them. The Trust and the Operating Partnership are in the process of inquiring as
to the progress of its principal suppliers in identifying and addressing
problems that their computer systems will face in correctly processing date
information as the year 2000 approaches. However, there can be no assurance that
the Trust and the Operating Partnership will identify the future date-handling
problems of their suppliers in advance of the occurrence of such problems, or
that such parties will be able to successfully remedy any problems that are
discovered. With respect to their own computer systems, the Trust and the
Operating Partnership intend to upgrade their principal operating computer
software to the most recent available revision sold by their software supplier,
which the supplier has represented to be year 2000 compliant. The Trust and the
Operating Partnership believe that such upgrade will identify and solve those
year 2000 problems that could affect their operating software and can be
accomplished before the year 2000 at a reasonable cost. The failure to identify
and solve all year 2000 problems affecting their business could have an adverse
effect on the business, financial
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condition and results of operations of the Trust and the Operating Partnership.
See "Risk Factors - Possible "Year 2000" Problems."
FEDERAL INCOME TAX CONSIDERATIONS
This section is a summary of material tax considerations that may be
relevant to prospective holders of Operating Partnership Units and Trust Common
Shares, based upon the Code, administrative regulations promulgated or proposed
by the Treasury Department (the "Regulations"), judicial decisions and rulings
of the Internal Revenue Service (the "IRS" or the "Service"), all of which are
subject to change (collectively the "Tax Laws"). Subsequent changes in such
authorities may cause the tax consequences to vary substantially from the
consequences described below.
Because many of the federal income tax consequences of an investment in
the Partnership will vary from one Unitholder to another, this summary does not
discuss all of the provisions of the Code that might be applicable to a
particular Unitholder. The discussion below focuses on Unitholders who are
individual citizens or residents of the United States and has only limited
application to corporations, estates, trusts, non-resident aliens or other
Unitholders subject to specialized tax treatment (such as tax-exempt
institutions, foreign persons, individual retirement accounts, REITs or mutual
funds). Unitholders should also be aware that the IRS may not agree with all of
the conclusions stated herein, and that no ruling will be requested from the
IRS. Moreover, changes in the Tax Laws after the date of this prospectus may
alter the tax consequences to a Unitholder of an investment in the Partnership.
Finally, various provisions of the Code contain a number of ambiguities, which
will be resolved only by future legislative, administrative or court action.
This summary is not intended as a substitute for individual tax planning.
Neither the Trust as General Partner of the Operating Partnership ("General
Partner"), the Operating Partnership nor any of their counsel or consultants
assumes any responsibility for the tax consequences of this transaction to any
Unitholder. Each prospective Unitholder is urged to consult with his own tax
advisor with respect to the federal, state, local and foreign tax consequences
arising from his or her acquisition, ownership or disposition of Operating
Partnership Units and Trust Common Shares.
CLASSIFICATION AS A PARTNERSHIP
No ruling has been or will be sought from the IRS as to the status of the
Operating Partnership as a partnership for federal income tax purposes. Instead,
the Operating Partnership has obtained and relied on the opinion of special tax
counsel that, based upon the Code, the Regulations thereunder, published revenue
rulings and court decisions, the Operating Partnership will be classified as a
partnership for federal income tax purposes.
In rendering its opinion, Tax Counsel has relied on the following factual
representations made by the Partnership and the General Partner:
o The Operating Partnership has not elected, and will not elect, to be
treated as an association taxable as a corporation or corporation;
o The Operating Partnership has been and will continue to be operated
in accordance with (i) all applicable partnership statutes, (ii) the
Agreement of Limited Partnership of the Operating Partnership, and
(iii) the description in this Prospectus;
o At least 22% in value of all of the assets of the Operating
Partnership shall always consist of assets other than those
described in Section 351(e)(1) of the Code; and
o The Operating Partnership will be operated so as to avoid treatment
as a publicly-traded partnership as set forth in Section 7704 of the
Code and applicable Regulations thereunder.
Under Section 7704 of the Code, certain "publicly-traded" partnerships are
treated as corporations for federal tax purposes. A partnership is a
publicly-traded partnership when interests in the partnership are traded on an
established securities market or are readily tradeable on a secondary market or
the substantial equivalent thereof.
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Under Code Section 7704(c), a publicly-traded partnership will nevertheless be
treated as a partnership for tax purposes if 90% or more of its gross income for
the taxable year and each preceding taxable year beginning after December 31,
1987, during which the partnership (or any predecessor) was in existence,
consists of passive-type income, such as interest, dividends, real property
rents and gain from the sale or other disposition of real property, and the
partnership would not be described as a regulated investment company under Code
Section 851(a).
Under Regulation Section 1.7704-1, interests in a partnership are
generally considered readily tradable on a secondary market or the substantial
equivalent thereof if (a) such interests are regularly quoted by any person,
such as a broker or dealer, making a market in the interests, (b) any person
makes available to the public bid or offer quotes with respect to such interests
and stands ready to effect buy or sell transactions at the quoted prices for
itself or on behalf of others, (c) the holder of an interest has a readily
available, regular and on-going opportunity to dispose of his interest through a
public means of obtaining or providing information of offers to buy, sell or
exchange such interests, or (d) prospective buyers and sellers have the
opportunity to buy, sell or exchange interests in a time frame and with the
regularity and continuity that the existence of a secondary market would
provide.
The Operating Partnership and the General Partner have represented to
special tax counsel that the Units of the Operating Partnership will not be
traded on an established securities market and will not be readily tradable on a
secondary market (or the substantial equivalent thereof) within the meaning of
the Regulations. Additionally, the Operating Partnership and the General Partner
have further represented that, at all times throughout the existence of the
Operating Partnership, at least 90% or more of the Operating Partnership's gross
income will consist of passive-type income, and the Operating Partnership will
not be described as a regulated investment company under Code Section 851(a).
Special tax counsel has relied on such representations in rendering its opinion
that the Operating Partnership will be classified as a partnership for federal
income tax purposes.
If the Operating Partnership were taxed as a corporation in any taxable
year, its items of income, gain, loss and deduction would be reflected only on
its tax return rather than being passed through to the Unitholders, and its net
income would be taxed to the Operating Partnership at corporate rates currently
ranging to a maximum federal rate of 35%. In addition, any distribution made to
a Unitholder would be treated as either taxable dividend income at a rate
currently ranging to a maximum federal rate of 39.6% (to the extent of the
Operating Partnership's current or accumulated earnings and profits) or (in the
absence of earnings and profits) a non-taxable return of capital (to the extent
of the Unitholder's tax basis in his or her Units) or taxable capital gain
(after the Unitholder's tax basis in the Units has been reduced to zero).
Accordingly, treatment of the Operating Partnership as an association taxable as
a corporation would result in a material reduction in a Unitholder's cash flow
and after-tax return and thus would likely result in a substantial reduction of
the value of the Units.
THE DISCUSSION BELOW IS BASED ON THE ASSUMPTION THAT THE OPERATING
PARTNERSHIP WILL BE CLASSIFIED AS A PARTNERSHIP FOR FEDERAL INCOME TAX PURPOSES.
EXCHANGE OF EXCHANGE PARTNERSHIP UNITS FOR OPERATING PARTNERSHIP UNITS
In general, a contribution by an owner ("Exchange Limited Partner") of a
partnership interest ("Exchange Partnership Units") to the Operating Partnership
in exchange for Units of the Operating Partnership (the "Exchange") will not
result in the recognition of taxable gain at the time of the Exchange. There is
an exception to this general rule if the Exchange Limited Partner receives in
connection with the Exchange a cash distribution (or a deemed cash distribution
resulting from relief from liabilities) that exceeds such Exchange Limited
Partner's aggregate adjusted basis in his or her Exchange Partnership Units at
the time of the Exchange and other exceptions to nonrecognition of gain
described in the immediately succeeding paragraph. Special tax counsel is unable
to issue an opinion as to whether or not a particular Exchange Limited Partner
will defer recognition of gain upon the Exchange due to the number of factors
that must be considered with respect to each Exchange Limited Partner. Whether a
particular Exchange Limited Partner will receive a deemed cash distribution
attributable to relief from liabilities in connection with the Exchange that
exceeds his or her adjusted basis in his or her Exchange Partnership Units at
the time of the Exchange will depend on a number of variables, including such
Exchange Limited Partner's adjusted tax basis in his or her partnership interest
at such time, the assets that the Exchange Limited Partner originally
contributed to the partnership in exchange for such Exchange Partnership Units,
the indebtedness, if any, of the partnership in which the Exchange Limited
Partner owns an interest (the "Exchange Partnership") at the time of the
Exchange, the tax basis of any such contributed assets in the hands of the
Exchange Partnership at the time of the Exchange, the Exchange Limited Partner's
share of the "unrealized gain" with respect to the Exchange Partnership's assets
at the time of the Exchange, and the extent to which the Exchange Limited
Partner includes in his or her basis for
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his or her Exchange Partnership Units a share of the Exchange Partnership's
recourse liabilities by reason of indemnification or "deficit restoration"
obligations that will be eliminated by reason of the Exchange.
Section 721(a) of the Code provides the general rule that "no gain or loss
shall be recognized to a partnership or to any of its partners in the case of a
contribution of property to the partnership in exchange for an interest in the
partnership." In addition, Section 731 of the Code provides that a distribution
of "money" by a partnership to a partner will not result in gain recognition
except to the extent that any "money" distributed exceeds the adjusted basis of
such partner's interest in the partnership immediately before the distribution.
The nonrecognition rules of Section 721 and Section 731 ordinarily apply even
when the transferred property is subject to liabilities (so long as the
assumption of such liabilities does not result in a deemed distribution of
"money" to the partner in excess of the partner's basis in the assets
contributed to the partnership). Accordingly, Section 721 and Section 731 may
apply to prevent the recognition of gain by either an Exchange Partnership or an
Exchange Limited Partner in connection with the Exchange. However, there are
several exceptions to the availability of nonrecognition treatment under Section
721 and Section 731 of the Code, including the following:
1. Any decrease in a partner's liabilities, if not offset by a
corresponding increase in the partner's share of other partnership
liabilities, could cause the partner to recognize taxable gain as a
result of the partner being deemed to have received a cash
distribution from the partnership in excess of the partner's
pre-distribution tax basis in the partnership interest. This
recognition of gain could occur even if the decrease arose in
connection with a contribution or distribution that would otherwise
qualify for tax-free treatment under Section 721 or Section 731 of
the Code. A decrease in a partner's share of partnership liabilities
(and the resulting deemed cash distribution) also might occur upon a
repayment of part or all of such liabilities following the exchange.
2. A contribution of property that is treated in whole or in part as a
"disguised sale" of the contributed property under the Code.
3. A distribution of "marketable securities" under Section 731(c) of
the Code.
4. Recapture under Section 465(e) of the Code.
5. A contribution of an appreciated asset to a partnership which would
be treated as an investment company (within the meaning of Section
351) if the partnership were incorporated.
The foregoing exceptions are discussed in greater detail below.
RELIEF FROM LIABILITIES/DEEMED CASH DISTRIBUTION
If an Exchange Limited Partner is deemed to receive a cash distribution as
a result of such Exchange Limited Partner's relief from its allocable share of
liabilities of an Exchange Partnership in connection with the Exchange, then
such Exchange Limited Partner will recognize taxable gain, but only to the
extent that the deemed cash distribution exceeds such Exchange Limited Partner's
adjusted tax basis in his or her Exchange Partnership Units immediately prior to
the Exchange. Whether the deemed cash distribution results in a taxable gain
depends upon a number of circumstances that can be determined only with full
knowledge of the specific details of each particular exchange.
Under the applicable provisions of the Code, partners in a partnership
include their share of the partnership's liabilities, determined in accordance
with Regulations under Section 752 of the Code, in determining the basis of
their partnership interests. Partners also include in the basis of their
partnership interests the adjusted tax basis of any capital contributions that
they have actually made to the partnership and their allocable share of all
partnership income and gains, and they reduce their basis by the amount of all
distributions that they received from the partnership and their allocable share
of all partnership losses. For purposes of these rules, if a partner's share of
the partnership's liabilities is reduced for any reason, the partner is deemed
to have received a cash distribution equal to the amount of such reduction.
In the case of the Exchange, these rules will be applied by reference to
the Exchange Limited Partner's share of the liabilities of the Exchange
Partnership immediately before the Exchange and that Exchange Limited Partner's
share of liabilities as a Unitholder in the Operating Partnership immediately
after the Exchange. Although the Code is not clear on whether netting of debt
relief and debt assumption is possible in the case of a contribution of
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a partnership interest to a partnership, Section 1.752-1(f) of the Regulations
indicates that netting is permissible. Thus, an Exchange Limited Partner will
offset his or her share of the liabilities of the Operating Partnership against
the elimination of such Exchange Limited Partner's share of liabilities of the
Exchange Partnership in determining the amount of the deemed cash distribution
to such Exchange Limited Partner. If an Exchange Limited Partner, however, is
deemed under these rules to receive a cash distribution in an amount in excess
of the basis immediately prior to the Exchange of the Exchange Limited Partner's
Exchange Partnership Units, the Exchange Limited Partner may recognize taxable
gain.
Under Section 752 of the Code and the Regulations thereunder, a partner's
share of partnership liabilities includes the partner's share of recourse
liabilities plus the partner's share of partnership nonrecourse liabilities.
These rules for sharing partnership liabilities are complex and their
application will vary among potential Exchange Limited Partners.
EACH POTENTIAL EXCHANGE LIMITED PARTNER IS URGED TO CONSULT WITH SUCH
PERSON'S OWN TAX ADVISOR CONCERNING THE EFFECT OF THE EXCHANGE ON PARTNERSHIP
LIABILITY SHARING (AND POTENTIAL GAIN RECOGNITION) FOR THAT PARTICULAR POTENTIAL
EXCHANGE LIMITED PARTNER. IT IS ESSENTIAL IN ASSESSING THE POTENTIAL IMPACT
RESULTING FROM A DEEMED RELIEF FROM LIABILITIES THAT EACH EXCHANGE LIMITED
PARTNER IN AN EXCHANGE PARTNERSHIP CONSULT WITH AND RELY SOLELY ON HIS OR HER
OWN TAX ADVISOR AS TO HIS OR HER PARTICULAR CIRCUMSTANCES.
DISGUISED SALE REGULATIONS
The Exchange will be taxable to an Exchange Limited Partner to the extent
that it is treated as a "disguised sale" of all or a portion of the Exchange
Limited Partner's Exchange Partnership Units under the Code or the Regulations.
Section 707 of the Code and the Regulations thereunder (the "Disguised Sale
Regulations") generally provide that, unless one of certain prescribed
exceptions is applicable, a partner's contribution of property to a partnership
and a contemporaneous transfer of money or other consideration from the
partnership (other than an interest in the partnership, such as the Operating
Partnership) to the partner will be treated as a sale, in whole or in part, of
such property by the partner to the partnership. The Disguised Sale Regulations
further provide that transfers of monies or other consideration between a
partnership and a partner that are made within two years of each other are
presumed to be a sale unless the facts and circumstances clearly establish that
either the transfers do not constitute a sale or an exception to disguised sale
treatment applies.
1. Effect of Assumption of Liabilities Under the Disguised Sale
Regulations. For purposes of these rules, certain reductions in a partner's
share of liabilities are treated as a transfer of money or other property from
the partnership to the partner which may give rise to a disguised sale, even if
that reduction would not otherwise result in a taxable deemed cash distribution
in excess of the partner's basis. Furthermore, the method of computing the
existence and amount of any reduction in a partner's share of liabilities under
the Disguised Sale Regulations is different from, and generally more onerous
than, the method applied under the rules discussed above under the heading
"Relief From Liabilities/Deemed Cash Distribution." However, if a transfer of
property by a partner to a partnership is not otherwise treated to any extent as
part of a disguised sale, any reduction in the partner's share of "qualified
liabilities" (discussed below) is not treated as part of a disguised sale.
Moreover, even if the transfer otherwise constitutes a disguised sale to some
extent, the amount of the reduction in the partner's share of liabilities
treated as part of the sale proceeds may in some cases be computed under a more
favorable method in the case of "qualified liabilities" than in the case of
other liabilities.
For purposes of the Disguised Sale Regulations, a "qualified liability" in
connection with a transfer of property to a partnership includes (i) any
liability incurred more than two years prior to the earlier of the date the
partner agrees in writing to transfer the property or the date the partner
transfers the property, so long as the liability has encumbered the transferred
property throughout the two-year period; (ii) a liability that was not incurred
in anticipation of the transfer of the property to a partnership, but that was
incurred by the partner within the two-year period prior to the earlier of the
date the partner agrees in writing to transfer the property or the date the
partner transfers the property to a partnership and that has encumbered the
transferred property since it was incurred; (iii) a liability that is traceable
under the Treasury Regulations to capital expenditures with respect to property
contributed to the partnership; and (iv) a liability that was incurred in the
ordinary course of the trade or business in which property transferred to the
partnership was used or held, but only if all the assets related to that trade
or business are transferred to the partnership, other than assets that are not
material to a continuation of the trade or business.
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However, a recourse liability is not a qualified liability unless the amount of
the liability does not exceed the fair market value of the transferred property
(less any other liabilities that are senior in priority and encumber such
property or any qualified liabilities described in (iii) or (iv), above) at the
time of transfer. A liability incurred within two years of the transfer is
presumed to be incurred in anticipation of the transfer unless the facts and
circumstances clearly establish that the liability was not incurred in
anticipation of the transfer. However, when contributed property is borrowed
against, pledged as collateral for a loan, or otherwise refinanced, and the
proceeds of the loan are distributed to the contributing partner, there is no
disguised sale to the extent that the proceeds are attributable to indebtedness
properly allocable to the contributing partner under the rules of Section 752 of
the Code and the partner retains substantive liability for the repayment of the
loan. Finally, if a partner treats a liability described in (i) or (ii) above as
a "qualified liability" because the facts clearly establish that it was not
incurred in anticipation of the transfer, such treatment must be disclosed to
the IRS in the manner set forth in the Disguised Sale Regulations.
Special tax counsel does not have adequate information, and is therefore
unable to determine, whether or not any liabilities of a particular Exchange
Partnership assumed by the Operating Partnership in the Exchange fall into one
of the four categories of "qualified liabilities" described above. Thus, special
tax counsel is unable to render an opinion with regard to that matter. In any
event, certain liabilities of each Exchange Partnership may be qualified
liabilities solely by reason of exception (i) or (ii) in the preceding
paragraph, and thus, the Exchange Partnership and former Exchange Limited
Partner may be required to make disclosure with respect to those liabilities in
their tax returns for the year in which the Exchange occurs.
2. Effect of Cash Distributions Under the Disguised Sale Regulations. Cash
distributions from a partnership to a partner may be treated as a transfer of
property for purposes of the "disguised sale" rules. An exception applies,
however, to distributions of "operating cash flow," as such term is defined in
the Disguised Sale Regulations. Operating cash flow distributions are presumed
not to be a part of a sale of property to a partnership unless the facts and
circumstances clearly establish that the distribution of operating cash flow is
part of a sale. The General Partner and the Operating Partnership do not intend
to make any distribution of cash from the Operating Partnership to the Exchange
Limited Partners of the Exchange Partnership Units upon exchange of such
interests to the Operating Partnership. The Operating Partnership believes that
its periodic distributions of cash to Exchange Limited Partners will qualify as
distributions of "operating cash flow" under the Disguised Sale Regulations.
3. Effect of Right to Convert to a Share of the Trust. The Regulations
provide that the Section 731 nonrecognition provision regarding distribution of
property by a partnership does not apply where property is contributed to a
partnership and, within a short period, other property is distributed to the
contributing partner. The existence of the right by each Unitholder to exchange
his or her Units of the Operating Partnership for Common Shares of Beneficial
Interest of the Trust (the "Conversion Right") might be considered to be "other
property" received by the Exchange Limited Partners in connection with the
Exchange that will cause some portion of the Exchange to be considered to be a
disguised sale. Special tax counsel is not able to issue an opinion as to
whether the conversion right received by the Exchange Limited Partners will be
treated as "other property." Additionally, otherwise "qualified liabilities"
could also be taxable if the Conversion Right is treated as other property (see
"Effect of Disguised Sale Characterization" immediately below).
4. Effect of Disguised Sale Characterization. In any case in which a
transfer of Exchange Partnership Units to the Operating Partnership is found to
be a "disguised sale," all or a substantial portion of the gain represented by
the excess of the fair market value of the Units received by each Exchange
Limited Partner over the tax basis of the Exchange Limited Partner's Exchange
Partnership Units would be recognized by the Exchange Limited Partner. If a
transfer of property to a partnership and one or more transfers of money or
other consideration (including the assumption or taking subject to a liability)
by the partnership to that partner are treated as a disguised sale, then the
transfers will be treated as a sale of property, in whole or in part, to the
partnership by the partner acting in a capacity other than as a member of a
partnership, rather than as a contribution under Section 721 of the Code and a
partnership distribution. A transfer that is treated as a sale is treated as a
sale for all purposes of the Code and the sale is considered to take place on
the date that, under general principles of federal tax law, the partnership is
considered to become the owner of the property.
If a transfer of property by a partner to a partnership is treated as part
of a sale without regard to the partnership's assumption of or taking subject to
a qualified liability in connection with the transfer of property, the
partnership's assumption of or taking subject to that liability is treated as a
transfer of consideration made pursuant to a sale of such property to the
partnership only to the extent of the lesser of: (1) the amount of consideration
that the partnership would be treated as transferring to the partner if the
liability were not a qualified liability, or (2) the amount obtained by
multiplying the amount of the qualified liability by the partner's net equity
percentage with
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respect to that property. A partner's net equity percentage with respect to an
item of property is generally the amount of consideration received by such
partner (other than relief from "qualified liabilities") divided by the
partner's net equity in the property sold, as calculated under the Disguised
Sale Regulations.
SECTION 465(E) RECAPTURE
In general, the "at-risk" rules of Section 465 of the Code limit the use
of losses, (see "Tax Treatment of Partners Who Hold Operating Partnership Units
After the Exchange" below and "Limitations on Deductibility of Losses; Treatment
of Passive Activities and Portfolio Income," below). Under Section 465(e) of the
Code, a taxpayer may be required to include in gross income (i.e., to
"recapture") losses previously allowed to the taxpayer with respect to an
"activity," if the amount for which the taxpayer is "at risk" in the activity is
less than zero at the close of the taxable year.
The identification of a taxpayer's activities for purposes of the at-risk
rules and the determination of a taxpayer's amount at risk in an activity are
complex and uncertain. However, as a general matter a taxpayer's amount at risk
in an activity is increased by the taxpayer's income, and reduced by the
taxpayer's losses, from the activity. Therefore, any income taken into account
by an Exchange Limited Partner as a result of a deemed cash distribution or
disguised sale treatment is likely to reduce the extent to which Section 465(e)
of the Code would apply to that Exchange Limited Partner.
Nevertheless, it is possible that the consummation of the Exchange or the
repayment of certain "qualified nonrecourse financing" (as defined in Section
465(b)(6) of the Code) of the Operating Partnership or an Exchange Partnership
at the time of or following the Exchange, singularly or in combination, could
cause a former Exchange Limited Partner 's amount at risk in an activity to be
reduced below zero and could, therefore, cause an income inclusion to the former
Holder under Section 465(e) of the Code. In this regard, the definition of
"qualified nonrecourse financing" is different from, and in certain material
respects more restrictive than, the definition of "nonrecourse liabilities" that
are taken into account under Section 752 of the Code. Hence, it is possible that
a partner can incur a reduction in his or her share of "qualified nonrecourse
financing" that causes the partner to recognize income under Section 465(e) of
the Code even though the partner has a sufficient share of "nonrecourse
liabilities" under Section 752 of the Code so that the partner would not be
deemed to have received a deemed cash distribution in excess of his or her basis
in his or her partnership interest (and thus recognized gain as a result
thereof).
TRANSFER TO AN INVESTMENT COMPANY
The Operating Partnership and the General Partner intend that, throughout
the term of the Operating Partnership, at least 22% of the total value of all
assets of the Operating Partnership will consist of assets other than those
described in Section 351(e)(1) of the Code and the Regulations thereunder
("Liquid Assets").
Section 721(a) of the Code provides the general rule that "no gain or loss
shall be recognized to a partnership or to any of its partners in the case of a
contribution of property to the partnership in exchange for an interest in the
partnership." Section 721(b) of the Code, however, provides that gain (but not
loss) must be recognized in the case of a "transfer of property to a partnership
which would be treated as an investment company (within the meaning of Section
351) if the partnership were incorporated."
Pursuant to Section 1.351-1(c)(1) of the Regulations, as applied to
partnerships, a transfer of property to a partnership will be considered to be a
transfer to an investment company if (a) the transfer results, directly or
indirectly, in diversification of the transferors' interests, and (b) more than
80% of the value of the partnership's assets are held for investment and are
readily marketable stocks or securities or interests in regulated investment
companies or real estate investment trusts (the "not-more-than-80%-of-assets"
test).
Section 351(e)(1) of the Code provides that the determination of whether a
company is an investment company is made: (a) by taking into account all stocks
and securities held by the company; and (b) by treating as stock and securities
- - (i) money, (ii) stocks and other equity interests in a corporation, evidences
of indebtedness, options, forward or future contracts, notional principal
contracts and derivatives, (iii) any foreign currency, (iv) any interest in a
real estate investment trust, a common trust fund, a regulated investment
company, a publicly-traded partnership (as defined in Section 7704(b)) or any
other equity interest (other than in a corporation) which pursuant to its terms
or any other arrangement is readily convertible into, or exchangeable for, any
asset described in clauses (i) through (iv) or clause (v) or clause (viii), (v)
except to the extent provided in the Regulations, any interest in a
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precious metal, unless such metal is used or held in the active conduct of a
trade or business after the contribution, (vi) except as otherwise provided in
the Regulations, interests in any entity if substantially all of the assets of
such entity consist (directly or indirectly) of any assets described in any of
the preceding clauses or clause (viii), (vii) to the extent provided in the
Regulations, any interest in any entity not described in clause (vi), but only
to the extent of the value of such interest that is attributable to assets
listed in clauses (i) through (v) or clause (viii), or (viii) any other assets
specified in the Regulations. Assets not covered by Section 351(e)(1) are
hereinafter referred to as "Liquid Assets."
Although "money" is treated as a stock or security (see clause (i) above),
Regulation Section 1.351-1(c)(2) provides that "[T]he determination of whether a
corporation is an investment company shall ordinarily be made by reference to
the circumstances in existence immediately after the transfer in question.
However, where circumstances change thereafter pursuant to a plan in existence
at the time of the transfer, this determination shall be made by reference to
the later circumstances." The 1997 Taxpayer Relief Act Senate Committee Report
states that although cash is counted as a tainted asset for purposes of the
not-more-than-80%-of-assets test, the preceding Regulation should be applied so
that if, as a part of a plan, cash is used to purchase assets that are not
treated as stock or securities, then the investment company determination is
made after the asset purchase.
Based on the preceding, cash owned by the Operating Partnership will be
considered "stock and securities" (and therefore not a Liquid Asset) unless the
Operating Partnership has a written plan in existence at the time that the cash
is obtained to use the cash to purchase assets other than those listed in Code
Section 351(e)(1) and the Operating Partnership does in fact use the cash for
such purpose.
Additionally, the Exchange Partnership Units that are contributed to the
Operating Partnership will be considered "stock and securities" since they are
exchangeable for shares of the Trust, which is a real estate investment trust
(see clause (iv) above).
Although the Exchange of Exchange Partnership Units to the Operating
Partnership will result in a diversification of an Exchange Limited Partner's
interests, the Operating Partnership will not meet the other test that, if
otherwise satisfied, would result in the Operating Partnership being classified
as an "investment company." Based on the plans and intentions of the Operating
Partnership and the General Partner, upon the transfer of a partnership interest
to the Operating Partnership, at least 22% of the value of the Operating
Partnership's assets will consist of Liquid Assets. Consequently, at the time of
contribution of a partnership interest to the Operating Partnership, not more
than 80% of the Operating Partnership's assets will consist of assets that are
not Liquid Assets.
If the Operating Partnership is considered an investment company, the
Exchange of existing partnership interests in exchange for Units of the
Operating Partnership will be currently taxable.
WITHHOLDING
If any gain is recognized in connection with the Exchange by an Exchange
Limited Partner who is not considered a U.S. resident for tax purposes,
withholding (in an amount equal to 10% of the "amount realized" by such Exchange
Limited Partner, which would include both the value of the Operating Partnership
Units received and such Exchange Limited Partner's share of the liabilities of
the Exchange Partnership, as determined for federal income tax purposes) may be
required. Alternatively, if gain were recognized by the Exchange Partnership,
the non-U.S. Unitholder could be subject to withholding at the current rate of
35% on his share of the gain. As a condition to the receipt of Operating
Partnership Units in the Exchange, each Exchange Limited Partner who does not
want to be subject to such withholding will have to provide to the Operating
Partnership either a certification, made under penalties of perjury, that he or
she is a United States citizen or resident (or if an entity, an entity organized
under the laws of the United States) or, alternatively, a notice of
nonrecognition treatment with respect to the Exchange in a form reasonably
acceptable to the Operating Partnership.
TAX TREATMENT OF UNITHOLDERS WHO HOLD OPERATING PARTNERSHIP UNITS AFTER THE
EXCHANGE
INCOME AND DEDUCTIONS IN GENERAL. Each Unitholder will be required to
report on his or her income tax return his or her allocable share of income,
gains, losses, deductions and credits of the Operating Partnership. Such items
must be included on the Unitholder's federal income tax return without regard to
whether the Operating Partnership makes a distribution of cash to such
Unitholder. No federal income tax will be payable by
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the Operating Partnership so long as it qualifies as a partnership for federal
income tax purposes (see "Classification as a Partnership").
TREATMENT OF PARTNERSHIP DISTRIBUTIONS. Distributions of money by the
Operating Partnership to a Unitholder (including for these purposes decreases in
a Unitholder's share of Partnership liabilities) generally will not be taxable
to such Unitholder for federal income tax purposes to the extent of such
Unitholder's aggregate basis in his or her Operating Partnership Units
immediately prior to the distribution. Distributions of money in excess of such
basis generally will be considered to be gain in the amount of such excess, a
portion of which may be taxed as ordinary income. Any reduction in a
Unitholder's share of the Operating Partnership's non-recourse liabilities,
whether through repayment, refinancing with recourse liabilities, refinancing
with non-recourse liabilities secured by the other assets, or otherwise, may be
treated as a distribution of money to such Unitholder. An issuance of additional
Operating Partnership Units by the Operating Partnership without a corresponding
increase in debt may decrease each existing Unitholder's share of non-recourse
liabilities of the Operating Partnership and, thus, will result in a
corresponding deemed distribution of money.
INITIAL BASIS OF OPERATING PARTNERSHIP UNITS. In general, an Exchange
Limited Partner who acquires Operating Partnership Units in the exchange will
have an initial tax basis in such Operating Partnership Units ("Initial Basis")
equal to the aggregate basis in his or her interest in his or her Exchange
Partnership, adjusted to reflect the effects of the Exchange (that is, reduced
to reflect any deemed distributions resulting from a reduction in the former
holder's share of liabilities and increased to reflect any gain required to be
recognized in connection with the Exchange).
As a result of the decreases in each Unitholder's share of Partnership
non-recourse liabilities that may result from the consummation of the Exchange
(see "Tax Consequences of the Exchange - Relief from Liabilities/Deemed Cash
Distribution"), each Exchange Limited Partner who receives Operating Partnership
Units may have an Initial Basis in his or her Operating Partnership Units that
is significantly lower than the basis in his or her interest in his or her
Exchange Partnership immediately prior to the Exchange. Because of this
reduction in basis, distributions of cash and deemed distributions resulting
from a reduction of a Unitholder's share of Partnership non-recourse liabilities
may be taxable to an Exchange Limited Partner sooner than if such basis
reduction had not occurred. Such basis reduction also would affect the
Unitholder's ability to deduct its share of any Partnership tax losses. For the
effects on an Exchange Limited Partner of a reduction in basis that may result
from the Exchange, see "See Exchange of Exchange Partnership Units for Operating
Partnership Units -- Relief from Liabilities/Deemed Cash Distribution" and
"Treatment of Partnership Distributions," above and -- "Limitations on
Deductibility of Losses; Treatment of Passive Activities and Portfolio Income,"
below.
Each former Exchange Limited Partner's Initial Basis in his or her
Operating Partnership Units will generally be increased by (a) his or her share
of Operating Partnership taxable income and Operating Partnership exempt income
and, (b) his or her share of increases in non-recourse liabilities incurred by
the Operating Partnership, if any. Generally, each former Exchange Limited
Partner's Initial Basis in his or her Operating Partnership Units will be
decreased (but not below zero) by (i) his or her share of Partnership
distributions, (ii) his or her share of decreases in liabilities of the
Operating Partnership, including any decrease in the Exchange Limited Partner's
share of non-recourse liabilities of the Operating Partnership (see "Exchange of
Exchange Partnership Units for Operating Partnership Units - Relief from
Liabilities/Deemed Cash Distribution"), (iii) his or her share of any losses of
the Operating Partnership, and (iv) his or her share of non-deductible
expenditures of the Operating Partnership that are not chargeable to capital
account.
ALLOCATIONS OF PARTNERSHIP INCOME, GAIN, LOSS AND DEDUCTIONS. The
Agreement of Limited Partnership of the Operating Partnership (the "Partnership
Agreement") provides that, if the Operating Partnership operates at a net loss,
net losses shall be allocated to the Unitholders in proportion to their
respective percentage ownership interests in the Operating Partnership, provided
that net losses that would have the effect of creating a deficit balance in a
limited partner's capital account (as specially adjusted for such purpose)
("Excess Loss") will be reallocated to the General Partner. The Partnership
Agreement also provides that, if the Operating Partnership operates at a net
profit, net income will first be allocated to the General Partner to the extent
of Excess Losses with respect to which the General Partner has not previously
been allocated net income, and any remaining net income shall be allocated to
the Unitholders in proportion to their respective percentage ownership interests
in the Operating Partnership. Notwithstanding the preceding, the Partnership
Agreement permits the General Partner to issue additional Units to the General
Partner and to third parties whereby such Units may have special rights,
preferences and designations, including with regard to allocations of net income
and net losses, that are senior to the rights of the other Unitholders
("Preferred Units"). Net income and net loss of the Operating
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Partnership for the taxable year of liquidation of the Operating Partnership is
to be allocated first to eliminate negative balances in each Unitholder's
capital account and then, to the extent possible, in a manner such that the
capital accounts of the Unitholders immediately prior to final liquidating
distributions are equal to the amount which would have been distributable to
Unitholders as set forth in the Partnership Agreement.
EFFECT OF THE EXCHANGE ON DEPRECIATION. The Exchange may adversely affect
the computation of depreciation deductions with respect to assets of each
Exchange Partnership. Pursuant to Code Section 708(b)(1)(B), a partnership will
be considered to have been terminated if within a twelve month period, there is
a sale or exchange of 50% or more of the interests in partnership capital and
profits. As a result of the exchange of one or more interests of an Exchange
Partnership, an Exchange Partnership may "terminate" under Section 708(b)(1)(B)
of the Code. Section 168(i)(7) of the Code provides, in effect, that when a
partnership terminates under Section 708(b)(1)(B) of the Code, the partnership
must begin new depreciation periods for its property. As a result, if there is a
tax termination of an Exchange Partnership, the remaining basis of the assets of
the Exchange Partnership will be depreciated over the period that would apply if
those assets were newly acquired by the such terminated Exchange Partnership in
a purchase transaction.
TAX ALLOCATIONS WITH RESPECT TO BOOK-TAX DIFFERENCE ON CONTRIBUTED
PROPERTIES. Pursuant to Section 704(c) of the Code, income, gain, loss and
deduction attributable to appreciated or depreciated property that is
contributed to a partnership must be allocated for federal income tax purposes
in a manner such that the contributor is charged with, or benefits from, the
unrealized gain or unrealized loss associated with the property at the time of
contribution. The amount of such unrealized gain or unrealized loss is generally
equal to the difference between the fair market value of the contributed
property at the time of contribution and the adjusted tax basis of such property
at the time of contribution (referred to as "Book-Tax Difference"). These rules
will apply with respect to the contribution of Exchange Partnership Units to the
Operating Partnership in the Exchange.
The Partnership Agreement requires allocations of income, gain, losses and
deductions attributable to the properties as to which there Book-Tax Difference
be made in a manner that is consistent with Section 704(c) of the Code. The
Partnership Agreement authorizes the General Partner to elect any method
prescribed by the Regulations to be used by the Operating Partnership for
allocation of items affected by Section 704(c) of the Code. As a result of
Section 704(c), in general, a contributor of Exchange Partnership Units will be
allocated lower amounts of depreciation deductions for tax purposes and
increased taxable income and gain until such time that the Book-Tax Difference
is reduced to zero. In addition, depending on the method of allocation that is
selected, the contributor could be allocated items of income for tax purposes to
offset depreciation which is allocated to other partners in excess of
depreciation otherwise permitted to be allocated to other partners by the
ceiling rule of the Regulations. This would tend to eliminate the Book-Tax
Difference.
DISSOLUTION OF PARTNERSHIP. In the event of the dissolution of the
Operating Partnership, a distribution of Partnership property (other than money)
will not result in taxable gain to a Unitholder (except to the extent provided
in Sections 737, 704(c)(1)(B) and 731(c) of the Code). A Unitholder will hold
such distributed property with a basis equal to the adjusted basis of such
Operating Partnership Units, reduced by any money distributed in liquidation.
Further, the liquidation of the Operating Partnership will be taxable to a
holder of Operating Partnership Units to the extent that any money distributed
in liquidation (including any money deemed distributed as a result of relief
from liabilities) exceeds such holder's tax basis in his or her Operating
Partnership Units.
LIMITATIONS ON DEDUCTIBILITY OF LOSSES; TREATMENT OF PASSIVE ACTIVITIES
AND PORTFOLIO INCOME. The passive loss limitations generally provide that
individuals, estates, trusts and closely held corporations and personal service
corporations can deduct losses from passive activities (generally, activities in
which the taxpayer does not materially participate), only to the extent that
such losses are not in excess of the taxpayer's income from passive activities
or investments. If the partnership were to be classified as a publicly traded
partnership under the Code (see "Classification as a Partnership" above), any
losses or deductions allocable to a holder of Operating Partnership Units could
be used only against gains or income of the Operating Partnership and could not
be used to offset passive income from other passive activities. Similarly, any
Partnership income or gain allocable to a holder of Operating Partnership Units
could not be offset with losses from other passive activities of such holder.
In addition to the foregoing limitations, a holder of Operating
Partnership Units may not deduct from taxable income its share of Partnership
losses, if any, to the extent that such losses exceed the lesser of (i) the
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adjusted tax basis of his or her Operating Partnership Units at the end of the
Operating Partnership's taxable year in which the loss occurs, and (ii) the
amount for which such holder is considered "at risk" at the end of that year. In
general, a holder of Operating Partnership Units will initially be "at risk" to
the extent of his or her basis in his or her Units (unless the Unitholder
borrowed amounts on a non-recourse basis to acquire such interest), including
for such purposes only such Unitholder's share of the Operating Partnership's
liabilities, as determined under Section 752 of the Code, that are considered
"qualified non-recourse financing" for purposes of the "at risk" rules. After
consummation of the Exchange, in general, a Unitholder's at-risk amount will
increase or decrease as the adjusted basis in his or her Operating Partnership
Units increases or decreases. Losses disallowed to a Unitholder as a result of
these rules can be carried forward and may be allowable to such holder to the
extent that his or her adjusted basis or at-risk amount (whichever was the
limiting factor) is increased in a subsequent year. The at-risk rules apply to
an individual partner, an individual shareholder of a corporate partner that is
an S corporation and a corporate partner if 50% or more of the value of stock of
such corporate partner is owned directly or indirectly by five or fewer
individuals at any time during the last half of the taxable year.
SECTION 754 ELECTION. The General Partner has the authority, in its sole
and absolute discretion, to determine whether to make any available election
pursuant to the Code including, without limitation, an election under Section
754 of the Code. Once made, a Section 754 Election is irrevocable without the
consent of the IRS. If made, the Section 754 Election would generally permit a
purchaser of Operating Partnership Units to adjust his or her share of the basis
in the Operating Partnership's properties ("Inside Basis") pursuant to Section
743(b) of the Code to fair market value (as reflected by the value of
consideration paid for the Operating Partnership Units), as if such purchaser
had acquired a direct interest in the Operating Partnership's Assets. The
Section 743(b) adjustment is attributed solely to a purchaser of Operating
Partnership Units and is not added to the basis of Partnership's assets
associated with all of the Operating Partnership's Unitholders.
A Section 754 Election is advantageous if the transferee's tax basis in
his or her interest is higher than such interest's share of the aggregate tax
basis to the partnership of the partnership's assets immediately prior to the
transfer. In such a case, as a result of the election, the transferee would have
a higher tax basis in his or her share of the partnership's assets for purposes
of calculating, among other items, his or her depreciation and depletion
deductions and his or her share of any gain or loss on a sale of the
partnership's assets. Conversely, a Section 754 Election is disadvantageous if
the transferee's tax basis in such interest is lower than such interest's share
of the aggregate tax basis of the partnership's assets immediately prior to the
transfer. Thus, the fair market value of the interests may be affected either
favorably or adversely by the election.
DISPOSITION OF OPERATING PARTNERSHIP UNITS BY UNITHOLDERS. If a
Partnership Unit is sold or otherwise disposed of, the determination of gain or
loss from the sale or other disposition will be based on the difference between
the amount realized and the tax basis for such Partnership Unit. Upon the sale
of a Partnership Unit, the "amount realized" will be measured by the sum of the
cash and fair market value of other property received for the Operating
Partnership Unit plus the portion of the Operating Partnership's liabilities
considered allocable to the Operating Partnership Unit sold. Similarly, upon a
gift of a Partnership Unit, a Unitholder will be deemed to have realized an
amount with respect to the portion of the Operating Partnership's nonrecourse
liabilities considered allocable to such Partnership Unit. To the extent that
the sum of the amount of cash or property received and the allocable share of
the Operating Partnership's liabilities exceeds the holder's basis for the
Operating Partnership Unit disposed of, such Unitholder will recognize gain. The
tax liability resulting from such gain could exceed the amount of cash received
from such disposition.
To the extent that the amount realized upon the sale of the Operating
Partnership Unit attributable to a Unitholder's share of "unrealized
receivables" or inventory items (if any) of the Operating Partnership exceeds
the basis attributable to those assets, such excess will be treated as ordinary
income. Unrealized receivables include, to the extent not previously includable
in Partnership income, any rights to payment for services rendered or to be
rendered. Unrealized receivables also include amounts that would be subject to
recapture as ordinary income if the Operating Partnership had sold its assets at
their fair market value at the time of the transfer of a Partnership Unit, such
as "depreciation recapture" under Sections 1245 and 1250 of the Code.
TAX TREATMENT OF CONVERSION RIGHT. If a Unitholder exercises his or her
right to exchange his or her Operating Partnership Units for Common Shares of
the Trust, or if upon a Unitholder's election to convert, the Trust satisfies
the Unitholder's conversion right by paying cash for the Unitholder's Operating
Partnership Units, such transaction will be a fully taxable sale with respect to
the Unitholder. As a result, the Unitholder will be treated as realizing an
amount equal to the amount of the cash or the value of the Common Shares
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received upon the conversion plus the amount of liabilities of the Operating
Partnership considered allocable to the redeemed Operating Partnership Units at
the time of the redemption.
CONSTRUCTIVE TERMINATION. A partnership, will be considered to have been
terminated for tax purposes if there is a sale or exchange of 50% or more of the
total interests in partnership capital and profits within a twelve-month period.
Under existing Regulations, a termination of a partnership will result in a
deemed transfer by a partnership of its assets to a new partnership in exchange
for an interest in a new partnership followed by a deemed distribution of
interests in the new partnership to the partners of the terminated partnership
in liquidation of the partnership. Under the 1997 Taxpayer Relief Act, if a
partnership is permitted to elect and does elect to be treated as a large
partnership, it will not terminate by reason of the sale or exchange of
interests in the partnership. A termination of the partnership will result in
the closing of the partnership's taxable year for all partners. In the case of a
partner reporting on a taxable year other than a fiscal year ending December 31,
the closing of the partnership's taxable year may result in more than twelve
months' taxable income or loss of the partnership being includable in the
partner's taxable income for year of termination. New tax elections by the
partnership, including a new election under Section 754 of the Code, would be
required to be made subsequent to a termination if such an election continues to
be desired, and a termination could result in a deferral of partnership
deductions for depreciation. A termination could also result in penalties if the
partnership were unable to determine that the termination had occurred.
Moreover, a termination might either accelerate the application of or subject
the partnership to, any tax legislation enacted prior to the termination.
TAX-EXEMPT ORGANIZATIONS AND CERTAIN OTHER INVESTORS
Ownership of Units by employee benefit plans, other tax exempt
organizations, non-resident aliens, foreign corporations, other foreign persons
and regulated investment companies raise issues unique to such persons and, as
described below, may have substantially adverse tax consequences.
Employee benefit plans and most other organizations exempt from federal
income tax (including IRAs and other retirement plans) are subject to federal
income tax on unrelated business taxable income. Much of the taxable income
derived by such an organization from the ownership of a Unit will be unrelated
business taxable income and thus will be taxable to such a Unitholder.
Non-resident aliens and foreign corporations, trusts or estates which hold
Units will be considered to be engaged in business in the United States on
account of ownership of Units. As a consequence, they will be required to file
federal tax returns in respect of their share of Partnership income, gain, loss
or deduction and pay federal income tax at regular rates on any net income or
gain. Generally, a partnership is required to pay a withholding tax on the
portion of the partnership's income which is effectively connected with the
conduct of a United States trade or business and which is allocable to the
foreign partners, regardless of whether any actual distributions have been made
to such partners. However, under rules applicable to publicly-traded
partnerships, a partnership must withhold on actual cash distributions made
quarterly to foreign Unitholders. Each foreign Unitholder must obtain a taxpayer
identification number from the IRS and submit that number to the transfer agent
of the Operating Partnership in order to obtain credit for the taxes withheld.
Any change in applicable law may require the Operating Partnership to change
these procedures.
Because a foreign corporation which owns Units will be treated as engaged
in a United States trade or business, such a corporation may be subject to
United States branch profits tax at a rate of 30% in addition to regular federal
income tax on its allocable share of the Operating Partnership's income and gain
(as adjusted for changes in the foreign corporation's "United States net
equity") which is effectively connected with the conduct of a United States
trade or business. That tax may be reduced or eliminated by an income tax treaty
between the United States and the country with respect to which a foreign
corporate Unitholder is a qualified resident. In addition, such a Unitholder is
subject to special information reporting requirements under Section 6038C of the
Code.
Under a ruling of the IRS, a foreign Unitholder who sells or otherwise
disposes of Units will be subject to federal income tax on gain realized on the
disposition of such Unit to the extent that such gain is effectively connected
with the United States trade or business of the foreign Unitholder.
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PARTNERSHIP INCOME TAX INFORMATION RETURNS AND PARTNERSHIP AUDIT PROCEDURES
The General Partner on behalf of the Operating Partnership will use
reasonable efforts to furnish the Unitholders with the tax information
reasonably required by Unitholders for federal and state income tax reporting
purposes within 90 days after the close of each Partnership taxable year.
The federal income tax information returns filed by the Operating
Partnership may be audited by the Service. The Code contains partnership audit
procedures governing the manner in which the Service audit adjustments of
partnership items are resolved. The Operating Partnership may be able to elect
the simplified pass-through system for audits that was enacted as part of the
1997 Taxpayer Relief Act. Such election is available to partnerships that have
100 or more partners and meet certain other requirements set forth in the
Taxpayer Relief Act.
Partnerships generally are treated as separate entities for purposes of
federal tax audits, judicial review of administrative adjustments by the IRS and
tax settlement proceedings. The tax treatment of Partnership items of income,
gain, loss, deduction and credit is determined at the partnership level in a
unified partnership proceeding, rather than in separate proceedings with each
partner. The Code provides for one partner to be designated as the "Tax Matters
Partner" for these purposes. The Partnership Agreement appoints the General
Partner as the Tax Matters Partner for the Operating Partnership.
The Tax Matters Partner is authorized, but not required, to take certain
actions on behalf of the Operating Partnership and the Unitholders and can
extend the statute of limitations for assessment of tax deficiencies against
Unitholders with respect to Partnership items. The Tax Matters Partner will make
a reasonable effort to keep each Unitholder informed of administrative and
judicial tax proceedings with respect to Partnership's items to the extent
required pursuant to Regulations issued under Section 6223 of the Code. The Tax
Matters Partner is authorized to enter into any settlement with the IRS with
respect to any administrative or judicial proceedings for the adjustment of
Partnership items required to be taken into account by a Unitholder for income
tax purposes, and in the settlement agreement the Tax Matters Partner may
expressly state that such agreement shall bind all Unitholders, provided,
however, that such settlement agreement shall not bind any Unitholder (a) who
(within the time prescribed pursuant to the Code and Regulations) files a
statement with the IRS providing that the Tax Matters Partner shall not have the
authority to enter into a settlement agreement on behalf of such Unitholder or
(b) who is a "notice partner" (as defined in Section 6231 of the Code) or a
member of a "notice group" (as defined in Section 6223(b)(2) of the Code).
The Unitholders will generally be required to treat Operating Partnership
items on their federal income tax returns in a manner consistent with the
treatment of the items on the Operating Partnership information return. In
general, that consistency requirement is waived if the Unitholder files a
statement with the IRS identifying the inconsistency. Failure to satisfy the
consistency requirement, if not waived, will result in an adjustment to conform
the treatment of the item by the Unitholder to the treatment on the Operating
Partnership return. Even if the consistency requirement is waived, adjustments
to the Unitholder's tax liability with respect to the Operating Partnership
items may result from an audit of the Operating Partnership's or the
Unitholder's tax return. Intentional or negligent disregard of the consistency
requirement may subject a Unitholder to substantial penalties. In addition, an
audit of the Operating Partnership return may also lead to an audit of an
individual Unitholder's tax return and such audit could result in adjustment of
non-partnership items.
A partner in an electing large partnership must report all partnership
items consistently with their treatment on the partnership return. An
inconsistency cannot be excused by notifying the IRS of the differing treatment.
Unitholders who fail to report partnership items consistently with their
treatment on the partnership return are subject to accuracy-related and fraud
penalties.
REGISTRATION AS A TAX SHELTER
The Code requires that "tax shelters" be registered with the Secretary of
the Treasury. The Temporary Regulations interpreting the tax shelter
registration provisions of the Code are extremely broad. It is arguable that the
Operating Partnership is not subject to the registration requirement on the
basis that it will not constitute a tax shelter.
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ACTIVITIES ENGAGED IN FOR PROFIT
Under Section 183 of the Code, certain expenses (other than for real
estate taxes and interests) from activities not engaged in for profit are
allowed as deductions only to the extent of income from the activity and then
only to the extent such expenses, together with other itemized deductions exceed
two percent (2%) of the taxpayer's adjusted gross income. Section 183 generally
applies to activities that are not conducted as a business or in a business-like
manner, activities that have significant recreational aspects with little or no
profits, or activities where the primary source of investment return is through
tax deductions and credits.
The limitation of Section 183 may not be applicable if, based on the facts
and circumstances of the particular situation, it is determined that a member's
investment in the Operating Partnership and the Operating Partnership's business
constitutes transactions and activities "entered into for profit." The fact that
the possibility of ultimately obtaining profits is uncertain, standing alone,
does not appear to be sufficient grounds for the denial of losses under Section
183. The General Partner and the Operating Partnership intend that the Operating
Partnership's principal objective is to earn a profit. Based on such
representation and on the nature and extent of the activities to be undertaken
by the Operating Partnership, the General Partner and the Operating Partnership
believe that it is not likely that Section 183 could be successfully applied to
limit deductions claimed by the Operating Partnership. However, because of the
inherently factual nature of the inquiry, there can be no certainty that the IRS
will not attempt to challenge a Unitholder's deductions under Section 183 or
that any such challenge would not be successful.
With respect to Partnership activities, the profit objective test is to be
applied at the Operating Partnership level. However, the test may be applied at
the partner level to determine whether the partner acquired his or her interest
in an anticipation of profit. Accordingly, no assurance can be given that the
profit objective principles may not be applied in the future to disallow
deductions taken by one or more of the partners with respect to their interest
in the Operating Partnership. No investor should become a partner unless his
objective is to secure an economic profit from his investment in the Operating
Partnership, determined without regard to tax benefits, which may be received.
ORGANIZATIONAL AND SYNDICATION FEES
Section 709 of the Code provides that organizational fees are not deducted
currently but may be amortized over a period of not less than 60 months after a
partnership begins doing business. If a partnership is liquidated before the end
of the 60-month period, the remaining organizational expenditures are deductible
as losses at that time. Organizational fees and expenses are those expenditures
that are (i) incidental to the creation of a partnership, (ii) chargeable to the
capital account, (iii) of a character that, if expended incidental to the
creation of a partnership having an ascertainable life, would be amortized over
such life.
Section 709 also disallows a current deduction for syndication fees.
Further, such fees are not eligible for the 60-month amortization period for
organizational expenses noted above. Syndication fees are expenses connected
with the promotion of the sale of units or interests in a partnership and may
include such items as some professional fees, selling expenses, and printing
costs.
There can be no assurance that the IRS will not attempt to reclassify
certain expenditures that are deducted or amortized by the Operating Partnership
as syndication costs.
ANTI-ABUSE REGULATIONS
Pursuant to Section 1.701-2 of the Regulations regarding certain "abusive"
transactions involving partnerships, if a partnership is formed or availed of in
connection with a transaction "with a principal purpose of substantially
reducing the present value of the partners' aggregate federal tax liability in a
manner that is inconsistent with the intent" of the partnership provisions of
the Code, the Service has the authority to recast the transaction so as to
achieve tax results consistent with the intent of the partnership provisions,
taking into account all of the facts and circumstances. Example (4) of
Regulations Section 1.701-2(d) discusses a newly-formed REIT that acts as a
general partner of a partnership to which other partnerships make contributions
of appreciated property. The example concludes that the facts as presented
therein do not present an abusive situation for purposes of Code Section 701.
Although Example (4) provides a helpful analogy to the Operating Partnership and
the Trust, there is no assurance that the IRS would reach the same conclusions
in this case as in Example (4).
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ALTERNATIVE MINIMUM TAX ON ITEMS OF TAX PREFERENCE
The Code contains different sets of minimum tax rules applicable to
corporate and non-corporate taxpayers. The Operating Partnership will not be
subject to the alternative minimum tax, but the Unitholders are required to take
into account on their own tax returns their respective shares of the Operating
Partnership's tax preference items and adjustments in order to compute
alternative minimum taxable income. SINCE THE IMPACT OF THE ALTERNATIVE MINIMUM
TAX DEPENDS ON EACH UNITHOLDER'S PARTICULAR SITUATION, OFFEREES WHO ARE HOLDERS
OF EXCHANGE PARTNERSHIP UNITS ARE URGED TO CONSULT THEIR OWN TAX ADVISORS AS TO
THE APPLICABILITY OF THE ALTERNATIVE MINIMUM TAX
STATE AND LOCAL TAXES
In addition to the federal income aspects described above, an Offeree
should consider the potential state and local tax consequences of owning
Operating Partnership Units. Tax returns may be required and tax liability may
be imposed both in the state or local jurisdictions where a Unitholder resides
and in each state or local jurisdiction in which the Operating Partnership has
assets or otherwise does business. Thus, persons holding Operating Partnership
Units either directly or through one or more partnerships or limited liability
companies, may be subject to state and local taxation in a number of
jurisdictions in which the Operating Partnership directly or indirectly holds
real property and would be required to file periodic tax returns in those
jurisdictions. The Operating Partnership anticipates providing the Unitholders
with information reasonably necessary to permit them to satisfy state and local
return filing requirements. To the extent that a Unitholder pays income tax with
respect to the Operating Partnership to a state where he or she is not a
resident (or the Operating Partnership is required to pay such tax on behalf of
the Unitholder), the Unitholder may be entitled, in whole or in part, to a
deduction or credit against income tax that otherwise would be owed to his or
her state of residence with respect to the same income. An Offeree should
consult with his or her personal tax advisor with respect to the state and local
income tax implications for such Offeree of owning Operating Partnership Units.
EACH PROSPECTIVE INVESTOR IS ADVISED TO CONSULT WITH HIS OR HER OWN TAX
ADVISOR REGARDING THE SPECIFIC TAX CONSEQUENCES TO THE INVESTOR OF AN INVESTMENT
IN THE OPERATING PARTNERSHIP AND IN COMMON SHARES OF THE TRUST, INCLUDING TAX
CONSEQUENCES TO THE INVESTOR UPON THE EXCHANGE OF HIS OR HER EXCHANGE
PARTNERSHIP UNITS FOR UNITS OF THE OPERATING PARTNERSHIP AND ANY SUBSEQUENT
EXCHANGE OF UNITS FOR COMMON SHARES.
INCOME TAX CONSIDERATIONS WITH RESPECT TO THE TRUST
The General Partner (sometimes hereinafter referred to as the "Trust")
intends to operate in a manner that permits it to satisfy the requirements for
taxation as a REIT under the applicable provisions of the Code. No assurance can
be given, however, that such requirements will be met. The following is a
summary of the federal income tax considerations for the Trust and its
Shareholders with respect to the treatment of the Trust as a REIT. Since these
provisions are highly technical and complex, each prospective purchaser of the
Trust's Common Shares is urged to consult his own tax advisor with respect to
the federal, state, local, foreign and other tax consequences of the purchase,
ownership and disposition of the Common Shares. The Trust has not obtained, and
does not intend to request, a ruling from the IRS that it will be treated as a
REIT. Instead, the Trust has obtained and relied upon the opinion of its special
tax counsel that, based on the organization and proposed operation of the Trust
and based on certain other assumptions and factual representations, it will
qualify as a REIT commencing with its taxable year ending December 31, 1998. The
opinion is not binding on the IRS or any court.
In brief, if certain detailed conditions imposed by the REIT provisions of
the Code are met, entities, such as the Trust, that invest primarily in real
estate and that otherwise would be treated for federal income tax purposes as
corporations, are generally not taxed at the corporate level on their "REIT
taxable income" that is currently distributed to Shareholders. This treatment
substantially eliminates the "double taxation" (i.e., at both the corporate and
Shareholder levels) that generally results from the use of corporations.
If the Trust fails to qualify as a REIT in any year, however, it will be
subject to federal income taxation as if it were a domestic corporation, and its
Shareholders will be taxed in the same manner as shareholders of ordinary
corporations. In this event, the Trust could be subject to potentially
significant tax liabilities, and therefore the amount of cash available for
distribution to its Shareholders would be reduced or eliminated.
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The Managing Shareholder of the Trust currently expects that the Trust
will operate in a manner that permits it to elect, and that it properly has
elected, REIT status for the taxable year ending December 31, 1998, and in each
taxable year thereafter. There can be no assurance, however, that this
expectation will be fulfilled, since qualification as a REIT depends on the
Trust continuing to satisfy numerous ownership, asset, income and distribution
tests described below, which in turn will be dependent in part on the Trust's
operating results.
The following summary is based on existing law, is not exhaustive of all
possible tax considerations and does not give a detailed discussion of any
state, local, or foreign tax considerations, nor does it discuss all of the
aspects of federal income taxation that may be relevant to a prospective
Shareholder in light of his particular circumstances or to certain types of
Shareholders (including insurance companies, tax-exempt entities, financial
institutions, broker-dealers, foreign corporations and persons who are not
citizens or residents of the United States) subject to special treatment under
federal income tax laws.
TAXATION OF THE TRUST
General. In any year in which the Trust qualifies as a REIT, in general it
will not be subject to federal income tax on that portion of its REIT taxable
income or capital gain which is distributed to Shareholders. The Trust may,
however, be subject to tax at normal corporate rates upon any taxable income or
capital gain not distributed.
Notwithstanding its qualifications as a REIT, the Trust may also be
subject to taxation in certain other circumstances. If the Trust should fail to
satisfy either the 75% of the 95% gross income test (as discussed below), and
nonetheless maintains its qualification as a REIT because certain other
requirements are met, it will be subject to a 100% tax on the net income
attributable to the greater of the amount by which the REIT fails the 75% test
or 95% test, multiplied by a fraction intended to reflect the Trust's
profitability. The Trust will also be subject to a tax of 100% on net income
from any "prohibited transaction" as described below, and if the Trust has (i)
net income from the sale or other disposition of "foreclosure property" which is
held primarily for sale to customers in the ordinary course of business or (ii)
other non-qualifying income from foreclosure property, it will be subject to tax
on such income from foreclosure property at the highest corporate rate. In
addition, if the Trust should fail to distribute during each calendar year at
least the sum of (i) 85% of its REIT ordinary income for such year, (ii) 95% of
its REIT capital gain net income for such year, and (iii) any undistributed
taxable income from prior years, the Trust would be subject to a 4% excise tax
on the excess of such required distribution over the amounts actually
distributed. If the Trust acquires any asset from a C corporation (i.e.,
generally a corporation subject to full corporate-level tax) in a transaction in
which the basis of the asset in the Trust's hands is determined by reference to
the basis of the asset (or any other property) in the hands of the C
corporation, and the Trust subsequently recognizes gain on the disposition of
such asset during the 10-year period (the "Recognition Period") beginning on the
date on which the asset was acquired by the Trust (or the Trust first qualified
as a REIT), then pursuant to guidelines issued by the IRS, the excess of (1) the
fair market value of the asset as of the beginning of the applicable Recognition
Period, over (2) the Trust's adjusted tax basis in such asset as of the
beginning of such Recognition Period will be subject to tax at the highest
regular corporate rate. The Trust may elect to retain rather than distribute its
net long-term capital gains. The effect of such election is that (i) the Trust
is required to pay the tax on such gains within 30 days after the close of the
Trust's taxable year, (ii) Shareholders, while required to include their
proportionate share of the undistributed long-term capital gains in income, will
receive a credit or refund for their share of the tax paid by the Trust, and
(iii) the tax basis of a Shareholder's beneficial interest in the Trust would be
increased by the amount of undistributed long-term capital gains (less the
amount of capital gains tax paid by the Trust) included in the Shareholder's
long-term capital gain. To designate amounts as undistributed capital gains, the
designation must be made in a written notice to Shareholders and mailed at any
time prior to the expiration of 60 days after the close of the Trust's taxable
year or mailed with its annual report to the taxable year. The Trust may also be
subject to the corporate alternative minimum tax, as well as tax in certain
situations not presently contemplated. The Trust will use the calendar year both
for federal income tax purposes, as is required of a newly organized REIT, and
for financial reporting purposes.
In order to qualify as a REIT, the Trust must meet, among others, the
following requirements:
Stock Ownership Tests. The Trust's Shares must be held by a minimum of 100
persons for at least 335 days in each taxable year (or a proportional number of
days in any short taxable year). In addition, at all times during the second
half of each taxable year, no more than 50% in value of the Shares of the Trust
may be owned, directly or indirectly and by applying certain constructive
ownership rules, by five or fewer individuals, which for this purpose includes
certain tax-exempt entities. For purposes of this test, in general, any Shares
held by a qualified
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domestic pension or other retirement trust will be treated as held directly by
its beneficiaries in proportion to their actuarial interest in such trust rather
than by such trust. These stock ownership requirements need not be met until the
second taxable year of the Trust for which a REIT election is made.
In order to ensure compliance with the foregoing stock ownership tests,
the Trust has placed certain restrictions on the transfer of its Shares to
prevent additional concentration of the share ownership. Moreover, to evidence
compliance with these requirements, under Treasury Regulations the Trust must
maintain records which disclose the actual ownership of its outstanding Shares.
In fulfilling its obligations to maintain records, the Trust must and will
demand written statements each year from the record holders of designated
percentages of its Shares disclosing the actual owners of such Shares (as
prescribed by Treasury Regulations). If the Trust complies with the Treasury
Regulations for ascertaining its actual ownership and did not know, or exercised
reasonable diligence which would not have provided reason to know, that more
than 50% in value of its outstanding Shares were held, actually or
constructively, by five or fewer individuals, then the Trust will be treated as
meeting such requirements. A list of those persons failing or refusing to comply
with such demand must be maintained as a part of the Trust's records. A
Shareholder failing or refusing to comply with the Trust's written demand must
submit with his tax return a similar statement disclosing the actual ownership
of Shares and certain other information. In addition, the Declaration of Trust
for the Trust provides restrictions regarding the transfer of its Shares that
are intended to assist the Trust in continuing to satisfy the stock ownership
requirements.
Asset Tests. At the close of each quarter of the Trust's taxable year, the
Trust must satisfy three tests relating to the nature of its assets (determined
in accordance with generally accepted accounting principles). First, at least
75% of the value of the Trust's total assets must be represented by real estate
assets (which for this purpose includes (i) its allocable share of real estate
assets held by partnerships in which the Trust owns an interest; (ii) stock or
debt instruments purchased with the proceeds of a stock offering and held for
not more than one year from the date the Trust received such proceeds), cash,
cash items and government securities and (iii) stock in other real estate
investment trusts. Second, not more than 25% of the Trust's total assets may be
represented by securities other than those in the 75% asset class. Third, of the
investments included in the 25% asset class, securities in this class may not
exceed (i) in the case of securities of any one non-government issuer, 5% of the
value of the Trust's total assets or (ii) 10% of the outstanding voting
securities of any one such issuer. The Trust's investment in any properties
through its interest in one or more partnerships would be intended to constitute
an investment in qualified assets for purposes of the 75% assets test.
Gross Income Tests. There are currently two separate percentage tests
relating to the sources of the Trust's gross income which must be satisfied for
each taxable year. For purposes of these tests, if the Trust invests in one or
more partnerships, the Trust will be treated as receiving its share of the
income and loss of such partnerships, and the gross income of the partnerships
will retain the same character in the hands of the Trust as it has in the hands
of the respective partnerships. The two tests are as follows:
1. The 75% Test. At least 75% of the Trust's gross income for the
taxable year must be "qualifying income." Qualifying income generally
includes (i) rents from real property (except as described below); (ii)
interest on obligations secured by mortgages on, or interests in, real
property; (iii) gains from the sale or other disposition of interests in
real property and real estate mortgages, other than gain from property
held primarily for sale to customers in the ordinary course of the Trust's
trade or business ("dealer property"); (iv) dividends or other
distributions on shares in other REITs, as well as gain from the sale of
such shares; (v) abatements and refunds of real property taxes; (vi)
income from the operation, and gain from the sale, of property acquired at
or in lieu of a foreclosure of the mortgage secured by such property
("foreclosure property"); (vii) commitment fees received for agreeing to
make loans secured by mortgages on real property or to purchase or lease
real property; and (viii) qualified temporary investment income.
Rents received from a tenant will not, however, qualify as rents
from real property in satisfying the 75% test (or the 95% gross income
test described below) if the Trust, or an owner of 10% or more of the
Trust, directly or constructively owns 10% or more of such tenant. In
addition, if rent attributable to personal property leased in connection
with a lease of real property is greater than 15% of the total rent
received under the lease, then the portion of rent attributable to such
personal property will not qualify as rents from real property. Moreover,
an amount received or accrued will not qualify as rents from real property
(or as interest income) for purposes of the 75% and 95% gross income tests
if it is based in whole or in part on the income or profits of any person,
although an amount received or accrued generally will not be excluded from
"rents from real property" solely by reason of being based on a fixed
percentage or
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percentages of receipts or sales. Finally, for rents received to qualify
as rents from real property, the Trust generally must not operate or
manage the property or furnish or render services to tenants, other than
through an "independent contractor" from whom the Trust derives no income,
except that the "independent contractor" requirement does not apply to the
extent that the services provided by the Trust are "usually or customarily
rendered" in connection with the rental of space for occupancy only, or
are not otherwise considered "rendered to the occupant for his
convenience." A REIT is permitted to render a de minimis amount of
impermissible services to tenants, or in connection with the management of
property, and still treat amounts received with respect to that property
as rents from real estate.
The amount received or accrued by the Trust during the taxable year
for the impermissible services with respect to a property may not exceed
1% of all amounts received or accrued by the Trust directly or indirectly
from the property. The amount received for any service (or management
operation) for this purpose shall be deemed to be not less than 150% of
the direct cost of the Trust in furnishing or rendering the service (or
providing the management or operation).
2. The 95% Test. In addition to deriving 75% of its gross income
from the sources listed above, at least 95% of the Trust's gross income
for the taxable year must be derived from the above-described qualifying
income, and from dividends, interest or gains from the sale or other
disposition of Shares or other securities that are not dealer property.
Dividends and interest on any obligations not collateralized by an
interest in real property are included for purposes of the 95% test, but
not for purposes of the 75% test.
For purposes of determining whether the Trust complies with the 75%
and 95% gross income test, gross income does not include income from
prohibited transactions. A "prohibited transaction" is a sale of dealer
property (excluding foreclosure property); however, it does not include a
sale of property if such property is held by the Trust for at least four
years and certain other requirements (relating to the number of properties
sold in a year, their tax bases, and the cost of improvements made
thereto) are satisfied. The Trust and the Managing Shareholder intend that
neither the Trust nor the Operating Partnership will enter into
transactions for the sale of dealer property.
The Trust believes that, for purposes of both the 75% and 95% gross
income test, its investment in properties directly or through one or more
partnerships will in major part give rise to qualifying income in the form
of rents, and that gains on sales of properties, or of the Trust's
interest in a partnership, generally will also constitute qualifying
income. The Trust intends to closely monitor its non-qualifying income and
anticipates that any non-qualifying income on its investments and
activities will not result in the Trust failing either the 75% or 95%
gross income test.
Even if the Trust fails to satisfy one or both of the 75% or 95%
gross income tests for any taxable year, it may still qualify as a REIT
for such year if it is entitled to relief under certain provisions of the
Code. These relief provisions will generally be available if: (i) the
Trust's failure to comply was due to reasonable cause and not to willful
neglect; (ii) the Trust reports the nature and amount of each item of its
income included in the tests on a schedule attached to its tax return; and
(iii) any incorrect information on this schedule is not due to fraud with
intent to evade tax. If these relief provisions apply, however, the Trust
will nonetheless be subject to a 100% tax on the greater of the amount by
which it fails either the 75% or 95% gross income test, multiplied by a
fraction intended to reflect the Trust's profitability.
Annual Distribution Requirements. In order to qualify as a REIT, the Trust
is required to distribute dividends (other than capital gain dividends) to its
Shareholders each year in an amount at least equal to (A) the sum of (i) 95% of
the Trust's REIT taxable income (computed without regard to the dividends paid
deduction and the REIT's net capital gain) and (ii) 95% of the net income (after
tax), if any, from foreclosure property, minus (B) the sum of certain items of
non-cash income. Such distributions must be paid in the taxable year to which
they relate, or in the following taxable year if declared before the Trust
timely files its tax return for such year and if paid on or before the first
regular dividend payment after such declaration. To the extent that the Trust
does not distribute all of its net capital gain or distributes at least 95%, but
less than 100%, of its REIT taxable income, as adjusted, it will be subject to
tax on the undistributed amount at regular capital gains or ordinary corporate
tax rates, as the case may be. The Trust may elect to retain rather than
distribute its net long-term capital gains. The effect of such election is that
(i) the Trust is required to pay the tax on such gains within 30 days after the
close of the Trust's taxable year, (ii) Shareholders, while required to include
their proportionate share of the undistributed long-term capital gains in
income, will receive a credit or refund for their share of the tax paid by the
Trust, and (iii) the tax basis of a
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Shareholder's beneficial interest in the Trust would be increased by the amount
of undistributed long-term capital gains (less the amount of capital gains tax
paid by the Trust) included in the Shareholder's long-term capital gains. To
designate amounts as undistributed capital gains, the designation must be made
in a written notice to Shareholders and mailed at any time prior to the
expiration of 60 days after the close of the Trust's taxable year or mailed with
its annual report for the taxable year.
The Trust intends to make timely distributions sufficient to satisfy the
annual distribution requirements described in the preceding paragraph. In this
regard, the Declaration authorizes the Managing Shareholder of the Trust to take
such steps as may be necessary to cause any partnership in which the Trust may
own an interest to distribute to its partners an amount sufficient to permit the
Trust to meet these distribution requirements. It is possible that the Trust may
not have sufficient cash or other liquid assets to meet the 95% distribution
requirement, due to timing differences between the actual receipt of income and
actual payment of expenses, on the one hand, and the inclusion of such income
and deduction of such expenses in computing the Trust's REIT taxable income, on
the other hand, or due to a partnership's inability to control cash
distributions with respect to those properties as to which it does not have
decision making control, or for other reasons. To avoid any problem with the 95%
distribution requirement, the Trust will closely monitor the relationship
between its REIT taxable income and cash flow and, if necessary, intends to
borrow funds (or cause any applicable partnership or other affiliate to borrow
funds) in order to satisfy the distribution requirement. However, there can be
no assurance that such borrowing would be available at such time.
If the Trust fails to meet the 95% distribution requirement as a result of
an adjustment to the Trust's tax return by the Internal Revenue Service (the
"Service"), the Trust may retroactively cure the failure by paying a "deficiency
dividend" (plus applicable penalties and interest) within a specified period.
Failure to Qualify. If the Trust fails to qualify for taxation as a REIT
in any taxable year and the relief provisions do not apply, the Trust will be
subject to tax (including any applicable alternative minimum tax) on its taxable
income at regular corporate rates. Distributions to Shareholders in any year in
which the Trust fails to qualify as a REIT will not be deductible by the Trust,
nor generally will they be required to be made under the Code. In such event, to
the extent of current and accumulated earnings and profits, all distribution to
Shareholders will be taxable as ordinary income, and, subject to certain
limitations in the Code, corporate distributees may be eligible for the
dividends received deduction. The Trust's failure to qualify as a REIT could
substantially reduce the cash available for distribution. Unless entitled to
relief under specific statutory provisions, the Trust also will be disqualified
from re-electing taxation as a REIT for the four taxable years following the
year during which qualification was lost.
TAX ASPECTS OF THE TRUST'S INVESTMENT IN THE OPERATING PARTNERSHIP
An increase in the Trust's REIT taxable income from its interest in a
partnership (whether or not a corresponding cash distribution is also received
from the partnership) will increase its distribution requirements, but will not
be subject to federal income tax in the hands of the Trust provided that an
amount equal to such income is distributed by the Trust to its Shareholders.
Moreover, for purposes of the REIT asset tests, the Trust will include its
proportionate share of assets held by a partnership.
Entity Classification. The Trust's investment in one or more partnerships
raises special tax considerations, including the possibility of a challenge by
the Service of the status of such entities as a partnership (as opposed to an
association taxable as a corporation for federal income tax purposes) (see
"Classification as a Partnership" above). If a partnership were to be treated as
an association, it would be taxable as a corporation and therefore subject to an
entity-level tax on its income. In such a situation, the character of the
Trust's assets and items of gross income would change, which would preclude the
Trust from satisfying the REIT asset tests and the REIT gross income tests,
which in turn would prevent the Trust from qualifying as a REIT.
Tax Allocations with Respect to Trust Properties. Pursuant to Section
704(c) of the Code, income, gain, loss and deduction attributable to appreciated
or depreciated property that is contributed to a partnership in exchange for an
interest in the partnership must be allocated in a manner such that the
contributing partner is charged with, or benefits from, respectively, the
unrealized gain or unrealized loss associated with the property at the time of
the contribution. See "Tax Treatment of Unitholders Who Hold Operating
Partnership Units After the Exchange -- Tax Allocations With Respect to Book-Tax
Difference on Contributed Properties."
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Sale of Trust Properties. The Trust's share of any gain realized by a
partnership on the sale of any dealer property generally will be treated as
income from a prohibited transaction that is subject to a 100% penalty tax.
Under existing law, whether property is dealer property is a question of fact
that depends on all the facts and circumstances with respect to the particular
transaction. Any partnership utilized by the Trust for its real estate
operations would be expected to hold properties for investment with a view to
long-term appreciation, to engage in the business of acquiring, owning,
operating and developing the properties, and to make such occasional sales of
the properties as are consistent with the Trust's investment objectives. Based
upon the Trust's investment objectives, the Trust believes that overall,
properties acquired by it or a partnership utilized by it should not be
considered dealer property and that the amount of income from prohibited
transactions, if any, would not be material.
TAXATION OF SHAREHOLDERS
Taxation of Taxable Domestic Shareholders. As long as the Trust qualifies
as a REIT, distributions made to the Trust's taxable domestic Shareholders out
of current or accumulated earnings and profits (and not designated as capital
gain dividends) will be taken into account by them as ordinary income and will
not be eligible for the dividends received deduction for corporations.
Distributions that are designated as capital gain dividends will be taxed as
long-term capital gains (to the extent they do not exceed the Trust's actual net
capital gain for the taxable year) without regard to the period from which the
Shareholder has held its Common Shares. However, corporate Shareholders may be
required to treat up to 20% of certain capital gain dividends as ordinary
income. To the extent that the Trust makes distributions in excess of current
and accumulated earnings and profits, these distributions are treated first as a
tax-free return of capital to the Shareholders, reducing the tax basis of a
Shareholder's Common Shares by the amount of such excess distribution (but not
below zero), with distributions in excess of the Shareholder's tax basis being
taxed as capital gains (if the Common Shares are held as capital assets). In
addition, any dividend declared by the Trust in October, November or December of
any year and payable to a Shareholder of record on a specific date in any such
month shall be treated as both paid by the Trust and received by the Shareholder
on December 31 of such year, provided that the dividend is actually paid by the
Trust during January of the following calendar year. Shareholders may not
include in their individual income tax returns any net operating losses or
capital losses of the Trust. Federal income tax rules may also require that
certain minimum tax adjustments and preferences be apportioned to Shareholders.
The Trust may elect to retain and pay income tax on any net long-term
capital gain, in which case domestic Shareholders of the Trust will include in
their income as long-term capital gain their proportionate shares of such net
long-term capital gain. A domestic Shareholder will also receive a refundable
tax credit in such case for such Shareholder's proportionate share of the tax
paid by the Trust on such retained capital gains and an increase in its basis in
the stock of the Trust in an amount equal to the difference between the
undistributed long-term capital gains and the amount of tax paid by the Trust.
In general, domestic Shareholders will realize capital gain or loss on the
disposition of Trust Shares equal to the difference between (1) the amount of
cash and the fair market value of any property received on such disposition and
(2) the Shareholder's basis for the Shares. Generally, capital gain or loss is
long-term if the Shares have been held for more than one year. Any loss upon a
sale or exchange of Common Shares by a Shareholder who has held such shares for
six months or less (after applying certain holding period rules) will be treated
as a long-term capital loss, to the extent of distributions from the Trust
required to be treated by such Shareholder as long-term capital gains.
For individuals, trusts and estates, the maximum marginal
individual income tax rate is 39.6%. The maximum federal tax rate on net
capital gains applicable to individuals, trusts and estates from the sale or
exchange of capital assets held for more than one year is 20%, and the
maximum rate is reduced to 18% for assets acquired after December 31, 2000
and held for more than five years. For individuals, trusts and estates who
would be subject to a maximum federal tax rate of 15%, the rate on net
capital gains is reduced to 10%, and effective for taxable years commencing
after December 31, 2000, the rate is reduced to 8% for assets held for more
than five years. The maximum rate for net capital gains attributable to the
sale of depreciable real property held for more than one year is 25% to the
extent of the deductions for depreciation (other than certain depreciation
recapture taxable as ordinary income) with respect to such property.
Accordingly, the tax rate differential between capital gain and ordinary
income for noncorporate taxpayers may be significant. In addition, the
characterization of income as capital or ordinary may affect the
deductibility of capital losses. Capital losses not offset by capital gains
may be deducted against a noncorporate taxpayer's ordinary income only up to
a maximum annual amount of $3,000. Unused capital losses may be carried
forward. All net capital gain of a corporate taxpayer is subject to tax at
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ordinary corporate rates. A corporate taxpayer can deduct capital losses only to
the extent of capital gains, with unused losses being carried back three years
and forward five years.
Backup Withholding. The Trust will report to its domestic Shareholders and
to the Service the amount of dividends paid for each calendar year, and the
amount of tax withheld, if any, with respect thereto. Under the backup
withholding rules, a Shareholder may be subject to backup withholding at the
rate of 31% with respect to dividends paid unless such Shareholder (i) is a
corporation or comes within certain other exempt categories and, when required,
demonstrates this fact; or (ii) provides a taxpayer identification number,
certifies as to no loss of exemption from backup withholding, and otherwise
complies with applicable requirements of the backup withholding rules. A
Shareholder that does not provide the Trust with its correct taxpayer
identification number may also be subject to penalties imposed by the Service.
Any amount paid as backup withholding is available as a credit against the
Shareholder's income tax liability. U.S. Shareholders should consult their own
tax advisors regarding their qualification for exemption from backup withholding
and the procedure for obtaining such an exemption. The Trust may be required to
withhold a portion of capital gain distributions made to any Shareholders who
fail to certify their non-foreign status to the Trust. See "-Taxation of Foreign
Shareholders" below.
Taxation of Tax-Exempt Shareholders. The Service has issued a revenue
ruling in which it held that amounts distributed by a REIT to a tax-exempt
employees' pension trust do not constitute unrelated business taxable income
("UBTI"). Subject to the discussion below regarding a REIT (a "pension-held
REIT"), based upon such ruling and the statutory framework of the Code,
distributions by the Trust to a Shareholder that is a tax-exempt entity should
also not constitute UBTI, provided that the tax-exempt entity has not financed
the acquisition of its Common Shares with "acquisition indebtedness" within the
meaning of the Code, and the Common Shares are not otherwise used in an
unrelated trade or business of the tax-exempt entity, and that the Trust,
consistent with its present intent, does not hold a residual interest in a "real
estate mortgage investment conduit" ("REMIC").
However, if any pension or other retirement trust that qualifies under
Section 401(a) of the Code ("qualified pension trust") holds more than 10% by
value of the interests in a "pension-held REIT") at any time during a taxable
year, a portion of the dividends paid to the qualified pension trust by such
REIT may constitute UBTI. For these purposes, a ("pension-held REIT"), is
defined as a REIT if (i) such REIT would not have qualified as a REIT but for
the provisions of the Code which look through such a qualified pension trust in
determining ownership of shares of the REIT and (ii) at least one qualified
pension trust holds more than 25% by value of the interests of such REIT or one
or more qualified pension trusts (each owning more than a 10% interest by value
in the REIT) hold in the aggregate more than 50% by value of the interests in
such REIT.
Taxation of Foreign Shareholders. The rules governing United States
federal income taxation of nonresident alien individuals, foreign corporations,
foreign partnerships and other foreign Shareholders (collectively, "Non-U.S.
Shareholders") are highly complex and the following is only a summary of such
rules. Prospective Non-U.S. Shareholders should consult with their own tax
advisors to determine the impact of federal, state, local and foreign income tax
laws with regard to an investment in Common Shares, including any reporting
requirements. The Trust will qualify as a "domestically-controlled REIT" so long
as less than 50% in value of its Shares is held by foreign persons (i.e.,
non-resident aliens, and foreign corporations, partnerships, trusts and
estates). The Trust currently anticipates that it will qualify as a
domestically-controlled REIT. Under these circumstances, gain from the sale of
Common Shares by a foreign person should not be subject to United States
taxation, unless such gain is effectively connected with such person's United
States business or, in the case of an individual foreign person, such person is
present within the United States for more than 182 days during the taxable year.
However, notwithstanding the Trust's current anticipation that the Trust will
qualify as a domestically controlled REIT, because the Common Shares will be
freely tradable by Shareholders, no assurance can be given that the Trust will
continue to so qualify.
Distributions of cash generated by the Trust's real estate operations (but
not by the sale or exchange of properties) that are paid to foreign persons
generally will be subject to United States withholding tax at rate of 30%,
unless (i) an applicable tax treaty reduces that tax and the foreign Shareholder
files with the Trust the required form evidencing such lower rate, or (ii) the
foreign Shareholder files an IRS Form 4224 with the Trust claiming that the
distribution is "effectively connected" income.
Distributions of proceeds attributable to the sale or exchange of United
States real property interests of the Trust are subject to income and
withholding taxes pursuant to the Foreign Investment in Real Property Tax Act of
1980 ("FIRPTA"), and may be subject to branch profits tax in the hands of a
Shareholder which is a foreign corporation if it is not entitled to treaty
relief exemption. The Trust is required by applicable Treasury Regulations
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to withhold 35% of any distribution to a foreign person that could be designated
by the Trust as a capital gain dividend; this amount is creditable against the
foreign Shareholder's FIRPTA tax liability.
The federal income taxation of foreign persons is a highly complex matter
that may be affected by many other considerations. Accordingly, foreign
investors in the Trust should consult their own tax advisors regarding the
income and withholding tax considerations with respect to their investments in
the Trust.
OTHER TAX CONSIDERATIONS
Possible Legislative or Other Actions Affecting Tax Consequences.
Prospective Shareholders and Unitholders should recognize that the present
federal income tax treatment of investment in the Trust and the Operating
Partnership may be modified by legislative, judicial or administrative action at
any time and that any such action may affect investments and commitments
previously made. The rules dealing with federal income taxation are constantly
under review by persons involved in the legislative process and by the Service
and the Treasury Department, resulting in revisions of regulations and revised
interpretations of established concepts as well as statutory changes. No
assurance can be given as to the form or content (including with respect to
effective dates) of any tax legislation which may be enacted. Revisions in
federal tax laws and interpretations thereof could adversely affect the tax
consequences of investment in the Trust and the Operating Partnership. .
State and Local Taxes. The Trust and its Shareholders and the Operating
Partnership and its Unitholders may be subject to state or local taxation in
various jurisdictions, including those in which it or they transact business or
reside. The state and local tax treatment of the Trust and its Shareholders and
the Operating Partnership and its Unitholders, may not conform to the federal
income tax consequences discussed above. Consequently, prospective Shareholders
and Unitholders should consult their own tax advisors regarding the effect of
state and local tax laws on an investment in Common Shares and Units.
EACH PROSPECTIVE INVESTOR IS ADVISED TO CONSULT WITH HIS OWN TAX ADVISOR
REGARDING THE SPECIFIC TAX CONSEQUENCES TO HIM OF THE PURCHASE, OWNERSHIP AND
SALE OF COMMON SHARES AND UNITS IN AN ENTITY ELECTING TO BE TAXED AS A REAL
ESTATE INVESTMENT TRUST, INCLUDING THE FEDERAL, STATE, LOCAL, FOREIGN AND OTHER
TAX CONSEQUENCES OF SUCH PURCHASE, OWNERSHIP, SALE AND ELECTION AND OF POTENTIAL
CHANGES IN APPLICABLE TAX LAWS.
SUMMARY OF THE OPERATING PARTNERSHIP AGREEMENT
Unitholders of the Operating Partnership, including without limitation,
Offerees who accept the Exchange Offering, will have the rights and obligations
of Unitholders under the Operating Partnership Agreement. The material
provisions of the Operating Partnership Agreement are described above at "THE
TRUST AND THE OPERATING PARTNERSHIP - The Operating Partnership" and below at
"COMPARISON OF RIGHTS OF HOLDERS OF EXCHANGE PARTNERSHIP UNITS, OPERATING
PARTNERSHIP UNITS AND TRUST COMMON SHARES." The Declaration of Trust also
contains certain additional limitations on the Trust's activities which will
affect the operation of the Operating Partnership. See "SUMMARY OF THE
DECLARATION OF TRUST - Control of Operations" below and Section 1.9 of the
Declaration of Trust.
SUMMARY OF DECLARATION OF TRUST
Shareholders of the Trust will have the rights and obligations under the
Declaration of Trust for the Trust (the "Declaration of Trust" or the
"Declaration"). The Declaration also contains certain additional limitations on
the Trust's activities which will affect the operation of the Operating
Partnership. The following briefly summarizes material provisions of the
Declaration not described elsewhere in this Prospectus and is qualified in its
entirety by express reference to the provisions of the agreement. The Trust will
deliver a copy of the Declaration to each requesting Offeree without charge.
Term
The term of the Trust commenced on July 31, 1997 and will end on the
earliest to occur of (a) December 31, 2098, (b) the determination of the holders
of at least a majority of the Shares then outstanding to dissolve the
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Trust; (c) the sale of all or substantially all of the Trust's Property, (d) the
withdrawal of the Offering by the Managing Shareholder prior to the Termination
Date of the Cash Offering, and (e) the occurrence of any other event which, by
law, would require the Trust to terminate. Upon dissolution, the Managing
Shareholder or a liquidity receiver or trustee selected by the Managing
Shareholder or the Investors will liquidate the Trust's assets. (See Recitals
and Article 9 of the Declaration.)
Control of Operations
The Managing Shareholder (wholly owned and controlled, along with the
Corporate General Partner of each Exchange Partnership, by Mr. McGrath) will
manage and control the day to day affairs of the Trust and the Operating
Partnership, subject to general supervision and review by the Independent
Trustees and the Managing Shareholder acting together as the Board of the Trust
and to prior approval authority of the Board and/or the Independent Trustees in
respect of certain actions. The Declaration requires that a majority of the
Board of the Trust be comprised of Independent Trustees not affiliated with the
Managing Shareholder or its affiliates. The Managing Shareholder will be
obligated to devote to the Trust such time as may be reasonably necessary to
conduct the Trust's business. The Investors will have no participation in or
control over the management of the Trust or the Operating Partnership, except
the right to propose and vote on certain matters under the Declaration of Trust.
The Managing Shareholder and the other members of the Board, including the
Independent Trustees, are obligated to manage the Trust in the best interest of
its Partners. (See "FIDUCIARY RESPONSIBILITY" above and Article 7 of the
Declaration.)
The following discussion describes certain actions of the Trust and the
Operating Partnership, as applicable, which require approval and/or supervision
of the Board and/or the Independent Trustees and certain other provisions,
restrictions and limitations affecting the operations of the Trust and the
Operating Partnership. (See Section 1.9 of the Declaration.)
o At, or prior to, the initial meeting of the Board of the Trust, the
Declaration and the Operating Partnership Agreement must be reviewed and
ratified by a majority vote of the Board and of the Independent Trustees.
(See Section 1.9(b) of the Declaration.)
o The Board must establish written policies on investments and any borrowing
to be made by the Trust and Operating Partnership and monitor the
administrative procedures, investment operations and performance of the
Trust, the Operating Partnership and the Managing Shareholder to ensure
that such policies are being carried out. (See Section 1.9(c) of the
Declaration.)
o The Board must evaluate the performance of the Managing Shareholder
(wholly owned and controlled, along with the Corporate General Partner of
each Exchange Partnership, by Mr. McGrath) (and any successor advisor of
the Trust) prior to entering into or renewing a management agreement
relating to the administration and management of the Trust (other than the
initial term of the Trust Management Agreement which is described in this
Prospectus (see "MANAGEMENT - Trust Management Agreement"), which
agreement is deemed to have been approved by Investors who acquire Common
Shares in the Cash Offering, by a majority of the Board and a majority of
the Independent Trustees). Any such management agreement may not have a
term of more than one year and must be terminable by a majority of the
Independent Trustees or the Managing Shareholder (or any successor
advisor, as the case may be) on at least 60 days prior written notice
without cause or penalty. The Board must determine that any successor to
the Managing Shareholder (or any successor advisor) possesses sufficient
qualifications to perform the advisory function for the Trust and justify
the compensation provided for in the applicable management agreement. (See
Section 1.9(d) of the Declaration.)
o The Independent Trustees must determine, at least annually, that the total
fees and expenses of the Trust and the Operating Partnership are
reasonable in light of their investment performance, their net assets,
their net income, and the fees and expenses of other comparable
unaffiliated REITs. (See Section 1.9(f) of the Declaration.)
o The Independent Trustees must determine that organizational and offering
expenses payable by the Trust and the Operating Partnership in connection
with the formation of the Trust and the Operating Partnership and any
offerings of Shares or Units is reasonable and in no event exceeds an
amount equal to 15% of the gross proceeds of the particular offering. (See
Section 1.9(g) of the Declaration.)
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o The Independent Trustees must determine that the total amount of any
acquisition fee and expenses payable by the Trust or the Operating
Partnership in connection with acquiring its investments is reasonable and
in no event exceeds an amount equal to 6% of the purchase price of the
subject property (including the amount actually paid for or allocated to
the purchase, development, construction or improvement of a property,
exclusive of Acquisition Fees and Acquisition Expenses), or in the case of
a mortgage loan made or acquired by the Trust or the Operating
Partnership, 6% of the funds advanced, unless a majority of the
disinterested members of the Board and a majority of the disinterested
Independent Trustees approve payment of an acquisition fee in excess of
such amounts based upon their determination that such excess fee is
commercially competitive, fair and reasonable to the Trust and the
Operating Partnership. (See Section 1.9(h) of the Declaration.)
o The Independent Trustees have the fiduciary responsibility of limiting the
total operating expenses (less certain items described below) of each of
the Trust and the Operating Partnership in any fiscal year to the greater
of (i) 2% of the aggregate book value of their respective investments, or
(ii) 25% of their respective net income for such year unless the
Independent Trustees make a finding that, based on such unusual and
non-recurring factors which they deem sufficient, a higher level of such
operating expenses is justified for such year. Within 60 days after the
end of each fiscal year in which the Trust or the Operating Partnership
incurs operating expenses in excess of such amount, the Trust or the
Operating Partnership, as the case may be, must send to the Shareholders
and Unitholders written disclosure of such fact, together with an
explanation of the factors the Independent Trustees considered in arriving
at their finding that such higher operating expenses were justified. If
the Independent Trustees do not determine such excess expenses are
justified, the Managing Shareholder must reimburse the Trust or the
Operating Partnership, as applicable, at the end of such fiscal year the
amount by which the total operating expenses paid or incurred by the Trust
or the Operating Partnership exceed the limitations herein provided. For
purposes of determining "total operating expenses" the following items are
excluded: (i) the expenses of raising capital, including without
limitation organizational and offering expenses, legal, audit, accounting,
underwriting, brokerage, listing, registration and other fees, printing
and other such expenses, and tax incurred in connection with the issuance,
distribution, transfer, registration, and stock exchange listing, if any,
of the Trust's Shares and the Operating Partnership's Units; (ii) interest
payments; (iii) taxes; (iv) non-cash expenditures such as depreciation,
amortization and bad debt reserves; (v) incentive compensation paid which
is based on the gain from the sale of Trust or Operating Partnership
assets; and (e) acquisition fees and expenses, real estate commissions on
resale of property and other expenses connected with the acquisition,
disposition, and ownership of real estate interests, mortgage loans, or
other property. (See Section 1.9(i) of the Declaration.)
o A majority of the Independent Trustees must determine that any real estate
commission paid to the Managing Shareholder (wholly owned and controlled,
along with the Corporate General Partner of each Exchange Partnership, by
Mr. McGrath), a Trustee, any other member of the Board or any of their
respective affiliates in connection with the resale of any Trust or
Operating Partnership asset is reasonable, customary and competitive in
light of the size, type and location of such property and in no event
exceeds 3% of the sale price, and that the amount of such commissions
payable when added to the commissions payable to unaffiliated real estate
brokers does not exceed the lesser of such competitive real estate
commission or an amount equal to 6% of the sale price. (See Section 1.9(j)
of the Declaration.)
o The Independent Trustees must determine, at least annually, that the
compensation which the Trust contracts to pay to the Managing Shareholder
(or any successor advisor) is reasonable in relation to the nature and
quality of services performed and that such compensation is within the
limits prescribed in the fourth bullet point in this section. The
Independent Trustees must also supervise the performance of the Managing
Shareholder (and any successor advisor) and the compensation payable to it
by the Trust to determine that the terms and conditions of the contract
are being carried out. (See Section 1.9(k) of the Declaration.)
o Neither the Trust nor the Operating Partnership may purchase property or
any equity interest in any entity owning one or more properties from the
Managing Shareholder (wholly owned and controlled, along with the
Corporate General Partner of each Exchange Partnership, by Mr. McGrath), a
Trustee, any other member of the Board, or any of their respective
affiliates unless a majority of the disinterested members of the Board and
a majority of the disinterested Independent Trustees review the proposed
transaction and determine that it is fair and reasonable to the Trust and
the Operating Partnership and that the purchase price to the Trust or the
Operating Partnership, as applicable, for such property or equity interest
is no greater than the cost of the property or equity interest to such
proposed seller, or if the purchase price to the Trust or the Operating
Partnership is in excess of such cost, that substantial justification for
such excess exists and such excess is
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reasonable, provided, however, in no event may the purchase price for the
property exceed its current appraised value. (See Section 1.9(l) of the
Declaration.)
o Neither the Managing Shareholder, any Trustee, any other member of the
Board nor any of their respective affiliates may acquire or lease any
assets from the Trust or the Operating Partnership unless a majority of
the disinterested members of the Board and a majority of the disinterested
Independent Trustees determine that the proposed transaction is fair and
reasonable to the Trust and the Operating Partnership. (See Section 1.9(m)
of the Declaration.)
o No loans may be made by the Trust or the Operating Partnership to the
Managing Shareholder, a Trustee, any other member of the Board or any of
their respective affiliates except as provided below or to any wholly
owned subsidiary of the Trust or the Operating Partnership. (See Section
1.9(n) of the Declaration.)
o Neither the Trust nor the Operating Partnership may borrow money from or
invest in joint ventures with the Managing Shareholder, a Trustee, any
other member of the Board or any of their respective affiliates unless a
majority of the disinterested members of the Board and a majority of the
disinterested Independent Trustees determine that such proposed
transaction is fair, competitive, and commercially reasonable and no less
favorable to the Trust and the Operating Partnership than such
transactions between unaffiliated parties under the same circumstances.
(See Section 1.9(o) of the Declaration.)
o Neither the Trust nor the Operating Partnership may invest in equity
securities unless a majority of the disinterested members of the Board and
a majority of the disinterested Independent Trustees determine that such
proposed transaction is fair, competitive, and commercially reasonable.
(See Section 1.9(q) of the Declaration.)
o The Independent Trustees must review the investment policies of the Trust
at least annually to determine that the policies being followed by the
Trust at any time are in the best interests of the Shareholders and the
Unitholders. (See "INVESTMENT OBJECTIVES AND POLICIES" above and Section
1.9(r) of the Declaration.)
o In the event that the Trust or the Operating Partnership and one or more
other investment programs sponsored by the Managing Shareholder or an
Affiliate of the Managing Shareholder (wholly owned and controlled, along
with the Corporate General Partner of each Exchange Partnership, by Mr.
McGrath) seek to acquire similar types of properties, the Board (including
the Independent Trustees) must review the method described in "INVESTMENT
OBJECTIVES AND POLICIES - Trust Policies with Respect to Certain
Activities - Investment Policies" for allocating the acquisition of
properties among the Trust or the Operating Partnership, as applicable,
and such other programs in order to determine that such method is applied
fairly to the Trust and the Operating Partnership. (See Section 1.9(s) of
the Declaration.)
o Any other transaction not described in this section between the Trust or
the Operating Partnership and the Managing Shareholder, a Trustee, any
other member of the Board or any of their respective affiliates requires
the determination of a majority of the disinterested members of the Board
and a majority of the disinterested Independent Trustees that the proposed
transaction is fair and reasonable to the Trust and the Operating
Partnership and on terms and conditions no less favorable to the Trust and
the Operating Partnership than those available from unaffiliated parties.
(See Section 1.9(t) of the Declaration.)
o The purchase price payable for property to be acquired by the Trust and
the Operating Partnership must be based on the fair market value of the
property as determined by a majority of the members of the Board,
provided, however, in cases in which a majority of the Independent
Trustees in their sole discretion determine, and in all cases in which the
Trust or the Operating Partnership proposes to acquire property from the
Managing Shareholder, a Trustee, any other member of the Board or any of
their respective affiliates, such fair market value must be determined by
a qualified independent appraiser selected by the Independent Trustees.
(See Section 1.9(u) of the Declaration.)
o In connection with a proposed Roll-up (as defined below) involving the
assets of the Trust or the Operating Partnership, an appraisal of all such
assets must be obtained from a qualified independent appraiser and
delivered to the Shareholders and Unitholders in connection with the
proposed transaction. The sponsor of the transaction must offer to
Shareholders and Unitholders who vote against the proposal the choice of:
(i)
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accepting the securities of the Roll-up entity (i.e., the entity surviving
the Roll-up) or (ii) either (x) remaining as Shareholders in the Trust or
Unitholders in the Operating Partnership, as applicable, and preserving
their interests therein on the same terms and conditions as existed
previously or (y) receiving cash in an amount equal to their respective
pro rata share of the appraised value of the net assets of the Trust or
the Operating Partnership, as applicable. The Trust is prohibited from
participating in certain types of Roll-ups specified in the Declaration.
Generally, a "Roll-up" is a transaction involving the acquisition, merger,
conversion, or consolidation either directly or indirectly of the Trust or
the Operating Partnership and the issuance of securities of a Roll-up
entity. (See Section 1.9(v) of the Declaration.)
o The aggregate borrowings of each of the Trust and the Operating
Partnership, secured and unsecured, must be reasonable in relation to
their respective net assets and must be reviewed at least quarterly by the
Board. The maximum amount of such borrowings in relation to such net
assets may not exceed 300%, in the absence of a satisfactory showing that
higher level of borrowing is appropriate. Any borrowing in excess of such
amount requires the approval of a majority of the Independent Trustees and
must be disclosed to Shareholders and the Unitholders in the next
quarterly report of the Trust, along with an explanation of the
justification of such excess. (See Section 1.9(w) of the Declaration.)
o Neither the Trust nor the Operating Partnership may invest more than 10%
of its total assets in unimproved real property or mortgage loans on such
type of property. (See Section 1.9(x) of the Declaration.)
o Neither the Trust nor the Operating Partnership may invest in commodities
or commodity future contracts, excluding future contracts used solely for
hedging purposes in connection with the Trust's or the Operating
Partnership's ordinary business of investing in real estate assets and
mortgages. (See Section 1.9(y) of the Declaration.)
o Neither the Trust nor the Operating Partnership may invest in or make
mortgage loans (other than loans insured or guaranteed by a government or
government agency) unless an appraisal of replacement cost new is obtained
concerning the underlying property. In cases in which a majority of the
Independent Trustees in their sole discretion determine, and in all cases
in which the proposed transaction is with the Managing Shareholder (wholly
owned and controlled, along with the Corporate General Partner of each
Exchange Partnership, by Mr. McGrath), a Trustee, any other member of the
Board or any of their respective affiliates, the appraisal must be
obtained from a qualified independent appraiser. The appraisal must be
maintained in the Trust's records for at least five years, and must be
available for inspection and duplication by any Shareholder or Unitholder
at the Shareholder's or Unitholder's own expense. In addition to the
appraisal, the Trust or the Operating Partnership, as applicable, must
also obtain a mortgagee's or owner's title insurance policy or commitment
as to the priority of the mortgage or the condition of the title. The
Trust and the Operating Partnership are prohibited from (i) investing in
real estate contracts of sale (i.e., land sale contracts), unless such
contracts are in recordable form and appropriately recorded in the chain
of title; (ii) investing in or making any mortgage loans on any one
property if the aggregate amount of all mortgage loans outstanding on the
property, including the loans of the Trust or the Operating Partnership,
as applicable, would exceed an amount equal to 80% of the replacement cost
new of the property as determined by appraisal unless substantial
justification exists; and (iii) making or investing in any mortgage loans
that are subordinate to any mortgage or equity interest of the Managing
Shareholder, Trustees, any other members of the Board or any of their
respective affiliates. (See Section 1.9(z) of the Declaration.)
o The Trust and the Operating Partnership may not issue options or warrants
to purchase Shares or Units to the Managing Shareholder, the Trustees, any
other member of the Board or any of their respective affiliates except on
the same terms as such options or warrants are sold to the general public.
The Trust and the Operating Partnership may issue options or warrants to
persons not so connected with the Trust or the Operating Partnership but
not at exercise prices less than the fair market value of such securities
on the date of grant and for consideration (which may include services)
that in the judgment of the Independent Trustees has a market value less
than the value of such option on the date of grant. Options or warrants
issuable to the Managing Shareholder, the Trustees, any other member of
the Board or any of their respective affiliates must not exceed an amount
equal to 10% of the outstanding Common Shares or other securities of the
Trust or of the Units or other securities of the Operating Partnership on
the date of grant of any options or warrants. (See Section 1.9(cc) of the
Declaration.)
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o The payment by the Trust and the Operating Partnership of an interest in
the gain from the sale of their respective assets, for which full
consideration is not paid in cash or property of equivalent value, is
allowed provided the amount or percentage of such interest is reasonable.
Such an interest is considered reasonable if it does not exceed 15% of the
balance of such net proceeds remaining after payment to Shareholders or
Unitholders (as applicable), in the aggregate, of an amount equal to 100%
of the original issue price of their Shares or Units, plus an amount equal
to 6% of the original issue price of their Shares or Units, per annum
cumulative. For purposes of this calculation, the original issue price of
Shares and Units may be reduced by prior cash distributions to
Shareholders and Unitholders, as applicable. (See Section 1.9(ee) of the
Declaration.)
Liability and Indemnification
Neither the Managing Shareholder (wholly owned and controlled, along with
the Corporate General Partner of each Exchange Partnership, by Mr. McGrath), the
Trustees, any other members of the Board nor any of their respective affiliates
are liable to the Trust or to any Shareholder for any loss suffered by the Trust
which arises out of any action or inaction of such person, if such person, in
good faith, determines that such course of conduct was in the Trust's best
interest and such course of conduct was within the scope of the Declaration and
did not constitute negligence or misconduct in the case of a person who is not
an Independent Trustee, or gross negligence or willful misconduct, in the case
of any such person who is an Independent Trustee. (See Section 3.5 of the
Declaration.)
The Trust will indemnify the Managing Shareholder, the Independent
Trustees, any other member of the Board and each of their respective affiliates,
officers, directors, shareholders, partners, agents and employees (provided such
persons act within the scope of the Declaration) against any loss, liability or
damage (including costs of litigation and attorneys' fees) incurred by such
person arising out of or incidental to the Cash Offering and the management of
the Trust's affairs within the scope of the Declaration, unless such person's
negligence or intentional or criminal wrongdoing is involved. Notwithstanding
the foregoing, the exculpatory provisions do not include indemnification for
liabilities arising under the Securities Act of 1933, as amended (the
"Securities Act"), unless (i) there has been a successful adjudication on the
merits of each claim involving alleged securities law violations as to the
particular indemnitee, (ii) such claims have been dismissed with prejudice on
the merits by a court of competent jurisdiction as to the particular indemnitee,
or (iii) a court of competent jurisdiction approves a settlement of the claims
against the particular indemnitee and finds that indemnification of the
settlement and the related costs should be made. In addition, the exculpatory
provisions do not include indemnification for liabilities arising from or out of
intentional or criminal wrongdoing. See Section 3.7(b) of the Declaration of
Trust. It is the position of the Securities and Exchange Commission and certain
state securities administrators that any attempt to limit the liability of a
Managing Shareholder or persons controlling an issuer under the federal
securities laws or state securities laws is contrary to public policy and,
therefore, is unenforceable. (See Sections 3.7 and 3.8 of the Declaration.)
Assuming compliance with the Declaration and applicable formative and
qualifying requirements in Delaware and any other jurisdiction in which the
Trust conducts its business, a Shareholder will not be personally liable under
Delaware law for any obligations of the Trust, except for indemnification
liabilities arising from any misrepresentation made by him in the Investor
Subscription Documents submitted to the Trust in connection with the acquisition
of Common Shares in the Cash Offering. The Trust will, to the extent
practicable, endeavor to limit the liability of the Shareholders in each
jurisdiction in which the Trust operates. (See Section 3.4 of the Declaration.)
The law governing whether a jurisdiction other than Delaware will honor
the limitation of liability extended under Delaware law to the Shareholders is
uncertain. Many states have enacted legislation recognizing the limited
liability provisions of the Delaware business trust. In other states, there has
been no authoritative legislative or judicial determination as to whether the
limitation of liability would be honored. The Trust will make all equity
investments in properties through the Operating Partnership, a Delaware limited
partnership, which provides the Trust limited liability. Therefore, regardless
of the local treatment of business trusts, the Trust believes that the
Shareholders will not be subject to personal liability for property liabilities
and that with regard to the operation of the Trust itself the limitation of
Shareholders' liability under Delaware law will govern.
Under certain federal and state environmental laws of general application,
entities that own or operate properties contaminated with hazardous substances
may be liable for cleanup liabilities regardless of other limitations of
liability. The Trust is not aware of any case where such environmental
liabilities were imposed on non-management participants in a business trust. See
"THE TRUST AND THE OPERATING PARTNERSHIP Regulations."
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The Delaware Act does not contain any provision imposing liability on a
Shareholder for participation in the control of the Trust, although no
Shareholder has any rights to do so except through the rights to propose and
vote on matters described below. The Delaware Act does not require a Shareholder
who receives distributions that are made when the Trust is or would be rendered
insolvent to return those distributions under equitable principles enforced by
courts. Under Delaware decisions, a trust beneficiary who receives overpayments
from a trust is obligated to return those payments, with interest, subject to
equitable defenses. The application of these cases to beneficiaries of a
business trust is uncertain. The Declaration has been signed by the Corporate
Trustee, and the Managing Shareholder was the formative beneficial interest
holder of the Trust.
Distributions
The Trust presently intends to make quarterly pro rata distributions of
available funds, if any, to its Shareholders. In order to maintain its
qualification as a REIT under the Code, the Trust must make annual distributions
to Shareholders of at least 95% of its taxable income, determined without regard
to the deduction for dividends paid and by excluding any net capital gains. For
taxable years beginning after August 5, 1997, the 1997 Act (1) expands the class
of excess noncash items that are excluded from the distribution requirement to
include income from the cancellation of indebtedness and (2) extends the
treatment of original issue discount and coupon interest as excess noncash items
to REITs, like the Trust, that use an accrual method of accounting. Under
certain circumstances, the Trust may be required to make distributions in excess
of cash flow available for distribution to meet such distribution requirements.
Shareholders will be entitled to receive any distributions declared on a pro
rata basis for each outstanding class of Shares taking into account the relative
rights of priority of each class entitled to distributions. (See Section 6.7 of
the Declaration.)
The Board of the Trust is expected to adopt a distribution reinvestment
program. Upon the adoption of the plan, the Trust will provide material
information to Shareholders regarding the plan and the effect of reinvesting
distributions from the Trust, including the tax consequences thereof. The Trust
will provide Shareholders updated information at least annually. (See Section
2.8 of the Declaration.)
Quarterly and Annual Reports
The Trust will provide each Shareholder with quarterly and annual reports
as described below at "REPORTS TO UNITHOLDERS AND SHAREHOLDERS." (See also
Section 5.3 of the Declaration.)
Accounting
The accounting period of the Trust will end on December 31 of each year.
The Trust will utilize the accrual method of accounting for the Trust's
operations on the basis used in preparing the Trust's federal income tax returns
with such adjustments as may be in the Trust's best interest. (See Section 5.1
of the Declaration.)
Books and Records; Tax Information
The Trust will keep appropriate records relating to its activities. All
books, records and files of the Trust will be kept at its principal offices at
Cincinnati, Ohio or Wilmington, Delaware. An independent certified public
accounting firm will prepare the Trust's federal income tax returns as soon as
practicable after the conclusion of each year. The Trust will use its reasonable
best efforts to obtain the information for those returns as soon as possible and
to cause the resulting accounting and tax information to be transmitted to the
Shareholders as soon as possible after receipt from the accounting firm.
Shareholders have the right under the terms of the Declaration to obtain other
information about the Trust and may, at their expense, obtain a list of the
names and addresses of the Shareholders. (See Sections 5.2, 5.3(c), and 6.4 of
the Declaration.)
Governing Law
All provisions of the Declaration will be construed according to the laws
of the State of Delaware except as may otherwise be required by law in any other
state. (See Section 9.2 of the Declaration.)
Amendments and Voting Rights
The Managing Shareholder (wholly owned and controlled, along with the
Corporate General Partner of each Exchange Partnership, by Mr. McGrath) may
amend the Declaration without notice to or approval of the
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Shareholders for the following purposes: to maintain the federal income tax
status of the Trust as a REIT (unless the Managing Shareholder determines that
it is in the best interests of the Shareholders to disqualify the Trust's REIT
status and a majority of Common Shares entitled to vote approve such
determination); or to comply with law. (See Section 9.6(a) of the Declaration.)
Other amendments to the Declaration may be proposed either by the Managing
Shareholder or holders of at least 10% of the Common Shares, either by calling a
meeting of the Shareholders or by soliciting written consents. The procedure for
such meetings or solicitations is found at Section 6.5 of the Declaration. Such
proposed amendments require the approval of a majority in interest of the
Shareholders entitled to vote given at a meeting of Shareholders or by written
consents. (See Section 9.6(b) of the Declaration.) Other voting rights of
Shareholders are described below at " Meeting and Voting Rights."
Dissolution of Trust
The term of the Trust will end on the earliest to occur of (a) December
31, 2098, (b) the vote of a majority in interest of the Shareholders, (c) the
sale of all or substantially all of the Trust's Property, (d) the withdrawal of
the Cash Offering by the Managing Shareholder (wholly owned and controlled,
along with the Corporate General Partner of each Exchange Partnership, by Mr.
McGrath) prior to the Termination Date of the offering, or (e) any other event
requiring dissolution by law. The Trust will wind up its business after
dissolution unless (i) any remaining Managing Shareholder and a majority in
interest of the Shareholders (calculated without regard to Common Shares held by
the Managing Shareholder) or (ii) if there is no remaining Managing Shareholder
or its affiliates, a majority in interest of the Shareholders, elects to
continue the Trust. The Managing Shareholder (or in the absence thereof, a
liquidating trustee chosen by the Shareholders) will liquidate the Trust's
assets if it is not continued. (See Article 8 of the Declaration.)
Removal and Resignation of the Managing Shareholder
The holders of at least 10% of the Common Shares may propose the removal
of the Managing Shareholder, either by calling a meeting or soliciting consents
in accordance with the terms of the Declaration. Removal of the Managing
Shareholder (wholly owned and controlled, along with the Corporate General
Partner of each Exchange Partnership, by Mr. McGrath) requires either the
affirmative vote of a majority of the Common Shares (excluding Common Shares
held by the Managing Shareholder which is the subject of the vote or by its
affiliates) or the affirmative vote of a majority of the Independent Trustees.
The Shareholders entitled to vote thereon may replace a removed Managing
Shareholder or fill a vacancy by vote of a majority in interest of such
Shareholders. (See Section 7.11 of the Declaration.)
The Managing Shareholder or a majority of the Independent Trustees may
terminate the Trust Management Agreement and the Managing Shareholder may resign
as Managing Shareholder without cause or penalty by giving the Trust at least 60
days prior written notice. Upon the termination of the Trust Management
Agreement, the Managing Shareholder must cooperate with the Trust and take all
reasonable steps requested to assist the Board in making an orderly transition
of the management, administrative and advisory function. (See Section 7.3(d) of
the Declaration and Article VI of the Trust Management Agreement.)
Transferability of Shareholders' Interests
The Common Shares are freely transferable by the Shareholders, subject to
certain restrictions on transfer which the Managing Shareholder deems necessary
to comply with the REIT provisions of the Code. (See Section 2.5 and Article 2A
of the Declaration.) Such limitations are described at "CAPITAL STOCK OF THE
TRUST - Restrictions on Ownership and Transfer."
Independent Activities
Provided that they comply with any fiduciary obligation to the Trust and
with the conflicts of interest policies of the Trust and the Operating
Partnership (see "INVESTMENT OBJECTIVES AND POLICIES-Trust Policies with Respect
to Certain Activities-Conflict of Interest Policies" above), the Managing
Shareholder and each Shareholder may engage in whatever activities they choose,
whether or not such activities are competitive with the Trust, without any
obligation to offer any interest in such activities to the Trust or to any other
Shareholders. (See Sections 6.2 and 7.9 of the Declaration.)
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Power of Attorney
In the Declaration, the Shareholders acknowledge that the Managing
Shareholder has been granted an irrevocable power of attorney to execute and
file (i) all amendments, alterations or changes in the Declaration of the Trust
which comply with the terms of the Declaration; (ii) all other instruments which
the Managing Shareholder believes to be in the best interest of the Trust to
file; (iii) all certificates or other instruments necessary to qualify or
maintain the Trust as a REIT or as a business trust in which the Shareholders
have limited liability in the jurisdictions where the Trust may conduct
business; and (iv) all instruments necessary to effect a dissolution,
termination, liquidation, cancellation or continuation of the Trust when such
dissolution, termination, liquidation, cancellation or continuation is called
for under the Declaration. (See Section 9.3 of the Declaration.)
Meetings and Voting Rights
The Trust will conduct an annual meeting of Shareholders at which all
members of the Board (including all Independent Trustees) (except where the
Managing Shareholder and a Majority of the Shareholders entitled to vote on such
matter approve staggered elections for such positions, in which case only the
class up for election) will be elected or reelected and any other proper
business may be conducted. Each Common Share entitles the holder to one vote on
all matters requiring a vote of Shareholders, including the election of members
of the Board. The Shareholders meeting will be held upon reasonable notice and
within 30 days after the delivery of the Trust's annual report to Shareholders,
but in any event no later than the end of the sixth month following the end of
the prior full fiscal year. Special meetings of the Shareholders may be called
at any time, either by the Managing Shareholder, a majority of the Independent
Trustees, any officer of the Trust, or Shareholders who hold 10% or more of the
Common Shares then outstanding, for any matter on which such Shareholders may
vote. The Trust may not take any of the following actions without approval of
the holders of at least a majority of the Shares entitled to vote:
(1) Sell, exchange, lease, mortgage, pledge or transfer all or
substantially all of the Trust's assets if not in the ordinary course of
operation of Trust Property or in connection with liquidation and dissolution.
(2) Merge or otherwise reorganize the Trust.
(3) Dissolve or liquidate the Trust, other than before its initial
investment in property.
(4) Amend the Declaration; provided, however, the Declaration may be
amended by the Managing Shareholder without notice or approval of the
Shareholders for the following purposes: (i) to maintain the federal income tax
status of the Trust (unless the Managing Shareholder determines (with the
concurrence of a Majority of the Shareholders entitled to vote on such matter)
that it is in the best interest of Shareholders to change the Trust's tax
status); and (ii) to comply with law. (See Sections 1.9(ff), 6.5, 6.6 and 7.3(b)
of the Declaration.)
In addition to any other actions of the Trust requiring the approval of
Shareholders under the Declaration, a Majority of the Shareholders present in
person or by proxy at an annual meeting at which a quorum is present, may,
without the necessity for concurrence by the Board, vote to amend the
Declaration, terminate the Trust, and elect and/or remove one or more members of
the Board. (See Section 6.6(b) of the Declaration.)
Additional Offerings of Shares
There will be no mandatory assessments of Shareholders in respect of the
Common Shares or any additional Shares the Trust may issue in the future. To the
extent that the Board desires to obtain additional capital, the Trust may raise
such capital through additional public and private equity offerings, debt
financing, retention of cash flow (subject to satisfying the Trust's
distribution requirements under the REIT rules) or a combination of these
methods. The Trust may determine to issue securities senior to the Common
Shares, including Preferred Shares, debt securities, or Units of limited
partnership interest in the Operating Partnership (either of which may be
convertible into Common Shares or be accompanied by warrants to purchase Common
Shares). The Trust may also finance acquisitions of properties or interests in
properties through the exchange of properties or interests in properties or
through the issuance of Shares or debt securities or the issuance of Units of
limited partnership interest in the Operating Partnership in which it will
conduct all of its real estate operations. (See Article 2 of the Declaration.)
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The proceeds from any borrowings by the Trust may be used to pay
distributions, to provide working capital, to purchase additional interests in
the Operating Partnership, to refinance existing indebtedness or to finance
acquisitions or capital improvements of new properties or property interests.
(See Section 1.8(a) of the Declaration.)
Temporary Investments
Pending the commitment of Trust funds for the purposes described in this
Prospectus, for distributions to Shareholders or for application of reserve
funds to their purposes, the Managing Shareholder has full authority and
discretion to make short-term investments in: (i) obligations of banks or
savings and loan associations that either have assets in excess of $5 billion or
are insured in their entirety by the United States government or its agencies
and (ii) obligations of or guaranteed by the United States government or its
agencies. Such short-term investments would be expected to earn rates of return
which are lower than those earned in respect of properties in which the Trust
may invest. (See Sections 1.2(a) and 5.5 of the Declaration.)
REPORTS TO UNITHOLDERS AND SHAREHOLDERS
Operating Partnership Unitholders
Within 120 days after the close of each partnership year, the Operating
Partnership is required to mail to each Limited Partner, an annual report
containing financial statements of the Operating Partnership presented in
accordance with generally accepted accounting principles ("GAAP") and audited by
a nationally recognized firm of qualified independent public accountants. Within
60 days after the close of each quarter (except the last quarter), the Operating
Partnership is required to mail to each Limited Partner a report containing
unaudited financial statements of the Operating Partnership. The Operating
Partnership is required to use all reasonable efforts to furnish to Limited
Partners, within 90 days after the close of each taxable year, the tax
information reasonably required by the Limited Partners for federal and state
income tax reporting purposes.
Additionally, within 60 days after the end of each fiscal quarter for
which the Trust or the Operating Partnership incurs total operating expenses
(less certain items, including capital raising expenses, interest payments,
taxes, non-cash expenditures such as depreciation, and acquisition fees and
expenses) for the 12 months then ended in excess of the greater of (i) 2% of the
aggregate book value of their respective investments, or (ii) 25% of their
respective net income for such year, the Trust is required to send to Trust
Shareholders and holders of Operating Partnership Units written disclosure of
such fact, together with an explanation of the factors the Independent Trustees
considered in arriving at their finding that such higher operating expenses were
justified. If the Independent Trustees of the Trust do not determine such excess
expenses are justified, the Managing Shareholder is required to reimburse the
Trust or the Operating Partnership, as the case may be, at the end of such
12-month period the amount of such excess.
Each Limited Partner is entitled, upon written request and at his expense,
to obtain a copy of the following from the Operating Partnership: (i) most
recent annual and quarterly reports filed with the Commission by the Trust under
the Exchange Act (defined below), (ii) the Operating Partnership's federal,
state and local income tax returns for each year, (iii) a current list of the
name and address of each Unitholder, (iv) the Operating Partnership Agreement,
the Certificate of Limited Partnership of the Operating Partnership filed in the
State of Delaware and all amendments thereto, and (v) information relating to
the amount of cash and other consideration contributed by each Limited Partner
and the date each Limited Partner became a partner of the Operating Partnership.
Trust Shareholders
The Trust will keep each Shareholder currently advised as to activities of
the Trust by reports furnished at least quarterly. Each quarterly report will
contain a condensed statement of "cash flow from operations" for the year to
date as determined by the Managing Shareholder in conformity with generally
accepted accounting principles on a basis consistent with that of the annual
financial statements and showing its derivation from net income. (See Section
5.3(a) of the Declaration.)
Within 120 days after the end of each fiscal year following the completion
of the Cash Offering, the Trust is required to prepare and mail to each
Shareholder as of a record date determined by the Managing Shareholder, an
annual report which includes the following:
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(1) Financial statements prepared in accordance with generally accepted
accounting principles which are audited and reported on by the Trust's
independent certified public accountants;
(2) The ratio of the costs of raising capital during the period to the
capital raised;
(3) The aggregate amount of advisory fees and the aggregate amount of
other fees paid to the Managing Shareholder and any of its affiliates during the
period by the Trust and including fees or charges paid to them by third parties
doing business with the Trust;
(4) The total operating expenses (as defined in Section 1.9(i) of the
Declaration), stated as a percentage of the book amount of the Trust's
investments and as a percentage of its net income;
(5) A report from the Independent Trustees that the policies being
followed by Trust are in the best interests of its Shareholders and the basis
for such determination; and
(6) Full disclosure of all material terms, factors, and circumstances
surrounding any and all transactions involving the Trust, the Managing
Shareholder, the Trustees, any other members of the Board and any of their
respective affiliates occurring in the year for which the annual report is made.
(See Section 5.3(b) of the Declaration.)
Additionally, within 60 days after the end of each fiscal quarter for
which the Trust or the Operating Partnership incurs total operating expenses
(less certain items, including capital raising expenses, interest payments,
taxes, non-cash expenditures such as depreciation, and acquisition fees and
expenses) for the 12 months then ended in excess of the greater of (i) 2% of the
aggregate book value of their respective investments, or (ii) 25% of their
respective net income for such year, the Trust is required to send to Trust
Shareholders and holders of Operating Partnership Units written disclosure of
such fact, together with an explanation of the factors the Independent Trustees
considered in arriving at their finding that such higher operating expenses were
justified. If the Independent Trustees of the Trust do not determine such excess
expenses are justified, the Managing Shareholder is required to reimburse the
Trust or the Operating Partnership, as the case may be, at the end of such
12-month period the amount of such excess.
The Common Shares being sold in the Cash Offering have been registered
under the Securities Act of 1933, as amended (the "Securities Act"). As of the
date of this Prospectus, the Trust has not registered the Common Shares under
the Securities Exchange Act of 1934, as amended (the "Exchange Act"), or listed
them on any securities exchange. The Trust will apply for listing on a national
stock exchange of the Common Shares being offered in the Cash Offering and
Common Shares into which Units being offered in the Exchange Offering are
exchangeable. However, there can be no assurance whether the Trust will qualify
for such listing on any stock exchange and, if so, of the timing of the
effectiveness of any such listing.
Although Common Shares acquired by Investors in the Cash Offering and
Common Shares acquired by Unitholders in exchange for Units will be freely
tradable securities, there can be no assurance that an active trading market
will be established or maintained for the Common Shares. The Trust will be
required to file periodic reports (Form 10-KSB or Form 10-K annual reports, Form
10-QSB or Form 10-Q quarterly reports and Form 8-KSB or Form 8-K current
reports) under the Exchange Act in 1999 and for any subsequent fiscal year in
which it has more than 300 Shareholders or it is otherwise required by
applicable law to do so. The Trust is expected to have at least 300 Shareholders
after the completion of the Cash Offering and accordingly would be required to
file such reports on a continuing basis.
COMPARISON OF RIGHTS OF HOLDERS OF EXCHANGE PARTNERSHIP UNITS,
OPERATING PARTNERSHIP UNITS AND TRUST COMMON SHARES
The rights and obligations of the Corporate General Partner (wholly owned
and controlled, along with the Managing Shareholder of the Trust, by Mr.
McGrath) and Exchange Limited Partners in respect of each Exchange Partnership
are governed by the agreement of limited partnership of the partnership
(collectively, the "Exchange Partnership Agreements" and individually, an
"Exchange Partnership Agreement"). The rights and obligations under the various
Exchange Partnership Agreements described below are identical except as stated.
Exchange Limited Partners are urged to review the Exchange Partnership Agreement
pertaining to their investment which was attached as Exhibit A to the Private
Placement Memorandum they received in connection with their original purchase of
Exchange Partnership Units in such partnership's private offering.
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Upon their acceptance of the Exchange Offering, Exchange Limited Partners
of Participating Exchange Partnerships (i.e., Exchange Partnerships whose
limited partners holding at least 90% of the limited partnership interests
therein elect to accept the Exchange Offering assuming the offering is complete)
will become limited partners in the Operating Partnership and have rights set
forth under the Operating Partnership Agreement as described below. See also
"THE TRUST AND THE OPERATING PARTNERSHIP- The Operating Partnership." Exchange
Limited Partners of Participating Exchange Partnerships who accept the Exchange
Offer and thereby receive Operating Partnership Units will entitled to exchange
all or a portion of such units for an equivalent number of Common Shares of the
Trust at any time and from time to time, subject to the Trust's right to cash
out any holder of Units who requests an exchange (at a price equal to the
average of the daily market price for the 10 consecutive trading days
immediately preceding the date the Trust receives the exchange notice, or, in
the absence of a public trading market, at a price determined in good faith by
the Trust) and subject to certain other restrictions described above at "THE
EXCHANGE OFFERING." Holders of Trust Common Shares will have the rights set
forth under the Declaration of Trust for the Trust which are summarized above at
"SUMMARY OF DECLARATION OF TRUST" and below. The Declaration of Trust also
contains certain additional limitations on the Trust's activities which will
affect the operation of the Trust and the Operating Partnership. See "SUMMARY OF
THE DECLARATION OF TRUST - Control of Operations" and Section 1.9 of the
Declaration of Trust.
The rights of limited partners in the Participating Exchange Partnerships
differ in many respects from the rights they will have as limited partners in
the Operating Partnership if they accept the Exchange Offering and the rights
they will have if they exercise their right to exchange Operating Partnership
Units for an equivalent number of Trust Common Shares. The following discussion
compares the material provisions of each type of security but does not purport
to be a complete statement of such provisions under Florida and Delaware limited
partnership law, as applicable, Delaware business trust law, the Exchange
Partnership Agreements, the Operating Partnership Agreement and the Declaration
of Trust of the Trust or a comprehensive comparison of the rights of holders of
Exchange Partnership Units, the holders of Operating Partnership Units and
holders of Trust Common Shares under such agreements or laws. This summary is
qualified in its entirety by reference to such agreements and laws.
Following the Exchange Offering, each Non-participating Limited Partner
(i.e., each limited partner in a Participating Exchange Partnership who elects
not to accept the Exchange Offering) will retain his existing interest in his
Exchange Partnership. The Non-participating Limited Partners will retain all of
their economic and voting rights, rights to receive reports and substantially
all other rights as set forth in the Exchange Partnership Agreement pertaining
to their Exchange Partnership. As described in further detail in this Prospectus
at "AMENDMENTS TO PARTNERSHIP AGREEMENTS OF PARTICIPATING EXCHANGE PARTNERSHIPS
WITH NON-PARTICIPATING LIMITED PARTNERS," the partnership agreement of each
Participating Exchange Partnership which has one or more Non-participating
Limited Partners following the Exchange Offering will be amended so that such
partners will be entitled to vote as a class in respect of all matters as to
which limited partners are entitled to vote under the partnership agreement
prior to the completion of the Exchange Offering, with certain exceptions. In
addition, the Trust and the Operating Partnership have agreed that in respect of
certain proposed actions, the Participating Exchange Partnership must obtain the
prior approval of Non-participating Limited Partners holding a majority of the
limited partnership interests held by all Non-participating Limited Partners in
the partnership. For example, the partnership may not sell its existing property
interest, acquire any additional property interests or cease to exist without
such approval. The partnership agreement, as amended, will continue in full
force and effect after the completion of the offering as long as any
Non-participating Limited Partners remain limited partners of the Exchange
Partnership. See the Prospectus at "THE EXCHANGE OFFERING."
Set forth below under the applicable category is a summary of the specific
Exchange Partnership Agreement amendments that will be effected in respect of
each Participating Exchange Partnership which has one or more Non-participating
Limited Partners immediately following the completion of the Exchange Offering
as to such partnership.
Issuance of Additional Securities
Exchange Partnerships: Under the Exchange Partnership Agreements, the interests
of the partners are comprised of general partner interests and limited partner
interests only. Except as described in the next paragraph, all of the Exchange
Partnerships may issue securities in addition to those issued in connection with
their respective private offering of limited partnership interests, as described
below in this paragraph. Additional partnership interests may be sold by each
such Exchange Partnership in the future if the Corporate General Partner thereof
(wholly owned and controlled, along with the Managing Shareholder of the Trust,
by Mr. McGrath) determines it to be in the best
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interest of the partnership to commit additional funds to its property and that
such funds should not be financed from the partnership's earnings or through
additional indebtedness.
The partnership agreement provisions of three of the Exchange Partnerships
(Florida Income Advantage Fund I, Ltd., Florida Income Appreciation Fund I,
Ltd., and Realty Opportunity Income Fund VIII, Ltd.) permit the issuance of
additional securities only if such issuance is approved by the general partner
of, and the limited partners holding at least a majority of the limited
partnership interests in, the respective partnership.
As a result of certain amendments to be made to the partnership agreement
of each Participating Exchange Partnership with one or more Non-participating
Limited Partners following the Exchange Offering, without the majority approval
of the Non-participating Limited Partners of the partnership voting as a class,
the partnership will not be authorized to admit any additional persons as
limited partners other than pursuant to provisions of the agreement, including
those described above, which set forth procedures for admission or pertain to
transfers of limited partnership interests. In addition, as a result of such
amendments, the Corporate General Partner of each Participating Exchange
Partnership (other than the three partnerships excepted above) will continue to
have discretion to issue additional units of limited partnership interest of the
same class as units held by the limited partners of the partnership and to
determine the terms of such issuance, provided, however, that the majority
approval of Non-participating Limited Partners voting as a class is required to
approve such issuance in advance where the selling price for such shares is not
less than the approximate market value of the units. See below at "AMENDMENTS TO
PARTNERSHIP AGREEMENTS OF PARTICIPATING EXCHANGE PARTNERSHIPS WITH
NON-PARTICIPATING LIMITED PARTNERS."
Operating Partnership: Under the Operating Partnership Agreement, the initial
interests of the partners are comprised of the General Partner interest held by
the Trust and Operating Partnership Units of limited partnership interest to be
held by the Trust, the Original Investors and the recipients of Operating
Partnership Units in connection with the Exchange Offering. The Trust, as
General Partner of the Operating Partnership, is authorized to cause the
Operating Partnership to issue additional partnership interests in the Operating
Partnership for any purpose of the Operating Partnership at any time to the
partners in the Operating Partnership or to other persons for such consideration
and on such terms and conditions as may be established by the Trust in its sole
and absolute discretion, provided, however, the Operating Partnership may not
issue redeemable equity securities (other than Units which by their terms are
exchangeable into Common Share). The Trust may cause the Operating Partnership
to issue additional interests in the Operating Partnership in one or more
classes, or one or more series of any such classes, with such designations,
preferences and relative rights, powers and duties senior to interests of
Operating Partnership Limited Partners, subject to Delaware business trust law.
Since Units are exchangeable by Unitholders (other than the Trust) into an
equivalent number of Common Shares of the Trust, the maximum number of Units
that may be issued by the Operating Partnership is limited to the number of
authorized Shares of the Trust, which is 25,000,000.
The Trust: The Trust has authority to issue an aggregate of 25,000,000 Shares.
The Managing Shareholder is authorized to issue from the authorized but unissued
Shares of the Trust, additional Common Shares as well as Preferred Shares in one
or more series and to establish from time to time the number of Preferred Shares
to be included in each such series and to fix the designations and any
preferences, conversion and other rights, voting powers, restrictions,
limitations as to dividends, qualifications, and terms and conditions of
redemption of the shares of each series, provided, however, (i) the Managing
Shareholder will be authorized to issue Preferred Shares only upon approval of
either Shareholders of the Trust holding a majority of the then outstanding
Shares entitled to vote upon such matter or a majority of the disinterested
Independent Trustees, (ii) the voting rights for each Preferred Share that is
issued may not exceed one vote per share, and (iii) the Trust may not issue
redeemable equity securities. If the Trust issues additional securities in the
future, (x) the Trust must cause the Operating Partnership to issue to the
Trust, interests in the Operating Partnership which represent economic interests
in the Operating Partnership which are substantially similar to such additional
securities and (y) the Trust must contribute to the Operating Partnership the
net proceeds from, or the property received in consideration for, the issuance
of any such additional securities and from the exercise of rights contained in
such additional securities.
In addition, upon the exercise of an option granted by the Trust for Trust
Common Shares pursuant to an employee stock option plan, the Trust must cause
the Operating Partnership to issue to the Trust one Operating Partnership Unit
for each Trust Common Share acquired upon such exercise and the Trust must
contribute to the Operating Partnership the net proceeds received from such
exercise. The Operating Partnership will also issue Operating Partnership Units
to employees of the Operating Partnership or any subsidiary of the Operating
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Partnership upon the exercise by any such employees of an option to acquire
Operating Partnership Units granted by the Operating Partnership pursuant to an
employee stock option plan.
The Trust will also issue Trust Common Shares on a one-for-one basis to
holders of Operating Partnership Units who exercise their rights to exchange
their Operating Partnership Units for an identical number of Trust Common
Shares, subject to certain exceptions described at "THE EXCHANGE OFFERING."
Term of Existence
Exchange Partnerships: The term of each Exchange Partnership terminates on
December 31 of the year of the twenty-ninth to thirty-second anniversary of its
formation, as the case may be, unless terminated earlier by law or under the
provisions of the respective Exchange Partnership Agreement, including (i) the
determination of a majority in interest of limited partners to dissolve the
partnership, (ii) actions affecting the activities of the Corporate General
Partner (including, among other things, resignation or dissolution) unless a
majority in interest of the limited partners vote to continue the partnership
and appoint a successor general partner, and (iii) the sale of all or
substantially all of the property of the partnership.
As a result of certain amendments to be made to the partnership agreement
of each Participating Exchange Partnership with one or more Non-participating
Limited Partners following the Exchange Offering, without the majority approval
of the Non-participating Limited Partners of the partnership voting as a class,
the partnership will not be permitted to cease to exist.
In addition, as a result of such amendments, following the Exchange
Offering, the partnership may be dissolved by the vote of at least a majority of
the outstanding limited partnership interests in the partnership, but only with
the approval of Non-participating Limited Partners holding a majority of the
then outstanding units of the partnership held by all Non-participating Limited
Partners. Furthermore, the partnership will be dissolved if the last remaining
general partner of the partnership (each of the Exchange Partnerships currently
has only one general partner) ceases to act as general partner, unless the
limited partners of the partnership (including the Operating Partnership and
Non-participating Limited Partners) holding at least a majority of the then
outstanding units of the partnership elect to continue the partnership and elect
a new general partner and such continuation, election of such general partner(s)
and the amount, type and purchase price of any interest in the partnership such
successor general partner(s) may acquire in connection therewith have been
approved in advance by Non-participating Limited Partners of the partnership
holding a majority of the then outstanding units of the partnership held by all
Non-participating Limited Partners. See below at "AMENDMENTS TO PARTNERSHIP
AGREEMENTS OF PARTICIPATING EXCHANGE PARTNERSHIPS WITH NON-PARTICIPATING LIMITED
PARTNERS."
Operating Partnership: The term of the Operating Partnership terminates on
December 31, 2098 unless terminated earlier by law or under the provisions of
the Operating Partnership Agreement, including (i) the withdrawal of the Trust
as General Partner, unless a majority in interest vote to continue the Operating
Partnership and appoint a successor general partner, (ii) the General Partner's
election to dissolve the Operating Partnership with the approval of Limited
Partners holding a majority in interest of the Operating Partnership Units, (ii)
the sale of all or substantially all of the properties of the Operating
Partnership, (iv) the merger of the Operating Partnership with or into another
entity, (v) the bankruptcy or insolvency of the Trust, and (vi) the commencement
of any proceedings against the Trust seeking its reorganization, liquidation,
dissolution or similar relief or the involuntary appointment of a trustee to
receive or liquidate the Trust or any substantial portion of its properties and
such proceeding or appointment has not been dismissed, vacated or stayed within
a specified period of time.
The Trust: The term of the Trust terminates on December 31, 2098 unless
terminated earlier (i) by law, (ii) the determination of the holders of at least
a majority of the Trust Shares then outstanding to dissolve the Trust, (iii) the
sale of all or substantially all of the Trust's property or (iv) the withdrawal
of the Cash Offering by the Managing Shareholder of the Trust prior to the
termination date of the Cash Offering.
Management Control
Exchange Partnerships: Subject to the rights of limited partners in the Exchange
Partnerships set forth in the Exchange Partnership Agreements which are
described below at "Meetings and Voting Rights," the Corporate General Partner
of each partnership has full exclusive and complete discretion in management and
control of the partnership.
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As a result of certain amendments to be made to the partnership agreement
of each Participating Exchange Partnership with one or more Non-participating
Limited Partners following the Exchange Offering, any amendment of any agreement
entered into between any Participating Exchange Partnership and any affiliates
of the Corporate General Partner following the Exchange Offering (other than any
agreement described in the offering documents relating to the original private
offering of the partnership) will require the approval of Non-participating
Limited Partners of the partnership holding a majority of the then outstanding
units of the partnership held by all Non-participating Limited Partners. See
below at "AMENDMENTS TO PARTNERSHIP AGREEMENTS OF PARTICIPATING EXCHANGE
PARTNERSHIPS WITH NON-PARTICIPATING LIMITED PARTNERS."
Operating Partnership: Subject to the rights of Operating Partnership Limited
Partners set forth in the Operating Partnership Agreement which are set forth
below at "Meetings and Voting Rights," the Trust, as General Partner of the
Operating Partnership, has all management powers over the business and affairs
of the Operating Partnership. As described immediately below, the Managing
Shareholder of the Trust has day to day management control over the Operating
Partnership and the Trust.
The Trust: Subject to the rights of Shareholders set forth in the Declaration of
Trust, the Managing Shareholder of the Trust has full exclusive and complete
discretion in the day to day management and control of the Trust and the
Operating Partnership, subject to the general supervision and review by the
Independent Trustees and the Managing Shareholder of the Trust acting together
as the Board of the Trust and subject to the prior approval of the Board and the
Independent Trustees in respect of certain activities of the Trust and the
Operating Partnership. See "SUMMARY OF DECLARATION OF TRUST - Control of
Operations" and Section 1.9 of the Declaration of Trust.
Economic Interest
Exchange Partnerships: In private offerings commenced between 1994 and 1997,
Exchange Limited Partners acquired Exchange Partnership Units in one or more
Exchange Partnerships in return for capital contributions. Each Exchange
Partnership maintains a capital account for each of its partners to which it
allocates the partner's share of all items of partnership income, gain, expense,
loss, deduction and credit determined in accordance with the Internal Revenue
Code of 1986, as amended, and regulations issued thereunder. Except as described
in the next paragraph below, the partnership agreement provisions of all of the
Exchange Partnerships relating to the allocation of taxable income and loss
among the general partner and the limited partners are substantially the same.
Such provisions are described below in this paragraph. Under the respective
Exchange Partnership Agreement, after giving effect to certain technical special
allocation provisions, (i) taxable income is allocable 100% to the Corporate
General Partner until the profit allocated plus the cumulative profit allocable
to the Corporate General Partner for prior fiscal periods during which a profit
was earned by the partnership equal the cumulative amounts distributable to the
Corporate General Partner and the balance, if any, is allocated to the Exchange
Limited Partners and (ii) taxable losses are allocable 99% to the Exchange
Limited Partners and 1% to the Corporate General Partner, provided, however,
that losses are not allocable to any Exchange Limited Partner to the extent that
such allocation would cause such Exchange Limited Partner to have an adjusted
capital account deficit at the end of the taxable year (which excess losses are
allocable to the Corporate General Partner). Each limited partner in an Exchange
Partnership owns an interest in the entire limited partnership interests in the
partnership in proportion to his respective ownership of units.
Described below are the partnership agreement provisions of three of the
Exchange Partnerships (Florida Income Advantage Fund I, Ltd., Florida Income
Appreciation Fund I, Ltd., and Realty Opportunity Income Fund VIII, Ltd.)
relating to the allocation of taxable income and loss. Assuming that all
distributions (including distributions required under the special distribution
provisions of the Code) required to be made have been made, taxable income
attributable to operations is allocable first to those partners who have deficit
balances in their capital accounts, in proportion to such deficit balances,
until the capital accounts have been restored to zero; and then 90% to the
limited partners and 10% to the general partner. Taxable losses attributable to
operations are allocable 90% to the limited partners and 10% to the general
partner. Taxable gain attributable to the sale of partnership property is
allocable first to those partners who have deficit balances in their capital
accounts, in proportion to those deficit balances, until the capital accounts
are restored to zero, and then in accordance with the partners' capital
accounts. Taxable losses attributable to the sale of partnership property are
allocable among the partners in proportion to the positive or negative balances
of their respective capital accounts; provided, however that, in the event that
some partners have positive capital account balances and other partners have
negative capital account balances, then such losses will be allocated first to
those partners who have positive capital account balances in proportion to such
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positive balances until the capital account balances of such partners have been
reduced to zero, and then 90% to the limited partners and 10% to the general
partner.
Each Exchange Partnership is required to distribute at least quarterly
distributable cash flow (defined as all cash received by the partnership from
any source, other than capital contributions, loan proceeds and proceeds from
the sale or refinancing of property, less operating expenses, principal and
interest payments on indebtedness, capital expenditures, general partner fees
and reasonable cash reserves). Each Exchange Limited Partner has a preferential
interest over the Corporate General Partner in respect of his partnership's
distributable cash flow and net proceeds from the sale or refinancing of
property owned by the partnership. The interests of the Exchange Limited
Partners and the Corporate General Partner in a particular Exchange Partnership
in such distributable cash flow and net sale or refinancing proceeds are set
forth in Exhibit I to the Prospectus Supplement delivered to each Exchange
Limited Partner in the partnership. Schedule B to this Prospectus contains a
table for each Exchange Partnership which summarizes on a partnership by
partnership basis such allocations.
The Corporate General Partner of each Participating Exchange Partnership
has agreed to waive all fees that may be earned by it, including without
limitation administrative fees, investments fees and real estate commissions.
The Corporate General Partner of each Participating Exchange Partnership has
also agreed to assign to the Operating Partnership all of its back-end economic
interests in each such partnership.
Upon the liquidation and dissolution of an Exchange Partnership, and after
payment of or the creation of reserves for the payment of partnership
liabilities, the proceeds of the sale or other disposition of the partnership's
remaining property will be distributed to the limited partners and the Corporate
General Partner in proportion to their respective capital accounts in the
partnership.
As a result of certain amendments to be made to the partnership agreement
of each Participating Exchange Partnership with one or more Non-participating
Limited Partners following the Exchange Offering, without the majority approval
of the Non-participating Limited Partners of the partnership voting as a class,
the partnership will not be permitted to sell its existing property interest,
acquire any additional property interests, cease to exist, or modify the rights
of limited partners to receive 100% of the quarterly cash distributions and net
proceeds from the sale or refinancing of the partnership's property until they
have received the preferred amount specified in the respective Exchange
Partnership Agreement. See below at "AMENDMENTS TO PARTNERSHIP AGREEMENTS OF
PARTICIPATING EXCHANGE PARTNERSHIPS WITH NON-PARTICIPATING LIMITED PARTNERS."
Operating Partnership: Each limited partner in a real estate limited partnership
who agrees to sell his limited partnership interest to the Operating Partnership
in an exchange transaction, including each Exchange Limited Partner in a
Participating Exchange Partnership who accepts the Exchange Offering, will
exchange such limited partnership interests for a number of Operating
Partnership Units based upon, among other considerations, the seller's
proportionate share of the valuation determined for the Participating Exchange
Partnership or such other limited partnership.
The Operating Partnership will maintain for each partner in the Operating
Partnership a capital account to which will be allocated the partner's share of
all items of partnership income, gain, expense, loss, deduction and credit
determined in accordance with the Internal Revenue Code of 1986, as amended, and
regulations issued thereunder. After giving effect to certain technical special
allocation provisions, (i) taxable income is allocable 100% to the General
Partner to the extent that, on a cumulative basis, net losses previously
allocated to the General Partner exceed net income previously allocated to the
General Partner, and the balance is allocable to Limited Partners and the
General Partner in proportion to their respective ownership of Operating
Partnership Units, and (ii) net losses are allocable to the Limited Partners and
the General Partner in proportion to their respective ownership of Operating
Partnership Units, provided, however, that net losses are not allocable to any
Limited Partner to the extent that such allocation would cause such Limited
Partner to have an adjusted capital account deficit at the end of such taxable
year (which excess losses are allocable to the General Partner).
The Operating Partnership is required to distribute at least quarterly all
available cash flow of the Operating Partnership (defined as (i) all cash
revenues received by the Operating Partnership from any source, other than
capital contributions to the Operating Partnership, and cash flow treated as net
capital gains under the Code, plus (ii) the amount of any reduction in reserves
of the Operating Partnership). Such distributions are to be made in the
following priority: (x) first to holders of any class of partnership interest
having a preference over Operating Partnership Units (no such preferred class
exists as of the date of this Prospectus or is currently anticipated to be
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issued by the management of the Operating Partnership) and (y) thereafter, to
holders of Operating Partnership Units. Each holder of Operating Partnership
Units, including the Trust and each recipient of Operating Partnership Units in
the Exchange Offering, will receive a share of such distributions in proportion
to his respective ownership of Operating Partnership Units.
Upon liquidation of the Operating Partnership, the Limited Partners and
the General Partner are entitled to receive a share of the net liquidation
proceeds of the Operating Partnership (remaining after payment of, or the
creation of a reasonable reserve for, all of the partnership's liabilities and
obligations) in proportion to their respective capital account balances.
The Trust: Holders of Trust Common Shares will acquire such shares (i) in
connection with the Cash Offering or any subsequent public or private offering
of Trust Common Shares that may be made by the Trust, (ii) upon the exercise of
their right to exchange Operating Partnership Units for an equivalent number of
Trust Common Shares, or (iii) upon their exercise of options or their receipt of
Trust Common Shares under any stock option plan or employee bonus plan that may
be adopted by the Board of the Trust.
As discussed above under "Issuance of Additional Securities," the Trust is
authorized to issue Shares in addition to the Trust Common Shares offered in the
Cash Offering and Trust Common Shares to be issued in connection with the
exchange of Operating Partnership Units.
The Managing Shareholder has full discretion as to the timing and amount
of distributions to be made by the Trust, provided, however, the Managing
Shareholder is required to endeavor to declare and make distributions as
required for the Trust to quality as a REIT under the Code so long as the
Managing Shareholder believes it is in the best interest of the Trust to
continue to so qualify. As of the date of this Prospectus, the Trust intends to
make quarterly distributions of available funds, if any to its Shareholders.
Shareholders will be entitled to receive any such distributions on a pro rata
basis for each outstanding class of Shares taking into account the relative
rights of priority of each class entitled to receive distributions. No preferred
class which has a priority over Common Shares exists as of the date of this
Prospectus or is currently anticipated by the management of the Trust to be
issued.
Upon liquidation of the Trust, the Shareholders are entitled to receive
the net liquidation proceeds (remaining after payment of, or the creation of a
reasonable reserve for, all of the Trust's liabilities and obligations) on a pro
rata basis for each class of Shares taking into account the relative rights of
priority of each class
Property Investments and Anticipated Holding Period
Exchange Partnerships: Each of the Exchange Partnerships was formed to acquire
and now owns an interest in one or more residential apartment properties
described at "DESCRIPTION OF EXCHANGE PARTNERSHIPS" and "PRIOR PERFORMANCE OF
AFFILIATES OF MANAGING SHAREHOLDER," in Exhibits A and B to this Prospectus and
in the Prospectus Supplement accompanying this Prospectus prepared for each
particular Exchange Partnership and delivered to each Exchange Limited Partner
in such partnership. The anticipated holding periods of the respective
properties in which the Exchange Partnerships own a direct or indirect interest
were not stated in the original private placement offering materials, although
the offering materials in respect of certain of the Exchange Partnerships
indicated that the Corporate General Partner intended to list the property
interests on the market for sale within two to five years following the private
offering.
As a result of certain amendments to be made to the partnership agreement
of each Participating Exchange Partnership with one or more Non-participating
Limited Partners following the Exchange Offering, without the majority approval
of the Non-participating Limited Partners of the partnership voting as a class,
the partnership will not be permitted to sell all or substantially all of its
existing property interest, acquire any additional property interests or cease
to exist. See below at "AMENDMENTS TO PARTNERSHIP AGREEMENTS OF PARTICIPATING
EXCHANGE PARTNERSHIPS WITH NON-PARTICIPATING LIMITED PARTNERS."
Operating Partnership and the Trust: The Operating Partnership and the Trust
have been formed to acquire a diversified portfolio of equity and debt interests
in residential apartment properties, including without limitation property
interests owned by the Exchange Partnerships and other real estate limited
partnerships which are managed by affiliates of the Managing Shareholder of the
Trust. The Operating Partnership will use net cash proceeds from the Trust's
Cash Offering and from any future public or private offering of securities that
may be made by the Trust or the Operating Partnership, together with unissued
securities of the Trust or the Operating Partnership and available cash flow and
other financing sources, to acquire property interests. The Operating
Partnership intends to
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issue up to $25,000,000 of registered Operating Partnership Units in connection
with the Exchange Offering. The first candidates targeted for acquisition in the
Exchange Offering are property interests in 26 Exchange Properties described in
this Prospectus at "INITIAL REAL ESTATE INVESTMENTS" and at Exhibit B. The Trust
and the Operating Partnership contemplate acquiring assets for long-term
ownership, and in any given case, for a minimum of four years.
Restrictions on Transfers of Securities
Exchange Partnerships: Under each Exchange Partnership Agreement, no limited
partner of the respective Exchange Partnership may sell or transfer his interest
in the partnership unless the Corporate General Partner of the partnership
consents to such sale or transfer and certain other conditions are fulfilled.
Operating Partnership: Each Operating Partnership Limited Partner may sell or
transfer his Operating Partnership Units without the prior written consent of
the Trust (acting as General Partner of the Operating Partnership) except where,
in the opinion of legal counsel to the Operating Partnership, such transfer
would require the filing of a registration statement under the Act or would
otherwise violate applicable federal or state securities laws.
The Trust: The Trust Common Shares are freely transferable by Shareholders
subject to certain restrictions on transfer which the Managing Shareholder deems
necessary to comply with the REIT provisions of the Code. Such restrictions are
described at "CAPITAL STOCK OF THE TRUST - Restrictions on Ownership and
Transfers." The restrictions may have the effect of making an attempted takeover
of the Trust more difficult for an acquiror. See "RISK FACTORS -Limits on
Ownership and Transfers of Common Shares and Units which may Delay or Prevent a
Takeover Offering a Premium Price."
Tax Status
Exchange Partnerships: The Exchange Partnerships were designed to be classified
and treated as partnerships for federal income tax purposes. As partnerships,
the Exchange Partnerships are not subject to federal income tax. Instead, each
limited partner in an Exchange Partnership is required to report annually on his
personal income tax return his allocable share of the partnership's income,
gain, loss, deductions, credits and items of tax preference regardless of
whether any distribution of cash or property is made by the partnership to
limited partners during any given year. A distribution from an Exchange
Partnership, including a distribution in final liquidation, results in the
recognition of income by each limited partner to the extent that any cash
distributed exceeds his adjusted tax basis in his Existing Partnership Units at
that time.
Each Offeree should review the "TAX ASPECTS" section of the original
private placement memorandum pertaining to his investment in his Exchange
Partnership. Generally, a limited partner who sells or transfers his Exchange
Partnership Units will realize gain or loss equal to the difference between the
amount realized on the sale or transfer and the adjusted basis of the units
disposed of. However, the Exchange Offering has been designed to afford Exchange
Limited Partners who accept the offering the benefit of a deferral of any
recognition of taxable gain until they exercise their right to exchange the
Units received in the offering for an equivalent number of Common Shares of
Trust. The exchange into Common Shares may be made at any time at the sole
discretion of each Exchange Limited Partner, subject to certain limitations
described in this Prospectus at "THE EXCHANGE OFFERING." The estimated deferred
taxable gain of each Exchange Limited Partner who elects to participate in the
Exchange Offering is set forth in Exhibit A to the Prospectus Supplement of the
Exchange Partnership of which he is a limited partner and in the Exhibit B table
pertaining to such Exchange Partnership.
Operating Partnership: The Operating Partnership has been designed to be
classified and treated as a partnership for federal income tax purposes. The tax
consequences of an investment in the Operating Partnership are identical to
those described immediately above under " - Exchange Partnerships."
The Trust: In any year in which the Trust qualifies as a real estate investment
trust ("REIT"), in general it will not be subject to federal income tax on that
portion of its REIT taxable income or gain which is distributed to Shareholders.
The Trust may, however, be subject to tax at normal corporate rates upon any
taxable income or capital gain not distributed in any given year. As long as the
Trust qualifies as a REIT, distributions made to the Trust's taxable domestic
non-tax-exempt Shareholders out of current or accumulated earnings and profits
(and not designated as capital gain dividends) will be taken by them as ordinary
income and will not be eligible for the dividends received deduction for
corporations. Distributions that are designated as capital gain dividends will
be
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taxed as long-term capital gains (to the extent they do not exceed the Trust's
actual net capital gain for the taxable year) without regard to the period for
which the Shareholder has held his Trust Common Shares.
In general, any loss upon a sale or exchange of Trust Common Shares by a
Shareholder who has held such shares for six months or less will be treated as a
long-term capital loss, to the extent of distributions from the Trust required
to be treated by such Shareholder as long-term capital gains. A more detailed
description of the foregoing tax considerations and those applying to tax-exempt
and foreign Shareholders is set forth above at "FEDERAL INCOME TAX
CONSIDERATIONS." The federal income tax treatment of REITs and shareholders of a
REIT are complex and should be reviewed with each Offeree's tax advisor.
Pre-emptive Rights
Exchange Partnerships, Operating Partnership and the Trust: Holders of Exchange
Partnership Units, holders of Operating Partnership Units and holders of Trust
Common Shares have no conversion, redemption, preemptive or exchange rights to
subscribe to any securities issued by the Exchange Partnership, the Operating
Partnership or the Trust in the future, except in two instances as follows.
First, if the Corporate General Partner of an Exchange Partnership determines
that it is necessary or in the best interest of the partnership to commit
additional funds to its property and that such funds should not be financed from
the partnership's earnings or through additional indebtedness, the Corporate
General Partner intends whenever possible to give limited partners the first
opportunity for a limited time to purchase any additional units that may be
offered by the partnership. Second, holders of Operating Partnership Units are
entitled to exchange such units into an equivalent number of Trust Common Shares
at any time and from time to time, subject to certain conditions described at
"THE EXCHANGE OFFERING."
Managing Entity Removal and Resignation Rights
Exchange Partnerships: Except as described in the next paragraph, the
partnership agreement provisions of all of the Exchange Partnerships relating to
the removal or resignation of the Corporate General Partner are substantially
the same. These provisions are described below in this paragraph. Limited
partners holding at least a majority of the outstanding Exchange Partnership
Units of such Exchange Partnerships have the right to remove the Corporate
General Partner of the partnership if they determine that it is not performing
its powers, duties and obligations in the best interests of the partnership
(unless any officer or affiliate of the general partner would continue to have
personal liability for any debts of the partnership). The Corporate General
Partner may resign by delivering written notice to the limited partners,
provided, however, such resignation will be effective not less than 90 days
after notice thereof is delivered to the limited partners only if the limited
partners owning at least a majority of the Exchange Partnership Units then
outstanding have consented to such resignation.
Described below are the partnership agreement provisions of three of the
Exchange Partnerships (Florida Income Advantage Fund I, Ltd., Florida Income
Appreciation Fund I, Ltd., and Realty Opportunity Income Fund VIII, Ltd.)
relating to the removal of their respective general partner. The general partner
of each of these partnerships may be removed on the condition that (i) the
limited partners holding at least a majority of the limited partnership
interests in the respective partnership vote to remove the general partner and
provide notice thereof to the general partner and (ii) the removed general
partner receives a written release from the partnership and all of the limited
partners which releases the general partner from any claims by them in respect
of the partnership. In addition, following removal, a removed general partner is
entitled to retain its economic interest in the partnership unless the
partnership acquires such interest at a price determined by applying an 8%
capitalization rate to the projected net operating income of the partnership
during the year of removal minus major maintenance expenditures.
As a result of certain amendments to be made to the partnership agreement
of each Participating Exchange Partnership with one or more Non-participating
Limited Partners following the Exchange Offering, (except where any officer or
affiliate of the general partner would continue to have personal liability for
any debts of the partnership), the Corporate General Partner of the partnership
may be removed only if a court of competent jurisdiction finds that the general
partner is not performing its duties in the best interest of the partnership,
the Non-participating Limited Partners voting as a class consent to such removal
and the general partner is given the requisite notice. The effect of this
amendment is that following the Exchange Offering, the Corporate General Partner
of a Participating Exchange Partnership with one or more Non-participating
Limited Partners may be removed only if the Non-participating Limited Partners
initiate an action in court to have the general partner removed and the court
makes the requisite finding.
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In addition, as a result of such amendments, if the last remaining general
partner of the partnership (each of the Exchange Partnerships currently has only
one general partner) ceases to act as general partner, the limited partners of
the partnership (including the Operating Partnership and Non-participating
Limited Partners) holding at least a majority of the then outstanding units of
the partnership may elect to continue the partnership and elect one or more new
general partners as long as the same has been approved in advance by
Non-participating Limited Partners of the partnership holding a majority of the
then outstanding units of the partnership held by all Non-participating Limited
Partners. Moreover, if the partnership is continued under the circumstances
described above, the new general partner(s) will be permitted to purchase an
interest in the partnership only on terms and conditions approved by a majority
vote of the Non-participating Limited Partners voting as a class. In addition,
as a result of such amendments, the Corporate General Partner of the partnership
would be entitled to retire or resign only with the approval of
Non-participating Limited Partners of the partnership holding a majority of the
then outstanding units of the partnership held by all Non-participating Limited
Partners. See below at "AMENDMENTS TO PARTNERSHIP AGREEMENTS OF PARTICIPATING
EXCHANGE PARTNERSHIPS WITH NON-PARTICIPATING LIMITED PARTNERS."
Operating Partnership: The Trust may not be removed as General Partner of the
Operating Partnership by the Limited Partners with or without cause. The Trust
may not transfer any of its general partnership interest or withdraw as General
Partner except in certain limited circumstances.
The Trust: The holders of at least 10% of the outstanding Trust Common Shares
may propose the removal of the Managing Shareholder, an Independent Trustee or
any other member of the Board of the Trust either by calling a meeting or
soliciting consents in accordance with the terms of the Declaration. Removal of
any of the foregoing requires either the affirmative vote of a majority of the
outstanding Trust Common Shares (excluding Trust Common Shares held by the
Managing Shareholder, Independent Trustee or other member of the Board which is
the subject of the vote or by its affiliates) or the affirmative vote of a
majority of the disinterested Independent Trustees.
The Managing Shareholder or a majority of the Independent Trustees may
terminate the Trust Management Agreement and the Managing Shareholder may resign
as Managing Shareholder without cause or penalty by giving the Trust at least 60
days prior written notice. The holders of at least a majority of the outstanding
Trust Common Shares, at a meeting called for such purpose in accordance with the
terms and conditions of the Declaration, may also terminate the Trust Management
Agreement.
Any member of the Board may resign by giving notice to the Trust, and may
be removed (i) for cause by the action of at least two-thirds of the remaining
members of the Board or (ii) with or without cause by action of the holders of
at least a majority of the then outstanding Shares entitled to vote thereon.
Reporting Rights
Exchange Partnerships: Each limited partner of an Exchange Partnership is
entitled to receive annual financial statements relating to the partnership,
including a balance sheet and related statements of income and retained earnings
and changes in financial position. On the written request of limited partners
holding at least 20% of the outstanding limited partnership interests in an
Exchange Partnership, the statements must be audited by an independent public
accountant and presented in accordance with generally accepted accounting
principles ("GAAP"). Exchange Limited Partners also have the right to obtain
other information about their respective partnerships and receive a list of
names and addresses of the partners of the partnership for proper partnership
purposes. Within 90 days after the close of each year, each Exchange Partnership
is required to provide each limited partner therein with data necessary to
report his distributive share of partnership income, deductions and credits for
federal income tax purposes.
As a result of certain amendments to be made to the partnership agreement
of each Participating Exchange Partnership with one or more Non-participating
Limited Partners following the Exchange Offering, Non-participating Limited
Partners of a Participating Exchange Partnership holding a majority of the then
outstanding units of the partnership held by all Non-participating Limited
Partners may require that the annual financial statements required to be
delivered by the partnership to limited partners be audited. See below at
"AMENDMENTS TO PARTNERSHIP AGREEMENTS OF PARTICIPATING EXCHANGE PARTNERSHIPS
WITH NON-PARTICIPATING LIMITED PARTNERS."
Operating Partnership: Within 120 days after the close of each partnership year,
the Operating
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Partnership is required to mail to each Limited Partner, an annual report
containing financial statements of the Operating Partnership presented in
accordance with GAAP and audited by a nationally recognized firm of qualified
independent public accountants. Within 60 days after the close of each quarter
(except the last quarter), the Operating Partnership is required to mail to each
Limited Partner a report containing unaudited financial statements of the
Operating Partnership. The Operating Partnership is required to use all
reasonable efforts to furnish to Limited Partners, within 90 days after the
close of each taxable year, the tax information reasonably required by the
Limited Partners for federal and state income tax reporting purposes
Additionally, within 60 days after the end of each fiscal quarter for
which the Trust or the Operating Partnership incurs total operating expenses
(less certain items, including capital raising expenses, interest payments,
taxes, non-cash expenditures such as depreciation, and acquisition fees and
expenses) for the 12 months then ended in excess of the greater of (i) 2% of the
aggregate book value of their respective investments, or (ii) 25% of their
respective net income for such year, the Trust is required to send to Trust
Shareholders and holders of Operating Partnership Units written disclosure of
such fact, together with an explanation of the factors the Independent Trustees
considered in arriving at their finding that such higher operating expenses were
justified. If the Independent Trustees of the Trust do not determine such excess
expenses are justified, the Managing Shareholder is required to reimburse the
Trust or the Operating Partnership, as the case may be, at the end of such
12-month period the amount of such excess.
Each Limited Partner is entitled, upon written request and at his expense,
to obtain for proper partnership purposes a copy of the following from the
Operating Partnership: (i) most recent annual and quarterly reports filed with
the Commission by the Trust under the 1934 Act, (ii) the Operating Partnership's
federal, state and local income tax returns for each year, (iii) a current list
of the name and address of each Unitholder, (iv) the Operating Partnership
Agreement, the Certificate of Limited Partnership of the Operating Partnership
filed in the State of Delaware and all amendments thereto, and (v) information
relating to the amount of cash and other consideration contributed by each
Limited Partner and the date each Limited Partner became a partner of the
Operating Partnership.
The Trust: The Trust is required to keep each Shareholder currently advised as
to activities of the Trust by reports furnished at least quarterly. Each
quarterly report is required to contain a condensed statement of "cash flow from
operations" for the year to date as determined by the Managing Shareholder.
Within 120 days after the close of each fiscal year following completion of the
Cash Offering, the Trust is required to prepare and mail to each Shareholder an
annual report which includes the following: (i) audited financial statements
prepared in accordance with GAAP by the Trust's independent certified public
accountants; (ii) the ratio of the costs of raising capital during the period to
the capital raised; (iii) the aggregate amount of advisory fees and other fees
paid to the Managing Shareholder and its affiliates; (iv) the total operating
expenses stated as a percentage of the book amount of the Trust's investments
and as a percentage of its net income; (v) a report from the Independent
Trustees that the policies being followed by the Trust are in the best interests
of its Shareholders and the basis for such determination and; (vi) full
disclosure of all material terms, factors, and circumstances surrounding any and
all transactions involving the Trust, the Managing Shareholder, the Trustees,
any other members of the Board and any of their respective affiliates occurring
during the year.
Additionally, within 60 days after the end of each fiscal quarter for
which the Trust or the Operating Partnership incurs total operating expenses
(less certain items, including capital raising expenses, interest payments,
taxes, non-cash expenditures such as depreciation, and acquisition fees and
expenses) for the 12 months then ended in excess of the greater of (i) 2% of the
aggregate book value of their respective investments, or (ii) 25% of their
respective net income for such year, the Trust is required to send to Trust
Shareholders and holders of Operating Partnership Units written disclosure of
such fact, together with an explanation of the factors the Independent Trustees
considered in arriving at their finding that such higher operating expenses were
justified. If the Independent Trustees of the Trust do not determine such excess
expenses are justified, the Managing Shareholder is required to reimburse the
Trust or the Operating Partnership, as the case may be, at the end of such
12-month period the amount of such excess.
In addition, the Trust is also required to deliver to its Shareholders
periodic reports required to be delivered under the 1934 Act (i.e, Form 10-KSB
or Form 10-K annual reports, Form 10-QSB or Form 10-Q quarterly reports, and
Form 8-KSB or Form 8-K current reports) for the fiscal year in which the Trust's
Securities Act registration statement becomes effective and thereafter if either
(i) the Trust registers the Trust Common Shares under the 1934 Act and qualifies
for the listing of such shares on a stock exchange, (ii) the Trust has more than
300 Shareholders, or (iii) the Trust is otherwise required to do so by the
applicable exchange or applicable law.
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The Trust is required to use its reasonable best efforts to obtain tax and
accounting information required for federal income tax returns as soon as
possible after the conclusion of each year and to cause the resulting
information to be delivered to the Shareholders as soon as possible after
receipt from the accounting firm responsible for preparing such reports.
Shareholders have the right under the terms of the Declaration to obtain other
information about the Trust and may, at their expense, obtain a list of the
names and addresses of the Shareholders. See "SUMMARY OF DECLARATION OF TRUST -
Quarterly and Annual Reports" and " - Books and Records; Tax Information."
Assessments
Exchange Partnerships, Operating Partnership and the Trust: No future
assessments may be required of holders of limited partnership interests in an
Exchange Partnership, holders of Operating Partnership Units or holders of Trust
Common Shares.
Amendments of Governing Agreements
Exchange Partnerships: The amendment of the partnership agreement pertaining to
each Exchange Partnership requires the consent of the holders of at least a
majority of the outstanding limited partnership interests in the partnership
except that (i) the Corporate General Partner may amend the agreement in respect
of certain specified matters which will not adversely affect limited partners,
and (ii) any amendment may not without a limited partner's consent increase his
liability or change the capital contribution required from him, his economic
interest, rights on dissolution or any voting rights.
As a result of certain amendments to be made to the partnership agreement
of each Participating Exchange Partnership with one or more Non-participating
Limited Partners following the Exchange Offering, except in certain
circumstances, the partnership agreement of the partnership may be amended only
with the approval of both (i) limited partners holding at least a majority of
the outstanding limited partnership interests in the partnership and (ii)
Non-participating Limited Partners of the partnership holding a majority of the
then outstanding units of the partnership held by all Non-participating Limited
Partners. See below at "AMENDMENTS TO PARTNERSHIP AGREEMENTS OF PARTICIPATING
EXCHANGE PARTNERSHIPS WITH NON-PARTICIPATING LIMITED PARTNERS."
Operating Partnership: Amendments to the Operating Partnership Agreement may be
proposed by the Trust (as General Partner) or by holders of at least 25% of the
outstanding Operating Partnership Units. Except in the cases described below,
the consent of holders of at least a majority of the outstanding Operating
Partnership Units is required for amendments to the Operating Partnership
Agreement. The Trust may amend the Operating Partnership Agreement without the
consent of any Limited Partners for the following purposes: (i) to add to the
obligations of the Trust in its capacity as General Partner of the Trust or to
surrender for the benefit of Limited Partners any right or power granted to the
Trust or any of its affiliates, (ii) to set forth the rights, powers, duties and
preferences of the holders of any additional interests in the Operating
Partnership which may be issued in the future, (iii) to satisfy any requirements
contained in an order, ruling or regulation of any federal or state agency or
contained in any federal or state law and (iv) for certain other specified
matters of an inconsequential nature and not materially adversely affecting the
Limited Partners.
The Operating Partnership Agreement may not be amended, without a Limited
Partner's consent, to convert his partnership interest into a general partner's
interest; modify his limited liability; alter his rights to receive
distributions or allocations of partnership income, gains, loss and deductions;
cause the dissolution of the Operating Partnership prior to the time provided
for in the Operating Partnership Agreement; amend the amendment provision of the
Operating Partnership Agreement described in this paragraph; or amend Article VI
of the Operating Partnership Agreement or any definition used therein which
would have the effect of causing the allocations in Article VI to fail to comply
with the requirements of Section 514(c)(9)(E) of the Code.
The consent of all Limited Partners of the Operating Partnership is also
required to alter the restrictions on the Trust's authority set forth in Section
7.3 of the Operating Partnership Agreement. In addition, the consent of the
holders of at least two-thirds of the outstanding Operating Partnership Units is
required to amend any of the following sections of the Operating Partnership
Agreement: (i) Section 4.2(a) (pertaining to the Trust's authority, without the
approval of any Limited Partner, to cause the Operating Partnership to issue
additional partnership interests in the Operating Partnership in the future);
(ii) the second sentence of Section 7.1(a) (which provides that the Trust may
not be removed as General Partner of the Operating Partnership by the Limited
Partners);
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(iii) Section 7.5 (pertaining to limitations on the outside activities of the
Trust); (iv) Section 7.6 (pertaining to contracts among the Operating
Partnership, the Trust and any of their respective affiliates or subsidiaries);
(v) Section 7.8 (pertaining to limitations on the liability of the Trust as
General Partner of the Operating Partnership); (vi) Section 11.2 (pertaining to
limitations on the Trust's right to transfer its interest in the Operating
Partnership): (vii) Section 13.1(c) (which provides that the Operating
Partnership may be terminated prior to December 31, 2098 with the consent of the
holders of at least a majority of the outstanding Operating Partnership Units);
(viii) Section 14.1(d) (which provides for super-majority voting requirements
described herein; or (ix) Section 14.2 (pertaining to meetings of Limited
Partners).
The Trust: The Managing Shareholder of the Trust may amend the Declaration
without approval of the Shareholders to maintain the federal income tax status
of the Trust as a REIT (unless the Managing Shareholder determines that it is in
the best interests of the Shareholders to discontinue the Trust's REIT status
and holders of at least a majority of the Trust Common Shares approve such
determination), and to comply with law.
Other amendments to the Declaration may be proposed either by the Managing
Shareholder or holders of at least 10% of the outstanding Trust Common Shares,
either by calling a meeting of the Shareholders or by soliciting written
consents. Such proposed amendments require the approval of a majority in
interest of the Shareholders entitled to vote given at a meeting of Shareholders
or by written consents.
Liability and Indemnification
Exchange Partnerships: Except as described in the paragraph following the next
paragraph, the partnership agreement provisions of all of the Exchange
Partnerships relating to liability and indemnification of the general partners
and limited partners are substantially the same. These provisions are described
below in this paragraph and the next paragraph. The Corporate General Partner of
each Exchange Partnership is generally liable for all liabilities and
obligations of the partnership to the extent such obligations are not paid by
the partnership and are not by their terms limited to recourse against specific
property. Each limited partner of an Exchange Partnership is generally not
liable for the liabilities and obligations of the partnership.
Each Exchange Partnership is required to indemnify its Corporate General
Partner, each of the Corporate General Partner's affiliates, and each of their
respective officers, directors, shareholders, partners, agents and employees
(provided such indemnified persons have acted within the scope of the applicable
partnership agreement) against any loss, liability or damage incurred by such
indemnified person arising out of the partnership's private offering of limited
partnership interests and the management of the partnership's affairs within the
scope of the partnership agreement, unless such indemnified person's negligence
or intentional or criminal wrongdoing is involved; provided, however, such
indemnification will not be made with respect to any liability imposed by
judgment arising out of any violation of federal or state securities laws
associated with such offering. No indemnified person is liable to his Exchange
Partnership or to any partner thereof for any loss suffered by the Exchange
Partnership which arises out of any action or inaction of such person if such
person, in good faith, determined that such course of conduct was in the best
interests of the Exchange Partnership and within the scope of the applicable
partnership agreement and did not constitute the negligence or intentional or
criminal wrongdoing of such person.
The liability and indemnification provisions relating to three of the
Exchange Partnerships (Florida Income Advantage Fund I, Ltd., Florida Income
Appreciation Fund I, Ltd., and Realty Opportunity Income Fund VIII, Ltd.) are
substantially similar to the provisions described in the two immediately
preceding paragraphs except that only the general partner (and not its
affiliates) is covered by such provisions.
Operating Partnership: The Trust, as General Partner of the Operating
Partnership, is generally liable for all obligations of the Operating
Partnership to the extent such obligations are not paid by the Operating
Partnership and are not by their terms limited to recourse against specific
property. The Limited Partners (other than the Trust in its capacity as General
Partner thereof) have no responsibility for the liabilities or obligations of
the Operating Partnership.
The Trust has no liability for monetary damages to the Operating
Partnership or any partners or assignees for losses sustained or liabilities
incurred as a result of errors in judgment for any act or omission, unless (i)
the Trust actually received an improper benefit in money, property or services
(in which case, such liability shall be for the amount of the benefit actually
received), or (ii) the Trust's action or inaction was the result of active and
deliberate dishonesty and was material to the cause of action being adjudicated.
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The Operating Partnership is required to indemnify the Trust, officers of
the Operating Partnership and trustees, officers and members of the Board of the
Trust and any other persons the Trust may designate, against any and all losses,
claims, damages, liabilities, expenses, judgments, fines, settlements, and other
amounts arising from any claims, demands, actions, suits or proceedings that
relate to the operations of the Operating Partnership in which any such
indemnified person may be involved, or threatened to be involved, as a party or
otherwise, unless it is established that: (i) the act or omission of the
indemnified person was material to the matter giving rise to the proceeding and
either was committed in bad faith, or was the result of active and deliberate
dishonesty; (ii) the indemnified person actually received an improper personal
benefit; or (iii) in the case of any criminal proceeding, the indemnified person
had reasonable cause to believe that the act or omission was unlawful.
The Trust: Neither the Managing Shareholder, the Trustees, any other members of
the Board or any of their respective affiliates nor any Shareholders of the
Trust are liable for the liabilities and obligations of the Trust to third
parties. In addition, such persons are not liable to the Trust or to any
Shareholder for any loss suffered by the Trust which arises out of any action or
inaction of such person, if such person, in good faith, determined that such
course of conduct was in the Trust's best interest and within the scope of the
Declaration and did not constitute negligence or misconduct, in the case of any
such person who is not an Independent Trustee, or gross negligence or wrongful
misconduct, in the case of any such person who is an Independent Trustee.
The Trust is required to indemnify the Managing Shareholder, the Trustees,
other members of the Board and their respective affiliates, and each of their
respective officers, directors, shareholders, partners, agents and employees
(provided such persons have acted within the scope of the Declaration) against
any loss, liability or damage incurred by such person arising out of the Cash
Offering and the management of the Trust's affairs within the scope of the
Declaration, unless such person's negligence or intentional or criminal
wrongdoing is involved. However, such persons will not be indemnified for
liabilities arising under the Securities Act, except under certain limited
circumstances. See "SUMMARY OF DECLARATION OF TRUST Liability and
Indemnification."
Compensation of Managing Persons and Affiliates
Exchange Partnerships: The allocation between the limited partners and Corporate
General Partner of each particular Exchange Partnership of distributable cash
flow and net proceeds from the sale or refinancing of property is described in
Exhibit I to the Prospectus Supplement pertaining to that partnership. Exhibit B
to this Prospectus contains such information as to each of the Exchange
Partnerships. The allocation of net liquidation proceeds among the partners is
described above at " - Economic Interest." The Corporate General Partner or an
affiliate of each of the Exchange Partnerships (except Baron Strategic
Investment Fund II, Ltd.) is also entitled to earn a real estate commission for
its efforts leading to a sale of any partnership property or any property
securing a Subordinated Mortgage Loan provided or acquired by the partnership.
The commission in respect of all such Exchange Partnerships (except Florida
Income Advantage Fund I, Ltd., Florida Income Appreciation Fund I, Ltd., and
Realty Opportunity Income Fund VIII, Ltd.) may be in an amount equal to 50% of
any commissions paid to an outside broker on the sale, but in no event greater
than 3% of the sales proceeds. The Corporate General Partners of such three
Exchange Partnerships and their affiliates may earn a real estate commission of
up to 6% of the sale price, if permitted under applicable law. The payment of
any real estate commission earned as described above is subordinated to the
preferred return of the limited partners of such partnerships.
Each of the Exchange Partnerships pays their general partner a monthly
administrative fee of $500, except Central Florida Income Appreciation Fund,
Ltd. and Brevard Mortgage Program, Ltd., which pay a monthly administrative fee
of $750, and Baron Strategic Investment Fund IV, Ltd., Baron Strategic
Investment Fund V, Ltd., Baron Strategic Investment Fund VI, Ltd., Baron
Strategic Investment Fund VIII, Ltd., Baron Strategic Investment Fund IX, Ltd.,
Baron Strategic Investment Fund X, Ltd., Florida Capital Income Fund IV, Ltd.,
and GSU Stadium Student Apartments, Ltd., which pay a monthly administrative fee
of $1,000.
The Corporate General Partner of each Participating Exchange Partnership
has agreed to waive all fees payable to it by the partnership following the
Exchange Offering, including without limitation annual administrative fees,
acquisition fees and real estate commissions, and to assign to the Operating
Partnership all back-end economic interests attributable to the Corporate
General Partnership's general partner interest in the partnership. Accordingly,
the Exchange Partnership Agreement of each Participating Exchange Partnership
will be amended following the Exchange Offering to delete the payment of the
foregoing fees.
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Operating Partnership: The Trust is not entitled to receive any compensation for
services performed in its capacity as General Partner of the Operating
Partnership. The Trust, however, is entitled to be reimbursed on a monthly basis
for expenses incurred on behalf of the Operating Partnership. The Trust will use
net proceeds of the Cash Offering to acquire Operating Partnership Units, and as
the owner of such units will have the same economic rights as other holders of
Operating Partnership Units on a per unit basis, except that the Trust may not
elect to exchange Units held for an equivalent number of Trust Common Shares.
The allocation of net liquidation proceeds among the partners of the Operating
Partnership is described above at " Economic Interest."
The Trust: The table included in this Prospectus at "COMPENSATION OF MANAGING
PERSONS AND AFFILIATES - The Trust" describes all reimbursement payments that
may be received by the Managing Shareholder and its affiliates for expenses
incurred in connection with the preparation of the prospectus for the Cash
Offering, the Cash Offering, the operation of the Trust and the acquisition and
disposition of the Trust's property. No compensation for consulting services may
be paid to the Independent Trustees or other members of the Board without prior
approval of the Compensation Committee of the Board.
Meetings and Voting Rights
Exchange Partnerships: Meetings of the partners of each Exchange Partnership may
be called at any time, either by the Corporate General Partner or by limited
partners holding at least 25% of the outstanding Exchange Partnership Units, for
any matter on which limited partners may vote. The following actions require the
affirmative vote of limited partners holding at least a majority of the
outstanding Exchange Partnership Units in respect of an Exchange Partnership:
(a) reforming the partnership to replace the Corporate General Partner; (b)
acceptance of the resignation of the Corporate General Partner; (c) revising any
contract between the Exchange Partnership and any affiliate of the Corporate
General Partner; (d) removal of the Corporate General Partner; (e) dissolution
of the Exchange Partnership prior to the expiration of its term except as
otherwise provided in the applicable partnership agreement or as required by
law; (f) removal and replacement of the party appointed to supervise a
liquidation of the partnership's assets upon its dissolution; (g) the sale of
all or substantially all of the partnership's property; and (h) amending the
partnership agreement as described above at " - Amendments of Governing
Agreements."
The consent of all limited partners is required for the following actions
by each Exchange Partnership: (a) contravening the respective partnership
agreement or certificate of limited partnership; (b) actions making it
impossible to carry on the ordinary course of business of the partnership; (c)
confession of a judgment in excess of 20% of the partnership's assets; and (d)
allowing the Corporate General Partner to possess partnership assets for other
than a partnership purpose.
As a result of certain amendments to be made to the partnership agreement
of each Participating Exchange Partnership with one or more Non-participating
Limited Partners following the Exchange Offering, the Corporate General Partner
of the partnership or Non-participating Limited Partners holding a majority of
the then outstanding units held by all Non-participating Limited Partners in the
partnership, may call a meeting of the partnership to act on any matter upon
which the limited partners of the partnership are permitted to act. In addition,
the approval of Non-participating Limited Partners of the partnership holding a
majority of the then outstanding units of the partnership held by all
Non-participating Limited Partners will be required to replace the Corporate
General Partner in its capacity as liquidating trustee or receiver or the
receiver or trustee appointed by the general partner in connection with the
liquidation of the partnership. See below at "AMENDMENTS TO PARTNERSHIP
AGREEMENTS OF PARTICIPATING EXCHANGE PARTNERSHIPS WITH NON-PARTICIPATING LIMITED
PARTNERS."
Operating Partnership: Meetings of the partners of the Operating Partnership may
be called by the Trust (as General Partner) and by Limited Partners holding at
least 25% of the outstanding Operating Partnership Units. The consent of Limited
Partners holding at least a majority of the outstanding Operating Partnership
Units is required for action by the Limited Partners, except where otherwise
provided in the Operating Partnership Agreement as described below. Voting by
the Limited Partners may be conducted at a meeting of the partners or without a
meeting by written consent. Limited Partners are entitled to vote on proposed
amendments to the Operating Partnership Agreement as described above at " -
Amendments of Governing Agreements."
The following actions of the Operating Partnership require the consent of
all Limited Partners of the Operating Partnership: (a) any action that would
make it impossible to carry on the ordinary business of the Operating
Partnership; (b) the possession of partnership property, or the assignment of
any right in specific partnership property, for other than a partnership
purpose, except as otherwise provided in the Operating Partnership
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Agreement; (c) the admission of any new partner to the Operating Partnership,
except as otherwise provided in the Operating Partnership Agreement; or (d) any
action that would subject a limited partner to liability as a general partner in
any jurisdiction or any other liability, except as provided in the Operating
Partnership Agreement or under the Delaware Act.
In addition, the consent of the Limited Partners holding at least a
majority of the outstanding Operating Partnership Units is required to approve
the Trust's election to dissolve the Operating Partnership prior to the
termination of its term as specified in the Operating Partnership Agreement.
Limited Partners holding a majority of the outstanding Operating Partnership
Units are also entitled, in the absence of any general partner of the Operating
Partnership, to elect a liquidator to oversee the winding up and dissolution of
the Operating Partnership and to perform a full accounting of the Operating
Partnership's liabilities and properties.
The Trust: The Trust is required to conduct an annual meeting of Shareholders at
which all members of the Board (including all Independent Trustees) (except
where the Managing Shareholder and Shareholders holding at least a majority of
the outstanding Trust Shares entitled to vote on such matter approve staggered
elections for such positions, in which case only the class of the Board up for
election) will be elected or reelected and any other proper business may be
conducted. Each Trust Common Share entitles the holder to one vote on all
matters requiring a vote of Shareholders, including the election of members of
the Board. Special meetings of the Shareholders may be called at any time,
either by the Managing Shareholder, a majority of the Independent Trustees, any
officer of the Trust, or Shareholders holding at least 10% of the outstanding
Trust Common Shares, for any matter on which such Shareholders may vote. The
Trust may not take any of the following actions without approval of Shareholders
holding at least a majority of the Shares entitled to vote: (a) amendment of the
Declaration (except as otherwise specified in the Declaration and except for
amendments which do not adversely affect the rights, preferences and privileges
of Shareholders, including amendments to provisions relating to qualifications
of the Trustees and members of the Board, fiduciary duty, liability and
indemnification, conflicts of interest, investment policies or investment
restrictions), (b) the sale, exchange, lease, mortgage, pledge or transfer of
all or substantially all of the Trust's assets if not in the ordinary course of
operation of the Trust or in connection with liquidation and dissolution; (c)
the merger or reorganization of the Trust; and (d) the dissolution or
liquidation of the Trust following its initial property investments.
In addition, Shareholders holding at least a majority of Shares entitled
to vote present in person or by proxy at an annual meeting at which a quorum is
present, may, without the necessity for concurrence by the Board, vote to amend
the Declaration of Trust, terminate the Trust, and elect and/or remove one or
more members of the Board.
Accounting Method and Period
Exchange Partnerships, Operating Partnership and the Trust: The accounting
period of the Exchange Partnerships, the Operating Partnership and the Trust
will end on December 31 of each year. Each of them utilize the accrual method of
accounting for their operations.
CAPITAL STOCK OF THE TRUST
General
The Declaration of Trust authorizes the Trust to issue up to 25,000,000
Shares of beneficial interest, no par value per Share, consisting of Common
Shares and of Preferred Shares of such classes with such preferences, conversion
or other rights, voting powers, restrictions, limitations as to dividends,
qualifications, or terms or conditions of redemption as the Managing Shareholder
may create and authorize from time to time in accordance with Delaware law and
the Declaration; provided, however, the Trust may not issue redeemable equity
securities. Prior to the Cash Offering, there were no Shares outstanding. The
Trust is offering for sale up to 2,500,000 Common Shares in the Cash Offering.
If the Exchange Offering is completed as contemplated, Offerees would receive up
to 2,500,000 Units in the Operating Partnership which would be exchangeable into
2,500,000 additional Common Shares.
The following description summarizes all material terms and provisions of
the Common Shares. The Common Shares when paid for and issued will be fully paid
and non-assessable. Each Common Share is equal in all respects to every other
Common Share and entitles the holder to one vote on all matters requiring a vote
of Shareholders, including the election of members of the Board. Holders of
Common Shares do not have the right to cumulate their votes in the election of
members of the Board, which means that the holders of a majority of the
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outstanding Common Shares can elect all of the nominees for Board positions then
standing for election. Shareholders are entitled to such distributions as may be
declared from time to time by the Managing Shareholder out of funds legally
available therefor. Shareholders will be entitled to receive any distributions
declared by the Managing Shareholder on a pro rata basis for each outstanding
class of Shares taking into account the relative rights of priority of each
class entitled to distributions. Holders of Common Shares have no conversion,
redemption, preemptive or exchange rights to subscribe to any securities issued
by the Trust in the future. In the event of a liquidation, dissolution or
winding up of the affairs of the Trust, the Shareholders are entitled to share
ratably in the assets of the Trust remaining after provision for payment of all
liabilities to creditors and payment of liquidation preferences and accrued
dividends, if any, on any series of Preferred Shares that may have been issued.
Transfer Agent
American Stock Transfer & Trust Company ("ASTTC"), New York, New York,
will serve as the escrow agent for the Cash Offering and the Exchange Offering,
and the transfer agent and registrar for the Common Shares and the Units. In the
Exchange Offering, ASTTC will act as the Exchange Agent, holding in escrow the
Operating Partnership Units being offered and Exchange Partnership Units
tendered by Offerees who elect to accept the offering. See "THE EXCHANGE
OFFERING - The Exchange Agent." ASTTC will also hold in an escrow account the
Units acquired by the Original Investors in connection with the formation of the
Trust and the Operating Partnership as described at "THE TRUST AND THE OPERATING
PARTNERSHIP - Formation Transactions."
Restrictions on Ownership and Transfer
The Trust's Declaration of Trust contains certain restrictions on the
number of Shares of the Trust that individual Shareholders may own. For the
Trust to qualify as a REIT under the Code, no more than 50% in value of its
Shares may be owned, directly or indirectly, by five or fewer individuals (as
defined in the Code to include certain entities and constructive ownership among
specified family members) during the last half of a taxable year (other than the
first taxable year) or during a proportionate part of a shorter taxable year.
The Shares must also be beneficially owned (other than during the first taxable
year) by 100 or more persons during at least 335 days of each taxable year or
during a proportionate part of a shorter taxable year. Because the Trust expects
to qualify as a REIT, the Declaration of Trust contains restrictions on the
acquisition of Shares intended to ensure compliance with these requirements.
Subject to certain exceptions specified in the Declaration of Trust, no
Shareholder (other than the Original Investors) may own, or be deemed to own by
virtue of the attribution provisions of the Code, more than 5% (the "Ownership
Limit") of the Trust's Shares. The Managing Shareholder (upon receipt of a
ruling from the Internal Revenue Service (the "Service") or an opinion of
counsel or other evidence satisfactory to the Managing Shareholder and upon such
other conditions as the Managing Shareholder may require) may in its discretion
waive the Ownership Limit depending on the then existing facts and circumstances
surrounding the proposed transfer, including without limitation, the identity of
the party requesting such waiver, the number and extent of Share ownership of
other Shareholders, the aggregate number of outstanding Shares and the extent of
any contractual restrictions (other than that contained in the Declaration of
Trust) on any Shareholders relating to transfer of their Shares. See Section
2A.12 of the Declaration of Trust. As a condition of such exemption, the
intended transferee must give written notice to the Trust of the proposed
transfer no later than the fifteenth day prior to any transfer which, if
consummated, would result in the intended transferee owning Shares in excess of
the Ownership Limit. The Managing Shareholder (wholly owned and controlled,
along with the Corporate General Partner of each Exchange Partnership, by Mr.
McGrath) may require such opinions of counsel, affidavits, undertakings or
agreements as it may deem necessary or advisable in order to determine or ensure
the Trust's status as a REIT. Any transfer of the Shares that would (i) create a
direct or indirect ownership of the Shares in excess of the Ownership Limit,
(ii) result in the Shares being owned by fewer than 100 persons or (iii) result
in the Trust being "closely held" within the meaning of Section 856(h) of the
Code, shall be null and void, and the intended transferee will acquire no rights
to the Shares. The foregoing restrictions on transferability and ownership will
not apply if the Managing Shareholder determines, which determination must be
approved by the Shareholders, that it is no longer in the best interests of the
Trust to attempt to qualify, or to continue to qualify, as a REIT.
Any purported transfer of Shares that would result in a person owning
Shares in excess of the Ownership Limit or cause the Trust to become "closely
held" under Section 856(h) of the Code that is not otherwise permitted as
provided above will constitute excess shares ("Excess Shares"), which will be
transferred by operation of law to the Trust as trustee for the exclusive
benefit of the person or persons to whom the Excess Shares are ultimately
transferred, until such time as the intended transferee re-transfers the Excess
Shares. While these Excess Shares are
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held in trust, they will not be entitled to vote or to share in any dividends or
other distributions. Subject to the Ownership Limit, the Excess Shares may be
transferred by the intended transferee to any person (if the Excess Shares would
not be Excess Shares in the hands of such person) at a price not to exceed the
price paid by the intended transferee (or, if no consideration was paid, fair
market value), at which point the Excess Shares will automatically be exchanged
for the Shares to which the Excess Shares are attributable. In addition, such
Excess Shares held in trust are subject to purchase by the Trust at a purchase
price equal to the lesser of the price paid for the Shares by the intended
transferee (or, if no consideration was paid, fair market value) as reflected in
the last reported sales price reported on the New York Stock Exchange ("NYSE")
on the trading day immediately preceding the relevant date, or if not then
traded on the NYSE, the last reported sales price of such Shares on the trading
day immediately preceding the relevant date as reported on any exchange or
quotation system over which such Shares may be traded, or if not then traded
over any exchange or quotation system, then the market price of such Shares on
the relevant date as determined in good faith by the Managing Shareholder of the
Trust.
From and after the intended transfer to the intended transferee of the
Excess Shares, the intended transferee shall cease to be entitled to
distributions, voting rights and other benefits with respect to such Shares
except the right to payment of the purchase price of the Shares on the
retransfer of Shares as provided above. Any dividend or distribution paid to a
proposed transferee on Excess Shares prior to the discovery by the Trust that
such Shares have been transferred in violation of the provisions of the Trust's
Declaration shall be repaid to the Trust upon demand. If the foregoing transfer
restrictions are determined to be void or invalid by virtue of any legal
decision, statute, rule or regulation, then the intended transferee of any
Excess Shares may be deemed, at the option of the Trust, to have acted as an
agent on behalf of the Trust in acquiring such Excess Shares and to hold such
Excess Shares on behalf of the Trust.
All certificates representing Shares will bear a legend referring to the
restrictions described above.
All persons who own, directly or by virtue of the attribution provisions
of the Code, more than 5% (or such other percentage between 1/2 of 1% and 5%, as
provided in the rules and regulations promulgated under the Code) of the number
or value of the outstanding Shares of the Trust must give a written notice to
the Trust by January 31 of each year. In addition, each Shareholder shall upon
demand be required to disclose to the Trust in writing such information with
respect to the direct, indirect and constructive ownership of Shares as the
Managing Shareholder deems reasonably necessary to comply with the provisions of
the Code applicable to a REIT, to comply with the requirements of any taxing
authority or governmental agency or to determine any such compliance.
These ownership limitations could have the effect of discouraging a
takeover or other transaction in which holders of some, or a majority, of the
Shares might receive a premium for their Shares over the then prevailing market
price or which such holders might believe to be otherwise in their best
interest.
CAPITALIZATION
The following table sets forth the capitalization of the Operating
Partnership on a pro forma basis, assuming the completion of the sale of the
maximum number of 2,500,000 Common Shares being offered in the Cash Offering
(______ shares have been sold as of the date of this Prospectus). As described
above at "THE TRUST AND THE OPERATING PARTNERSHIP - The Operating Partnership,"
the Trust will contribute net proceeds from its Cash Offering in exchange for a
number of Units equivalent to the number of Common Shares sold by the Trust in
the Cash Offering. The subscription price for each Common Share being offered in
the Cash Offering is $10.00, and is payable in full in cash upon subscription.
For purposes of determining capitalization, such amount has been calculated
after deducting commissions and reimbursable offering expenses, estimated to be
approximately $1.00 per Common Share to be paid out of the proceeds of the Cash
Offering. The capitalization of the Operating Partnership set forth below does
not take into account any proposed acquisitions of property interests by the
Operating Partnership in exchange for Units registered in connection with the
Exchange Offering and the subsequent exchange by Unitholders of such Units for
Common Shares. The Operating Partnership will not receive any cash proceeds from
the Exchange Offering. The Original Investors provided initial capitalization of
the Operating Partnership in the amount of $100,000. See "THE TRUST AND THE
OPERATING PARTNERSHIP - Formation Transactions."
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Maximum Common Shares
Sold in Cash Offering (2,500,000)
---------------------------------
Capital Contribution by the Trust: $21,500,000
Capital Contribution by Original 100,000
Investors: -----------
Total Capitalization $21,600,000
TERMS OF THE CASH OFFERING
The Trust is offering in the Cash Offering a maximum of 2,500,000 Common
Shares of beneficial interest in the Trust at $10.00 per Common Share
($25,000,000 in the aggregate). See "CAPITAL STOCK OF THE TRUST" and
"CAPITALIZATION." As of the date of this Prospectus, the Trust has sold _______
Common Shares in the Cash Offering (gross proceeds of $_________). All offering
proceeds received by the Trust have been released from the escrow account with
American Stock Transfer & Trust Company since the Trust has fulfilled the
$500,000 minimum gross proceeds escrow condition.
All of the Common Shares to be issued or sold by the Trust in the Cash
Offering will be tradable without restriction under the Securities Act, but will
be subject to certain restrictions designed to permit the Trust to qualify and
maintain its REIT status under the Code for federal income tax purposes. See
above at "THE TRUST AND THE OPERATING PARTNERSHIP - Ownership of the Trust and
the Operating Partnership" for a description of the ownership of the Common
Shares being offered hereby and the Units of limited partnership interest in the
Operating Partnership on a pro forma basis, assuming that all or a portion of
the Common Shares being offered in the Cash Offering are sold and the Exchange
Offering is completed in whole or in part.
After payment of commissions and reimbursable expenses related to the Cash
Offering, the Trust is required to contribute the remaining funds to the
Operating Partnership to be used to fund investments or to pay expenses other
than those associated with the Cash Offering, as determined by the Trust in its
discretion. See "THE TRUST AND THE OPERATING PARTNERSHIP - The Operating
Partnership."
The Common Shares will be offered and sold in the Cash Offering on a
non-exclusive best efforts basis through Sigma Financial Corporation (the
"Dealer Manager"), a Michigan corporation which is a member of the National
Association of Securities Dealers, Inc. ("NASD") and registered as a
broker-dealer with the Securities and Exchange Commission and with the
appropriate authority of each state where offers of the Common Shares will be
made. Sigma Financial Corporation, which is not affiliated with the Managing
Shareholder or any of its affiliates, has acted as dealer manager for certain
private offerings of limited partner interests in real estate investment limited
partnerships sponsored by affiliates of the Managing Shareholder and is expected
to act as dealer manager in certain future programs sponsored by affiliates of
the Managing Shareholder. The Dealer Manager may select other NASD member firms
as co-manager or selected broker-dealers to participate in the Cash Offering.
Asset Allocation Securities Corp., Calton & Associates, Inc., Oakbrook
Investment Brokers Inc., Strategic Assets, Inc. and Stuart Stone & Company, LLC,
each a member of the NASD, have entered into selling agreements with the Dealer
Manager and will participate in the sale of Common Shares in connection with the
Cash Offering.
The Dealer Manager and participating broker-dealers have entered into an
Underwriting Agreement with the Trust pursuant to Appendix F of the Rules of
Fair Practice of the NASD. The Dealer Manager and participating broker-dealers
will receive selling commissions in an amount equal to 8% of the subscription
price for all Common Shares sold by them. The Dealer Manager may reallocate a
portion or all of its commission. The Trust reserves the right to waive the
payment of all or a part of a commission by one or more investors in the Cash
Offering, in which case the cost of the Common Shares acquired by such investors
will be less than the cost of equivalent Common Shares to an investor paying a
commission, provided, however, the Trust will exercise such waiver right on a
case by case basis according to the facts and circumstances involved.
In addition, the Dealer Manager and the participating broker-dealers will
be entitled to receive a warrant ("Warrant") to acquire a number of Common
Shares in an amount equal to 8.5% of the number of Common Shares sold in the
Cash Offering by the Dealer Manager or participating broker-dealers selected by
it, at a purchase price equal to $13.00 per Common Share. The Warrant will be
exercisable for a period of four years following the first anniversary of the
grant of the Warrant. For a period of six years following the grant of the
Warrant, any registered holder of the Warrant or Common Shares issued upon
exercise of the Warrant may request that the Trust include such securities as
well as any Common Shares underlying any unexercised portion of the Warrant in
any registration
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statement that the Trust determines to file under the Securities Act. Such
registration would be at the Trust's expense, excluding underwriter's
compensation and expense allowance relating to the requesting holder's
securities to be registered and fees and expenses of such holder's counsel.
Pursuant to the Underwriting Agreement, the Dealer Manager and
participating broker-dealers will not be obligated to purchase any Common
Shares, but will only be required to use their best efforts to sell Common
Shares to suitable offerees. The agreement may be terminated by either party in
certain circumstances. The Trust and the Dealer Manager have agreed to indemnify
each other against or to contribute to losses arising out of certain
liabilities, including liabilities arising under the Securities Act. The Trust
has been advised that, in the opinion of the Commission, such indemnification is
against public policy as expressed in the Securities Act and is, therefore,
unenforceable. Nevertheless, the parties may seek to enforce such
indemnification and rights to contribution which are expressly provided under
the agreement.
The Trust will reimburse the Managing Shareholder for distribution, due
diligence and organizational expenses incurred in connection with the formation
of the Trust and the Operating Partnership and with the Cash Offering, in an
amount not to exceed 1% of the aggregate subscription price paid for Common
Shares in the Cash Offering. To the extent the distribution, due diligence and
organizational expenses exceed 1% of gross proceeds of the Cash Offering, those
expenses will not be reimbursed. The Trust will also reimburse the Managing
Shareholder for legal, accounting and consulting fees and printing, filing,
recording, postage and other miscellaneous expenses incurred in connection with
the Cash Offering, in an amount not to exceed 1% of the aggregate subscription
price paid for Common Shares in the Cash Offering. Any such expenses of the
Managing Shareholder in excess of 1% of the aggregate subscription price paid
for Common Shares in the Cash Offering will be paid by the Managing Shareholder.
Such reimbursements will be payable out of the net proceeds of the Cash
Offering.
In addition, the Trust will reimburse the Managing Shareholder for
expenses incurred prior to and during the Cash Offering for investigating and
evaluating investment opportunities for the Trust and the Operating Partnership
and assisting them in effecting their investments, in an amount not to exceed 4%
of the aggregate subscription price paid for Common Shares in the Cash Offering.
Such reimbursements will be payable from available net proceeds of the Cash
Offering or as cash flow permits as determined by the Board of the Trust.
The termination date of the Cash Offering (the "Termination Date") is
scheduled to be November 30, 1999 or an earlier date determined by the Managing
Shareholder as specified below. The Managing Shareholder may in its sole
discretion terminate the Cash Offering at any time before the scheduled
Termination Date.
The Managing Shareholder will have the right to withdraw the Offering of
Common Shares at any time prior to the Termination Date, in which case the Trust
will be immediately dissolved at the expense of the Managing Shareholder and all
subscription funds will be returned promptly to the subscribers. If the Managing
Shareholder withdraws the Offering, any person that has received fees or other
payments from the proceeds of the Cash Offering will be required to return such
fees or payments to the Trust upon the demand of the Managing Shareholder.
The Common Shares being sold in the Cash Offering have been registered
under the Securities Act of 1933, as amended (the "Securities Act"). The Trust
has not yet registered the Common Shares under the Securities Exchange Act of
1934, as amended (the "Exchange Act"), or applied for their listing on any
securities exchange. The Trust intends to apply for listing on a national stock
exchange of the Common Shares being offered in the Cash Offering and of the
Common Shares into which Units to be offered in the Exchange Offering are
exchangeable. However, there can be no assurance whether the Trust will qualify
for such listing on any stock exchange and, if so, of the timing of the
effectiveness of any such listing.
The eligibility for listing or quotation privileges in respect of a
particular national securities exchange or over-the-counter market is based on
several factors, including without limitation the number of shareholders and
market makers, the bid price of the issuer's security, the number and market
value of outstanding securities owned by non-affiliates of the issuer, total
assets of the issuer, and the amount of shareholders' equity in the issuer.
Although the Common Shares acquired by purchasers in the Cash Offering will be
freely tradable securities, there can be no assurance that an active trading
market will be established or maintained for the Common Shares. The Trust will
be required to file periodic reports (Form 10-KSB or Form 10-K annual reports,
Form 10-QSB or Form 10-Q quarterly reports and Form 8-K current reports) under
the Exchange Act during 1999 and in any subsequent fiscal year in which it has
more than 300 Shareholders or it is otherwise required by applicable law to do
so. The Trust is expected to have at least 300 Shareholders after the completion
of the Cash Offering and accordingly would be required to file such reports on a
continuing basis.
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AMENDMENTS TO PARTNERSHIP AGREEMENTS OF
PARTICIPATING EXCHANGE PARTNERSHIPS WITH NON-PARTICIPATING
LIMITED PARTNERS
Following the completion of the Exchange Offering, each limited partner in
a Participating Exchange Partnership (as defined below) who elects not to accept
the Exchange Offering (individually, a "Non-participating Limited Partner" and
collectively, the "Non-participating Limited Partners") will retain his existing
interest in the partnership. The Non-participating Limited Partners will retain
all of their economic and voting rights, rights to receive reports and other
rights as set forth in their respective partnership agreement. See "COMPARISON
OF RIGHTS OF HOLDERS OF EXCHANGE PARTNERSHIP UNITS, OPERATING PARTNERSHIP UNITS
AND TRUST COMMON SHARES." Although Non-participating Limited Partners in any
particular Participating Exchange Partnership together will hold no more than
10% of the limited partnership interest in the partnership, they will have
significant influence over certain activities of the partnership and the
Operating Partnership by virtue of certain partnership agreement amendments in
their favor which will be effected upon completion of the Exchange Offering. For
purposes of this Prospectus, the term "Participating Exchange Partnership,"
which will apply only if the Exchange Offering is completed in part or in full,
refers to each Exchange Partnership whose limited partners holding at least 90%
of all limited partnership interests therein elect to accept the Exchange
Offering, and the term "Participating Exchange Partnerships" refers to all such
partnerships as a group.
The purpose of the amendments is to permit Non-participating Limited
Partners in Participating Exchange Partnerships the opportunity to vote as a
class whether to approve certain actions which the Operating Partnership might
otherwise unilaterally cause a Participating Exchange Partnership to take by
exercising the Operating Partnership's voting rights in its capacity as a
majority holder of limited partnership interests in the partnership following
the Exchange Offering.
The partnership agreement of each Participating Exchange Partnership which
has one or more Non-participating Limited Partners following the Exchange
Offering will be amended so that such partners will be entitled to vote as a
class in respect of all matters as to which limited partners are entitled to
vote under the partnership agreement prior to the completion of the Exchange
Offering, with certain exceptions. In addition, the Trust and the Operating
Partnership have agreed that in respect of certain proposed actions, the
Participating Exchange Partnership must obtain the prior approval of
Non-participating Limited Partners holding a majority of the limited partnership
interests held by all Non-participating Limited Partners in the partnership. For
example, the partnership may not sell its existing property interest, acquire
any additional property interests or cease to exist without such approval.
As a condition of the admission of the Operating Partnership as a limited
partner to each Participating Exchange Partnership (by virtue of the completion
of exchanges in connection with the Exchange Offering), the Trust and the
Operating Partnership have agreed to amend the agreement of limited partnership
of each Participating Exchange Partnership (individually, the "Exchange
Partnership Agreement," and collectively, the "Exchange Partnership Agreements")
in the manner described below, and not to cause the further amendment of the
Exchange Partnership Agreement, as long as any Non-Participating Limited Partner
remains a limited partner in the partnership, without the prior approval of
either (i) all Non-Participating Limited Partners, if unanimous approval is
required under the Exchange Partnership Agreement prior to the Exchange
Offering, or (ii) Non-participating Limited Partners holding at least a majority
of the limited partnership interests held by all Non-participating Limited
Partners in the partnership, if the approval of a majority interest is required
under the Exchange Partnership Agreement prior to the Exchange Offering. The
Exchange Partnership Agreements, as amended, will define these special rights as
granted to all limited partners in the respective Participating Exchange
Partnerships other than the Trust, the Operating Partnership and any of their
respective affiliates.
Set forth below are the specific Exchange Partnership Agreement amendments
that will be effected in respect of each Participating Exchange Partnership
which has one or more Non-participating Limited Partners immediately following
the completion of the Exchange Offering as to such partnership. For illustration
purposes, the section numbers set forth below refer to the Agreement of Limited
Partnership of GSU Stadium Student Apartments, Ltd., one of the Exchange
Partnerships whose limited partners are being offered the opportunity to
participate in the Exchange Offering. Section numbers may vary among the various
Exchange Partnership Agreements, and corresponding amendments will be made to
the corresponding sections of the partnership agreements of other applicable
Participating Exchange Partnerships.
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1. The Exchange Partnership Agreement will be amended by adding the
following provision as Section 16.08 thereof:
"16.08 Certain Actions Requiring Approval of Unaffiliated Limited Partners
Without the prior approval of Limited Partners (other than Baron Capital
Trust, Baron Capital Properties, L.P. or any of their respective
affiliates) holding at least a majority of the Units then outstanding
which are held by all such Limited Partners:
(i) The Partnership will not cease to exist; will continue to own
the same property interest it owned prior to the completion of the
offering of Baron Capital Properties, L.P. to Limited Partners to issue
limited partnership interests therein in exchange for Units in the
Partnership; and will not acquire any additional property interests or
sell any property interests;
(ii) The Partnership will not reinvest its Distributable Cash
[defined in the respective Exchange Partnership Agreements to include all
cash received by the Partnership from any source, other than capital
contributions, loan proceeds and proceeds from the sale or refinancing of
property, less operating expenses, principal and interest payments on
indebtedness, capital expenditures, general partner fees and reasonable
cash reserves], but rather will continue to distribute such cash to the
Limited Partners in the Partnership in accordance with Section 10.02 of
this Agreement at least quarterly within 30 days following the end of each
fiscal quarter.
(iii) The Partnership will not reinvest net proceeds from the sale
or refinancing of the Partnership's Property, but rather will distribute
such proceeds to the Limited Partners in the Partnership in accordance
with Section 10.03 of this Agreement following repayment of all
indebtedness secured by such property."
As a result of this amendment, following the Exchange Offering, without
the majority approval of the Non-participating Limited Partners of the
respective Participating Exchange Partnership voting as a class, the partnership
will not be permitted to sell its existing property interest, acquire any
additional property interests, cease to exist, or modify the right of limited
partners to continue to receive 100% (or 99%, in one case) of the quarterly cash
distributions and net proceeds from the sale or refinancing of the partnership's
property until they have received the preferred amount specified in the
respective Exchange Partnership Agreement.
2. Section 12.03 of the Exchange Partnership Agreement will be deleted and
the following substituted therefor:
"Except for admission of Limited Partners to the Partnership in the manner
provided in this Article XII and Article XI, no one may subsequently be
admitted to the Partnership as a Limited Partner except upon amendment of
this Agreement executed and acknowledged by the General Partner and
Limited Partners (other than Baron Capital Trust, Baron Capital
Properties, L.P. or any of their respective affiliates) holding at least a
majority of the Units then outstanding which are held by all such Limited
Partners."
As a result of this amendment, following the Exchange Offering, without
the majority approval of the Non-participating Limited Partners of the
respective Participating Exchange Partnership voting as a class, the partnership
may not admit any additional persons as limited partnerships other than pursuant
to Article XII (which sets forth procedures for admission) and Article XI
(pertaining to transfers of limited partnership interests).
3. Section 12.05(c) of the Exchange Partnership Agreement will be deleted
and the following substituted therefor:
"(c) The General Partner may cause the Partnership to issue additional
Units of the same class as the Units initially offered to Investors in any
number to such persons and on such terms as the General Partner may
determine, provided, however, the Partnership will either sell those
additional Units (i) for a price at least equal to the net asset value per
Unit of the Partnership or (ii) for a price not less than the approximate
market value of the Units, provided that Limited Partners (other than
Baron Capital Trust,
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Baron Capital Properties, L.P. or any of their respective affiliates)
holding at least a majority of the Units then outstanding which are held
by all such Limited Partners have approved the sale in advance."
As a result of this amendment, the Corporate General Partner of each
Participating Exchange Partnership with one or more Non-participating Limited
Partners following the Exchange Offering, continues to have discretion to issue
additional units of limited partnership interest of the same class as units held
by the limited partners of the partnership and to determine the terms of such
issuance, provided, however, that the majority approval of Non-participating
Limited Partners voting as a class is required to approve such issuance in
advance where the selling price for such shares is not less than the approximate
market value of the units.
4. Section 15.02 of the Exchange Partnership Agreement will be deleted and
the following substituted therefor:
"If at any time the last remaining General Partner retires, resigns, is
removed or fails or ceases for any other reason to act as the General
Partner of the Partnership, the Limited Partners may, by a vote of Limited
Partners holding at least a majority of the Units then outstanding under
Section 22.03 within 90 days following such occurrence, elect to continue
the Partnership and elect one or more successor General Partners willing
to serve in such capacity to continue the business of the Partnership,
provided, however, such continuation and election of a successor General
Partner(s) may only be effected with the consent of Limited Partners
(other than Baron Capital Trust, Baron Capital Properties, L.P. or any of
their respective affiliates) holding at least a majority of the Units then
outstanding which are held by all such Limited Partners. In case the
Partnership is continued under the terms and conditions of this Section
15.02, the successor General Partner(s) will be permitted to purchase an
interest in the Partnership only in an amount, of a type and at a purchase
price consented to by Limited Partners (other than Baron Capital Trust,
Baron Capital Properties, L.P. or any of their respective affiliates)
holding at least a majority of the Units then outstanding which are held
by all such Limited Partners."
As a result of this amendment, if the last remaining general partner of
any Participating Exchange Partnership with one or more Non-participating
Limited Partners following the Exchange Offering (each of the Exchange
Partnerships currently has only one general partner) ceases to act as general
partner, the limited partners of the partnership (including the Operating
Partnership and Non-participating Limited Partners) holding at least a majority
of the then outstanding units of the partnership may elect to continue the
partnership and elect one or more new general partners as long as the same has
been approved in advance by Non-participating Limited Partners of the
partnership holding a majority of the then outstanding units of the partnership
held by all Non-participating Limited Partners. In addition, if the partnership
is continued under the circumstances described above, the new general partner(s)
will be permitted to purchase an interest in the partnership only on terms and
conditions approved by a majority vote of the Non-participating Limited Partners
voting as a class.
5. Section 15.03 of the Exchange Partnership Agreement will be deleted and
the following substituted therefor:
"The General Partner may announce its intention to retire or resign its
position by written notice mailed or delivered to each of the Limited
Partners not less than 90 days prior to the effective date of such
proposed retirement or resignation. Such retirement or resignation will
become effective upon the date specified in such notification but only if
Limited Partners (other than Baron Capital Trust, Baron Capital
Properties, L.P. or any of their respective affiliates) holding at least a
majority of the Units then outstanding which are held by all such Limited
Partners consent in writing to said retirement or resignation. In the
event of the retirement or resignation of the General Partner, its
interest in the Partnership, as General Partner, will be automatically
converted into a Limited Partner interest except that it will be entitled
to the same allocations of income, gain, expense, loss, deduction and
credit and the same distributions to which it would otherwise have been
entitled, provided, however, it will not then be entitled to any
uncollected fees payable by the Partnership to the extent not accrued
before the date of resignation or retirement. The reformation or
reorganization of the General Partner, should the General Partner at any
time be a corporation or partnership, will not in and of itself constitute
the retirement or resignation of the General Partner for purposes of this
Section 15.03."
As a result of this amendment, the Corporate General Partner of each
Participating Exchange Partnership with one or more Non-participating Limited
Partners following the Exchange Offering may retire or resign only
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with the approval of Non-participating Limited Partners of the partnership
holding a majority of the then outstanding units of the partnership held by all
Non-participating Limited Partners.
6. Section 15.05(d) of the Exchange Partnership Agreement will be deleted
and the following substituted therefor:
"Any contract referred to in subsection (c) above [i.e., agreements
entered into between the Partnership and any affiliates of the General
Partner (other than any agreements described in the offering documents
relating to the original private offering of the Partnership)] will
require the approval of Limited Partners (other than Baron Capital Trust,
Baron Capital Properties, L.P. or any of their respective affiliates)
holding at least a majority of the Units then outstanding which are held
by all such Limited Partners, exercising their voting rights pursuant to
Section 22.03 below, before it may be amended."
As a result of this amendment, any amendment of any agreement entered into
between any Participating Exchange Partnership and any affiliates of the
Corporate General Partner following the Exchange Offering (other than any
agreement described in the offering documents relating to the original private
offering of the partnership) will require the approval of Non-participating
Limited Partners of the partnership holding a majority of the then outstanding
units of the partnership held by all Non-participating Limited Partners.
7. Section 15.06(a) of the Exchange Partnership Agreement will be deleted
and the following substituted therefor:
"A General Partner may be removed only if (i) a court of law with
competent jurisdiction over the matter determines that the General Partner
is not performing its powers, duties and obligations in the best interests
of the Partnership, (ii) Limited Partners (other than Baron Capital Trust,
Baron Capital Properties, L.P. or any of their respective affiliates)
holding at least a majority of the Units then outstanding which are held
by all such Limited Partners consent to such removal and (iii) the General
Partner is given written notice of removal at least 30 days prior to the
effective date of such removal. Notwithstanding anything to the contrary
contained herein, a General Partner may not be removed by any action if
any officer or Affiliate thereof has any personal liability whatsoever on
any debt of the Partnership unless and until such liability has been
extinguished."
Prior to the Exchange Offering, the Corporate General Partner of an
Exchange Partnership may be removed by limited partners of the partnership
holding at least a majority of the outstanding limited partnership interests in
the partnership if they determine that the general partner is not performing its
duties in the best interests of the partnership, they give the general partner
the requisite notice, and no officer or affiliate of the general partner has any
personal liability on any debt of the partnership. As a result of the foregoing
amendment, except as provided in the last sentence of Section 15.06(a), the
Corporate General Partner of a Participating Exchange Partnership with one or
more Non-participating Limited Partners following the Exchange Offering may be
removed only if a court of competent jurisdiction finds that the general partner
is not performing its duties in the best interest of the partnership, the
Non-participating Limited Partners voting as a class consent to such removal and
the general partner is given the requisite notice. The effect of this amendment
is that following the Exchange Offering, the Corporate General Partner of a
Participating Exchange Partnership with one or more Non-participating Limited
Partners may be removed only if the Non-participating Limited Partners initiate
an action in court to have the general partner removed and the court makes the
requisite finding.
8. Section 16.07 of the Exchange Partnership Agreement will be deleted and
the following substituted therefor:
"The General Partner will list the Partnership's Property for sale with a
nationally recognized real estate broker no later than June 30, 2004 and
at least every 18 months thereafter until the property is sold, at a price
to be determined by the General Partner. The affirmative vote of Limited
Partners (other than Baron Capital Trust, Baron Capital Properties, L.P.
or any of their respective affiliates) holding at least a majority of the
Units then outstanding which are held by all such Limited Partners shall
be required to effect a sale of all or substantially all of the
Partnership's Property."
As a result of this amendment, following the Exchange Offering, a
Participating Exchange Partnership with one or more Non-participating Limited
Partners may sell all or substantially all of its property only with the prior
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approval of Non-participating Limited Partners of the partnership holding a
majority of the then outstanding units of the partnership held by all
Non-participating Limited Partners. In addition, the Participating Exchange
Partnership will list its property for sale no later than June 30, 2004 and at
least every 18 months thereafter until the property is sold.
9. Section 19.02 of the Exchange Partnership Agreement will be deleted and
the following substituted therefor:
"Within 90 days after the end of each Fiscal Year of the Partnership, the
General Partner will prepare and furnish to each of the Partners a
statement showing net income or loss of the Partnership for Federal income
tax purposes and the share thereof allocable to each Partner and any
additional information required under Section 15.05(c). Each Limited
Partner will be provided annually with financial statements, including a
balance sheet and related statements of income and retained earnings and
changes in financial position. On the written request of Limited Partners
(other than Baron Capital Trust, Baron Capital Properties, L.P. or any of
their respective affiliates) holding at least a majority of the Units then
outstanding which are held by all such Limited Partners, the General
Partner will, at the Partnership's request and expense, have such
financial statements audited by an independent public accountant in
accordance with generally acceptable auditing standards and will promptly
send a copy of such audited statements and report of the accountant to
each Limited Partner."
As a result of this amendment, following the Exchange Offering,
Non-participating Limited Partners of a Participating Exchange Partnership
holding a majority of the then outstanding units of the partnership held by all
Non-participating Limited Partners may require that the annual financial
statements required to be delivered by the partnership to limited partners be
audited.
10. The first sentence of Section 20.01 of the Exchange Partnership
Agreement will be deleted and the following substituted therefor:
"The occurrence of any one of the following events will cause the
dissolution of the Partnership:
(1) The expiration of the term of this Agreement.
(2) The vote of Limited Partners holding at least a majority of
the Units then outstanding to dissolve the Partnership, and in
addition the consent to such dissolution of Limited Partners
(other than Baron Capital Trust, Baron Capital Properties,
L.P. or any of their respective affiliates) holding at least a
majority of the Units then outstanding which are held by all
such Limited Partners.
(3) The death, resignation, retirement, dissolution, removal,
bankruptcy, adjudication of insolvency, or adjudication of
insanity or incompetency of the last remaining General Partner
then in office and the refusal of any successor General
Partner to replace it, unless Limited Partners holding at
least a majority of the Units then outstanding, as provided in
Section 15.02 of this Agreement, vote to continue the
Partnership and elect one or more successor General Partners
willing to serve in such capacity to continue the business of
the Partnership and in addition Limited Partners (other than
Baron Capital Trust, Baron Capital Properties, L.P. or any of
their respective affiliates) holding at least a majority of
the Units then outstanding which are held by all such Limited
Partners consent to such continuation, election of such
General Partner(s) and the amount, type and purchase price of
any interest in the Partnership such successor General
Partner(s) may acquire in connection therewith.
(4) The sale of all or substantially all of the Partnership's
Property.
(5) The occurrence of any other event which, by law, would require
the Partnership to be dissolved."
As a result of this amendment, following the Exchange Offering, a
Participating Exchange Partnership with one or more Non-participating Limited
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Partners may be dissolved by the vote of at least a majority of the outstanding
limited partnership interests in the partnership, but only with the approval of
Non-participating Limited Partners holding a majority of the then outstanding
units of the partnership held by all Non-participating Limited Partners. In
addition, the partnership will be dissolved if the last remaining general
partner of the partnership (each of the Exchange Partnerships currently has only
one general partner) ceases to act as general partner, unless the limited
partners of the partnership (including the Operating Partnership and
Non-participating Limited Partners) holding at least a majority of the then
outstanding units of the partnership elect to continue the partnership and elect
a new general partner and such continuation, election of such general partner(s)
and the amount, type and purchase price of any interest in the partnership such
successor general partner(s) may acquire in connection therewith have been
approved in advance by Non-participating Limited Partners of the partnership
holding a majority of the then outstanding units of the partnership held by all
Non-participating Limited Partners.
11. The third sentence of the second paragraph of Section 20.02 of the
Exchange Partnership Agreement will be deleted and the following substituted
therefor:
"The Limited Partners may, by exercising their voting rights under Section
22.03, appoint such a liquidating receiver or trustee to replace the
General Partner or the receiver or trustee appointed by the General
Partner for the purpose of liquidating the assets of the Partnership,
provided, however, such appointment must be consented to by Limited
Partners (other than Baron Capital Trust, Baron Capital Properties, L.P.
or any of their respective affiliates) holding at least a majority of the
Units then outstanding which are held by all such Limited Partners; any
such appointment by the Limited Partners will supersede the designation
herein of the General Partner or such receiver or trustee appointed by the
General Partner."
Prior to the Exchange Offering, limited partners of each Exchange
Partnership, by a vote of at least a majority of the outstanding limited
partnership interests in the partnership, had the right to appoint a liquidating
receiver or trustee to replace the Corporate General Partner or the receiver or
trustee appointed by the general partner in connection with the liquidation of
the partnership. As a result of this amendment, in respect of each Participating
Exchange Partnership with one or more Non-participating Limited Partners
following the Exchange Offering, such replacement also requires the approval of
Non-participating Limited Partners of the partnership holding a majority of the
then outstanding units of the partnership held by all Non-participating Limited
Partners.
12. Section 21.01 of the Exchange Partnership Agreement will be deleted
and the following substituted therefor:
"No alterations, modifications, amendments or changes of this Agreement
will be effective or binding upon the parties unless the same have been
adopted by Limited Partners exercising their voting rights pursuant to
Section 22.03 and the same has been consented to by Limited Partners
(other than Baron Capital Trust, Baron Capital Properties, L.P. or any of
their respective affiliates) holding at least a majority of the Units then
outstanding which are held by all such Limited Partners, except (i) with
respect to one or more amendments admitting Limited Partners, which may be
effected in the manner provided in Article XII of this Agreement, (ii)
that no Partner's duties or liabilities may be increased and no Partner's
interest in the capital, profits, Distributable Cash or Net Proceeds of
the Partnership or voting rights may be reduced, without his written
consent; and (iii) that this Agreement may be amended by the General
Partner without notice to or the approval of the Limited Partners, from
time to time for the following purposes: (1) to cure any ambiguity, formal
defect or omission or to correct or supplement any provision herein that
may be inconsistent with any other provision contained herein or in the
Memorandum or to effect any amendment without notice to or approval by
Limited Partners, as specified in other provisions of this Agreement; (2)
to make such other changes or provisions in regard to matters or questions
arising under this Agreement that will not materially and adversely affect
the interest of any Limited Partner; (3) to otherwise equitably resolve
issues arising under the Memorandum or this Agreement so long as similarly
situated Limited Partners are not treated differently; (4) to maintain the
federal tax status of the Partnership and any of its Limited Partners (so
long as no Limited Partner's liability is materially increased without his
consent) or as provided in Section 10.4(c); and (5) to comply with law."
As a result of this amendment, following the Exchange Offering and except
in certain circumstances specified in Section 21.01, the partnership agreement
of a Participating Exchange Partnership with one or more Non-participating
Limited
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Partners may be amended only with the approval of both (i) limited partners
holding at least a majority of the outstanding limited partnership interests in
the partnership and (ii) Non-participating Limited Partners of the partnership
holding a majority of the then outstanding units of the partnership held by all
Non-participating Limited Partners.
13. The first sentence of Section 22.02 of the Exchange Partnership
Agreement will be deleted and the following substituted therefor:
"The General Partner, or Limited Partners (other than Baron Capital Trust,
Baron Capital Properties, L.P. or any of their respective affiliates)
holding at least a majority of the Units then outstanding which are held
by all such Limited Partners, may convene a meeting of the Partnership for
any matter on which the Partners may vote as provided in this Agreement."
As a result of this amendment, following the Exchange Offering in respect
of each Participating Exchange Partnership with one or more Non-participating
Limited Partners, the Corporate General Partner or Non-participating Limited
Partners holding a majority of the then outstanding units held by all
Non-participating Limited Partners in the partnership, may call a meeting of the
partnership to act on any matter upon which the limited partners of the
partnership are permitted to act.
14. The Corporate General Partner of each Exchange Partnership is a
single-purpose corporation whose stock is owned entirely by Gregory K. McGrath,
a founder of the Trust and the Operating Partnership. In connection with the
formation of the Trust and the Operating Partnership, Mr. McGrath agreed to
waive fees payable under the Exchange Partnership Agreement to the Corporate
General Partner of each Participating Exchange Partnership following the
Exchange Offering. The fees to be waived include, without limitation, annual
administrative fees, any real estate commission that might be earned in
connection with the sale of a partnership's property and any fees to cover
distribution, due diligence and organizational expenses and legal, accounting,
filing, recording and other miscellaneous expenses in connection with additional
sales of units of limited partnership interest pursuant to Section 12.05 of the
Exchange Partnership Agreement. Moreover, since all the Exchange Partnerships
assumed the property management function in respect of their properties in June
1998, no affiliate of any Corporate General Partner will earn a fee for
performing property management services. Accordingly, the Exchange Partnership
Agreements will be amended to delete the payment of the foregoing fees. For
example, Sections 15.04(a)(i) (offering costs relating to future offerings of
limited partnership interests), 15.04(a)(ii) (property management fee),
15.04(a)(iii) (real estate commissions), 15.04(b) (acquisition fee), and
15.04(c) (administrative fee) will be deleted.
As a result of the partnership agreement amendments described above,
Non-participating Limited Partners in each Participating Exchange Partnership
will have the ability to veto certain actions of the partnership which might be
in the best interest of the partnership, the Operating Partnership, the Trust or
the holders of securities of the Trust and the Operating Partnership. There can
be no assurance that Non-participating Limited Partners will not use such voting
power in a manner which may have an adverse effect on the operations of the
Trust or the Operating Partnership. See "RISK FACTORS - Non-participating
Exchange Limited Partners in Participating Exchange Partnerships Will Have
Significant Influence over Certain Actions of the Partnerships."
As described above at "THE EXCHANGE OFFERING," in respect of each
Participating Exchange Partnership, Mr. McGrath (the sole stockholder, director
and executive officer of the Corporate General Partner of each such partnership)
will provide a management proxy to the Board of the Trust or the Operating
Partnership will acquire from Mr. McGrath for a nominal amount the outstanding
common stock of the Corporate General Partner.
OTHER INFORMATION
General
The Operating Partnership and the Trust undertake to make available to
each Offeree or his representative, or both, during the course of the Exchange
Offering and prior to the Offeree's acceptance of the Exchange Offering, the
opportunity to ask questions of and receive answers from the Operating
Partnership, the Trust or any person acting on their respective behalf relating
to the terms and conditions of the Exchange Offering and the Cash Offering and
to obtain any additional information necessary to verify the accuracy of
information made available to such Offeree.
Prior to making an investment decision respecting the Exchange Offering,
each Offeree should carefully review and consider this entire Prospectus and all
Exhibits hereto. Offerees are urged to make arrangements with
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the Trust to inspect any books, records, contracts, or instruments referred to
in this Prospectus and other data relating thereto. The Trust is available to
discuss with Offerees any matter set forth in this Prospectus or any other
matter relating to the Units and the Common Shares into which they are
exchangeable, subject to certain conditions, so that Offerees and their
advisors, if any, may have available to them all information, financial and
otherwise, necessary to formulate a well-informed investment decision.
Authorized Sales Material
Sales material may be used in connection with the Exchange Offering only
when accompanied or preceded by the delivery of this Prospectus. Only sales
material that indicates that it is distributed by the Trust, the Operating
Partnership or the Managing Shareholder may be distributed to Offerees.
Currently, the Operating Partnership intends to distribute to Offerees the
following in addition to this Prospectus and the pertinent Prospectus
Supplement: (i) a letter transmitting this Prospectus and any amendments or
supplements thereto which summarizes the Exchange Offering and instructs the
Offeree how to proceed if he wishes to accept the offering and (ii) possibly a
sales brochure or other written or graphic communications depicting certain
information regarding the Operating Partnership, the Trust, the Managing
Shareholder and the residential real estate industry. All such additional sales
material will be signed by or otherwise identified as authorized by the Trust,
the Operating Partnership or the Managing Shareholder. Any other sales material
or information has not been authorized for use by the Trust, the Operating
Partnership or the Managing Shareholder and must be disregarded by Offerees.
In certain jurisdictions, some or all of this sales material may not be
distributed pursuant to securities law requirements, and in all jurisdictions,
the Exchange Offering is made only by this Prospectus, the pertinent Prospectus
Supplement and accompanying materials.
All authorized sales material will be consistent with this Prospectus, as
supplemented. Nevertheless, sales material by its nature does not purport to be
a complete description of the Exchange Offering and Offerees must review this
Prospectus and supplements carefully for a complete description of the Exchange
Offering. Authorized sales material should not be considered to be the basis for
the Exchange Offering of Units or an Offeree's decision to accept the Exchange
Offering. Sales material is not a part of this Prospectus and is not
incorporated by reference into this Prospectus unless expressly stated in this
Prospectus or supplements hereto.
Financial Statements
Set forth in Exhibit C are (i) the audited consolidated balance sheet of
the Trust and the Operating Partnership and the audited balance sheet of the
Managing Shareholder as of December 31, 1998 and their respective statements of
operations, statement of shareholders' equity and statements of cash flows for
the twelve-month period ending December 31, 1998.
As described below, Exhibit D to this Prospectus sets forth certain
financial statements relating to the 23 Exchange Partnerships involved in the
Exchange Offering. Set forth in Exhibit D are audited statements of revenues and
certain expenses for each of the 13 Exchange Equity Partnerships for the
12-month periods ended December 31, 1997 and 1998, and the three months ended
March 31, 1999 (unaudited). The statements of revenues and certain expenses
exclude material expenses described in the notes thereto (including partnership
administrative expenses, major maintenance, depreciation, amortization and
professional fees) that would not be comparable to those resulting from the
proposed future operations of the Exchange Properties and the Acquired
Properties.
Also set forth in Exhibit D to the Prospectus are audited financial
statements for each of the Exchange Mortgage Partnerships and the Exchange
Hybrid Partnerships for the 12-month period ended December 31, 1998 and the
three months ended March 31, 1999 (unaudited).
Set forth at the end of Exhibit D are the consolidated pro forma balance
sheet as of December 31, 1998 and consolidated statement of operations for the
twelve-month period ended December 31, 1998, and three months ended March 31,
1999, for the Trust and the Operating Partnership, giving effect to the
acquisition by the Operating Partnership of 100% of the Exchange Partnership
Units of the Exchange Partnerships in connection with the Exchange Offering and
the already completed acquisition of three Acquired Properties which have
historical operating results. Pro forma consolidated financial statements for
the two entities have also been included in Exhibit D which were prepared
assuming only the minimum participation of Offerees (i.e., acceptance by
Offerees of Units with an initial assigned value of $6,000,000).
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Set forth in Exhibit E to this Prospectus is the combined statement of
estimated taxable operating results and funds available from operations
(unaudited) for the Operating Partnership for the four Acquired Properties
already beneficially owned by the Operating Partnership and for the 23
Exchange Partnerships involved in the Exchange Offering. The statement is
based on the most recent 12-month period and assumes that the Operating
Partnership has acquired all of the limited partnership interests in the
Exchange Partnerships owning interests in the Exchange Properties in
connection with the Exchange Offering. The statement also assumes the
anticipated increase or reduction of revenue, operating expenses and debt
service requirements in certain cases, where appropriate. The statement does
not purport to forecast actual operating results for any period in the future.
The foregoing statements should be reviewed by the Offerees prior to
making a decision whether or not to accept the Exchange Offering. See above at
"INITIAL REAL ESTATE INVESTMENTS - The Exchange Properties" and " Acquired
Properties."
LITIGATION
There are no pending legal proceedings to which the Trust, the Operating
Partnership or the Managing Shareholder is a party which are material to the
operations of the Trust and the Operating Partnership, and the Trust and the
Managing Shareholder have no knowledge that any such legal proceedings are
contemplated or threatened by any third party.
EXPERTS
The audited financial statements of the Trust, the Operating
Partnership and the Managing Shareholder as of December 31, 1998 and for the
year then ended have been included herein and in the Registration Statement
in reliance upon the reports of Rachlin Cohen & Holtz LLP, independent
certified public accountants, appearing elsewhere herein, and upon the
authority of said firm as experts in auditing and accounting.
The statements of revenue and certain expenses for each of the 13 Exchange
Properties in which Exchange Equity Partnerships directly or indirectly own an
equity interest for the 12-month periods ended December 31, 1998 and December
31, 1997 and the three months ended March 31, 1999 (unaudited) (set forth in
Exhibit D hereto) have been included herein and in the Registration Statement in
reliance upon the reports of Elroy D. Miedema, an independent certified public
accountant, appearing herein, and upon the authority of said independent
certified public accountant as an expert in accounting and auditing.
The balance sheets, statements of operations, statements of partners'
capital and statements of cash flow for each of the ten Exchange Mortgage
Partnerships and ten Exchange Hybrid Partnerships for the year ended December
31, 1998 (set forth in Exhibit D hereto) have been included herein and in the
Registration Statement in reliance upon the reports of Rachlin Cohen and
Holtz LLP, independent certified public accountants, appearing herein, and
upon the authority of said firm as experts in accounting and auditing.
LEGAL MATTERS
The authority of the Operating Partnership to issue Units offered hereby
is being passed upon for the Trust by Dennis P. Spates, Esq., New York, N.Y.,
counsel to the Trust. Copies of the draft opinion letter of counsel as to the
Operating Partnership's authority to issue the Units may be obtained by writing
to the Trust.
Manatt, Phelps & Phillips, LLP has passed on certain tax matters as
described under "FEDERAL INCOME TAX CONSIDERATIONS." The tax opinion is not
included as an appendix to this Prospectus, but has been filed with the
Commission as an exhibit to the Operating Partnership's registration statement.
Upon receipt of a written request made to Sharon Studt at Baron Capital
Properties, L.P., 7826 Cooper Road, Cincinnati, Ohio 45242, by an Offeree or his
representative who has been so designated in writing, the Operating Partnership
will transmit promptly a copy of the tax opinion, without charge. Counsel to the
Trust and the Managing Shareholder will not represent or advise any Offeree in
connection with the Exchange Offering. THEREFORE, EACH OFFEREE SHOULD CONSULT
THE INVESTOR'S OWN LEGAL, TAX AND INVESTMENT COUNSEL.
The representation of counsel to the Trust has been limited to matters
specifically addressed to it. No Offeree should assume that counsel to the Trust
has in any manner investigated the merits of an investment in the
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Units or the Common Shares into which the Units are exchangeable, subject to
certain conditions, or undertaken any role other than assisting in, and
reviewing items specifically referred to it with regard to, the preparation of
this Prospectus and the issuance of the opinions referred to above. In assisting
in the preparation of this Prospectus, counsel to the Trust has relied upon the
representations and statements of (i) the Trust and the Managing Shareholder as
to facts regarding the Operating Partnership, the Trust and the Managing
Shareholder and their respective affiliates and their proposed activities and
(ii) the Corporate General Partners as to facts regarding the Exchange
Partnerships and their respective affiliates. Counsel to the Trust has not
independently verified such representations and statements.
EXPENSES OF THE EXCHANGE OFFERING
All legal, accounting, due diligence and other expenses incurred by each
of the Exchange Partnerships and the Operating Partnership incident to the
Exchange Offering will be paid by the party incurring such expense, except that
all of the expenses incurred in connection with the preparation, filing,
printing and distributing of the Registration Statement and the Prospectus, and
completion of the transactions described therein (estimated to be approximately
$683,000) will be paid by the Operating Partnership out of the net proceeds of
the Trust's Cash Offering and net available cash flow. No special fees or
commissions have been or will be paid to the Managing Shareholder, any Corporate
General Partner of an Exchange Partnership, or any of their respective
affiliates, in connection with the Exchange Offer. As of the date of this
Prospectus, in connection with the Exchange Offering, each Exchange Partnership
has paid or will pay out of available cash flow an estimated amount in the range
of $10,000 to $24,000 of expenses for professional fees. The Exchange
Partnerships are not expected to incur any significant additional expenses
related to the offering.
Set forth below is an itemized list of all expenses incurred or estimated
to be incurred in connection with the Exchange Offering and the persons
responsible for paying such expenses:
Actual Amount Party Responsible
Type of Expense To Date or Estimate for Paying
- --------------- ------------------- ----------
Commission Registration Filing Fees $ 7,576 Operating Partnership
State Registration Filing Fees $ 50,000 (est.) Operating Partnership
Legal Fees, including preparation
of offering documents, opinions and
state registration filings $ 600,000 (est.) Operating Partnership
Printing, Mailing and Solicitation
Expenses $ 25,000 (est.) Operating Partnership
------------------
Total $ 682,576 (est.)
The Operating Partnership may elect to reimburse brokers, fiduciaries,
custodians and other nominees for reasonable out-of-pocket expenses incurred in
sending this Prospectus and other materials to, and obtaining instructions
relating to such materials from, Offerees. Any broker-dealer who assists the
Operating Partnership in consummating the Exchange Offering with individual
Offerees who accept the offering will be paid a commission equal to a number of
unregistered Common Shares of the Trust having a value equal to 5% of the
initial value assigned to the Operating Partnership Units exchanged in the
particular transactions.
ADDITIONAL INFORMATION
Prior to the commencement of the Cash Offering and the Exchange Offering,
neither the Trust nor the Operating Partnership was a reporting company under
the Securities Exchange Act of 1934, as amended. The Operating Partnership has
filed with the Commission a Registration Statement (of which this Prospectus is
a part) on Form S-4 under the Securities Act with respect to the Operating
Partnership Units being offered in this Exchange Offering. The Trust has filed
with the Securities and Exchange Commission (the "Commission") a Registration
Statement (of which a separate Prospectus is a part) on Form SB-2 under the
Securities Act with respect to the Common Shares offered in the Cash Offering.
The prospectuses do not contain all the information set forth in the respective
Registration Statement, certain portions of which have been omitted as permitted
by the rules and regulations of the Commission. Statements contained in the
prospectuses as to the content of any contract or other document are not
necessarily complete, and in each instance reference is made to the copy of such
contract or other document filed as an exhibit to the respective Registration
Statement, each such statement being qualified in all
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respects by such reference and the exhibits and schedules hereto and to the
prospectus being used in the Cash Offering. For further information regarding
the Operating Partnership and the Units being offered hereby and the Trust and
the Common Shares being offered in the Cash Offering, reference is hereby made
to the respective Registration Statement and such exhibits and schedules.
The Registration Statements and exhibits and schedules forming a part
thereof filed by the Operating Partnership and the Trust with the Commission can
be inspected and copies obtained from the Commission at Room 1024, Judiciary
Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549, and at the following
regional offices of the Commission: 7 World Trade Center, 13th Floor, New York,
New York 10048 and Citicorp Center, 500 West Madison Street, Suite 1400,
Chicago, Illinois 60661-2511. Copies of such material can be obtained from the
Public Reference Section of the Commission, 450 Fifth Street, N.W., Washington,
D.C. 20549, at prescribed rates.
At the Commission's Public Reference Room, the public may also read and
copy any materials filed with the Commission by the Trust and the Operating
Partnership. The public may obtain information on the operation of the Public
Reference Room by calling the Commission at 1-800-SEC-0330. The Commission also
maintains an Internet site (address: http://www.sec.gov.) that contains reports,
proxy and information statements, and other information regarding issuers, such
as the Trust and the Operating Partnership, which file electronically with the
Commission.
The Trust and the Operating Partnership will furnish their Shareholders
and Unitholders with annual reports containing financial statements audited by
its independent certified public accountants and with quarterly reports
containing unaudited condensed consolidated financial statements for each of the
first three quarters of each fiscal year.
GLOSSARY
Whenever used in this Prospectus, the following terms shall have the
meanings set forth below, unless the context indicates otherwise. The singular
shall include the plural and the masculine gender shall include the feminine,
and vice versa, as the context requires. In addition, the term "person" and its
pronouns "he," "she," "him," and "her" as used in this Prospectus shall include
natural persons of the masculine and feminine gender and entities, including,
without limitation, corporations, partnerships, limited liability companies and
trusts, unless the context indicates otherwise.
"Acquired Properties" refers to four residential apartment properties
referred to as Alexandria Apartments, Crystal Court Apartments - Phase II,
Heatherwood Apartments - Phase I and Riverwalk Apartments which are located in
Cincinnati, Ohio and Lakeland, Kissimmee and New Smyrna, Florida, respectively.
Between June 1998 and May 1999, the Operating Partnership acquired beneficial
ownership of the properties. See "INITIAL REAL ESTATE INVESTMENTS - The Acquired
Properties."
"Affiliate" An "affiliate" of, or person "affiliated" with, a specified
person includes any of the following:
(a) Any person that directly, or indirectly through one or more
intermediaries, controls, or is controlled by, or is under common control with,
the person specified.
(b) Any person directly or indirectly owning, controlling or holding, with
power to vote 10% or more of the outstanding voting securities of such other
person.
(c) Any person 10% or more of whose outstanding voting securities are
directly or indirectly owned, controlled, or held, with power to vote, by such
other person.
(d) Any executive officer, director, trustee or general partner of such
other person.
(e) Any legal entity for which such person acts as an executive officer,
director, trustee or general partner.
"Baron Advisors" means Baron Advisors, Inc., a Delaware corporation which
is the initial Managing Shareholder of the Trust.
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"Baron Properties" means Baron Capital Properties, Inc., a Delaware
corporation which is the initial Corporate Trustee of the Trust, with its
principal place of business located at 1105 North Market Street, Wilmington,
Delaware 19899.
"Board" refers to the Managing Shareholder and the Independent Trustees,
acting together as the initial Board of the Trust in accordance with the terms
of the Declaration, and their successors in such capacity.
"Business Day" means a day other than a Saturday, Sunday or other day in
which commercial banks in New York City are authorized or required by law to
close.
"Cash Offering" refers to the offering by the Trust to the public of
2,500,000 Common Shares in the Trust for a purchase price of $10.00 per share
pursuant to the Trust's Prospectus dated May 15, 1998, as amended August 11,
1998, and as it may be further amended or supplemented from time to time.
"Certificate" means the Certificate of Limited Partnership of the
Partnership, as amended from time to time.
"Code" means the Internal Revenue Code of 1986, as amended from time to
time, and any rules and regulations promulgated thereunder.
"Commission" means the Securities and Exchange Commission.
"Common Share" means a beneficial interest in the Trust designated as a
Common Share by the Trust in accordance with Sections 1.6 and 2.1 of the
Declaration of Trust.
"Corporate General Partner" means the respective corporation which is the
sole general partner of one of the 23 Exchange Partnerships whose limited
partners will be offered the opportunity to participate in the Exchange
Offering. All such corporate general partners, which are controlled by Gregory
K. McGrath, one of the founders of the Trust and the Operating Partnership, are
referred to herein collectively as the "Corporate General Partners."
"Corporate Trustee" means Baron Capital Properties, Inc., a Delaware
corporation which is the trustee of the Trust under the Declaration, and its
successors. The Corporate Trustee acts as legal holder of the Trust Property,
subject to the terms of the Declaration. Its address is 1105 North Market
Street, Wilmington, Delaware 19899.
"Dealer Manager" refers to Sigma Financial Corporation, a Michigan
corporation which is the broker-dealer selected by the Managing Shareholder to
be the dealer manager of the Cash Offering.
"Declaration" or "Declaration of Trust" means the Amended and Restated
Declaration of Trust for the Trust made as of August 11, 1998, which establishes
the Trust and the rights and obligations of the Managing Shareholder, the
Trustees, other members of the Board of the Trust and the Shareholders.
"Delaware Act" means the Delaware Revised Uniform Limited Partnership Act,
as amended.
"Election Form" refers to the election form accompanying this Prospectus
which Offerees are required to complete, sign and date and then return to the
Exchange Agent to indicate whether they elect to accept or decline the Exchange
Offering.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended.
"Exchange Act" refers to the Securities Exchange Act of 1934, as amended,
and any rules and regulations promulgated thereunder.
"Exchange Agent" refers to American Stock Transfer & Trust Company, New
York, New York, which will act as agent for the Operating Partnership for the
purpose of receiving tenders of certificates representing Exchange Partnership
Units, Election Forms and related documents, and as agent for tendering Exchange
Limited Partners for the purpose of receiving certificates representing Exchange
Partnership Units, Election Forms and related documents and transmitting
Operating Partnership Units to validly tendered Exchange Limited Partners.
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"Exchange Equity Partnership" refers to each of the 13 Exchange
Partnerships involved in the Exchange Offering whose sole real estate asset is
record title to a residential apartment property or the entire limited
partnership or other equity interest in a limited partnership or other entity
which owns record title to a property. Such partnerships are collectively
referred to as the "Exchange Equity Partnerships." See "THE EXCHANGE OFFERING."
"Exchange Hybrid Partnership" refers to each of the four Exchange
Partnerships involved in the Exchange Offering which own a combination of (i)
all or a portion of the direct or indirect equity interest in one or more
residential apartment properties and (ii) an undivided Subordinated Mortgage
interest in one or more properties (and in one case, unsecured debt interests).
Such partnerships are collectively referred to as the "Exchange Hybrid
Partnerships." See "THE EXCHANGE OFFERING."
"Exchange Limited Partners" refers to the individual limited partners to
which the Operating Partnership will make the Exchange Offering in connection
with the initial transactions thereunder, including the limited partners in 23
Exchange Partnerships described herein. See "THE EXCHANGE OFFERING."
"Exchange Mortgage Partnerships" refers to each of the six Exchange
Partnerships involved in the Exchange Offering whose only real estate assets are
the entire or an undivided Subordinated Mortgage interest in one or more
residential apartment properties (and in one case, unsecured debt interests).
Such partnerships are collectively referred to as the "Exchange Mortgage
Partnerships." See "THE EXCHANGE OFFERING."
"Exchange Offering" refers to the exchange offering, being made pursuant
to this Prospectus, under which the Operating Partnership will offer to issue
registered Units in exchange for limited partnership interests in real estate
limited partnerships which directly or indirectly own equity and/or debt
interests in residential apartment properties. See "SUMMARY OF THE TRUST AND THE
OPERATING PARTNERSHIP" and "THE EXCHANGE OFFERING."
"Exchange Partnerships" refers to the 23 real estate limited partnerships
(each referred to herein as either an Exchange Equity Partnership, Exchange
Hybrid Partnership or Exchange Mortgage Partnership see definitions of such
terms) whose limited partners will be offered the opportunity by the Operating
Partnership to exchange their limited partnership interests in such partnerships
for Operating Partnership Units. Each Exchange Partnership directly or
indirectly owns an equity and/or debt interest in one or more residential
apartment properties and is managed by a Corporate General Partner which is an
Affiliate of the Managing Shareholder. In the Exchange Offering, the Operating
Partnership will acquire beneficial ownership of all or a substantial majority
of the underlying property interests of each Participating Exchange Partnership.
See "INITIAL REAL ESTATE INVESTMENTS."
"Exchange Properties" refers to the 26 residential apartment properties in
which Exchange Partnerships directly or indirectly own an equity and/or debt
interest. In the Exchange Offering, the Operating Partnership will offer to
acquire a direct or indirect equity or debt interest in the Exchange Properties
by acquiring limited partnership interests in each Participating Exchange
Partnership which currently owns such interests. See "THE EXCHANGE OFFERING" and
"INITIAL REAL ESTATE INVESTMENTS."
"Expiration Date" means 5:00 p.m., New York City time, on the date
specified in the Election Form by which Offerees are required to tender their
Exchange Partnership Units if they elect to accept the Exchange Offering, unless
the Exchange Offering is extended by the Operating Partnership (in which case
the term "Expiration Date" shall mean the latest date and time to which the
Exchange Offering is extended).
"First Mortgage" refers to a Mortgage which takes priority or precedence
over liens of Subordinated Mortgages on a particular property.
"First Mortgage Loan" means a Mortgage Loan secured or collateralized by a
First Mortgage.
"Fiscal Period" means a quarter ending on March 31, June 30, September 30
or December 31 of each Fiscal Year.
"Fiscal Year" means a year ending on December 31. The first Fiscal Year of
the Trust and the Operating Partnership may begin after January 1 and
consequently have a duration of less than 12 months. The last Fiscal
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<PAGE>
Year of the Trust and the Operating Partnership may end before December 31 and
consequently have a duration of less than 12 months.
"General Partner" refers to the Trust and any successor in its capacity as
general partner of the Operating Partnership.
"Independent Trustee" means a Trustee of the Trust who meets certain
qualifications described herein at "MANAGEMENT - The Board of the Trust and
Trustees - Independent Trustees" and who becomes an Independent Trustee of the
Trust under the terms of the Declaration and serves on the Board of the Trust.
See Section 7.5 of Declaration of Trust. All Independent Trustees are referred
to herein collectively as the "Independent Trustees."
"IRAs" means individual retirement accounts.
"IRS" or "Service" means the Internal Revenue Service.
"Junior Mortgage" refers to a Mortgage which (i) has the same priority or
precedence over charges or encumbrances upon real property as that required for
a First Mortgage except that it is subject to the priority of one or more
Mortgages and (ii) must be satisfied before such other charges or liens (other
than prior Mortgages) are entitled to participate in the proceeds of any sale.
"Junior Mortgage Loan" refers to a Mortgage Loan secured or collateralized
by a Junior Mortgage.
"Limited Partner" or "Unitholder" means an owner of Units in the Operating
Partnership (which will initially include the Trust and Offerees who accept the
Exchange Offering). All Limited Partners and Unitholders are referred to herein
collectively as the "Limited Partners" or "Unitholders."
"Managing Shareholder" refers to Baron Advisors, Inc. or such substitute
or different Managing Shareholder as may subsequently be admitted to the Trust
pursuant to the terms of the Declaration of Trust, which will have all of the
powers and obligations of the Managing Shareholder to operate the Trust as
described in this Prospectus.
"Managing Person" means any of the following: (a) Trust or Operating
Partnership officers, agents, or affiliates; the Managing Shareholder; a
Trustee; any other member of the Board; affiliates of the Managing Shareholder,
a Trustee and any other member of the Board and (b) any directors, officers or
agents of any organizations named in (a) above when acting for the Managing
Shareholder, a Trustee, any other member of the Board or any of their respective
affiliates on behalf of the Trust or the Operating Partnership.
"Mortgage" refers to a mortgage, deed of trust or other security interest
in real property or in rights or interests in real property.
"Mortgage Loan" refers to a note, bond or other evidence of indebtedness
or obligation which is secured or collateralized by a Mortgage.
"NASD" refers to the National Association of Securities Dealers, Inc.
"1997 Act" refers to the Taxpayer Relief Bill of 1997.
"Non-participating Limited Partners", which term applies only if the
Exchange Offering is completed (see "THE EXCHANGE OFFERING"), refers to limited
partners in each Participating Exchange Partnership who elect not to accept the
Exchange Offering and instead retain their interest in the partnership on
substantially the same terms and conditions as their original investment in the
partnership.
"Offerees" refers to limited partners of Exchange Partnerships who are
being offered the opportunity to exchange their Exchange Limited Units for
Operating Partnership Units in the Exchange Offering. See "THE EXCHANGE
OFFERING."
"Operating Partnership" means Baron Capital Properties, L.P., a Delaware
limited partnership which is the issuer of Units being offered in connection
with the Exchange Offering and of which the Trust is the General
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Partner and a limited partner. The Trust's interests in residential apartment
properties to be acquired will be held and real estate operations will be
conducted by the Operating Partnership.
"Operating Partnership Agreement" means the Agreement of Limited
Partnership of Baron Capital Properties, L.P. dated as of May 15, 1998, as
amended August 11, 1998.
"Operating Partnership Property" means all property owned or acquired by
the Operating Partnership.
"Operating Partnership Units" or "Units" refer to units of limited
partnership interest in the Operating Partnership, including those which it is
offering to issue in the Exchange Offering.
"Original Investors" refers to Gregory K. McGrath and Robert S. Geiger,
the founders of the Trust and the Operating Partnership. See "THE TRUST AND THE
OPERATING PARTNERSHIP - Formation Transactions."
"Participating Exchange Partnership", which term applies only if the
Exchange Offering is completed (see "THE EXCHANGE OFFERING"), refers to each
Exchange Partnership whose Exchange Limited Partners holding at least 90% of the
limited partnership interests therein elect to accept the Exchange Offering. The
Operating Partnership will not complete the Exchange Offering in respect of any
particular Exchange Partnership unless limited partners holding at least 90% of
the limited partnership interests in the partnership affirmatively elect to
accept the offering. The offering will not be completed as to any Exchange
Partnership whatsoever unless a sufficient number of Offerees accept the
offering such that the offering involves the issuance of Operating Partnership
Units with an initial value of at least $6,000,000. All Participating Exchange
Partnerships are referred to herein collectively as "Participating Exchange
Partnerships."
"Partners" refers collectively to the General Partner and Limited Partners
of the Operating Partnership.
"Person" refers to any natural person, partnership, corporation,
association, trust, limited liability company or other legal entity.
"Plans" means employee benefit plans and IRAs.
"Preferred Share" refers to a share of beneficial interest with such
preferences and rights (in relation to other Shares authorized and issued by the
Trust) as the Managing Shareholder may designate under Section 2.1(c) of the
Declaration of Trust for sale or issuance subsequent to completion of the Cash
Offering.
"Property" means all real or personal property owned or acquired by the
Trust and the Operating Partnership, which is expected to include but not be
limited to (i) the land, buildings and improvements comprising one or more
residential apartment properties in which the Trust and the Operating
Partnership may make an equity investment, and (ii) their respective rights in
connection with Mortgage Loans they may provide or acquire which are secured by
Mortgages on the land, buildings and improvements comprising residential
apartment properties. See "INVESTMENT OBJECTIVES AND POLICIES."
"Prospectus" means this Prospectus of the Operating Partnership dated
____________, 1999, as the same may be amended or supplemented from time to
time.
"Regulations" means the applicable Treasury Regulations promulgated or
proposed under the Code.
"REIT" means a real estate investment trust as defined in Section 856 of
the Code which meets the requirements for qualification as a REIT described in
Sections 856 through 860 of the Code.
"Securities Act" means the Securities Act of 1933, as amended, and any
rules and regulations promulgated thereunder.
"Senior Mortgage" refers to a Mortgage which takes priority or precedence
over liens of Junior Mortgages on a particular property.
"Senior Mortgage Loan" means a Mortgage Loan secured or collateralized by
a Senior Mortgage.
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"Service" or "IRS" means the Internal Revenue Service.
"Share" means a beneficial interest in the Trust which is either a Common
Share or a Preferred Share authorized for issuance and designated as such by the
Managing Shareholder in accordance with the Declaration of Trust.
"Shareholder" means an owner of Shares in the Trust.
"Subordinated Mortgage" refers to a Mortgage which (i) has the same
priority or precedence over charges or encumbrances upon real property as that
required for a First Mortgage except that it is subject to the priority of one
or more Mortgages and (ii) must be satisfied before such other charges or liens
(other than prior Mortgages) are entitled to participate in the proceeds of any
sale.
"Subordinated Mortgage Loan" refers to a Mortgage Loan secured or
collateralized by a Subordinated Mortgage.
"Trust" means Baron Capital Trust, a Delaware business trust created by
the Corporate Trustee and having a principal office at 7826 Cooper Road,
Cincinnati, Ohio 45242. The Trust is the General Partner and a limited partner
of the Operating Partnership and the issuer of the Common Shares being offered
in the Cash Offering.
"Transmittal Letter" refers to the transmittal letter accompanying this
Prospectus containing certain information relating to the Exchange Offering
which the Corporate General Partner of each Exchange Partnership delivered to
its Exchange Limited Partners.
"Trustee" means a person serving as a Corporate Trustee or an Independent
Trustee of the Trust. All Trustees are referred to herein collectively as the
"Trustees."
"Trust Management Agreement" means the Trust Management Agreement dated as
of May 15, 1998, as amended August 11, 1998, between the Trust and the Managing
Shareholder, under which the Managing Shareholder will perform certain
management, administrative services and investment advisory services for the
Trust.
"Trust Property" means all property owned or acquired by the Trust or on
its behalf as part of the trust estate established under the Declaration of
Trust.
"Unitholder" or "Limited Partner" means an owner of Units in the Operating
Partnership (which will initially include the Trust and Offerees of
Participating Exchange Partnerships who accept the Exchange Offering). All
Unitholders and Limited Partners are referred to herein collectively as the
"Unitholders" or "Limited Partners."
"Units" or "Operating Partnership Units" refer to units of limited
partnership interest in the Operating Partnership which it is offering to issue
in the Exchange Offering.
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EXHIBIT A
PRIOR PERFORMANCE OF AFFILIATES
OF
MANAGING SHAREHOLDER
<PAGE>
TABLE I:
BARON ADVISORS' AND AFFILIATES' EXPERIENCE
IN RAISING AND INVESTING FUNDS
The following table summarizes the experience of Affiliates of the
Managing Shareholder of the Trust, Baron Advisors, Inc., in organizing 41
investment programs whose offerings closed in the most recent three years.
The 41 programs have investment objectives similar to those of the Trust
and the Operating Partnership in that the programs provided financing in
respect of residential properties (and in one case, a retail shopping
center) for current income and capital appreciation (except in the case of
mortgage funds).
<TABLE>
<CAPTION>
Florida Income Advantage Realty Opportunity Income Florida Income
Fund I, Ltd. (Baron Fund VIII, Ltd. (Baron Appreciation Fund I, Ltd.
Capital IV, Inc., general Capital IV, Inc., general (Baron Capital IV, Inc.,
partner) partner) general partner)
---------------------------------------------------------------------------------------
<S> <C> <C> <C>
Dollar amount offered: $ 940,000 $ 1,020,000 $ 840,000
Dollar amount raised: 940,000 1,020,000 205,000
(percent relative to (100%) (100%) (24%)
amount offered):
Less offering expenses (percent):
Selling commissions and
due diligence expenses
paid to sponsor/affiliate: 94,000 94,400 20,500
(10%) (9%) (10%)
0 0 0
Cash reserve accounts:
Amount raised available for
investment (percentage): 846,000 925,600 184,500
(90%) (91%) (90%)
Acquisition costs (percent):
Cash payments to acquire interest
in investment property or to
redeem limited partnership
interests of existing limited
partners: 846,000(1) 925,600(1) 184,500(1)
(90%) (91%) (90%)
Investment fee: 0 0 0
Percent leverage (mortgage
financing divided by total
acquisition cost): 42% 46% 48%
Date offering began: 2/94 3/94 4/94
Length of offering (in months): 3 3 2
Months required to invest 90% of
the amount available for
investment (measured from
beginning of offering): 3 3 2
- ----------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Net proceeds from the original private offering of the partnership were
invested to acquire a beneficial interest in an unrecorded land trust
which owns fee simple title to a residential apartment property.
See Prospectus at "PRIOR PERFORMANCE OF AFFILIATES OF MANAGING SHAREHOLDER."
IT SHOULD NOT BE ASSUMED THAT INVESTORS IN THIS OFFERING WILL EXPERIENCE
RETURNS, IF ANY, COMPARABLE TO THOSE EXPERIENCED BY INVESTORS IN THE
PARTNERSHIPS DESCRIBED IN THE TABLES ABOVE AND BELOW. INVESTORS SHOULD NOTE THAT
THE INVESTMENT OBJECTIVES OF ALL OF THE PARTNERSHIPS DESCRIBED IN THE FOLLOWING
TABLES DIFFERED AT LEAST IN PART FROM THE INVESTMENT OBJECTIVES OF THE TRUST AND
THE OPERATING PARTNERSHIP AND THAT INVESTORS WILL NOT HAVE ANY INTEREST IN ANY
OF THE PARTNERSHIPS AS A RESULT OF THE ACQUISITION OF OPERATING PARTNERSHIP
UNITS OR TRUST COMMON SHARES, EXCEPT AS OTHERWISE INDICATED IN THE PROSPECTUS.
[010499]
I-1
<PAGE>
TABLE I:
BARON ADVISORS' AND AFFILIATES' EXPERIENCE
IN RAISING AND INVESTING FUNDS (cont'd)
<TABLE>
<CAPTION>
Baron First Time Home Buyer Clearwater First Time
Baron First Time Home Buyer Mortgage Fund IV, Ltd. (Baron Homebuyer Program, Ltd.
Fund V, Ltd. (Baron Capital Capital XXVIII, Inc., general (Baron Capital XVI, Inc.,
XXIX, Inc., general partner) partner) general partner)
---------------------------------------------------------------------------------------
<S> <C> <C> <C>
Dollar amount offered: $ 500,000 $ 500,000 $ 750,000
Dollar amount raised: 500,000 500,000 750,000
(percent relative to (100%) (100%) (100%)
amount offered):
Less offering expenses (percent):
Selling commissions and
due diligence expenses
paid to sponsor/affiliate: 50,000 45,000 77,500
(10%) (9%) (10%)
Cash reserve accounts: 25,000 0 0
Amount raised available for
investment (percentage): 425,000 455,000 672,500
(85%) (91%) (90%)
Acquisition costs (percent):
Cash payments to acquire interest
in investment property or to
redeem limited partnership
interests of existing limited
partners: 425,000(2) 430,000(3) 672,500(2)
(85%) (86%) (90%)
Investment fee: 0 25,000 0
(5%)
Percent leverage (mortgage
financing divided by total
acquisition cost): N/A N/A N/A
Date offering began: 5/96 6/96 2/96
Length of offering (in months): 4 5 7
Months required to invest 90% of
the amount available for
investment (measured from
beginning of offering): 3 4 6
- ----------------------------------------------------------------------------------------------------------------------------
</TABLE>
(2) Net proceeds from the private offering of the partnership were invested to
make a subordinated mortgage loan to a condominium developer.
(3) Net proceeds from the private offering of the partnership were invested to
make a subordinated mortgage loan to a single-family housing developer.
See Prospectus at "PRIOR PERFORMANCE OF AFFILIATES OF MANAGING SHAREHOLDER."
I-2
<PAGE>
TABLE I:
BARON ADVISORS' AND AFFILIATES' EXPERIENCE
IN RAISING AND INVESTING FUNDS (cont'd)
<TABLE>
<CAPTION>
Lamplight Court of Baron Strategic Vulture
Florida Income Growth Fund Bellefontaine Apartments, Fund I, Inc. (Baron
V, Ltd. (Baron Capital XI, Ltd. (Baron Capital IX, Inc., Capital XXVI, Inc.,
Inc., general partner) general partner) general partner)
-------------------------------------------------------------------------------------
<S> <C> <C> <C>
Dollar amount offered: $ 1,150,000 $ 700,000 $ 900,000
Dollar amount raised: 1,150,000 700,000 900,000
(percent relative to (100%) (100%) (100%)
amount offered):
Less offering expenses (percent):
Selling commissions and
due diligence expenses
paid to sponsor/affiliate: 125,000 80,000 119,000
(11%) (11%) (13%)
Cash reserve accounts: 142,000 0 90,000
(12%)
Amount raised available for
investment (percentage): 883,000 620,000 691,000
(77%) (89%) (77%)
Acquisition costs (percent):
Cash payments to acquire interest
in investment property or to
redeem limited partnership
interests of existing limited
partners: 825,500(4) 580,000(5) 601,000(6)
(72%) (83%) (67%)
Investment fee: 57,500 40,000 90,000
(5%) (6%) (10%)
Percent leverage (mortgage
financing divided by total
acquisition cost): 56% 71% 67%
Date offering began: 10/95 4/96 5/96
Length of offering (in months): 16 6 5
Months required to invest 90% of
the amount available for
investment (measured from
beginning of offering): 6 4 4
- --------------------------------------------------------------------------------------------------------------------------
</TABLE>
(4) Net proceeds from the private offering of the partnership were invested to
acquire all of the limited partnership interest in a limited partnership
which owns record title to residential apartment property.
(5) Net proceeds from the private offering of the partnership were invested to
provide or acquire subordinated mortgage loans secured by a residential
apartment property and a limited partnership interest in the limited
partnership which owns record title to the property.
(6) Net proceeds from the private offering of the partnership were invested to
provide or acquire subordinated mortgage loans secured by a residential
apartment property.
See Prospectus at "PRIOR PERFORMANCE OF AFFILIATES OF MANAGING SHAREHOLDER."
I-3
<PAGE>
TABLE I:
BARON ADVISORS' AND AFFILIATES' EXPERIENCE
IN RAISING AND INVESTING FUNDS (cont'd)
<TABLE>
<CAPTION>
Baron Strategic Investment Baron Strategic
Fund, Ltd. (Baron Capital Baron Strategic Investment Investment Fund VI, Inc.
XXXII, Inc., general Fund II, Ltd. (Baron Capital (Baron Capital XXXI,
partner) XXXI, Inc., general partner) Inc., general partner)
--------------------------------------------------------------------------------------
<S> <C> <C> <C>
Dollar amount offered: $ 1,200,000 $ 800,000 $ 1,200,000
Dollar amount raised: 1,200,000 800,000 1,200,000
(percent relative to (100%) (100%) (100%)
amount offered):
Less offering expenses (percent):
Selling commissions and
due diligence expenses
paid to sponsor/affiliate: 140,000 100,000 130,000
(12%) (12%) (11%)
Cash reserve accounts: 120,000 80,000 120,000
(10%) (10%) (10%)
Amount raised available for
investment (percentage): 940,000 620,000 950,000
(78%) (78%) (79%)
Acquisition costs (percent):
Cash payments to acquire interest
in investment property or to
redeem limited partnership
interests of existing limited
partners: 796,000(6) 524,000(4) 806,000(13)
(66%) (66%) (67%)
Investment fee: 144,000 96,000 144,000
(12%) (12%) (12%)
Percent leverage (mortgage
financing divided by total
acquisition cost): 56% 71% 67%
Date offering began: 6/96 7/96 11/96
Length of offering (in months): 6 3 5
Months required to invest 90% of
the amount available for
investment (measured from
beginning of offering): 5 2 4
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
(4) Net proceeds from the private offering of the partnership were invested to
acquire all of the limited partnership interest in a limited partnership
which owns record title to residential apartment property.
(6) Net proceeds from the private offering of the partnership were invested to
provide or acquire subordinated mortgage loans secured by two residential
apartment properties.
(13) Net proceeds from the private offering of the partnership were invested to
acquire a limited partnership interest in a limited partnership which owns
a residential apartment property and to provide or acquire subordinated
mortgage loans secured by three residential apartment properties.
See Prospectus at "PRIOR PERFORMANCE OF AFFILIATES OF MANAGING SHAREHOLDER."
I-4
<PAGE>
TABLE I:
BARON ADVISORS' AND AFFILIATES' EXPERIENCE
IN RAISING AND INVESTING FUNDS (cont'd)
<TABLE>
<CAPTION>
Florida Capital Income
Florida Capital Income Tampa Capital Income Fund, Fund II, Ltd. (Baron
Fund, Ltd. (Baron Capital Ltd. (Baron Capital I, Inc., Capital IV, Inc., general
II, Inc., general partner) general partner) partner)
---------------------------------------------------------------------------------------
<S> <C> <C> <C>
Dollar amount offered: $ 807,000 $ 1,050,000 $ 920,000
Dollar amount raised: 807,000 1,050,000 920,000
(percent relative to (100%) (100%) (100%)
amount offered):
Less offering expenses (percent):
Selling commissions and
due diligence expenses
paid to sponsor/affiliate: 90,700 115,000 102,000
(11%) (11%) (11%)
Cash reserve accounts: 0 165,500 199,000
(16%) (22%)
Amount raised available for
investment (percentage): 716,300 769,500 619,000
(89%) (73%) (67%)
Acquisition costs (percent):
Cash payments to acquire interest
in investment property or to
redeem limited partnership
interests of existing limited
partners: 656,300(4) 589,500(7) 548,000(1)
(81%) (56%) (60%)
Investment fee: 60,000 180,000 71,000
(7%) (17%) (8%)
Percent leverage (mortgage
financing divided by total
acquisition cost): 69% 72% 71%
Date offering began: 11/94 12/94 2/95
Length of offering (in months): 6 8 6
Months required to invest 90% of
the amount available for
investment (measured from
beginning of offering): 3 7 4
- ----------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Net proceeds from the private offering of the partnership were invested to
acquire a beneficial interest in an unrecorded land trust which owns fee
simple title to a residential apartment property.
(4) Net proceeds from the private offering of the partnership were invested to
acquire all of the limited partnership interest in a limited partnership
which owns record title to residential apartment property.
(7) Net proceeds from the private offering of the partnership were invested to
acquire record title to residential apartment property.
See Prospectus at "PRIOR PERFORMANCE OF AFFILIATES OF MANAGING SHAREHOLDER."
I-5
<PAGE>
TABLE I:
BARON ADVISORS' AND AFFILIATES' EXPERIENCE
IN RAISING AND INVESTING FUNDS (cont'd)
<TABLE>
<CAPTION>
Florida Opportunity Income
Partners, Ltd. (Baron Florida Capital Income Fund Florida Tax Credit Fund,
Capital III, Inc., general III, Ltd. (Baron Capital VII, Ltd. (Baron Capital VI,
partner) Inc., general partner) Inc., general partner)
--------------------------------------------------------------------------------------
<S> <C> <C> <C>
Dollar amount offered: $ 800,000 $ 800,000 $ 626,000
Dollar amount raised: 800,000 800,000 626,000
(percent relative to (100%) (100%) (100%)
amount offered):
Less offering expenses (percent):
Selling commissions and
due diligence expenses
paid to sponsor/affiliate: 90,000 90,000 80,000
(11%) (11%) (13%)
Cash reserve accounts: 143,000 121,000 0
(18%) (15%)
Amount raised available for
investment (percentage): 567,000 589,000 546,000
(71%) (74%) (87%)
Acquisition costs (percent):
Cash payments to acquire interest
in investment property or to
redeem limited partnership
interests of existing limited
partners: 543,000(7) 549,000(7) 546,000(4)
(68%) (69%) (87%)
Investment fee: 24,000 40,000 0
(3%) (5%)
Percent leverage (mortgage
financing divided by total
acquisition cost): 62% 56% 51%
Date offering began: 8/95 6/95 5/95
Length of offering (in months): 3 5 11
Months required to invest 90% of
the amount available for
investment (measured from
beginning of offering): 3 4 9
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
(4) Net proceeds from the private offering of the partnership were invested to
acquire all of the limited partnership interest in a limited partnership
which owns record title to residential apartment property.
(7) Net proceeds from the private offering of the partnership were invested to
acquire record title to a residential apartment property.
See Prospectus at "PRIOR PERFORMANCE OF AFFILIATES OF MANAGING SHAREHOLDER."
I-6
<PAGE>
TABLE I:
BARON ADVISORS' AND AFFILIATES' EXPERIENCE
IN RAISING AND INVESTING FUNDS (cont'd)
<TABLE>
<CAPTION>
GSU Stadium Student
Apartments, Ltd. (Baron Florida Capital Income Fund Brevard Mortgage Program,
Capital X, Inc., general IV, Ltd. (Baron Capital V, Ltd. (Baron Capital XII,
partner) Inc., general partner) Inc., general partner)
---------------------------------------------------------------------------------------
<S> <C> <C> <C>
Dollar amount offered: $ 1,000,000 $ 1,820,000 $ 575,000
Dollar amount raised: 1,000,000 1,820,000 575,000
(percent relative to (100%) (100%) (100%)
amount offered):
Less offering expenses (percent):
Selling commissions and
due diligence expenses
paid to sponsor/affiliate: 110,000 202,000 67,500
(11%) (11%) (12%)
Cash reserve accounts: 100,000 305,200 57,500
(10%) (17%) (10%)
Amount raised available for
investment (percentage): 790,000 1,312,800 450,000
(79%) (72%) (78%)
Acquisition costs (percent):
Cash payments to acquire interest
in investment property or to
redeem limited partnership
interests of existing limited
partners: 690,000(4) 1,212,800(7) 450,000(8)
(69%) (67%) (78%)
Investment fee: 100,000 100,000 0
(10%) (5%)
Percent leverage (mortgage
financing divided by total
acquisition cost): 67% 70% N/A
Date offering began: 11/95 1/95 1/96
Length of offering (in months): 4 16 4
Months required to invest 90% of
the amount available for
investment (measured from
beginning of offering): 3 10 3
- ----------------------------------------------------------------------------------------------------------------------------
</TABLE>
(4) Net proceeds from the private offering of the partnership were invested to
acquire all of the limited partnership interest in a limited partnership
which owns record title to residential apartment property.
(7) Net proceeds from the private offering of the partnership were invested to
acquire record title to a residential apartment property
(8) Net proceeds from the private offering of the partnership were invested to
provide or acquire a subordinated mortgage loan secured by a residential
apartment property.
See Prospectus at "PRIOR PERFORMANCE OF AFFILIATES OF MANAGING SHAREHOLDER."
I-7
<PAGE>
TABLE I:
BARON ADVISORS' AND AFFILIATES' EXPERIENCE
IN RAISING AND INVESTING FUNDS (cont'd)
<TABLE>
<CAPTION>
Baron First Time Home Buyer Baron First Time Home Buyer Baron First Time Home
Mortgage Fund II, Ltd. Mortgage Fund III, Ltd. Buyer Mortgage Fund, Ltd.
(Baron Capital XV, Inc., (Baron Capital XXVII, Inc., (Baron Capital VIII,
general partner) general partner) Inc., general partner)
---------------------------------------------------------------------------------------
<S> <C> <C> <C>
Dollar amount offered: $ 500,000 $ 500,000 $ 500,000
Dollar amount raised: 500,000 500,000 500,000
(percent relative to (100%) (100%) (100%)
amount offered):
Less offering expenses (percent):
Selling commissions and
due diligence expenses
paid to sponsor/affiliate: 45,000 50,000 50,000
(9%) (10%) (10%)
Cash reserve accounts: 0 0 0
Amount raised available for
investment (percentage): 455,000 450,000 450,000
(91%) (90%) (90%)
Acquisition costs (percent):
Cash payments to acquire interest
in investment property or to
redeem limited partnership
interests of existing limited
partners: 455,000(3) 450,000(2) 450,000(3)
(91%) (90%) (90%)
Investment fee: 0 0 0
Percent leverage (mortgage
financing divided by total
acquisition cost): N/A N/A N/A
Date offering began: 1/96 4/96 12/95
Length of offering (in months): 6 4 4
Months required to invest 90% of
the amount available for
investment (measured from
beginning of offering): 4 3 3
- ----------------------------------------------------------------------------------------------------------------------------
</TABLE>
(2) Net proceeds from the private offering of the partnership were invested to
make a subordinated mortgage loan to a condominium developer.
(3) Net proceeds from the private offering of the partnership were invested to
make a subordinated mortgage loan to a single-family housing developer.
See Prospectus at "PRIOR PERFORMANCE OF AFFILIATES OF MANAGING SHAREHOLDER."
I-8
<PAGE>
TABLE I:
BARON ADVISORS' AND AFFILIATES' EXPERIENCE
IN RAISING AND INVESTING FUNDS (cont'd)
<TABLE>
<CAPTION>
Baron Income Property Baron Mortgage
Baron Development Fund IX, Mortgage Fund VI, Ltd. (Baron Development Fund VII Ltd.
Ltd. (Baron Capital XLII, Capital XXIX, Inc., general (Baron Capital XXXVII,
Inc., general partner) partner) Inc., general partner)
---------------------------------------------------------------------------------------
<S> <C> <C> <C>
Dollar amount offered: $ 800,000 $ 750,000 $ 700,000
Dollar amount raised: 800,000 750,000 700,000
(percent relative to (100%) (100%) (100%)
amount offered):
Less offering expenses (percent):
Selling commissions and
due diligence expenses
paid to sponsor/affiliate: 122,000 105,000 115,000
(15%) (14%) (16%)
Cash reserve accounts: 0 0 0
Amount raised available for
investment (percentage): 678,000 645,000 585,000
(85%) (86%) (84%)
Acquisition costs (percent):
Cash payments to acquire interest
in investment property or to
redeem limited partnership
interests of existing limited
partners: 678,000(3) 645,000(8) 585,000(8)
(85%) (86%) (84%)
Investment fee: 0 0 0
Percent leverage (mortgage
financing divided by total
acquisition cost): N/A N/A N/A
Date offering began: 1/97 8/96 11/96
Length of offering (in months): 8 16 8
Months required to invest 90% of
the amount available for
investment (measured from
beginning of offering): 4 9 6
- ----------------------------------------------------------------------------------------------------------------------------
</TABLE>
(3) Net proceeds from the private offering of the partnership were invested to
make a subordinated mortgage loan to a single-family housing developer.
(8) Net proceeds from the private offering of the partnership were invested to
provide or acquire a second mortgage loan secured by a residential
apartment property.
See Prospectus at "PRIOR PERFORMANCE OF AFFILIATES OF MANAGING SHAREHOLDER."
I-9
<PAGE>
TABLE I:
BARON ADVISORS' AND AFFILIATES' EXPERIENCE
IN RAISING AND INVESTING FUNDS (cont'd)
<TABLE>
<CAPTION>
Baron Mortgage Development Fund Baron Mortgage Development Fund XI, Baron Mortgage Development
X, Ltd. (Baron Capital XLIII, Ltd. (Baron Capital XXXIII, Inc., Fund XVIII LP (Baron Capital
Inc., general partner) general partner) LXV, Inc., general partner)
---------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Dollar amount offered: $ 800,000 $ 800,000 $ 800,000
Dollar amount raised: 800,000 800,000 800,000
(percent relative to (100%) (100%) (100%)
amount offered):
Less offering expenses (percent):
Selling commissions and
due diligence expenses
paid to sponsor/affiliate: 122,000 122,000 132,000
(15%) (15%) (16%)
Cash reserve accounts: 0 0 0
Amount raised available for
investment (percentage): 678,000 678,000 668,000
(85%) (85%) (84%)
Acquisition costs (percent):
Cash payments to acquire interest
in investment property or to
redeem limited partnership
interests of existing limited
partners: 678,000(2) 678,000(2) 668,000(8)
(85%) (85%) (84%)
Investment fee: 0 0 0
Percent leverage (mortgage
financing divided by total
acquisition cost): N/A N/A N/A
Date offering began: 11/96 3/97 7/97
Length of offering (in months): 16 5 4
Months required to invest 90% of
the amount available for
investment (measured from
beginning of offering): 8 2 2
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(2) Net proceeds from the private offering of the partnership were invested to
make a subordinated mortgage loan to a condominium developer.
(8) Net proceeds from the private offering of the partnership were invested to
provide or acquire a second mortgage loan secured by a residential
apartment property.
See Prospectus at "PRIOR PERFORMANCE OF AFFILIATES OF MANAGING SHAREHOLDER."
I-10
<PAGE>
TABLE I:
BARON ADVISORS' AND AFFILIATES' EXPERIENCE
IN RAISING AND INVESTING FUNDS (cont'd)
<TABLE>
<CAPTION>
Baron Strategic Investment Fund Baron Strategic Investment Fund Baron Mortgage Development
V, Ltd. (Baron Capital XL, VII, Ltd. (Baron Capital XLI, Inc., Fund XV, Ltd. (Baron Capital
Inc., general partner) general partner) XLVIII, Inc., general partner)
-----------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Dollar amount offered: $ 1,200,000 $ 1,900,000 $ 700,000
Dollar amount raised: 1,200,000 1,900,000 700,000
(percent relative to (100%) (100%) (100%)
amount offered):
Less offering expenses (percent):
Selling commissions and
due diligence expenses
paid to sponsor/affiliate: 142,000 229,000 125,000
(12%) (12%) (18%)
Cash reserve accounts: 120,000 190,000 0
(10%) (10%)
Amount raised available for
investment (percentage): 938,000 1,481,000 575,000
(78%) (78%) (82%)
Acquisition costs (percent):
Cash payments to acquire interest
in investment property or to
redeem limited partnership
interests of existing limited
partners: 818,000(10) 1,253,000(10) 575,000(8)
(68%) (66%) (82%)
Investment fee: 120,000 228,000 0
(10%) (12%)
Percent leverage (mortgage
financing divided by total
acquisition cost): 69% 60% N/A
Date offering began: 11/96 1/97 6/97
Length of offering (in months): 7 11 8
Months required to invest 90% of
the amount available for
investment (measured from
beginning of offering): 6 6 7
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(8) Net proceeds from the private offering of the partnership were invested to
provide or acquire a subordinated mortgage loan secured by a residential
apartment property.
(10) Net proceeds from the private offering of the partnership were invested to
provide or acquire subordinated mortgage loans secured by three
residential apartment properties.
See Prospectus at "PRIOR PERFORMANCE OF AFFILIATES OF MANAGING SHAREHOLDER."
I-11
<PAGE>
TABLE I:
BARON ADVISORS' AND AFFILIATES' EXPERIENCE
IN RAISING AND INVESTING FUNDS (cont'd)
<TABLE>
<CAPTION>
Baron Strategic Investment Fund Baron Strategic Investment Fund Baron Mortgage Development
X, Ltd. (Baron Capital LXIV, VIII, Ltd. (Baron Capital XLIV, Fund XIV, Ltd. (Baron Capital
Inc., general partner) Inc., general partner) XLVII, Inc., general partner)
--------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Dollar amount offered: $ 1,200,000 $ 1,200,000 $ 1,000,000
Dollar amount raised: 1,200,000 1,200,000 1,000,000
(percent relative to (100%) (100%) (100%)
amount offered):
Less offering expenses (percent):
Selling commissions and
due diligence expenses
paid to sponsor/affiliate: 140,000 152,000 160,000
(12%) (13%) (16%)
Cash reserve accounts: 0 120,000 0
(10%)
Amount raised available for
investment (percentage): 1,060,000 928,000 840,000
(88%) (77%) (84%)
Acquisition costs (percent):
Cash payments to acquire interest
in investment property or to
redeem limited partnership
interests of existing limited
partners: 916,000(11) 784,000(10) 840,000(8)
(76%) (65%) (84%)
Investment fee: 144,000 144,000 0
(12%) (12%)
Percent leverage (mortgage
financing divided by total
acquisition cost): N/A 79% N/A
Date offering began: 7/97 5/97 5/97
Length of offering (in months): 8 9 10
Months required to invest 90% of
the amount available for
investment (measured from
beginning of offering): 5 3 4
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(8) Net proceeds from the private offering of the partnership were invested to
provide or acquire a second mortgage loan secured by a residential
apartment property.
(10) Net proceeds from the private offering of the partnership were invested to
provide or acquire subordinated mortgage loans secured by three
residential apartment properties.
(11) Net proceeds from the private offering of the partnership were invested to
acquire limited partnership interests in two limited partnerships which
own record title to separate residential apartment properties and to
provide or acquire subordinated mortgage financing secured by two
residential apartment properties.
See Prospectus at "PRIOR PERFORMANCE OF AFFILIATES OF MANAGING SHAREHOLDER."
I-12
<PAGE>
TABLE I:
BARON ADVISORS' AND AFFILIATES' EXPERIENCE
IN RAISING AND INVESTING FUNDS (cont'd)
<TABLE>
<CAPTION>
Florida Tax Credit Fund II, Baron Strategic Investment Fund IV, Baron Strategic Investment
Ltd. (Baron Capital XXXIV, Ltd. (Baron Capital XVII, Inc., Fund IX, Ltd. (Baron Capital
Inc., general partner) general partner) LXII, Inc., general partner)
-------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Dollar amount offered: $ 310,000 $ 1,000,000 $ 1,200,000
Dollar amount raised: 310,000 1,000,000 1,200,000
(percent relative to (100%) (100%) (100%)
amount offered):
Less offering expenses (percent):
Selling commissions and
due diligence expenses
paid to sponsor/affiliate: 41,000 210,000 152,000
(13%) (21%) (13%)
Cash reserve accounts: 0 100,000 120,000
(10%) (10%)
Amount raised available for
investment (percentage): 259,000 690,000 808,000
(84%) (69%) (67%)
Acquisition costs (percent):
Cash payments to acquire interest
in investment property or to
redeem limited partnership
interests of existing limited
partners: 259,000(7) 690,000(8) 674,000(12)
(84%) (69%) (56%)
Investment fee: 10,000 0 20,000
(3%) (2%)
Percent leverage (mortgage
financing divided by
total acquisition cost): 70% N/A
Date offering began: 9/96 11/96 6/97
Length of offering (in months): 20 16 11
Months required to invest 90% of
the amount available for
investment (measured from
beginning of offering): 9 14 10
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(7) Net proceeds from the private offering of the partnership were invested to
acquire record title to a residential apartment property.
(8) Net proceeds from the private offering of the partnership were invested to
provide or acquire subordinated mortgage loans secured by a residential
apartment property.
(12) Net proceeds from the private offering of the partnership were invested to
acquire limited partnership interests in a limited partnership which owns
record title to a residential apartment property and to provide or acquire
subordinated mortgage loans secured by three residential apartment
properties.
See Prospectus at "PRIOR PERFORMANCE OF AFFILIATES OF MANAGING SHAREHOLDER."
I-13
<PAGE>
TABLE I:
BARON ADVISORS' AND AFFILIATES' EXPERIENCE
IN RAISING AND INVESTING FUNDS (cont'd)
<TABLE>
<CAPTION>
Central Florida Income Midwest Income Growth Fund
Appreciation Fund, Ltd. (Baron VI, Ltd. (Baron Capital of
Capital of Florida, Inc., Ohio III, Inc., general partner)
general partner)
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Dollar amount offered: $ 1,050,000 $ 300,000
Dollar amount raised: 1,050,000 300,000
(percent relative to (100%) (100%)
amount offered):
Less offering expenses (percent):
Selling commissions and
due diligence expenses
paid to sponsor/affiliate: 133,000 33,000
(13%) (11%)
Cash reserve accounts: 159,000 33,000
(15%) (11%)
Amount raised available for
investment (percentage): 725,000 219,000
(69%) (73%)
Acquisition costs (percent):
Cash payments to acquire interest
in investment property or to
redeem limited partnership
interests of existing limited
partners: 725,000(7) 219,000(7)
(69%) (73%)
Investment fee: 28,000 15,000
(3%) (5%)
Percent leverage (mortgage
financing divided by
total acquisition cost): 62% 64%
Date offering began: 8/94 4/96
Length of offering (in months): 14 6
Months required to invest 90% of
the amount available for
investment (measured from
beginning of offering): 10 4
- -------------------------------------------------------------------------------------------------------------
</TABLE>
(7) Net proceeds from the private offering of the partnership were invested to
acquire record title to a residential apartment property.
See Prospectus at "PRIOR PERFORMANCE OF AFFILIATES OF MANAGING SHAREHOLDER."
I-14
<PAGE>
TABLE II:
COMPENSATION TO BARON ADVISORS AFFILIATES
FROM PRIOR FUNDS
The following table summarizes the payments made to Affiliates
of the Managing Shareholder of the Trust, Baron Advisors, Inc.,
by 41 real estate investment programs sponsored by Affiliates of
the Managing Shareholder from their inception through March 31,
1999. The prior programs have investment objectives similar to
those of the Trust and the Operating Partnership in that the
programs provided financing in respect of residential properties
(and in one case, a retail shopping center) for current income
and capital appreciation (except in the case of mortgage funds).
<TABLE>
<CAPTION>
Florida Income Advantage Realty Opportunity Income Florida Income
Fund I, Ltd. Fund VIII, Ltd. Appreciation Fund I, Ltd.
-----------------------------------------------------------------------------------------
<S> <C> <C> <C>
Date offering began: 2/94 3/94 4/94
Dollar amount raised: $940,000 $944,000 $205,000
Amount paid to Baron Advisors
Affiliates from proceeds of
Offering:
Selling commissions and
due diligence and legal
expenses: $ 94,000 $ 94,400 $ 20,500
Dollar amount of cash generated
(deficiency) by program from
operations from its inception
through March 31, 1999
before deducting payments to
Baron Advisors Affiliates: $151,497 $123,179 $ 39,726
Dollar amount paid Baron
Advisors Affiliates from
operations:
Property Management
and Administrative Fees: $ 37,910 $ 44,716 $ 20,826
Reimbursements: 0 0 0
- --------------------------------------------------------------------------------------------------------------------------------
</TABLE>
Baron Advisors Affiliates have received no fees or other payments related to
property sales or refinancing by the programs.
II-1
<PAGE>
TABLE II:
COMPENSATION TO BARON ADVISORS AFFILIATES
FROM PRIOR FUNDS (cont'd)
<TABLE>
<CAPTION>
Florida Capital Income Tampa Capital Income Fund, Florida Capital Income
Fund, Ltd. Ltd. Fund II, Ltd.
-----------------------------------------------------------------------------------
<S> <C> <C> <C>
Date offering began: 11/94 9/94 1/95
Dollar amount raised: $ 807,000 $1,050,000 $ 920,000
Amount paid to Baron Advisors
Affiliates from proceeds of
Offering:
Selling commissions and
due diligence and legal
expenses: $ 90,700 $ 115,000 $ 102,000
Acquisition fees: $ 60,000 $ 136,500 $ 71,000
Dollar amount of cash generated
(deficiency) by program from
operations from its inception
through March 31, 1999
before deducting payments to
Baron Advisors Affiliates: $ 75,948 $ 147,631 $ 98,206
Dollar amount paid Baron
Advisors Affiliates from
operations:
Property Management
and Administrative Fees: $ 58,073 $ 47,729 $ 54,076
Reimbursements: 0 0 0
- --------------------------------------------------------------------------------------------------------------------------
</TABLE>
Baron Advisors Affiliates have received no fees or other payments related to
property sales or refinancings by the programs.
II-2
<PAGE>
TABLE II:
COMPENSATION TO BARON ADVISORS AFFILIATES
FROM PRIOR FUNDS (cont'd)
<TABLE>
<CAPTION>
Florida Opportunity Income Florida Capital Income Fund Florida Tax Credit Fund,
Partners, Ltd. III, Ltd. Ltd.
-----------------------------------------------------------------------------------------
<S> <C> <C> <C>
Date offering began: 8/95 6/95 6/95
Dollar amount raised: $800,000 $800,000 $626,000
Amount paid to Baron Advisors
Affiliates from proceeds of
offering:
Selling commissions and
due diligence and legal
expenses: $ 90,000 $ 90,000 $ 80,000
Acquisition fees: $ 24,000 0 0
Dollar amount of cash generated
(deficiency) by program from
operations from its inception
through March 31, 1999
before deducting payments to
Baron Advisors Affiliates: $116,374 $157,575 $ 16,988
Dollar amount paid Baron
Advisors Affiliates from
Operations:
Property Management
And Administrative Fees: $ 47,377 $ 29,041 $ 40,788
Reimbursements: 0 0 0
- -------------------------------------------------------------------------------------------------------------------------------
</TABLE>
Baron Advisors Affiliates have received no fees or other payments related to
property sales or refinancings by the programs.
II-3
<PAGE>
TABLE II:
COMPENSATION TO BARON ADVISORS AFFILIATES
FROM PRIOR FUNDS (cont'd)
<TABLE>
<CAPTION>
Baron First Time Homebuyer Florida Capital Income Fund GSU Student Stadium
Mortgage Fund, Ltd. IV, Ltd. Apartments, Ltd.
--------------------------------------------------------------------------------
<S> <C> <C> <C>
Date offering began: 1/96 1/95 11/95
Dollar amount raised: $ 500,000 $ 1,820,000 $ 1,000,000
Amount paid to Baron Advisors
Affiliates from proceeds of
Offering:
Selling commissions and
due diligence and legal
expenses: $ 50,000 $ 202,000 $ 110,000
Acquisition fees: 0 0 $ 100,000
Dollar amount of cash generated
(deficiency) by program from
operations from its inception
through March 31, 1999
before deducting payments to
Baron Advisors Affiliates: $ 175,727 $ (303,546) $ 94,640
Dollar amount paid Baron
Advisors Affiliates from
operations:
Property Management
and Administrative Fees: 0 $ 79,685 $ 56,359
Reimbursements: 0 0 0
- -----------------------------------------------------------------------------------------------------------------------
</TABLE>
Baron Advisors Affiliates have received no fees or other payments related to
property sales or refinancings by the programs.
II-4
<PAGE>
TABLE II:
COMPENSATION TO BARON ADVISORS AFFILIATES
FROM PRIOR FUNDS (cont'd)
<TABLE>
<CAPTION>
Brevard Mortgage Program, Baron First Time Homebuyer Clearwater First Time Home
Ltd. Mortgage Fund II, Ltd. Buyer Program, Ltd.
---------------------------------------------------------------------------------------
<S> <C> <C> <C>
Date offering began: 1/96 2/96 3/96
Dollar amount raised: $575,000 $500,000 $750,000
Amount paid to Baron Advisors
Affiliates from proceeds of
offering:
Selling commissions and
due diligence and legal
expenses: $ 67,500 $ 45,000 $ 77,500
Acquisition fees: 0 0 0
Dollar amount of cash generated
(deficiency) by program from
operations from its inception
through March 31, 1999
before deducting payments to
Baron Advisors Affiliates: $195,029 $168,527 $224,954
Dollar amount paid Baron
Advisors Affiliates from
operations:
Property Management
and Administrative Fees: 0 0 0
Reimbursements: 0 0 0
- --------------------------------------------------------------------------------------------------------------------------------
</TABLE>
Baron Advisors Affiliates have received no fees or other payments related to
property sales or refinancings by the programs.
II-5
<PAGE>
TABLE II:
COMPENSATION TO BARON ADVISORS AFFILIATES
FROM PRIOR FUNDS (cont'd)
<TABLE>
<CAPTION>
Baron First Time Homebuyer Baron First Time Homebuyer Baron First Time Homebuyer
Mortgage Fund III, Ltd. Mortgage Fund V, Ltd. Mortgage Fund IV, Ltd.
---------------------------------------------------------------------------------------
<S> <C> <C> <C>
Date offering began: 5/96 1/96 6/96
Dollar amount raised: $500,000 $500,000 $500,000
Amount paid to Baron Advisors
Affiliates from proceeds of
offering:
Selling commissions and
due diligence and legal
expenses: $ 50,500 $ 50,000 $ 45,000
Acquisition fees: 0 0 0
Dollar amount of cash generated
(deficiency) by program from
operations from its inception
through March 31, 1999
before deducting payments to
Baron Advisors Affiliates: $158,393 $160,536 $147,879
Dollar amount paid Baron
Advisors Affiliates from
operations:
Property Management
and Administrative Fees: 0 0 0
Reimbursements: 0 0 0
- ------------------------------------------------------------------------------------------------------------------------------
</TABLE>
Baron Advisors Affiliates have received no fees or other payments related to
property sales or refinancings by the programs.
II-6
<PAGE>
TABLE II:
COMPENSATION TO BARON ADVISORS AFFILIATES
FROM PRIOR FUNDS (cont'd)
<TABLE>
<CAPTION>
Florida Income Growth Fund Lamplight Court of Baron Strategic Vulture
V, Ltd. Bellefontaine Apartments, Ltd. Fund I, Ltd.
------------------------------------------------------------------------------------
<S> <C> <C> <C>
Date offering began: 10/95 4/96 5/96
Dollar amount raised: $1,150,000 $ 700,000 $ 900,000
Amount paid to Baron Advisors
Affiliates from proceeds of
offering:
Selling commissions and
due diligence and legal
expenses: $ 125,500 $ 80,000 $ 119,000
Acquisition fees: $ 57,500 $ 40,000 $ 90,000
Dollar amount of cash generated
(deficiency) by program from
operations from its inception
through March 31, 1999 before
deducting payments to
Baron Advisors Affiliates: $ 67,906 $ 61,874 $ 130,931
Dollar amount paid Baron
Advisors Affiliates from
Operations:
Property Management
and Administrative Fees: $ 36,296 $ 27,145 0
Reimbursements: 0 0 0
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
Baron Advisors Affiliates have received no fees or other payments related to
property sales or refinancings by the programs.
II-7
<PAGE>
TABLE II:
COMPENSATION TO BARON ADVISORS AFFILIATES
FROM PRIOR FUNDS (cont'd)
<TABLE>
<CAPTION>
Baron Strategic Investment Baron Strategic Investment Baron Strategic Investment
Fund, Ltd. Fund II, Ltd. Fund VI, Ltd.
---------------------------------------------------------------------------------------
<S> <C> <C> <C>
Date offering began: 6/96 7/96 11/96
Dollar amount raised: $1,200,000 $ 800,000 $1,200,000
Amount paid to Baron Advisors
Affiliates from proceeds of
Offering:
Selling commissions and
due diligence and legal
expenses: $ 140,000 $ 100,000 $ 130,000
Acquisition fees: $ 144,000 $ 96,000 $ 144,000
Dollar amount of cash generated
(deficiency) by program from
operations from its inception
through March 31, 1999
before deducting payments to
Baron Advisors Affiliates: $ 102,639 $ (13,707) $ 129,367
Dollar amount paid Baron
Advisors Affiliates from
Operations: 0 0 0
Property Management
and Administrative Fees: 0 0 0
Reimbursements: 0 0 0
- ------------------------------------------------------------------------------------------------------------------------------
</TABLE>
Baron Advisors Affiliates have received no fees or other payments related to
property sales or refinancings by the programs.
II-8
<PAGE>
TABLE II:
COMPENSATION TO BARON ADVISORS AFFILIATES
FROM PRIOR FUNDS (cont'd)
<TABLE>
<CAPTION>
Baron Development Fund IX, Baron Income Property Baron Mortgage Development
Ltd. Mortgage Fund VI, Ltd. Fund VII, Ltd.
---------------------------------------------------------------------------------
<S> <C> <C> <C>
Date offering began: 1/97 8/96 11/96
Dollar amount raised: $800,000 $750,000 $700,000
Amount paid to Baron Advisors
Affiliates from proceeds of
Offering:
Selling commissions and
due diligence and legal
expenses: $ 80,000 $ 75,000 $ 70,000
Acquisition fees: 0 0 0
Dollar amount of cash generated
(deficiency) by program from
operations from its inception
through March 31, 1999
before deducting payments to
Baron Advisors Affiliates: $154,401 $168,147 $149,389
Dollar amount paid Baron
Advisors Affiliates from
Operations: 0 0 0
Property Management
and Administrative Fees: 0 0 0
Reimbursements: 0 0 0
- ------------------------------------------------------------------------------------------------------------------------
</TABLE>
Baron Advisors Affiliates have received no fees or other payments related to
property sales or refinancings by the programs.
II-9
<PAGE>
TABLE II:
COMPENSATION TO BARON ADVISORS AFFILIATES
FROM PRIOR FUNDS (cont'd)
<TABLE>
<CAPTION>
Baron Mortgage Development Baron Mortgage Development Baron Mortgage Development
Fund X, Ltd. Fund XI, Ltd. Fund XVIII, LP
-------------------------------------------------------------------------------------
<S> <C> <C> <C>
Date offering began: 11/96 3/97 7/97
Dollar amount raised: $800,000 $800,000 $800,000
Amount paid to Baron Advisors
Affiliates from proceeds of
Offering:
Selling commissions and
due diligence and legal
expenses: $ 80,000 $ 80,000 $ 80,000
Acquisition fees: 0 0 0
Dollar amount of cash generated
(deficiency) by program from
operations from its inception
through March 31, 1999
before deducting payments to
Baron Advisors Affiliates: $163,196 $156,946 $107,459
Dollar amount paid Baron
Advisors Affiliates from
Operations: 0 0 0
Property Management
and Administrative Fees: 0 0 0
Reimbursements: 0 0 0
- ----------------------------------------------------------------------------------------------------------------------------
</TABLE>
Baron Advisors Affiliates have received no fees or other payments related to
property sales or refinancings by the programs.
II-10
<PAGE>
TABLE II:
COMPENSATION TO BARON ADVISORS AFFILIATES
FROM PRIOR FUNDS (cont'd)
<TABLE>
<CAPTION>
Baron Strategic Investment Baron Strategic Investment Baron Mortgage Development
Fund V, Ltd. Fund VII, Ltd. Fund XV, Ltd.
---------------------------------------------------------------------------------------
<S> <C> <C> <C>
Date offering began: 11/96 1/97 6/97
Dollar amount raised: $1,200,000 $1,900,000 $ 700,000
Amount paid to Baron Advisors
Affiliates from proceeds of
Offering:
Selling commissions and
due diligence and legal
expenses: $ 120,000 $ 190,000 $ 70,000
Acquisition fees: 0 0 0
Dollar amount of cash generated
(deficiency) by program from
operations from its inception
through March 31, 1999
before deducting payments to
Baron Advisors Affiliates: $ 123,367 $ 75,914 $ 91,928
Dollar amount paid Baron
Advisors Affiliates from
Operations: 0 0 0
Property Management
and Administrative Fees: 0 0 0
Reimbursements: 0 0 0
- -----------------------------------------------------------------------------------------------------------------------------
</TABLE>
Baron Advisors Affiliates have received no fees or other payments related to
property sales or refinancings by the programs.
II-11
<PAGE>
TABLE II:
COMPENSATION TO BARON ADVISORS AFFILIATES
FROM PRIOR FUNDS (cont'd)
<TABLE>
<CAPTION>
Baron Strategic Investment Baron Strategic Investment Baron Mortgage Development
Fund X, Ltd. Fund VIII, Ltd. Fund XIV, Ltd.
-------------------------------------------------------------------------------------
<S> <C> <C> <C>
Date offering began: 7/97 5/97 5/97
Dollar amount raised: $1,200,000 $1,200,000 $1,000,000
Amount paid to Baron Advisors
Affiliates from proceeds of
Offering:
Selling commissions and
due diligence and legal
expenses: $ 120,000 $ 108,000 $ 90,000
Acquisition fees: 0 0 0
Dollar amount of cash generated
(deficiency) by program from
operations from its inception
through March 31, 1999
before deducting payments to
Baron Advisors Affiliates: $ 67,041 $ 86,891 $ 147,535
Dollar amount paid Baron
Advisors Affiliates from
Operations: 0 0 0
Property Management
and Administrative Fees: 0 0 0
Reimbursements: 0 0 0
- ----------------------------------------------------------------------------------------------------------------------------
</TABLE>
Baron Advisors Affiliates have received no fees or other payments related to
property sales or refinancings by the programs.
II-12
<PAGE>
TABLE II:
COMPENSATION TO BARON ADVISORS AFFILIATES
FROM PRIOR FUNDS (cont'd)
<TABLE>
<CAPTION>
Baron Strategic Investment Baron Strategic Investment Florida Tax Credit Fund
Fund IV, Ltd. Fund IX, Ltd. II, Ltd.
------------------------------------------------------------------------------------
<S> <C> <C> <C>
Date offering began: 11/96 7/97 9/96
Dollar amount raised: $1,000,000 $1,200,000 $ 310,000
Amount paid to Baron Advisors
Affiliates from proceeds of
Offering:
Selling commissions and
due diligence and legal
expenses: $ 90,000 $ 120,000 $ 31,000
Acquisition fees: 0 0 0
Dollar amount of cash generated
(deficiency) by program from
operations from its inception
through March 31, 1999
before deducting payments to
Baron Advisors Affiliates: $ 109,932 $ 33,106 $ 41,605
Dollar amount paid Baron
Advisors Affiliates from
Operations: 0 0 0
Property Management
and Administrative Fees: 0 0 0
Reimbursements: 0 0 0
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
Baron Advisors Affiliates have received no fees or other payments related to
property sales or refinancings by the programs.
II-13
<PAGE>
TABLE II:
COMPENSATION TO BARON ADVISORS AFFILIATES
FROM PRIOR FUNDS (cont'd)
<TABLE>
<CAPTION>
Central Florida Income Midwest Income Growth Fund
Appreciation Fund, Ltd. VI, Ltd.
-------------------------------------------------------
<S> <C> <C>
Date offering began: 8/94 4/96
Dollar amount raised: $ 1,050,000 $ 300,000
Amount paid to Baron Advisors
Affiliates from proceeds of
Offering:
Selling commissions and
due diligence and legal
expenses: $ 133,000 $ 33,000
Acquisition fees: $ 28,000 $ 15,000
Dollar amount of cash generated
(deficiency) by program from
operations from its inception
through March 31, 1999
before deducting payments to
Baron Advisors Affiliates: $ (112,643) $ 130,837
Dollar amount paid Baron
Advisors Affiliates from
operations: 0 0
Property Management
and Administrative Fees: $ 53,853 $ 37,169
Reimbursements: 0 0
- ----------------------------------------------------------------------------------------------
</TABLE>
Baron Advisors Affiliates have received no fees or other payments related to
property sales or refinancings by the programs.
II-14
<PAGE>
TABLE III:
OPERATING RESULTS OF PRIOR PROGRAMS
The following table includes operating results for the periods
indicated of 41 programs sponsored by Affiliates of the Managing
Shareholder of the Trust, Baron Advisors, Inc., which closed in the
most recent five years. The prior programs have investment objectives
similar to those of the Trust and the Operating Partnership in that
the programs provided financing in respect of residential properties
(and in one case, a retail shopping center) for current income and
capital appreciation (except in the case of mortgage funds).
Florida Capital Income Fund, Ltd.
<TABLE>
<CAPTION>
1/1/99 -
3/31/99 1998 1997 1996
----------------------------------------------------------------
<S> <C> <C> <C> <C>
Gross Revenues: $ 94,139 $ 399,818 $ 346,154 $ 348,348
Other: 3,447 7,423 21,065 32,140
Less:
Operating Expenses: (46,617) (245,900) (182,429) (169,938)
Interest Expenses: (30,723) (127,820) (158,727) (159,163)
Depreciation and Amortization: (19,434) (77,088) (64,402) (63,327)
Other: Major Maintenance: (586) (16,233) (19,712) 0
Net Income (Loss) - Tax Basis: 226 (59,800) (58,051) (11,940)
Cash generated from operations: 16,213 9,865 (14,714) 19,247
Less: Cash distributions: 5,000 10,000 80,700 80,700
Cash generated after cash distributions: 11,213 (35) (95,414) (61,453)
Tax and distribution data per $1,000 invested:
Federal taxable income (loss): 1 (74) (72) (15)
Cash distributions to investors: 6 12 100 100
Annualized cash on cash
yield to investors: 2% 2% 10% 10%
Amount (in percentage terms) remaining
invested in program property at the
end of last year reported in table: 100% 100% 100% 100%
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
Net income (loss) - tax basis reflected in the table above differs from the
amount reported as taxable income (loss) due primarily to (a) in certain cases,
the inclusion of certain advances as taxable income and (b) major maintenance
expenses being reported as capital expenditures, rather than deductible expenses
for purposes of taxable income (loss).
The significant differences between tax basis net income (loss) determined on a
tax basis and net income (loss) determined on the basis of generally accepted
accounting principles ("GAAP") are as follows. First, for tax purposes,
residential apartment properties have a depreciable life of 27.5 years, compared
to 30 years under GAAP. Second, rental income is accounted for on a tax basis on
receipt, but accrued under GAAP accounting. According to management of the
Operating Partnership, the difference in accounting results attributable to the
different depreciable lives and timing of rental income under the two methods is
not material. Third, for tax purposes, the partnership's depreciable basis in
its residential apartment property was stepped up at the time of the investors'
acquisition of a limited partnership interest in the partnership to reflect
their purchase price. Under GAAP accounting, stepped up basis is not recognized.
For 1997, the difference between net income (loss) determined on a tax basis and
net income (loss) determined on a GAAP basis was approximately $16,000.
In certain cases, "cash distributions" may include net operating cash flow, a
portion of cash reserves funded out of net proceeds of the program's offering,
refinancing proceeds or advances from affiliates. "Other" includes ancillary
income such as forfeited security deposits, laundry and vending income, pet
fees, distribution supplements and interest income.
III-1
<PAGE>
TABLE III:
OPERATING RESULTS OF PRIOR PROGRAMS (cont'd)
Florida Income Advantage Fund I, Ltd.
<TABLE>
<CAPTION>
1/1/99 -
3/31/99 1998 1997 1996
----------------------------------------------------------------
<S> <C> <C> <C> <C>
Gross Revenues: $ 47,548 $ 177,807 $ 170,175 $ 180,549
Other: 1,197 8,548 7,031 5,721
Less:
Operating Expenses: (21,170) (119,750) (79,292) (73,049)
Interest Expenses: (15,725) (56,304) (49,070) (49,964)
Depreciation and Amortization: (13,338) (70,922) (70,922) (50,446)
Other: Major Maintenance: (965) 0 (18,353) 0
Net Income (Loss) - Tax Basis: (2,453) (60,621) (40,431) 12,811
Cash generated from operations: 9,688 1,753 23,460 57,536
Less: Cash distributions: 2,000 20,900 0 82,500
Cash generated after cash distributions: 7,688 (19,147) 23,460 (24,964)
Tax and distribution data per $1,000 invested:
Federal taxable income (loss): 8 (20) (43) 14
Cash distributions to investors: 2 22 0 88
Annualized cash on cash
yield to investors: 1% 2% 0% 9%
Amount (in percentage terms) remaining
invested in program property at the
end of last year reported in table: 100% 100% 100% 100%
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
Net income (loss) - tax basis reflected in the table above differs from the
amount reported as taxable income (loss) due primarily to (a) in certain cases,
the inclusion of certain advances as taxable income and (b) major maintenance
expenses being reported as capital expenditures, rather than deductible expenses
for purposes of taxable income (loss).
The significant differences between tax basis net income (loss) determined on a
tax basis and net income (loss) determined on the basis of generally accepted
accounting principles ("GAAP") are as follows. First, for tax purposes,
residential apartment properties have a depreciable life of 27.5 years, compared
to 30 years under GAAP. Second, rental income is accounted for on a tax basis on
receipt, but accrued under GAAP accounting. According to management of the
Operating Partnership, the difference in accounting results attributable to the
different depreciable lives and timing of rental income under the two methods is
not material. Third, for tax purposes, the partnership's depreciable basis in
its residential apartment property was stepped up at the time of the investors'
acquisition of a limited partnership interest in the partnership to reflect
their purchase price. Under GAAP accounting, stepped up basis is not recognized.
For 1997, the difference between net income (loss) determined on a tax basis and
net income (loss) determined on a GAAP basis was approximately $40,000.
In certain cases, "cash distributions" may include net operating cash flow, a
portion of cash reserves funded out of net proceeds of the program's offering,
refinancing proceeds or advances from affiliates. "Other" includes ancillary
income such as forfeited security deposits, laundry and vending income, pet
fees, distribution supplements and interest income.
III-2
<PAGE>
TABLE III:
OPERATING RESULTS OF PRIOR PROGRAMS (cont'd)
Realty Opportunity Income Fund VIII, Ltd.
<TABLE>
<CAPTION>
1/1/99 -
3/31/99 1998 1997 1996
----------------------------------------------------------------
<S> <C> <C> <C> <C>
Gross Revenues: $ 49,592 204,670 $ 159,093 $ 181,587
Other: 5,466 7,233 6,252 3,616
Less:
Operating Expenses: (23,752) (130,635) (93,216) (89,343)
Interest Expenses: (18,584) (66,541) (60,222) (59,048)
Depreciation and (14,700) (56,180) (56,180) (55,941)
Amortization: (1,213) (22,613) (21,967) 0
Other: Major Maintenance:
Net Income (Loss) - Tax Basis: (3,191) (64,066) (66,240) (19,129)
Cash generated from operations: 6,043 (15,119) (16,312) 33,196
Less: Cash distributions: 1,000 16,000 0 80,800
Cash generated after cash distributions: 5,043 (31,119) (16,312) (47,604)
Tax and distribution data per $1,000 invested:
Federal taxable income (loss): (3) (16) (65) (19)
Cash distributions to investors: 1 17 0 86
Annualized cash on cash
yield to investors: 1% 2% 0% 8%
Amount (in percentage terms) remaining
invested in program property at the
end of last year reported in table: 100% 100% 100% 100%
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
Net income (loss) - tax basis reflected in the table above differs from the
amount reported as taxable income (loss) due primarily to (a) in certain cases,
the inclusion of certain advances as taxable income and (b) major maintenance
expenses being reported as capital expenditures, rather than deductible expenses
for purposes of taxable income (loss).
The significant differences between tax basis net income (loss) determined on a
tax basis and net income (loss) determined on the basis of generally accepted
accounting principles ("GAAP") are as follows. First, for tax purposes,
residential apartment properties have a depreciable life of 27.5 years, compared
to 30 years under GAAP. Second, rental income is accounted for on a tax basis on
receipt, but accrued under GAAP accounting. According to management of the
Operating Partnership, the difference in accounting results attributable to the
different depreciable lives and timing of rental income under the two methods is
not material. Third, for tax purposes, the partnership's depreciable basis in
its residential apartment property was stepped up at the time of the investors'
acquisition of a limited partnership interest in the partnership to reflect
their purchase price. Under GAAP accounting, stepped up basis is not recognized.
For 1997, the difference between net income (loss) determined on a tax basis and
net income (loss) determined on a GAAP basis was approximately $24,000.
In certain cases, "cash distributions" may include net operating cash flow, a
portion of cash reserves funded out of net proceeds of the program's offering,
refinancing proceeds or advances from affiliates. "Other" includes ancillary
income such as forfeited security deposits, laundry and vending income, pet
fees, distribution supplements and interest income.
III-3
<PAGE>
TABLE III:
OPERATING RESULTS OF PRIOR PROGRAMS (cont'd)
Florida Income Appreciation Fund I, Ltd.
<TABLE>
<CAPTION>
1/1/99 -
3/31/99 1998 1997 1996
------------------------------------------------------------
<S> <C> <C> <C> <C>
Gross Revenues: $ 15,282 $ 52,759 $ 56,139 $ 57,348
Other: 80 3,851 2,437 2,565
Less:
Operating Expenses: (7,855) (48,541) (26,488) (26,417)
Interest Expenses: (5,003) (17,915) (17,843) (15,898)
Depreciation and Amortization: (4,224) (16,264) (16,264) (16,172)
Other: Major Maintenance: 0 (7,895) (6,317) 0
Net Income (Loss) - Tax Basis: (1,720) (34,005) (8,336) 1,426
Cash generated from operations: 2,424 (21,592) 5,491 15,033
Less: Cash distributions: 0 8,160 0 19,375
Cash generated after cash distributions: 2,424 (29,752) 5,491 (4,342)
Tax and distribution data per $1,000 invested:
Federal taxable income (loss): 8 (166) (41) 7
Cash distributions to investors: 0 40 0 95
Annualized cash on cash
yield to investors: 0% 4% 0 9%
Amount (in percentage terms) remaining
invested in program property at the
end of last year reported in table: 100% 100% 100% 100%
- -----------------------------------------------------------------------------------------------------------------
</TABLE>
Net income (loss) - tax basis reflected in the table above differs from the
amount reported as taxable income (loss) due primarily to (a) in certain cases,
the inclusion of certain advances as taxable income and (b) major maintenance
expenses being reported as capital expenditures, rather than deductible expenses
for purposes of taxable income (loss).
The significant differences between tax basis net income (loss) determined on a
tax basis and net income (loss) determined on the basis of generally accepted
accounting principles ("GAAP") are as follows. First, for tax purposes,
residential apartment properties have a depreciable life of 27.5 years, compared
to 30 years under GAAP. Second, rental income is accounted for on a tax basis on
receipt, but accrued under GAAP accounting. According to management of the
Operating Partnership, the difference in accounting results attributable to the
different depreciable lives and timing of rental income under the two methods is
not material. Third, for tax purposes, the partnership's depreciable basis in
its residential apartment property was stepped up at the time of the investors'
acquisition of a limited partnership interest in the partnership to reflect
their purchase price. Under GAAP accounting, stepped up basis is not recognized.
For 1997, the difference between net income (loss) determined on a tax basis and
net income (loss) determined on a GAAP basis was approximately $4,000.
In certain cases, "cash distributions" may include net operating cash flow, a
portion of cash reserves funded out of net proceeds of the program's offering,
refinancing proceeds or advances from affiliates. "Other" includes ancillary
income such as forfeited security deposits, laundry and vending income, pet
fees, distribution supplements and interest income.
III-4
<PAGE>
TABLE III:
OPERATING RESULTS OF PRIOR PROGRAMS (cont'd)
Tampa Capital Income Fund, Ltd.
<TABLE>
<CAPTION>
1996 1995
----------------------------
<S> <C> <C>
Gross Revenues: $ 409,146 $ 404,384
Other: 0 0
Less:
Operating Expenses: (207,313) (213,327)
Interest Expenses: (131,405) (88,632)
Depreciation and Amortization: (77,185) (69,040)
Other: Major Maintenance: 0 (25,157)
Net Income (Loss) - Tax Basis: (6,757) 8,228
Cash generated from operations: 70,428 77,268
Less: Cash distributions: 105,000 58,328
Cash generated after cash distributions: (34,572) 18,940
Tax and distribution data per $1,000 invested:
Federal taxable income (loss): (6) 8
Cash distributions to investors: 100 56
Annualized cash on cash
yield to investors: 10% 10%
Amount (in percentage terms) remaining
invested in program property at the
end of last year reported in table: 100% 100%
- ---------------------------------------------------------------------------------
</TABLE>
Net income (loss) - tax basis reflected in the table above differs from the
amount reported as taxable income (loss) due primarily to (a) in certain cases,
the inclusion of certain advances as taxable income and (b) major maintenance
expenses being reported as capital expenditures, rather than deductible expenses
for purposes of taxable income (loss).
The significant differences between tax basis net income (loss) determined on a
tax basis and net income (loss) determined on the basis of generally accepted
accounting principles ("GAAP") are as follows. First, for tax purposes,
residential apartment properties have a depreciable life of 27.5 years, compared
to 30 years under GAAP. Second, rental income is accounted for on a tax basis on
receipt, but accrued under GAAP accounting. According to management of the
Operating Partnership, the difference in accounting results attributable to the
different depreciable lives and timing of rental income under the two methods is
not material. Third, for tax purposes, the partnership's depreciable basis in
its residential apartment property was stepped up at the time of the investors'
acquisition of a limited partnership interest in the partnership to reflect
their purchase price. Under GAAP accounting, stepped up basis is not recognized.
For 1997, the difference between net income (loss) determined on a tax basis and
net income (loss) determined on a GAAP basis was approximately $60,000.
In certain cases, "cash distributions" may include net operating cash flow, a
portion of cash reserves funded out of net proceeds of the program's offering,
refinancing proceeds or advances from affiliates. "Other" includes ancillary
income such as forfeited security deposits, laundry and vending income, pet
fees, distribution supplements and interest income.
In January 1997, the partnership sold the asset acquired with the net proceeds
of its offering. See Tables IV and V below.
III-5
<PAGE>
TABLE III:
OPERATING RESULTS OF PRIOR PROGRAMS (cont'd)
Florida Capital Income Fund II, Ltd.
<TABLE>
<CAPTION>
1/1/99 -
3/31/99 1998 1997 1996
----------------------------------------------------------------
<S> <C> <C> <C> <C>
Gross Revenues: $ 94,877 $ 360,482 $ 379,763 $ 319,640
Other: 1,321 13,259 7,968 16,405
Less:
Operating Expenses: (35,269) (172,182) (158,953) (154,720)
Interest Expenses: (30,966) (116,663) (149,908) (130,820)
Depreciation and Amortization: (19,094) (79,077) (79,077) (78,505)
Other: Major Maintenance: 0 (42,542) (86,899) 0
Net Income (Loss) - Tax Basis: 10,869 (36,723) (87,106) (28,000)
Cash generated from operations: 28,642 29,095 (15,997) 34,100
Less: Cash distributions: 5,000 25,369 0 92,000
Cash generated after cash distributions: 22,445 3,726 (15,997) (57,900)
Tax and distribution data per $1,000 invested:
Federal taxable income (loss): 11 (40) (95) (30)
Cash distributions to investors: 5 28 0 100
Annualized cash on cash
yield to investors: 2% 3% 0 10%
Amount (in percentage terms) remaining
invested in program property at the
end of last year reported in table: 100% 100% 100% 100%
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
Net income (loss) - tax basis reflected in the table above differs from the
amount reported as taxable income (loss) due primarily to (a) in certain cases,
the inclusion of certain advances as taxable income and (b) major maintenance
expenses being reported as capital expenditures, rather than deductible expenses
for purposes of taxable income (loss).
The significant differences between tax basis net income (loss) determined on a
tax basis and net income (loss) determined on the basis of generally accepted
accounting principles ("GAAP") are as follows. First, for tax purposes,
residential apartment properties have a depreciable life of 27.5 years, compared
to 30 years under GAAP. Second, rental income is accounted for on a tax basis on
receipt, but accrued under GAAP accounting. According to management of the
Operating Partnership, the difference in accounting results attributable to the
different depreciable lives and timing of rental income under the two methods is
not material. Third, for tax purposes, the partnership's depreciable basis in
its residential apartment property was stepped up at the time of the investors'
acquisition of a limited partnership interest in the partnership to reflect
their purchase price. Under GAAP accounting, stepped up basis is not recognized.
For 1997, the difference between net income (loss) determined on a tax basis and
net income (loss) determined on a GAAP basis was approximately $6,000.
In certain cases, "cash distributions" may include net operating cash flow, a
portion of cash reserves funded out of net proceeds of the program's offering,
refinancing proceeds or advances from affiliates. "Other" includes ancillary
income such as forfeited security deposits, laundry and vending income, pet
fees, distribution supplements and interest income.
III-6
<PAGE>
TABLE III:
OPERATING RESULTS OF PRIOR PROGRAMS (cont'd)
Florida Opportunity Income Fund, Ltd.
<TABLE>
<CAPTION>
1/1/99 -
3/31/99 1998 1997 1996
----------------------------------------------------------------
<S> <C> <C> <C> <C>
Gross Revenues: $ 72,811 $ 264,267 $ 218,018 $ 311,719
Other: 5,850 25,858 0 0
Less:
Operating Expenses: (39,156) (204,938) (153,765) (149,572)
Interest Expenses: (24,118) (98,620) (98,851) (78,273)
Depreciation and Amortization: (12,388) (48,414) (44,069) (47,371)
Other: Major Maintenance: (130) (15,068) (22,392) 0
Net Income (Loss) - Tax Basis: 2,999 (76,555) (101,059) 36,503
Cash generated from operations: 9,537 (53,999) (56,990) 83,874
Less: Cash distributions: 0 80,000 80,000 77,441
Cash generated after cash distributions: 9,537 (133,999) (136,990) 6,433
Tax and distribution data per $1,000 invested:
Federal taxable income (loss): 4 96 (126) 46
Cash distributions to investors: 0 100 100 97
Annualized cash on cash
yield to investors: 0% 10% 10% 10%
Amount (in percentage terms) remaining
invested in program property at the
end of last year reported in table: 100% 100% 100% 100%
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
Net income (loss) - tax basis reflected in the table above differs from the
amount reported as taxable income (loss) due primarily to (a) in certain cases,
the inclusion of certain advances as taxable income and (b) major maintenance
expenses being reported as capital expenditures, rather than deductible expenses
for purposes of taxable income (loss).
The significant differences between tax basis net income (loss) determined on a
tax basis and net income (loss) determined on the basis of generally accepted
accounting principles ("GAAP") are as follows. First, for tax purposes,
residential apartment properties have a depreciable life of 27.5 years, compared
to 30 years under GAAP. Second, rental income is accounted for on a tax basis on
receipt, but accrued under GAAP accounting. According to management of the
Operating Partnership, the difference in accounting results attributable to the
different depreciable lives and timing of rental income under the two methods is
not material. Third, for tax purposes, the partnership's depreciable basis in
its residential apartment property was stepped up at the time of the investors'
acquisition of a limited partnership interest in the partnership to reflect
their purchase price. Under GAAP accounting, stepped up basis is not recognized.
For 1997, the difference between net income (loss) determined on a tax basis and
net income (loss) determined on a GAAP basis was approximately $13,000.
In certain cases, "cash distributions" may include net operating cash flow, a
portion of cash reserves funded out of net proceeds of the program's offering,
refinancing proceeds or advances from affiliates. "Other" includes ancillary
income such as forfeited security deposits, laundry and vending income, pet
fees, distribution supplements and interest income.
III-7
<PAGE>
TABLE III:
OPERATING RESULTS OF PRIOR PROGRAMS (cont'd)
Florida Capital Income Fund III, Ltd.
<TABLE>
<CAPTION>
1/1/99 -
3/31/99 1998 1997 1996
----------------------------------------------------------------
<S> <C> <C> <C> <C>
Gross Revenues: $ 58,461 $ 237,292 $ 212,608 $ 228,451
Other: 7,274 14,340 6,605 7,884
Less:
Operating Expenses: (32,164) (151,710) (116,044) (112,640)
Interest Expenses: (17,011) (68,574) (69,345) (68,759)
Depreciation and Amortization: (9,847) (38,590) (36,890) (37,979)
Other: Major Maintenance: (1,438) (7,490) (13,630) 0
Net Income (Loss) - Tax Basis: 5,275 (14,732) (16,696) 16,957
Cash generated from operations: 7,848 9,518 13,589 47,052
Less: Cash distributions: 1,980 11,790 80,000 79,867
Cash generated after cash distributions: 6,848 (2,272) (66,411) (32,815)
Tax and distribution data per $1,000 invested:
Federal taxable income (loss): 7 18 (21) 10
Cash distributions to investors: 2 15 100 100
Annualized cash on cash
yield to investors: 1% 1% 10% 10%
Amount (in percentage terms) remaining
invested in program property at the
end of last year reported in table: 100% 100% 100% 100%
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
Net income (loss) - tax basis reflected in the table above differs from the
amount reported as taxable income (loss) due primarily to (a) in certain cases,
the inclusion of certain advances as taxable income and (b) major maintenance
expenses being reported as capital expenditures, rather than deductible expenses
for purposes of taxable income (loss).
The significant differences between tax basis net income (loss) determined on a
tax basis and net income (loss) determined on the basis of generally accepted
accounting principles ("GAAP") are as follows. First, for tax purposes,
residential apartment properties have a depreciable life of 27.5 years, compared
to 30 years under GAAP. Second, rental income is accounted for on a tax basis on
receipt, but accrued under GAAP accounting. According to management of the
Operating Partnership, the difference in accounting results attributable to the
different depreciable lives and timing of rental income under the two methods is
not material. Third, for tax purposes, the partnership's depreciable basis in
its residential apartment property was stepped up at the time of the investors'
acquisition of a limited partnership interest in the partnership to reflect
their purchase price. Under GAAP accounting, stepped up basis is not recognized.
For 1997, the difference between net income (loss) determined on a tax basis and
net income (loss) determined on a GAAP basis was approximately $10,000.
In certain cases, "cash distributions" may include net operating cash flow, a
portion of cash reserves funded out of net proceeds of the program's offering,
refinancing proceeds or advances from affiliates. "Other" includes ancillary
income such as forfeited security deposits, laundry and vending income, pet
fees, distribution supplements and interest income.
III-8
<PAGE>
TABLE III:
OPERATING RESULTS OF PRIOR PROGRAMS (cont'd)
Florida Tax Credit Fund, Ltd.
<TABLE>
<CAPTION>
1/1/99 -
3/31/99 1998 1997 1996
----------------------------------------------------------------
<S> <C> <C> <C> <C>
Gross Revenues: $ 66,053 $ 275,306 $ 282,587 $ 266,240
Other: 3,280 19,220 0 0
Less:
Operating Expenses: (46,329) (192,793) (191,445) (172,489)
Interest Expenses: (10,618) (66,429) (67,422) (69,122)
Depreciation and Amortization: (9,356) (51,408) (51,408) (47,236)
Other: Major Maintenance: (2,898) (19,681) (28,357) (20,067)
Net Income (Loss) - Tax Basis: 132 (35,786) (56,045) (42,674)
Cash generated from operations: 6,208 (3,598) (4,637) 4,562
Less: Cash distributions: 3,130 9,390 0 25,194
Cash generated after cash distributions: 3,078 (12,988) (4,637) (20,632)
Tax and distribution data per $1,000 invested:
Federal taxable income (loss): 1 (57) (90) (68)
Cash distributions to investors: 5 15 0 40
Annualized cash on cash 2% 2% 1% 4%
yield to investors:
Amount (in percentage terms) remaining
invested in program property at the
end of last year reported in table: 100% 100% 100% 100%
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
Net income (loss) - tax basis reflected in the table above differs from the
amount reported as taxable income (loss) due primarily to (a) in certain cases,
the inclusion of certain advances as taxable income and (b) major maintenance
expenses being reported as capital expenditures, rather than deductible expenses
for purposes of taxable income (loss).
The significant differences between tax basis net income (loss) determined on a
tax basis and net income (loss) determined on the basis of generally accepted
accounting principles ("GAAP") are as follows. First, for tax purposes,
residential apartment properties have a depreciable life of 27.5 years, compared
to 30 years under GAAP. Second, rental income is accounted for on a tax basis on
receipt, but accrued under GAAP accounting. According to management of the
Operating Partnership, the difference in accounting results attributable to the
different depreciable lives and timing of rental income under the two methods is
not material. Third, for tax purposes, the partnership's depreciable basis in
its residential apartment property was stepped up at the time of the investors'
acquisition of a limited partnership interest in the partnership to reflect
their purchase price. Under GAAP accounting, stepped up basis is not recognized.
For 1997, the difference between net income (loss) determined on a tax basis and
net income (loss) determined on a GAAP basis was approximately $ (4,000).
In certain cases, "cash distributions" may include net operating cash flow, a
portion of cash reserves funded out of net proceeds of the program's offering,
refinancing proceeds or advances from affiliates. "Other" includes ancillary
income such as forfeited security deposits, laundry and vending income, pet
fees, distribution supplements and interest income.
III-9
<PAGE>
TABLE III:
OPERATING RESULTS OF PRIOR PROGRAMS (cont'd)
Baron First Time Homebuyer Mortgage Fund, Ltd.
<TABLE>
<CAPTION>
1/1/99 -
3/31/99 1998 1997 1996
------------------------------------------------------------
<S> <C> <C> <C> <C>
Gross Revenues: $ 15,002 $ 60,163 $ 70,341 $ 46,970
Other: 0 0 0 0
Less:
Operating Expenses: (32) (203) (774) (674)
Interest Expenses: 0 0 0 0
Depreciation and Amortization: 0 0 0 0
Other: Major Maintenance: 0 0 0 0
Net Income (Loss) - Tax Basis: 14,470 59,960 69,567 46,296
Cash generated from operations: 14,470 59,960 69,567 46,296
Less: Cash distributions: 15,000 60,000 60,000 45,536
Cash generated after cash distributions: (530) (40) 9,567 760
Tax and distribution data per $1,000 invested:
Federal taxable income (loss): 29 119 139 93
Cash distributions to investors: 30 120 120 91
Annualized cash on cash
yield to investors: 12% 12% 12% 12%
Amount (in percentage terms) remaining
invested in program property at the
end of last year reported in table: 100% 100% 100% 100%
- -----------------------------------------------------------------------------------------------------------------
</TABLE>
Net income (loss) - tax basis reflected in the table above differs from the
amount reported as taxable income (loss) due primarily to (a) in certain cases,
the inclusion of certain advances as taxable income and (b) major maintenance
expenses being reported as capital expenditures, rather than deductible expenses
for purposes of taxable income (loss).
The significant differences between tax basis net income (loss) determined on a
tax basis and net income (loss) determined on the basis of generally accepted
accounting principles ("GAAP") are as follows. First, for tax purposes,
residential apartment properties have a depreciable life of 27.5 years, compared
to 30 years under GAAP. Second, rental income is accounted for on a tax basis on
receipt, but accrued under GAAP accounting. Third, for tax purposes, the
depreciable basis in a residential apartment property is stepped up to reflect
the purchase price at the time of acquisition of fee simple title to the
property or of the equity interest in the partnership which owns such title.
Under GAAP accounting, stepped up basis is not recognized. In respect of the
partnership, there is no difference between net income (loss) determined on a
tax basis as reflected in the table above and net income (loss) determined on a
GAAP basis since the partnership does not own a direct or indirect interest in a
residential apartment property.
In certain cases, "cash distributions" may include net operating cash flow, a
portion of cash reserves funded out of net proceeds of the program's offering,
refinancing proceeds or advances from affiliates. "Other" includes ancillary
income such as forfeited security deposits, laundry and vending income, pet
fees, distribution supplements and interest income.
III-10
<PAGE>
TABLE III:
OPERATING RESULTS OF PRIOR PROGRAMS (cont'd)
Florida Capital Income Fund IV, Ltd.
<TABLE>
<CAPTION>
1/1/99 -
3/31/99 1998 1997 1996
----------------------------------------------------------------
<S> <C> <C> <C> <C>
Gross Revenues: $ 226,756 $ 703,101 $ 745,649 $ 695,308
Other: 0 26,874 22,536 60,265
Less:
Operating Expenses: (149,607) (744,965) (469,088) (435,005)
Interest Expenses: (53,000) (305,281) (310,603) (312,704)
Depreciation and Amortization: (32,141) (138,503) (132,061) (137,316)
Other: Major Maintenance: 0 (45,464) (36,903) 0
Net Income (Loss) - Tax Basis: (7,992) (504,238) (180,470) (129,452)
Cash generated from operations: 24,149 (392,609) (70,945) (52,401)
Less: Cash distributions: 0 96,506 180,233 149,240
Cash generated after cash distributions: 24,149 (489,115) (251,178) (201,641)
Tax and distribution data per $1,000 invested:
Federal taxable income (loss): (4) (277) (99) (71)
Cash distributions to investors: 0 53 99 82
Annualized cash on cash
yield to investors: 0% 5% 10% 10%
Amount (in percentage terms) remaining
invested in program property at the
end of last year reported in table: 100% 100% 100% 100%
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
Net income (loss) - tax basis reflected in the table above differs from the
amount reported as taxable income (loss) due primarily to (a) in certain cases,
the inclusion of certain advances as taxable income and (b) major maintenance
expenses being reported as capital expenditures, rather than deductible expenses
for purposes of taxable income (loss).
The significant differences between tax basis net income (loss) determined on a
tax basis and net income (loss) determined on the basis of generally accepted
accounting principles ("GAAP") are as follows. First, for tax purposes,
residential apartment properties have a depreciable life of 27.5 years, compared
to 30 years under GAAP. Second, rental income is accounted for on a tax basis on
receipt, but accrued under GAAP accounting. According to management of the
Operating Partnership, the difference in accounting results attributable to the
different depreciable lives and timing of rental income under the two methods is
not material. Third, for tax purposes, the partnership's depreciable basis in
its residential apartment property was stepped up at the time of the investors'
acquisition of a limited partnership interest in the partnership to reflect
their purchase price. Under GAAP accounting, stepped up basis is not recognized.
For 1997, the difference between net income (loss) determined on a tax basis and
net income (loss) determined on a GAAP basis was approximately $17,000.
In certain cases, "cash distributions" may include net operating cash flow, a
portion of cash reserves funded out of net proceeds of the program's offering,
refinancing proceeds or advances from affiliates. "Other" includes ancillary
income such as forfeited security deposits, laundry and vending income, pet
fees, distribution supplements and interest income.
III-11
<PAGE>
TABLE III:
OPERATING RESULTS OF PRIOR PROGRAMS (cont'd)
GSU Stadium Student Apartments, Ltd.
<TABLE>
<CAPTION>
1/1/99 -
3/31/99 1998 1997 1996
----------------------------------------------------------------
<S> <C> <C> <C> <C>
Gross Revenues: $ 104,712 $ 420,783 $ 458,687 $ 427,919
Other: 1,756 21,097 27,710 21,809
Less:
Operating Expenses: (38,766) (312,009) (242,603) (212,984)
Interest Expenses: (33,913) (141,387) (146,120) (122,433)
Depreciation and Amortization: (22,715) (77,378) (65,135) (66,830)
Other: Major Maintenance: 0 (25,003) (35,113) (54,112)
Net Income (Loss) - Tax Basis: 11,074 (113,897) (2,574) (6,631)
Cash generated from operations: 32,033 (57,616) 34,851 38,390
Less: Cash distributions: 10,000 74,828 203,105(1) 84,961
Cash generated after cash distributions: 22,033 (132,444) (168,254) (46,571)
Tax and distribution data per $1,000 invested:
Federal taxable income (loss): 11 (114) (3) (7)
Cash distributions to investors: 10 75 203 85
Annualized cash on cash
yield to investors: 4% 7% 10% 10%
Amount (in percentage terms) remaining
invested in program property at the
end of last year reported in table: 100% 100% 100% 100%
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
Net income (loss) - tax basis reflected in the table above differs from the
amount reported as taxable income (loss) due primarily to (a) in certain cases,
the inclusion of certain advances as taxable income and (b) major maintenance
expenses being reported as capital expenditures, rather than deductible expenses
for purposes of taxable income (loss).
The significant differences between tax basis net income (loss) determined on a
tax basis and net income (loss) determined on the basis of generally accepted
accounting principles ("GAAP") are as follows. First, for tax purposes,
residential apartment properties have a depreciable life of 27.5 years, compared
to 30 years under GAAP. Second, rental income is accounted for on a tax basis on
receipt, but accrued under GAAP accounting. According to management of the
Operating Partnership, the difference in accounting results attributable to the
different depreciable lives and timing of rental income under the two methods is
not material. Third, for tax purposes, the partnership's depreciable basis in
its residential apartment property was stepped up at the time of the investors'
acquisition of a limited partnership interest in the partnership to reflect
their purchase price. Under GAAP accounting, stepped up basis is not recognized.
For 1997, the difference between net income (loss) determined on a tax basis and
net income (loss) determined on a GAAP basis was approximately $20,000.
In certain cases, "cash distributions" may include net operating cash flow, a
portion of cash reserves funded out of net proceeds of the program's offering,
refinancing proceeds or advances from affiliates. "Other" includes ancillary
income such as forfeited security deposits, laundry and vending income, pet
fees, distribution supplements and interest income.
(1) $100,000 of such amount represents a return of capital attributable to net
proceeds in connection with a first mortgage refinancing with an initial
principal balance higher than the principal balance at the time of refinancing.
III-12
<PAGE>
TABLE III:
OPERATING RESULTS OF PRIOR PROGRAMS (cont'd)
Brevard Mortgage Program, Ltd.
<TABLE>
<CAPTION>
1/1/99 -
3/31/99 1998 1997 1996
------------------------------------------------------------
<S> <C> <C> <C> <C>
Gross Revenues: 17,719 73,533 $ 64,380 $ 73,267
Other: 35 0 0
Less:
Operating Expenses: (2,236) (12,554) (2,119) (874)
Interest Expenses: 0 0 0 0
Depreciation and Amortization: 0 0 0 0
Other: Major Maintenance: 0 0 0 0
Net Income (Loss) - Tax Basis: 15,483 60,979 62,261 72,393
Cash generated from operations: 15,483 60,979 62,261 72,393
Less: Cash distributions: 14,375 57,500 57,500 34,572
Cash generated after cash distributions: 1,108 3,479 4,761 37,821
Tax and distribution data per $1,000 invested:
Federal taxable income (loss): 27 106 108 126
Cash distributions to investors: 25 100 100 60
Annualized cash on cash
yield to investors: 10% 10% 10% 10%
Amount (in percentage terms) remaining
invested in program property at the
end of last year reported in table: 100% 100% 100% 100%
- -----------------------------------------------------------------------------------------------------------------
</TABLE>
Net income (loss) - tax basis reflected in the table above differs from the
amount reported as taxable income (loss) due primarily to (a) in certain cases,
the inclusion of certain advances as taxable income and (b) major maintenance
expenses being reported as capital expenditures, rather than deductible expenses
for purposes of taxable income (loss).
The significant differences between tax basis net income (loss) determined on a
tax basis and net income (loss) determined on the basis of generally accepted
accounting principles ("GAAP") are as follows. First, for tax purposes,
residential apartment properties have a depreciable life of 27.5 years, compared
to 30 years under GAAP. Second, rental income is accounted for on a tax basis on
receipt, but accrued under GAAP accounting. Third, for tax purposes, the
depreciable basis in a residential apartment property is stepped up to reflect
the purchase price at the time of acquisition of fee simple title to the
property or of the equity interest in the partnership which owns such title.
Under GAAP accounting, stepped up basis is not recognized. In respect of the
partnership, there is no difference between net income (loss) determined on a
tax basis as reflected in the table above and net income (loss) determined on a
GAAP basis since the partnership does not own a direct or indirect interest in a
residential apartment property.
In certain cases, "cash distributions" may include net operating cash flow, a
portion of cash reserves funded out of net proceeds of the program's offering,
refinancing proceeds or advances from affiliates. "Other" includes ancillary
income such as forfeited security deposits, laundry and vending income, pet
fees, distribution supplements and interest income.
III-13
<PAGE>
TABLE III:
OPERATING RESULTS OF PRIOR PROGRAMS (cont'd)
Baron First Time Homebuyer Mortgage Fund II, Ltd.
<TABLE>
<CAPTION>
1/1/99 -
3/31/99 1998 1997 1996
------------------------------------------------------------
<S> <C> <C> <C> <C>
Gross Revenues: $ 15,005 $ 59,631 $ 69,051 $ 41,748
Other: 0 0 45 0
Less:
Operating Expenses: (41) (363) (938) (611)
Interest Expenses: 0 0 0 0
Depreciation and Amortization: 0 0 0 0
Other: Major Maintenance: 0 0 0 0
Net Income (Loss) - Tax Basis: 14,964 59,268 68,158 41,137
Cash generated from operations: 14,964 59,268 68,113 41,137
Less: Cash distributions: 15,110 60,710 60,300 42,619
Cash generated after cash distributions: (146) (1,442) 7,813 (1,482)
Tax and distribution data per $1,000 invested:
Federal taxable income (loss): 30 119 136 82
Cash distributions to investors: 30 121 121 85
Annualized cash on cash
yield to investors: 12% 12% 12% 12%
Amount (in percentage terms) remaining
invested in program property at the
end of last year reported in table: 100% 100% 100% 100%
- -----------------------------------------------------------------------------------------------------------------
</TABLE>
Net income (loss) - tax basis reflected in the table above differs from the
amount reported as taxable income (loss) due primarily to (a) in certain cases,
the inclusion of certain advances as taxable income and (b) major maintenance
expenses being reported as capital expenditures, rather than deductible expenses
for purposes of taxable income (loss).
The significant differences between tax basis net income (loss) determined on a
tax basis and net income (loss) determined on the basis of generally accepted
accounting principles ("GAAP") are as follows. First, for tax purposes,
residential apartment properties have a depreciable life of 27.5 years, compared
to 30 years under GAAP. Second, rental income is accounted for on a tax basis on
receipt, but accrued under GAAP accounting. Third, for tax purposes, the
depreciable basis in a residential apartment property is stepped up to reflect
the purchase price at the time of acquisition of fee simple title to the
property or of the equity interest in the partnership which owns such title.
Under GAAP accounting, stepped up basis is not recognized. In respect of the
partnership, there is no difference between net income (loss) determined on a
tax basis as reflected in the table above and net income (loss) determined on a
GAAP basis since the partnership does not own a direct or indirect interest in a
residential apartment property.
In certain cases, "cash distributions" may include net operating cash flow, a
portion of cash reserves funded out of net proceeds of the program's offering,
refinancing proceeds or advances from affiliates. "Other" includes ancillary
income such as forfeited security deposits, laundry and vending income, pet
fees, distribution supplements and interest income.
III-14
<PAGE>
TABLE III:
OPERATING RESULTS OF PRIOR PROGRAMS (cont'd)
Clearwater First Time Homebuyer Program, Ltd.
<TABLE>
<CAPTION>
1/1/99 -
3/31/99 1998 1997 1996
------------------------------------------------------------
<S> <C> <C> <C> <C>
Gross Revenues: $ 22,500 $ 90,250 $ 88,149 $ 46,999
Other: 0 0 0 0
Less:
Operating Expenses: (26) (126) (132) (93)
Interest Expenses: 0 0 0 0
Depreciation and Amortization: 0 0 0 0
Other: Major Maintenance: 0 0 0 0
Net Income (Loss) - Tax Basis: 22,474 90,124 88,017 46,906
Cash generated from operations: 22,474 90,124 88,017 46,906
Less: Cash distributions: 22,500 90,000 90,000 43,377
Cash generated after cash distributions: (26) 124 (1,983) 3,529
Tax and distribution data per $1,000 invested:
Federal taxable income (loss): 30 120 117 62
Cash distributions to investors: 30 120 120 58
Annualized cash on cash
yield to investors: 12% 12% 12% 12%
Amount (in percentage terms) remaining
invested in program property at the
end of last year reported in table: 100% 100% 100% 100%
- -----------------------------------------------------------------------------------------------------------------
</TABLE>
Net income (loss) - tax basis reflected in the table above differs from the
amount reported as taxable income (loss) due primarily to (a) in certain cases,
the inclusion of certain advances as taxable income and (b) major maintenance
expenses being reported as capital expenditures, rather than deductible expenses
for purposes of taxable income (loss).
The significant differences between tax basis net income (loss) determined on a
tax basis and net income (loss) determined on the basis of generally accepted
accounting principles ("GAAP") are as follows. First, for tax purposes,
residential apartment properties have a depreciable life of 27.5 years, compared
to 30 years under GAAP. Second, rental income is accounted for on a tax basis on
receipt, but accrued under GAAP accounting. Third, for tax purposes, the
depreciable basis in a residential apartment property is stepped up to reflect
the purchase price at the time of acquisition of fee simple title to the
property or of the equity interest in the partnership which owns such title.
Under GAAP accounting, stepped up basis is not recognized. In respect of the
partnership, there is no difference between net income (loss) determined on a
tax basis as reflected in the table above and net income (loss) determined on a
GAAP basis since the partnership does not own a direct or indirect interest in a
residential apartment property.
In certain cases, "cash distributions" may include net operating cash flow, a
portion of cash reserves funded out of net proceeds of the program's offering,
refinancing proceeds or advances from affiliates. "Other" includes ancillary
income such as forfeited security deposits, laundry and vending income, pet
fees, distribution supplements and interest income.
III-15
<PAGE>
TABLE III:
OPERATING RESULTS OF PRIOR PROGRAMS (cont'd)
Baron First Time Homebuyer Mortgage Fund III, Ltd.
<TABLE>
<CAPTION>
1/1/99 -
3/31/99 1998 1997 1996
------------------------------------------------------------
<S> <C> <C> <C> <C>
Gross Revenues: $ 15,003 $ 60,016 $ 70,425 $ 29,006
Other: 0 0 0 0
Less:
Operating Expenses: (37) (337) (315) (408)
Interest Expenses: 0 0 0 0
Depreciation and Amortization: 0 0 0 0
Other: Major Maintenance: 0 0 0 0
Net Income (Loss) - Tax Basis: 14,966 59,679 70,110 28,598
Cash generated from operations: 14,966 59,679 70,110 28,598
Less: Cash distributions: 15,000 60,000 60,000 27,846
Cash generated after cash distributions: (34) (321) 10,110 752
Tax and distribution data per $1,000 invested:
Federal taxable income (loss): 30 119 140 57
Cash distributions to investors: 30 120 120 56
Annualized cash on cash
yield to investors: 12% 12% 12% 12%
Amount (in percentage terms) remaining
invested in program property at the
end of last year reported in table: 100% 100% 100% 100%
- -----------------------------------------------------------------------------------------------------------------
</TABLE>
Net income (loss) - tax basis reflected in the table above differs from the
amount reported as taxable income (loss) due primarily to (a) in certain cases,
the inclusion of certain advances as taxable income and (b) major maintenance
expenses being reported as capital expenditures, rather than deductible expenses
for purposes of taxable income (loss).
The significant differences between tax basis net income (loss) determined on a
tax basis and net income (loss) determined on the basis of generally accepted
accounting principles ("GAAP") are as follows. First, for tax purposes,
residential apartment properties have a depreciable life of 27.5 years, compared
to 30 years under GAAP. Second, rental income is accounted for on a tax basis on
receipt, but accrued under GAAP accounting. Third, for tax purposes, the
depreciable basis in a residential apartment property is stepped up to reflect
the purchase price at the time of acquisition of fee simple title to the
property or of the equity interest in the partnership which owns such title.
Under GAAP accounting, stepped up basis is not recognized. In respect of the
partnership, there is no difference between net income (loss) determined on a
tax basis as reflected in the table above and net income (loss) determined on a
GAAP basis since the partnership does not own a direct or indirect interest in a
residential apartment property.
In certain cases, "cash distributions" may include net operating cash flow, a
portion of cash reserves funded out of net proceeds of the program's offering,
refinancing proceeds or advances from affiliates. "Other" includes ancillary
income such as forfeited security deposits, laundry and vending income, pet
fees, distribution supplements and interest income.
III-16
<PAGE>
TABLE III:
OPERATING RESULTS OF PRIOR PROGRAMS (cont'd)
Baron First Time Homebuyer Mortgage Fund V, Ltd.
<TABLE>
<CAPTION>
1/1/99 -
3/31/99 1998 1997 1996
------------------------------------------------------------
<S> <C> <C> <C> <C>
Gross Revenues: $ 15,004 $ 55,000 $ 75,400 $ 26,198
Other: 0 0 0 0
Less:
Operating Expenses: (39) (204) (713) (245)
Interest Expenses: 0 0 0 0
Depreciation and Amortization: 0 0 0 0
Other: Major Maintenance: 0 0 0 0
Net Income (Loss) - Tax Basis: 14,965 54,796 74,687 25,953
Cash generated from operations: 14,965 54,796 74,687 25,953
Less: Cash distributions: 15,000 60,000 60,000 25,140
Cash generated after cash distributions: (35) (5,204) 14,687 813
Tax and distribution data per $1,000 invested:
Federal taxable income (loss): 30 110 149 52
Cash distributions to investors: 30 120 120 50
Annualized cash on cash
yield to investors: 12% 12% 12% 12%
Amount (in percentage terms) remaining
invested in program property at the
end of last year reported in table: 100% 100% 100% 100%
- -----------------------------------------------------------------------------------------------------------------
</TABLE>
Net income (loss) - tax basis reflected in the table above differs from the
amount reported as taxable income (loss) due primarily to (a) in certain cases,
the inclusion of certain advances as taxable income and (b) major maintenance
expenses being reported as capital expenditures, rather than deductible expenses
for purposes of taxable income (loss).
The significant differences between tax basis net income (loss) determined on a
tax basis and net income (loss) determined on the basis of generally accepted
accounting principles ("GAAP") are as follows. First, for tax purposes,
residential apartment properties have a depreciable life of 27.5 years, compared
to 30 years under GAAP. Second, rental income is accounted for on a tax basis on
receipt, but accrued under GAAP accounting. Third, for tax purposes, the
depreciable basis in a residential apartment property is stepped up to reflect
the purchase price at the time of acquisition of fee simple title to the
property or of the equity interest in the partnership which owns such title.
Under GAAP accounting, stepped up basis is not recognized. In respect of the
partnership, there is no difference between net income (loss) determined on a
tax basis as reflected in the table above and net income (loss) determined on a
GAAP basis since the partnership does not own a direct or indirect interest in a
residential apartment property.
In certain cases, "cash distributions" may include net operating cash flow, a
portion of cash reserves funded out of net proceeds of the program's offering,
refinancing proceeds or advances from affiliates. "Other" includes ancillary
income such as forfeited security deposits, laundry and vending income, pet
fees, distribution supplements and interest income.
III-17
<PAGE>
TABLE III:
OPERATING RESULTS OF PRIOR PROGRAMS (cont'd)
Baron First Time Homebuyer Mortgage Fund IV, Ltd.
<TABLE>
<CAPTION>
1/1/99 -
3/31/99 1998 1997 1996
------------------------------------------------------------
<S> <C> <C> <C> <C>
Gross Revenues: $ 15,004 $ 60,061 $ 74,020 $ 14,529
Other: 0 0 0 0
Less:
Operating Expenses: (39) (194) (164) (377)
Interest Expenses: 0 0 0 0
Depreciation and Amortization: 0 0 0 0
Other: Major Maintenance: 0 0 0 0
Net Income (Loss) - Tax Basis: 14,965 59,867 73,856 14,152
Cash generated from operations: 14,965 59,867 73,856 14,152
Less: Cash distributions: 15,000 60,000 60,000 13,900
Cash generated after cash distributions: (35) (133) 13,856 252
Tax and distribution data per $1,000 invested:
Federal taxable income (loss): 30 120 147 28
Cash distributions to investors: 30 120 120 28
Annualized cash on cash
yield to investors: 12% 12% 12% 10%
Amount (in percentage terms) remaining
invested in program property at the
end of last year reported in table: 100% 100% 100% 100%
- -----------------------------------------------------------------------------------------------------------------
</TABLE>
Net income (loss) - tax basis reflected in the table above differs from the
amount reported as taxable income (loss) due primarily to (a) in certain cases,
the inclusion of certain advances as taxable income and (b) major maintenance
expenses being reported as capital expenditures, rather than deductible expenses
for purposes of taxable income (loss).
The significant differences between tax basis net income (loss) determined on a
tax basis and net income (loss) determined on the basis of generally accepted
accounting principles ("GAAP") are as follows. First, for tax purposes,
residential apartment properties have a depreciable life of 27.5 years, compared
to 30 years under GAAP. Second, rental income is accounted for on a tax basis on
receipt, but accrued under GAAP accounting. Third, for tax purposes, the
depreciable basis in a residential apartment property is stepped up to reflect
the purchase price at the time of acquisition of fee simple title to the
property or of the equity interest in the partnership which owns such title.
Under GAAP accounting, stepped up basis is not recognized. In respect of the
partnership, there is no difference between net income (loss) determined on a
tax basis as reflected in the table above and net income (loss) determined on a
GAAP basis since the partnership does not own a direct or indirect interest in a
residential apartment property.
In certain cases, "cash distributions" may include net operating cash flow, a
portion of cash reserves funded out of net proceeds of the program's offering,
refinancing proceeds or advances from affiliates. "Other" includes ancillary
income such as forfeited security deposits, laundry and vending income, pet
fees, distribution supplements and interest income.
III-18
<PAGE>
TABLE III:
OPERATING RESULTS OF PRIOR PROGRAMS (cont'd)
Florida Income Growth Fund V, Ltd.
<TABLE>
<CAPTION>
1/1/99 -
3/31/99 1998 1997 1996
----------------------------------------------------------------
<S> <C> <C> <C> <C>
Gross Revenues: $ 78,458 $ 333,761 $ 273,596 $ 278,590
Other: 1,440 20,828 20,987 26,698
Less:
Operating Expenses: (36,647) (178,425) (163,172) (172,943)
Interest Expenses: (22,999) (93,696) (94,358) (98,805)
Depreciation and Amortization: (17,624) (70,494) (52,504) (56,381)
Other: Major Maintenance: (1,855) (21,970) (16,416) (27,704)
Net Income (Loss) - Tax Basis: 773 (9,996) (31,867) (45,963)
Cash generated from operations: 16,957 39,670 (350) (20,862)
Less: Cash distributions: 12,000 48,608 114,988 77,039
Cash generated after cash distributions: 4,957 (8,938) (115,338) (97,901)
Tax and distribution data per $1,000 invested:
Federal taxable income (loss): 1 (9) (28) (40)
Cash distributions to investors: 10 43 100 67
Annualized cash on cash
yield to investors: 4% 4% 10% 10%
Amount (in percentage terms) remaining
invested in program property at the
end of last year reported in table: 100% 100% 100% 100%
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
Net income (loss) - tax basis reflected in the table above differs from the
amount reported as taxable income (loss) due primarily to (a) in certain cases,
the inclusion of certain advances as taxable income and (b) major maintenance
expenses being reported as capital expenditures, rather than deductible expenses
for purposes of taxable income (loss).
The significant differences between tax basis net income (loss) determined on a
tax basis and net income (loss) determined on the basis of generally accepted
accounting principles ("GAAP") are as follows. First, for tax purposes,
residential apartment properties have a depreciable life of 27.5 years, compared
to 30 years under GAAP. Second, rental income is accounted for on a tax basis on
receipt, but accrued under GAAP accounting. According to management of the
Operating Partnership, the difference in accounting results attributable to the
different depreciable lives and timing of rental income under the two methods is
not material. Third, for tax purposes, the partnership's depreciable basis in
its residential apartment property was stepped up at the time of the investors'
acquisition of a limited partnership interest in the partnership to reflect
their purchase price. Under GAAP accounting, stepped up basis is not recognized.
For 1997, the difference between net income (loss) determined on a tax basis and
net income (loss) determined on a GAAP basis was approximately $19,000.
In certain cases, "cash distributions" may include net operating cash flow, a
portion of cash reserves funded out of net proceeds of the program's offering,
refinancing proceeds or advances from affiliates. "Other" includes ancillary
income such as forfeited security deposits, laundry and vending income, pet
fees, distribution supplements and interest income.
III-19
<PAGE>
TABLE III:
OPERATING RESULTS OF PRIOR PROGRAMS (cont'd)
Lamplight Court of Bellefontaine Apartments, Ltd.
<TABLE>
<CAPTION>
1/1/99 -
3/31/99 1998 1997 1996
----------------------------------------------------------------
<S> <C> <C> <C> <C>
Gross Revenues: $ 15,413 $ 20,500 $(12,535) $(37,785)
Other: -- 158 9,973 733
Less:
Operating Expenses: (1,525) (11,349) (1,262) (231)
Interest Expenses: 0 0 0 0
Depreciation and Amortization: 0 0 0 0
Other: Major Maintenance: 0 0 0 0
Net Income (Loss) - Tax Basis: 13,888 9,309 (3,824) (37,283)
Cash generated from operations: 13,888 9,309 8,711 502
Less: Cash distributions: 4,000 60,100 69,525 16,593
Cash generated after cash distributions: 9,888 (50,791) (60,814) (16,091)
Tax and distribution data per $1,000 invested:
Federal taxable income (loss): 20 13 (5) (1)
Cash distributions to investors: 6 86 100 24
Annualized cash on cash
yield to investors: 3% 9% 10% 3%
Amount (in percentage terms) remaining
invested in program property at the
end of last year reported in table: 100% 100% 100% 100%
- -----------------------------------------------------------------------------------------------------------------
</TABLE>
Net income (loss) - tax basis reflected in the table above differs from the
amount reported as taxable income (loss) due primarily to (a) in certain cases,
the inclusion of certain advances as taxable income and (b) major maintenance
expenses being reported as capital expenditures, rather than deductible expenses
for purposes of taxable income (loss).
The significant differences between tax basis net income (loss) determined on a
tax basis and net income (loss) determined on the basis of generally accepted
accounting principles ("GAAP") are as follows. First, for tax purposes,
residential apartment properties have a depreciable life of 27.5 years, compared
to 30 years under GAAP. Second, rental income is accounted for on a tax basis on
receipt, but accrued under GAAP accounting. Third, for tax purposes, the
depreciable basis in a residential apartment property is stepped up to reflect
the purchase price at the time of acquisition of fee simple title to the
property or of the equity interest in the partnership which owns such title.
Under GAAP accounting, stepped up basis is not recognized. For 1997, the
difference between net income (loss) determined on a tax basis and net income
(loss) determined on a GAAP basis was approximately $________.
In certain cases, "cash distributions" may include net operating cash flow, a
portion of cash reserves funded out of net proceeds of the program's offering,
refinancing proceeds or advances from affiliates. "Other" includes ancillary
income such as forfeited security deposits, laundry and vending income, pet
fees, distribution supplements and interest income.
III-20
<PAGE>
TABLE III:
OPERATING RESULTS OF PRIOR PROGRAMS (cont'd)
Baron Strategic Vulture Fund I, Ltd.
<TABLE>
<CAPTION>
1/1/99 -
3/31/99 1998 1997 1996
----------------------------------------------------------------
<S> <C> <C> <C> <C>
Gross Revenues: $ 25,980 $ 108,204 $ 78,996 $ 3,731
Other: 0 447 0 0
Less:
Operating Expenses: (3,339) (16,445) (16,705) (464)
Interest Expenses: 0 (6,451) 0 0
Depreciation and Amortization: 0 0 0 0
Other: Major Maintenance: 0 0 0 0
Net Income (Loss) - Tax Basis: 22,641 85,755 62,291 3,267
Cash generated from operations: 22,641 85,308 62,291 3,267
Less: Cash distributions: 22,500 90,000 89,894 14,044
Cash generated after cash distributions: 141 (4,692) (27,603) (10,777)
Tax and distribution data per $1,000 invested:
Federal taxable income (loss): 25 95 69 4
Cash distributions to investors: 25 100 100 16
Annualized cash on cash
yield to investors: 10% 10% 10% 10%
Amount (in percentage terms) remaining
invested in program property at the
end of last year reported in table: 100% 100% 100% 100%
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
Net income (loss) - tax basis reflected in the table above differs from the
amount reported as taxable income (loss) due primarily to (a) in certain cases,
the inclusion of certain advances as taxable income and (b) major maintenance
expenses being reported as capital expenditures, rather than deductible expenses
for purposes of taxable income (loss).
The significant differences between tax basis net income (loss) determined on a
tax basis and net income (loss) determined on the basis of generally accepted
accounting principles ("GAAP") are as follows. First, for tax purposes,
residential apartment properties have a depreciable life of 27.5 years, compared
to 30 years under GAAP. Second, rental income is accounted for on a tax basis on
receipt, but accrued under GAAP accounting. Third, for tax purposes, the
depreciable basis in a residential apartment property is stepped up to reflect
the purchase price at the time of acquisition of fee simple title to the
property or of the equity interest in the partnership which owns such title.
Under GAAP accounting, stepped up basis is not recognized. In respect of the
partnership, there is no difference between net income (loss) determined on a
tax basis as reflected in the table above and net income (loss) determined on a
GAAP basis since the partnership does not own a direct or indirect interest in a
residential apartment property.
In certain cases, "cash distributions" may include net operating cash flow, a
portion of cash reserves funded out of net proceeds of the program's offering,
refinancing proceeds or advances from affiliates. "Other" includes ancillary
income such as forfeited security deposits, laundry and vending income, pet
fees, distribution supplements and interest income.
III-21
<PAGE>
TABLE III:
OPERATING RESULTS OF PRIOR PROGRAMS (cont'd)
Baron Strategic Investment Fund, Ltd.
<TABLE>
<CAPTION>
1/1/99 -
3/31/99 1998 1997 1996
----------------------------------------------------------------
<S> <C> <C> <C> <C>
Gross Revenues: $ 21,353 $ 105,368 $ 61,000 $ 2,479
Other: 0 365 1,906 0
Less:
Operating Expenses: (1,934) (29,981) (25,685) (403)
Interest Expenses: 0 0 0 0
Depreciation and Amortization: 0 0 0 0
Other: Major Maintenance: 0 0 0 0
Net Income (Loss) - Tax Basis: 19,419 75,752 37,221 2,076
Cash generated from operations: 19,419 75,752 35,315 2,076
Less: Cash distributions: 20,000 56,700 112,664 8,884
Cash generated after cash distributions: (11,171) 19,052 (77,349) (6,808)
Tax and distribution data per $1,000 invested:
Federal taxable income (loss): 16 63 31 2
Cash distributions to investors: 16 47 94 7
Annualized cash on cash
yield to investors: 5% 5% 10% 10%
Amount (in percentage terms) remaining
invested in program property at the
end of last year reported in table: 100% 100% 100% 100%
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
Net income (loss) - tax basis reflected in the table above differs from the
amount reported as taxable income (loss) due primarily to (a) in certain cases,
the inclusion of certain advances as taxable income and (b) major maintenance
expenses being reported as capital expenditures, rather than deductible expenses
for purposes of taxable income (loss).
The significant differences between tax basis net income (loss) determined on a
tax basis and net income (loss) determined on the basis of generally accepted
accounting principles ("GAAP") are as follows. First, for tax purposes,
residential apartment properties have a depreciable life of 27.5 years, compared
to 30 years under GAAP. Second, rental income is accounted for on a tax basis on
receipt, but accrued under GAAP accounting. Third, for tax purposes, the
depreciable basis in a residential apartment property is stepped up to reflect
the purchase price at the time of acquisition of fee simple title to the
property or of the equity interest in the partnership which owns such title.
Under GAAP accounting, stepped up basis is not recognized. In respect of the
partnership, there is no difference between net income (loss) determined on a
tax basis as reflected in the table above and net income (loss) determined on a
GAAP basis since the partnership does not own a direct or indirect interest in a
residential apartment property.
In certain cases, "cash distributions" may include net operating cash flow, a
portion of cash reserves funded out of net proceeds of the program's offering,
refinancing proceeds or advances from affiliates. "Other" includes ancillary
income such as forfeited security deposits, laundry and vending income, pet
fees, distribution supplements and interest income.
III-22
<PAGE>
TABLE III:
OPERATING RESULTS OF PRIOR PROGRAMS (cont'd)
Baron Strategic Investment Fund II, Ltd.
<TABLE>
<CAPTION>
1/1/99 -
3/31/99 1998 1997 1996
----------------------------------------------------------------
<S> <C> <C> <C> <C>
Gross Revenues: $ 69,727 $ 280,018 $ 261,513 $ 79,630
Other: 19,056 21,085 53,534 1,666
Less:
Operating Expenses: (36,954) (243,709) (205,243) (60,041)
Interest Expenses: (24,593) (91,982) (92,514) 0
Depreciation and Amortization: (13,546) (57,889) (38,465) (7,552)
Other: Major Maintenance: (560) (19,766) (70,103) 0
Net Income (Loss) - Tax Basis: 13,130 (112,243) (91,278) 13,703
Cash generated from operations: 7,620 (75,439) (52,813) 21,255
Less: Cash distributions: 2,000 13,600 79,601 2,942
Cash generated after cash distributions: 5,620 (89,039) (132,414) 18,313
Tax and distribution data per $1,000 invested:
Federal taxable income (loss): 16 (140) (114) 17
Cash distributions to investors: 3 17 100 4
Annualized cash on cash
yield to investors: 1% 2% 10% 10%
Amount (in percentage terms) remaining
invested in program property at the
end of last year reported in table: 100% 100% 100% 100%
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
Net income (loss) - tax basis reflected in the table above differs from the
amount reported as taxable income (loss) due primarily to (a) in certain cases,
the inclusion of certain advances as taxable income and (b) major maintenance
expenses being reported as capital expenditures, rather than deductible expenses
for purposes of taxable income (loss).
The significant differences between tax basis net income (loss) determined on a
tax basis and net income (loss) determined on the basis of generally accepted
accounting principles ("GAAP") are as follows. First, for tax purposes,
residential apartment properties have a depreciable life of 27.5 years, compared
to 30 years under GAAP. Second, rental income is accounted for on a tax basis on
receipt, but accrued under GAAP accounting. Third, for tax purposes, the
depreciable basis in a residential apartment property is stepped up to reflect
the purchase price at the time of acquisition of fee simple title to the
property or of the equity interest in the partnership which owns such title.
Under GAAP accounting, stepped up basis is not recognized. For 1997, the
difference between net income (loss) determined on a tax basis and net income
(loss) determined on a GAAP basis was approximately $________.
In certain cases, "cash distributions" may include net operating cash flow, a
portion of cash reserves funded out of net proceeds of the program's offering,
refinancing proceeds or advances from affiliates. "Other" includes ancillary
income such as forfeited security deposits, laundry and vending income, pet
fees, distribution supplements and interest income.
III-23
<PAGE>
TABLE III:
OPERATING RESULTS OF PRIOR PROGRAMS (cont'd)
Baron Strategic Investment Fund VI, Ltd.
<TABLE>
<CAPTION>
1/1/99 -
3/31/99 1998 1997 1996
------------------------------------------------------------
<S> <C> <C> <C> <C>
Gross Revenues: $ 20,075 $ 91,973 $ 67,699 $ 400
Other: 0 644 4,500 0
Less:
Operating Expenses: (3,039) (17,023) (17,974) (218)
Interest Expenses: 0 0 0 0
Depreciation and Amortization: 0 0 0 0
Other: Major Maintenance: 0 0 0 0
Net Income (Loss) - Tax Basis: 17,036 75,594 49,725 182
Cash generated from operations: 17,036 75,594 49,725 182
Less: Cash distributions: 8,702 95,000 85,003 0
Cash generated after cash distributions: 8,334 (19,406) (39,778) 182
Tax and distribution data per $1,000 invested:
Federal taxable income (loss): 14 63 41 0
Cash distributions to investors: 7 79 71 0
Annualized cash on cash
yield to investors: 3% 10% 10% 10%
Amount (in percentage terms) remaining
invested in program property at the
end of last year reported in table: 100% 100% 100% 100%
- -----------------------------------------------------------------------------------------------------------------
</TABLE>
Net income (loss) - tax basis reflected in the table above differs from the
amount reported as taxable income (loss) due primarily to (a) in certain cases,
the inclusion of certain advances as taxable income and (b) major maintenance
expenses being reported as capital expenditures, rather than deductible expenses
for purposes of taxable income (loss).
The significant differences between tax basis net income (loss) determined on a
tax basis and net income (loss) determined on the basis of generally accepted
accounting principles ("GAAP") are as follows. First, for tax purposes,
residential apartment properties have a depreciable life of 27.5 years, compared
to 30 years under GAAP. Second, rental income is accounted for on a tax basis on
receipt, but accrued under GAAP accounting. Third, for tax purposes, the
depreciable basis in a residential apartment property is stepped up to reflect
the purchase price at the time of acquisition of fee simple title to the
property or of the equity interest in the partnership which owns such title.
Under GAAP accounting, stepped up basis is not recognized. For 1997, the
difference between net income (loss) determined on a tax basis and net income
(loss) determined on a GAAP basis was approximately $_________.
In certain cases, "cash distributions" may include net operating cash flow, a
portion of cash reserves funded out of net proceeds of the program's offering,
refinancing proceeds or advances from affiliates. "Other" includes ancillary
income such as forfeited security deposits, laundry and vending income, pet
fees, distribution supplements and interest income.
III-24
<PAGE>
TABLE III:
OPERATING RESULTS OF PRIOR PROGRAMS (cont'd)
Baron Development Fund IX, Ltd.
<TABLE>
<CAPTION>
1/1/99 -
3/31/99 1998 1997
-------------------------------------------
<S> <C> <C> <C>
Gross Revenues: $ 24,005 $ 96,138 $ 69,804
Other: 0 0 749
Less:
Operating Expenses: (42) (210) (11,234)
Interest Expenses: 0 0 0
Depreciation and Amortization: 0 0 0
Other: Major Maintenance: 0 0 0
Net Income (Loss) - Tax Basis: 23,963 95,928 59,319
Cash generated from operations: 23,963 95,928 58,570
Less: Cash distributions: 24,142 95,970 58,397
Cash generated after cash distributions: 821 (42) 173
Tax and distribution data per $1,000 invested:
Federal taxable income (loss): 30 120 56
Cash distributions to investors: 30 120 73
Annualized cash on cash
yield to investors: 12% 12% 12%
Amount (in percentage terms) remaining
invested in program property at the
end of last year reported in table: 100% 100% 100%
- ------------------------------------------------------------------------------------------------
</TABLE>
Net income (loss) - tax basis reflected in the table above differs from the
amount reported as taxable income (loss) due primarily to (a) in certain cases,
the inclusion of certain advances as taxable income and (b) major maintenance
expenses being reported as capital expenditures, rather than deductible expenses
for purposes of taxable income (loss).
The significant differences between tax basis net income (loss) determined on a
tax basis and net income (loss) determined on the basis of generally accepted
accounting principles ("GAAP") are as follows. First, for tax purposes,
residential apartment properties have a depreciable life of 27.5 years, compared
to 30 years under GAAP. Second, rental income is accounted for on a tax basis on
receipt, but accrued under GAAP accounting. Third, for tax purposes, the
depreciable basis in a residential apartment property is stepped up to reflect
the purchase price at the time of acquisition of fee simple title to the
property or of the equity interest in the partnership which owns such title.
Under GAAP accounting, stepped up basis is not recognized. For 1997, the
difference between net income (loss) determined on a tax basis and net income
(loss) determined on a GAAP basis was approximately $________.
In certain cases, "cash distributions" may include net operating cash flow, a
portion of cash reserves funded out of net proceeds of the program's offering,
refinancing proceeds or advances from affiliates. "Other" includes ancillary
income such as forfeited security deposits, laundry and vending income, pet
fees, distribution supplements and interest income.
III-25
<PAGE>
TABLE III:
OPERATING RESULTS OF PRIOR PROGRAMS (cont'd)
Baron Income Property Mortgage Fund VI, Ltd.
<TABLE>
<CAPTION>
1/1/99 -
3/31/99 1998 1997 1996
------------------------------------------------------------
<S> <C> <C> <C> <C>
Gross Revenues: $ 22,500 $ 90,100 $ 66,807 $ 5,740
Other: 5 35 389 85
Less:
Operating Expenses: (40) (204) (1,479) (260)
Interest Expenses: 0 0 0 0
Depreciation and Amortization: 0 0 0 0
Other: Major Maintenance: 0 0 0 0
Net Income (Loss) - Tax Basis: 22,465 89,931 65,717 5,565
Cash generated from operations: 22,465 89,931 65,328 5,480
Less: Cash distributions: 22,500 90,000 65,250 6,334
Cash generated after cash distributions: (35) (69) 78 (854)
Tax and distribution data per $1,000 invested:
Federal taxable income (loss): 30 120 80 7
Cash distributions to investors: 30 120 87 8
Annualized cash on cash
yield to investors: 12% 12% 12% 12%
Amount (in percentage terms) remaining
invested in program property at the
end of last year reported in table: 100% 100% 100% 100%
- -----------------------------------------------------------------------------------------------------------------
</TABLE>
Net income (loss) - tax basis reflected in the table above differs from the
amount reported as taxable income (loss) due primarily to (a) in certain cases,
the inclusion of certain advances as taxable income and (b) major maintenance
expenses being reported as capital expenditures, rather than deductible expenses
for purposes of taxable income (loss).
The significant differences between tax basis net income (loss) determined on a
tax basis and net income (loss) determined on the basis of generally accepted
accounting principles ("GAAP") are as follows. First, for tax purposes,
residential apartment properties have a depreciable life of 27.5 years, compared
to 30 years under GAAP. Second, rental income is accounted for on a tax basis on
receipt, but accrued under GAAP accounting. Third, for tax purposes, the
depreciable basis in a residential apartment property is stepped up to reflect
the purchase price at the time of acquisition of fee simple title to the
property or of the equity interest in the partnership which owns such title.
Under GAAP accounting, stepped up basis is not recognized. In respect of the
partnership, there is no difference between net income (loss) determined on a
tax basis as reflected in the table above and net income (loss) determined on a
GAAP basis since the partnership does not own a direct or indirect interest in a
residential apartment property.
In certain cases, "cash distributions" may include net operating cash flow, a
portion of cash reserves funded out of net proceeds of the program's offering,
refinancing proceeds or advances from affiliates. "Other" includes ancillary
income such as forfeited security deposits, laundry and vending income, pet
fees, distribution supplements and interest income.
III-26
<PAGE>
TABLE III:
OPERATING RESULTS OF PRIOR PROGRAMS (cont'd)
Baron Mortgage Development Fund VII, Ltd.
<TABLE>
<CAPTION>
1/1/99 -
3/31/99 1998 1997 1996
------------------------------------------------------------
<S> <C> <C> <C> <C>
Gross Revenues: $ 21,000 $ 84,200 $ 66,692 $ 10,012
Other: 3 33 542 2
Less:
Operating Expenses: (46) (286) (1,703) (10,079)
Interest Expenses: 0 0 0 0
Depreciation and Amortization: 0 0 0 0
Other: Major Maintenance: 0 0 0 0
Net Income (Loss) - Tax Basis: 20,957 83,947 65,531 (65)
Cash generated from operations: 62,968 83,947 65,531 (67)
Less: Cash distributions: 63,000 84,000 65,075 27
Cash generated after cash distributions: (32) (53) 456 (94)
Tax and distribution data per $1,000 invested:
Federal taxable income (loss): 90 120 93 (2)
Cash distributions to investors: 90 120 93 0
Annualized cash on cash
yield to investors: 12% 12% 12% 12%
Amount (in percentage terms) remaining
invested in program property at the
end of last year reported in table: 100% 100% 100% 100%
- -----------------------------------------------------------------------------------------------------------------
</TABLE>
Net income (loss) - tax basis reflected in the table above differs from the
amount reported as taxable income (loss) due primarily to (a) in certain cases,
the inclusion of certain advances as taxable income and (b) major maintenance
expenses being reported as capital expenditures, rather than deductible expenses
for purposes of taxable income (loss).
The significant differences between tax basis net income (loss) determined on a
tax basis and net income (loss) determined on the basis of generally accepted
accounting principles ("GAAP") are as follows. First, for tax purposes,
residential apartment properties have a depreciable life of 27.5 years, compared
to 30 years under GAAP. Second, rental income is accounted for on a tax basis on
receipt, but accrued under GAAP accounting. Third, for tax purposes, the
depreciable basis in a residential apartment property is stepped up to reflect
the purchase price at the time of acquisition of fee simple title to the
property or of the equity interest in the partnership which owns such title.
Under GAAP accounting, stepped up basis is not recognized. In respect of the
partnership, there is no difference between net income (loss) determined on a
tax basis as reflected in the table above and net income (loss) determined on a
GAAP basis since the partnership does not own a direct or indirect interest in a
residential apartment property.
In certain cases, "cash distributions" may include net operating cash flow, a
portion of cash reserves funded out of net proceeds of the program's offering,
refinancing proceeds or advances from affiliates. "Other" includes ancillary
income such as forfeited security deposits, laundry and vending income, pet
fees, distribution supplements and interest income.
III-27
<PAGE>
TABLE III:
OPERATING RESULTS OF PRIOR PROGRAMS (cont'd)
Baron Mortgage Development Fund X, Ltd.
<TABLE>
<CAPTION>
1/1/99 -
3/31/99 1998 1997 1996
------------------------------------------------------------
<S> <C> <C> <C> <C>
Gross Revenues: $ 24,000 $ 86,600 $ 77,526 $ 9,998
Other: 5 31 1,789 23
Less:
Operating Expenses: (43) (222) (584) (10,033)
Interest Expenses: 0 0 0 0
Depreciation and Amortization: 0 0 0 0
Other: Major Maintenance: 0 0 0 0
Net Income (Loss) - Tax Basis: 23,962 86,409 78,731 (12)
Cash generated from operations: 23,962 86,409 76,942 (35)
Less: Cash distributions: 24,000 95,826 76,878 200
Cash generated after cash distributions: (38) (9,417) 64 (235)
Tax and distribution data per $1,000 invested:
Federal taxable income (loss): 30 108 79 (13)
Cash distributions to investors: 30 120 96 0
Annualized cash on cash
yield to investors: 12% 12% 12% 12%
Amount (in percentage terms) remaining
invested in program property at the
end of last year reported in table: 100% 100% 100% 100%
- -----------------------------------------------------------------------------------------------------------------
</TABLE>
Net income (loss) - tax basis reflected in the table above differs from the
amount reported as taxable income (loss) due primarily to (a) in certain cases,
the inclusion of certain advances as taxable income and (b) major maintenance
expenses being reported as capital expenditures, rather than deductible expenses
for purposes of taxable income (loss).
The significant differences between tax basis net income (loss) determined on a
tax basis and net income (loss) determined on the basis of generally accepted
accounting principles ("GAAP") are as follows. First, for tax purposes,
residential apartment properties have a depreciable life of 27.5 years, compared
to 30 years under GAAP. Second, rental income is accounted for on a tax basis on
receipt, but accrued under GAAP accounting. Third, for tax purposes, the
depreciable basis in a residential apartment property is stepped up to reflect
the purchase price at the time of acquisition of fee simple title to the
property or of the equity interest in the partnership which owns such title.
Under GAAP accounting, stepped up basis is not recognized. In respect of the
partnership, there is no difference between net income (loss) determined on a
tax basis as reflected in the table above and net income (loss) determined on a
GAAP basis since the partnership does not own a direct or indirect interest in a
residential apartment property.
In certain cases, "cash distributions" may include net operating cash flow, a
portion of cash reserves funded out of net proceeds of the program's offering,
refinancing proceeds or advances from affiliates. "Other" includes ancillary
income such as forfeited security deposits, laundry and vending income, pet
fees, distribution supplements and interest income.
III-28
<PAGE>
TABLE III:
OPERATING RESULTS OF PRIOR PROGRAMS (cont'd)
Baron Mortgage Development Fund XI, Ltd.
<TABLE>
<CAPTION>
1/1/99 -
3/31/99 1998 1997
-------------------------------------------
<S> <C> <C> <C>
Gross Revenues: $ 24,050 $ 95,855 $ 61,200
Other: 3 23 0
Less:
Operating Expenses: (39) (184) 0
Interest Expenses: 0 0 0
Depreciation and Amortization: 0 0 0
Other: Major Maintenance: 0 0 0
Net Income (Loss) - Tax Basis: 24,014 95,694 61,200
Cash generated from operations: 24,014 95,694 61,200
Less: Cash distributions: 24,000 96,000 61,109
Cash generated after cash distributions: 14 (306) 91
Tax and distribution data per $1,000 invested:
Federal taxable income (loss): 30 120 0
Cash distributions to investors: 30 120 76
Annualized cash on cash
yield to investors: 12% 12% 12%
Amount (in percentage terms) remaining
invested in program property at the
end of last year reported in table: 100% 100% 100%
- ------------------------------------------------------------------------------------------------
</TABLE>
Net income (loss) - tax basis reflected in the table above differs from the
amount reported as taxable income (loss) due primarily to (a) in certain cases,
the inclusion of certain advances as taxable income and (b) major maintenance
expenses being reported as capital expenditures, rather than deductible expenses
for purposes of taxable income (loss).
The significant differences between tax basis net income (loss) determined on a
tax basis and net income (loss) determined on the basis of generally accepted
accounting principles ("GAAP") are as follows. First, for tax purposes,
residential apartment properties have a depreciable life of 27.5 years, compared
to 30 years under GAAP. Second, rental income is accounted for on a tax basis on
receipt, but accrued under GAAP accounting. Third, for tax purposes, the
depreciable basis in a residential apartment property is stepped up to reflect
the purchase price at the time of acquisition of fee simple title to the
property or of the equity interest in the partnership which owns such title.
Under GAAP accounting, stepped up basis is not recognized. In respect of the
partnership, there is no difference between net income (loss) determined on a
tax basis as reflected in the table above and net income (loss) determined on a
GAAP basis since the partnership does not own a direct or indirect interest in a
residential apartment property.
In certain cases, "cash distributions" may include net operating cash flow, a
portion of cash reserves funded out of net proceeds of the program's offering,
refinancing proceeds or advances from affiliates. "Other" includes ancillary
income such as forfeited security deposits, laundry and vending income, pet
fees, distribution supplements and interest income.
III-29
<PAGE>
TABLE III:
OPERATING RESULTS OF PRIOR PROGRAMS (cont'd)
Baron Mortgage Development Fund XVIII, L.P.
<TABLE>
<CAPTION>
1/1/99 -
3/31/99 1998 1997
-------------------------------------------
<S> <C> <C> <C>
Gross Revenues: $ 24,000 $ 81,226 $ 46,473
Other: 3 68 759
Less:
Operating Expenses: (41) (233) (20,279)
Interest Expenses: 0 0 0
Depreciation and Amortization: 0 0 0
Other: Major Maintenance: 0 0 0
Net Income (Loss) - Tax Basis: 23,962 81,061 26,953
Cash generated from operations: 23,962 81,061 26,194
Less: Cash distributions: 24,000 96,000 26,135
Cash generated after cash distributions: (38) (14,939) 59
Tax and distribution data per $1,000 invested:
Federal taxable income (loss): 30 101 17
Cash distributions to investors: 30 120 33
Annualized cash on cash
yield to investors: 12% 12% 12%
Amount (in percentage terms) remaining
invested in program property at the
end of last year reported in table: 100% 100% 100%
- ------------------------------------------------------------------------------------------------
</TABLE>
Net income (loss) - tax basis reflected in the table above differs from the
amount reported as taxable income (loss) due primarily to (a) in certain cases,
the inclusion of certain advances as taxable income and (b) major maintenance
expenses being reported as capital expenditures, rather than deductible expenses
for purposes of taxable income (loss).
The significant differences between tax basis net income (loss) determined on a
tax basis and net income (loss) determined on the basis of generally accepted
accounting principles ("GAAP") are as follows. First, for tax purposes,
residential apartment properties have a depreciable life of 27.5 years, compared
to 30 years under GAAP. Second, rental income is accounted for on a tax basis on
receipt, but accrued under GAAP accounting. Third, for tax purposes, the
depreciable basis in a residential apartment property is stepped up to reflect
the purchase price at the time of acquisition of fee simple title to the
property or of the equity interest in the partnership which owns such title.
Under GAAP accounting, stepped up basis is not recognized. In respect of the
partnership, there is no difference between net income (loss) determined on a
tax basis as reflected in the table above and net income (loss) determined on a
GAAP basis since the partnership does not own a direct or indirect interest in a
residential apartment property.
In certain cases, "cash distributions" may include net operating cash flow, a
portion of cash reserves funded out of net proceeds of the program's offering,
refinancing proceeds or advances from affiliates. "Other" includes ancillary
income such as forfeited security deposits, laundry and vending income, pet
fees, distribution supplements and interest income.
III-30
<PAGE>
TABLE III:
OPERATING RESULTS OF PRIOR PROGRAMS (cont'd)
Baron Strategic Investment Fund V, Ltd.
<TABLE>
<CAPTION>
1/1/99 -
3/31/99 1998 1997 1996
----------------------------------------------------------------
<S> <C> <C> <C> <C>
Gross Revenues: $ 25,134 $ 93,797 $ 69,423 $ 10,145
Other: 0 493 0 109
Less:
Operating Expenses: (3,041) (19,512) (5,117) (10,125)
Interest Expenses: 0 0 0 0
Depreciation and Amortization: 0 0 0 0
Other: Major Maintenance: 0 0 0 0
Net Income (Loss) - Tax Basis: 22,093 74,778 64,306 129
Cash generated from operations: 22,093 74,285 64,306 20
Less: Cash distributions: 30,000 120,000 62,868 0
Cash generated after cash distributions: (7,907) (45,715) 1,438 20
Tax and distribution data per $1,000 invested:
Federal taxable income (loss): 18 62 54 1
Cash distributions to investors: 25 100 53 0
Annualized cash on cash
yield to investors: 10% 10% 5% 0
Amount (in percentage terms) remaining
invested in program property at the
end of last year reported in table: 100% 100% 100% 100%
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
Net income (loss) - tax basis reflected in the table above differs from the
amount reported as taxable income (loss) due primarily to (a) in certain cases,
the inclusion of certain advances as taxable income and (b) major maintenance
expenses being reported as capital expenditures, rather than deductible expenses
for purposes of taxable income (loss).
The significant differences between tax basis net income (loss) determined on a
tax basis and net income (loss) determined on the basis of generally accepted
accounting principles ("GAAP") are as follows. First, for tax purposes,
residential apartment properties have a depreciable life of 27.5 years, compared
to 30 years under GAAP. Second, rental income is accounted for on a tax basis on
receipt, but accrued under GAAP accounting. Third, for tax purposes, the
depreciable basis in a residential apartment property is stepped up to reflect
the purchase price at the time of acquisition of fee simple title to the
property or of the equity interest in the partnership which owns such title.
Under GAAP accounting, stepped up basis is not recognized. In respect of the
partnership, there is no difference between net income (loss) determined on a
tax basis as reflected in the table above and net income (loss) determined on a
GAAP basis since the partnership does not own a direct or indirect interest in a
residential apartment property.
In certain cases, "cash distributions" may include net operating cash flow, a
portion of cash reserves funded out of net proceeds of the program's offering,
refinancing proceeds or advances from affiliates. "Other" includes ancillary
income such as forfeited security deposits, laundry and vending income, pet
fees, distribution supplements and interest income.
III-31
<PAGE>
TABLE III:
OPERATING RESULTS OF PRIOR PROGRAMS (cont'd)
Baron Strategic Investment Fund VII, Ltd.
<TABLE>
<CAPTION>
1/1/99 -
3/31/99 1998 1997
----------------------------------------------
<S> <C> <C> <C>
Gross Revenues: $ 9,803 $ 168,784 $ 3,050
Other: 0 0 0
Less:
Operating Expenses: (120) (35,602) (13,606)
Interest Expenses: 0 0 0
Depreciation and Amortization: 0 0 0
Other: Major Maintenance: 0 0 0
Net Income (Loss) - Tax Basis: 9,683 133,182 (10,556)
Cash generated from operations: 9,683 133,182 (10,556)
Less: Cash distributions: 10,000 189,283 77,208
Cash generated after cash distributions: (317) (56,101) (87,764)
Tax and distribution data per $1,000 invested:
Federal taxable income (loss): 5 70 (6)
Cash distributions to investors: 5 100 41
Annualized cash on cash
yield to investors: 2% 10% 10%
Amount (in percentage terms) remaining
invested in program property at the
end of last year reported in table: 100% 100% 100%
- ---------------------------------------------------------------------------------------------------
</TABLE>
Net income (loss) - tax basis reflected in the table above differs from the
amount reported as taxable income (loss) due primarily to (a) in certain cases,
the inclusion of certain advances as taxable income and (b) major maintenance
expenses being reported as capital expenditures, rather than deductible expenses
for purposes of taxable income (loss).
The significant differences between tax basis net income (loss) determined on a
tax basis and net income (loss) determined on the basis of generally accepted
accounting principles ("GAAP") are as follows. First, for tax purposes,
residential apartment properties have a depreciable life of 27.5 years, compared
to 30 years under GAAP. Second, rental income is accounted for on a tax basis on
receipt, but accrued under GAAP accounting. Third, for tax purposes, the
depreciable basis in a residential apartment property is stepped up to reflect
the purchase price at the time of acquisition of fee simple title to the
property or of the equity interest in the partnership which owns such title.
Under GAAP accounting, stepped up basis is not recognized. In respect of the
partnership, there is no difference between net income (loss) determined on a
tax basis as reflected in the table above and net income (loss) determined on a
GAAP basis since the partnership does not own a direct or indirect interest in a
residential apartment property.
In certain cases, "cash distributions" may include net operating cash flow, a
portion of cash reserves funded out of net proceeds of the program's offering,
refinancing proceeds or advances from affiliates. "Other" includes ancillary
income such as forfeited security deposits, laundry and vending income, pet
fees, distribution supplements and interest income.
III-32
<PAGE>
TABLE III:
OPERATING RESULTS OF PRIOR PROGRAMS (cont'd)
Baron Strategic Investment Fund IV, Ltd.
<TABLE>
<CAPTION>
1/1/99 -
3/31/99 1998 1997
----------------------------------------------
<S> <C> <C> <C>
Gross Revenues: $ 41,109 $ 166,018 $ 22,431
Other: 0 342 0
Less:
Operating Expenses: (12,797) (22,925) (17,181)
Interest Expenses: 0 (40,388) 0
Depreciation and Amortization: 0 0 0
Other: Major Maintenance: 0 0 0
Net Income (Loss) - Tax Basis: 28,312 103,047 5,250
Cash generated from operations: 28,312 102,705 5,250
Less: Cash distributions: 15,000 92,000 27,130
Cash generated after cash distributions: 13,312 10,705 (21,880)
Tax and distribution data per $1,000 invested:
Federal taxable income (loss): 28 103 5
Cash distributions to investors: 60 92 27
Annualized cash on cash
yield to investors: 6% 9% 10%
Amount (in percentage terms) remaining
invested in program property at the
end of last year reported in table: 100% 100% 100%
- ---------------------------------------------------------------------------------------------------
</TABLE>
Net income (loss) - tax basis reflected in the table above differs from the
amount reported as taxable income (loss) due primarily to (a) in certain cases,
the inclusion of certain advances as taxable income and (b) major maintenance
expenses being reported as capital expenditures, rather than deductible expenses
for purposes of taxable income (loss).
The significant differences between tax basis net income (loss) determined on a
tax basis and net income (loss) determined on the basis of generally accepted
accounting principles ("GAAP") are as follows. First, for tax purposes,
residential apartment properties have a depreciable life of 27.5 years, compared
to 30 years under GAAP. Second, rental income is accounted for on a tax basis on
receipt, but accrued under GAAP accounting. Third, for tax purposes, the
depreciable basis in a residential apartment property is stepped up to reflect
the purchase price at the time of acquisition of fee simple title to the
property or of the equity interest in the partnership which owns such title.
Under GAAP accounting, stepped up basis is not recognized. In respect of the
partnership, there is no difference between net income (loss) determined on a
tax basis as reflected in the table above and net income (loss) determined on a
GAAP basis since the partnership does not own a direct or indirect interest in a
residential apartment property.
In certain cases, "cash distributions" may include net operating cash flow, a
portion of cash reserves funded out of net proceeds of the program's offering,
refinancing proceeds or advances from affiliates. "Other" includes ancillary
income such as forfeited security deposits, laundry and vending income, pet
fees, distribution supplements and interest income.
III-33
<PAGE>
TABLE III:
OPERATING RESULTS OF PRIOR PROGRAMS (cont'd)
Baron Mortgage Development Fund XIV, Ltd.
<TABLE>
<CAPTION>
1/1/99 -
3/31/99 1998 1997
----------------------------------------------
<S> <C> <C> <C>
Gross Revenues: $ 30,000 $ 103,353 $ 44,419
Other: 5 232 631
Less:
Operating Expenses: (40) (204) (274)
Interest Expenses: 0 0 0
Depreciation and Amortization: 0 0 0
Other: Major Maintenance: 0 0 0
Net Income (Loss) - Tax Basis: 29,965 103,381 44,776
Cash generated from operations: 29,965 103,381 44,145
Less: Cash distributions: 30,000 119,281 44,070
Cash generated after cash distributions: (35) (15,900) 75
Tax and distribution data per $1,000 invested:
Federal taxable income (loss): 30 103 21
Cash distributions to investors: 30 119 44
Annualized cash on cash
yield to investors: 12% 12% 10%
Amount (in percentage terms) remaining
invested in program property at the
end of last year reported in table: 100% 100% 100%
- ---------------------------------------------------------------------------------------------------
</TABLE>
Net income (loss) - tax basis reflected in the table above differs from the
amount reported as taxable income (loss) due primarily to (a) in certain cases,
the inclusion of certain advances as taxable income and (b) major maintenance
expenses being reported as capital expenditures, rather than deductible expenses
for purposes of taxable income (loss).
The significant differences between tax basis net income (loss) determined on a
tax basis and net income (loss) determined on the basis of generally accepted
accounting principles ("GAAP") are as follows. First, for tax purposes,
residential apartment properties have a depreciable life of 27.5 years, compared
to 30 years under GAAP. Second, rental income is accounted for on a tax basis on
receipt, but accrued under GAAP accounting. Third, for tax purposes, the
depreciable basis in a residential apartment property is stepped up to reflect
the purchase price at the time of acquisition of fee simple title to the
property or of the equity interest in the partnership which owns such title.
Under GAAP accounting, stepped up basis is not recognized. In respect of the
partnership, there is no difference between net income (loss) determined on a
tax basis as reflected in the table above and net income (loss) determined on a
GAAP basis since the partnership does not own a direct or indirect interest in a
residential apartment property.
In certain cases, "cash distributions" may include net operating cash flow, a
portion of cash reserves funded out of net proceeds of the program's offering,
refinancing proceeds or advances from affiliates. "Other" includes ancillary
income such as forfeited security deposits, laundry and vending income, pet
fees, distribution supplements and interest income.
III-34
<PAGE>
TABLE III:
OPERATING RESULTS OF PRIOR PROGRAMS (cont'd)
Baron Strategic Investment Fund X, Ltd.
<TABLE>
<CAPTION>
1/1/99 -
3/31/99 1998 1997
----------------------------------------------
<S> <C> <C> <C>
Gross Revenues: $ 14,811 $ 78,605 $ 7,264
Other: 0 0 0
Less:
Operating Expenses: (12,904) (67,045) (10,237)
Interest Expenses: 0 0 0
Depreciation and Amortization: 0 0 0
Other: Major Maintenance: 0 0 0
Net Income (Loss) - Tax Basis: 1,907 11,560 (2,973)
Cash generated from operations: 1,907 11,560 (2,973)
Less: Cash distributions: 9,147 112,615 13,428
Cash generated after cash distributions: (7,240) (101,055) (16,401)
Tax and distribution data per $1,000 invested:
Federal taxable income (loss): 2 10 (2)
Cash distributions to investors: 8 94 11
Annualized cash on cash
yield to investors: 3% 9% 10%
Amount (in percentage terms) remaining
invested in program property at the
end of last year reported in table: 100% 100% 100%
- ---------------------------------------------------------------------------------------------------
</TABLE>
Net income (loss) - tax basis reflected in the table above differs from the
amount reported as taxable income (loss) due primarily to (a) in certain cases,
the inclusion of certain advances as taxable income and (b) major maintenance
expenses being reported as capital expenditures, rather than deductible expenses
for purposes of taxable income (loss).
The significant differences between tax basis net income (loss) determined on a
tax basis and net income (loss) determined on the basis of generally accepted
accounting principles ("GAAP") are as follows. First, for tax purposes,
residential apartment properties have a depreciable life of 27.5 years, compared
to 30 years under GAAP. Second, rental income is accounted for on a tax basis on
receipt, but accrued under GAAP accounting. Third, for tax purposes, the
depreciable basis in a residential apartment property is stepped up to reflect
the purchase price at the time of acquisition of fee simple title to the
property or of the equity interest in the partnership which owns such title.
Under GAAP accounting, stepped up basis is not recognized. For 1997, the
difference between net income (loss) determined on a tax basis and net income
(loss) determined on a GAAP basis was approximately $________.
In certain cases, "cash distributions" may include net operating cash flow, a
portion of cash reserves funded out of net proceeds of the program's offering,
refinancing proceeds or advances from affiliates. "Other" includes ancillary
income such as forfeited security deposits, laundry and vending income, pet
fees, distribution supplements and interest income.
III-35
<PAGE>
TABLE III:
OPERATING RESULTS OF PRIOR PROGRAMS (cont'd)
Baron Mortgage Development Fund XV, Ltd.
<TABLE>
<CAPTION>
1/1/99 -
3/31/99 1998 1997
-------------------------------------------
<S> <C> <C> <C>
Gross Revenues: $ 21,000 $ 79,771 $ 12,669
Other: 3 90 190
Less:
Operating Expenses: (48) (330) (300)
Interest Expenses: 0 0 0
Depreciation and Amortization: 0 0 0
Other: Major Maintenance: 0 0 0
Net Income (Loss) - Tax Basis: 20,955 79,441 12,559
Cash generated from operations: 20,955 79,441 12,369
Less: Cash distributions: 21,000 81,643 12,362
Cash generated after cash distributions: (45) (2,202) 7
Tax and distribution data per $1,000 invested:
Federal taxable income (loss): 30 113 18
Cash distributions to investors: 30 117 18
Annualized cash on cash
yield to investors: 12% 12% 10%
Amount (in percentage terms) remaining
invested in program property at the
end of last year reported in table: 100% 100% 100%
- ------------------------------------------------------------------------------------------------
</TABLE>
Net income (loss) - tax basis reflected in the table above differs from the
amount reported as taxable income (loss) due primarily to (a) in certain cases,
the inclusion of certain advances as taxable income and (b) major maintenance
expenses being reported as capital expenditures, rather than deductible expenses
for purposes of taxable income (loss).
The significant differences between tax basis net income (loss) determined on a
tax basis and net income (loss) determined on the basis of generally accepted
accounting principles ("GAAP") are as follows. First, for tax purposes,
residential apartment properties have a depreciable life of 27.5 years, compared
to 30 years under GAAP. Second, rental income is accounted for on a tax basis on
receipt, but accrued under GAAP accounting. Third, for tax purposes, the
depreciable basis in a residential apartment property is stepped up to reflect
the purchase price at the time of acquisition of fee simple title to the
property or of the equity interest in the partnership which owns such title.
Under GAAP accounting, stepped up basis is not recognized. In respect of the
partnership, there is no difference between net income (loss) determined on a
tax basis as reflected in the table above and net income (loss) determined on a
GAAP basis since the partnership does not own a direct or indirect interest in a
residential apartment property.
In certain cases, "cash distributions" may include net operating cash flow, a
portion of cash reserves funded out of net proceeds of the program's offering,
refinancing proceeds or advances from affiliates. "Other" includes ancillary
income such as forfeited security deposits, laundry and vending income, pet
fees, distribution supplements and interest income.
III-36
<PAGE>
TABLE III:
OPERATING RESULTS OF PRIOR PROGRAMS (cont'd)
Baron Strategic Investment Fund VIII, Ltd.
<TABLE>
<CAPTION>
1/1/99 -
3/31/99 1998 1997
----------------------------------------------
<S> <C> <C> <C>
Gross Revenues: $ 24,097 $ 101,503 $ 38,892
Other: 0 0 1,708
Less:
Operating Expenses: (3,000) (31,873) (14,453)
Interest Expenses: 0 0 0
Depreciation and Amortization: 0 0 0
Other: Major Maintenance: 0 0
Net Income (Loss) - Tax Basis: 21,097 69,630 26,147
Cash generated from operations: 21,097 69,630 24,439
Less: Cash distributions: 8,640 92,430 30,450
Cash generated after cash distributions: 12,457 (22,800) (6,011)
Tax and distribution data per $1,000 invested:
Federal taxable income (loss): 18 58 22
Cash distributions to investors: 7 77 25
Annualized cash on cash
yield to investors: 3% 8% 10%
Amount (in percentage terms) remaining
invested in program property at the
end of last year reported in table: 100% 100% 100%
- ---------------------------------------------------------------------------------------------------
</TABLE>
Net income (loss) - tax basis reflected in the table above differs from the
amount reported as taxable income (loss) due primarily to (a) in certain cases,
the inclusion of certain advances as taxable income and (b) major maintenance
expenses being reported as capital expenditures, rather than deductible expenses
for purposes of taxable income (loss).
The significant differences between tax basis net income (loss) determined on a
tax basis and net income (loss) determined on the basis of generally accepted
accounting principles ("GAAP") are as follows. First, for tax purposes,
residential apartment properties have a depreciable life of 27.5 years, compared
to 30 years under GAAP. Second, rental income is accounted for on a tax basis on
receipt, but accrued under GAAP accounting. Third, for tax purposes, the
depreciable basis in a residential apartment property is stepped up to reflect
the purchase price at the time of acquisition of fee simple title to the
property or of the equity interest in the partnership which owns such title.
Under GAAP accounting, stepped up basis is not recognized. In respect of the
partnership, there is no difference between net income (loss) determined on a
tax basis as reflected in the table above and net income (loss) determined on a
GAAP basis since the partnership does not own a direct or indirect interest in a
residential apartment property.
In certain cases, "cash distributions" may include net operating cash flow, a
portion of cash reserves funded out of net proceeds of the program's offering,
refinancing proceeds or advances from affiliates. "Other" includes ancillary
income such as forfeited security deposits, laundry and vending income, pet
fees, distribution supplements and interest income.
III-37
<PAGE>
TABLE III:
OPERATING RESULTS OF PRIOR PROGRAMS (cont'd)
Florida Tax Credit Fund II, Ltd.
<TABLE>
<CAPTION>
1/1/99 -
3/31/99 1998 1997 1996
----------------------------------------------------------------
<S> <C> <C> <C> <C>
Gross Revenues: $ 45,186 179,855 $ 151,372 $ 193,970
Other: 0 0 0 0
Less:
Operating Expenses: (31,697) (136,148) (114,363) (121,850)
Interest Expenses: (9,944) (41,463) (41,317) (38,995)
Depreciation and Amortization: (3,971) (15,884) (25,780) (25,565)
Other: Major Maintenance: (2,232) (3,394) (6,265) (8,135)
Net Income (Loss) - Tax Basis: (2,658) (17,034) (36,353) (575)
Cash generated from operations: 1,313 (1,150) (10,573) 24,990
Less: Cash distributions: 1,550 2,940 2,780 34
Cash generated after cash distributions: (237) (4,090) (13,353) 24,956
Tax and distribution data per $1,000 invested:
Federal taxable income (loss): (9) (55) (117) (2)
Cash distributions to investors: 5 9 9 0
Annualized cash on cash
yield to investors: 2% 1% 1% 0
Amount (in percentage terms) remaining
invested in program property at the
end of last year reported in table: 100% 100% 100% 100%
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
Net income (loss) - tax basis reflected in the table above differs from the
amount reported as taxable income (loss) due primarily to (a) in certain cases,
the inclusion of certain advances as taxable income and (b) major maintenance
expenses being reported as capital expenditures, rather than deductible expenses
for purposes of taxable income (loss).
The significant differences between tax basis net income (loss) determined on a
tax basis and net income (loss) determined on the basis of generally accepted
accounting principles ("GAAP") are as follows. First, for tax purposes,
residential apartment properties have a depreciable life of 27.5 years, compared
to 30 years under GAAP. Second, rental income is accounted for on a tax basis on
receipt, but accrued under GAAP accounting. According to management of the
Operating Partnership, the difference in accounting results attributable to the
different depreciable lives and timing of rental income under the two methods is
not material. Third, for tax purposes, the partnership's depreciable basis in
its residential apartment property was stepped up at the time of the investors'
acquisition of a limited partnership interest in the partnership to reflect
their purchase price. Under GAAP accounting, stepped up basis is not recognized.
For 1997, the difference between net income (loss) determined on a tax basis and
net income (loss) determined on a GAAP basis was approximately $54,000.
In certain cases, "cash distributions" may include net operating cash flow, a
portion of cash reserves funded out of net proceeds of the program's offering,
refinancing proceeds or advances from affiliates. "Other" includes ancillary
income such as forfeited security deposits, laundry and vending income, pet
fees, distribution supplements and interest income.
III-38
<PAGE>
TABLE III:
OPERATING RESULTS OF PRIOR PROGRAMS (cont'd)
Baron Strategic Investment Fund IX, Ltd.
<TABLE>
<CAPTION>
1/1/99 -
3/31/99 1998 1997
--------------------------------------------
<S> <C> <C> <C>
Gross Revenues: $ 13,766 $ 48,637 $ 676
Other: 0 0 0
Less:
Operating Expenses: (3,040) (21,856) (4,443)
Interest Expenses: 0 0 0
Depreciation and Amortization: 0 0 0
Other: Major Maintenance: 0 0 0
Net Income (Loss) - Tax Basis: 10,726 26,781 (3,767)
Cash generated from operations: 10,726 26,781 (3,767)
Less: Cash distributions: 8,249 87,770 3,589
Cash generated after cash distributions: (31,162) (60,989) (7,356)
Tax and distribution data per $1,000 invested:
Federal taxable income (loss): 4 22 (3)
Cash distributions to investors: 7 73 3
Annualized cash on cash
yield to investors: 3% 7% 1%
Amount (in percentage terms) remaining
invested in program property at the
end of last year reported in table: 100% 100% 100%
- ------------------------------------------------------------------------------------------------
</TABLE>
Net income (loss) - tax basis reflected in the table above differs from the
amount reported as taxable income (loss) due primarily to (a) in certain cases,
the inclusion of certain advances as taxable income and (b) major maintenance
expenses being reported as capital expenditures, rather than deductible expenses
for purposes of taxable income (loss).
The significant differences between tax basis net income (loss) determined on a
tax basis and net income (loss) determined on the basis of generally accepted
accounting principles ("GAAP") are as follows. First, for tax purposes,
residential apartment properties have a depreciable life of 27.5 years, compared
to 30 years under GAAP. Second, rental income is accounted for on a tax basis on
receipt, but accrued under GAAP accounting. Third, for tax purposes, the
depreciable basis in a residential apartment property is stepped up to reflect
the purchase price at the time of acquisition of fee simple title to the
property or of the equity interest in the partnership which owns such title.
Under GAAP accounting, stepped up basis is not recognized. In respect of the
partnership, there is no difference between net income (loss) determined on a
tax basis as reflected in the table above and net income (loss) determined on a
GAAP basis since the partnership does not own a direct or indirect interest in a
residential apartment property.
In certain cases, "cash distributions" may include net operating cash flow, a
portion of cash reserves funded out of net proceeds of the program's offering,
refinancing proceeds or advances from affiliates. "Other" includes ancillary
income such as forfeited security deposits, laundry and vending income, pet
fees, distribution supplements and interest income.
III-39
<PAGE>
TABLE III:
OPERATING RESULTS OF PRIOR PROGRAMS (cont'd)
Central Florida Income Appreciation Fund, Ltd.
<TABLE>
<CAPTION>
1/1/99 -
3/31/99 1998 1997 1996
----------------------------------------------------------------
<S> <C> <C> <C> <C>
Gross Revenues: $ 75,469 $ 279,732 $ 228,623 $ 244,496
Other: 2,030 9,255 0 0
Less:
Operating Expenses: (43,062) (158,039) (112,911) (127,984)
Interest Expenses: (24,455) (117,214) (134,746) (124,291)
Depreciation and Amortization: (19,979) (78,023) (76,023) (74,942)
Other: Major Maintenance: (1,831) (33,907) (19,500) (1,346)
Net Income (Loss) - Tax Basis: (10,828) (98,196) (114,557) (84,067)
Cash generated from operations: 7,121 (29,428) (38,534) (9,125)
Less: Cash distributions: 10,000 4,114 0 105,000
Cash generated after cash distributions: (2,879) (33,542) (38,534) (114,125)
Tax and distribution data per $1,000 invested:
Federal taxable income (loss): (10) (94) (109) (80)
Cash distributions to investors: 10 4 0 100
Annualized cash on cash
yield to investors: 4% 1% 0% 10%
Amount (in percentage terms) remaining
invested in program property at the
end of last year reported in table: 100% 100% 100% 100%
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
Net income (loss) - tax basis reflected in the table above differs from the
amount reported as taxable income (loss) due primarily to (a) in certain cases,
the inclusion of certain advances as taxable income and (b) major maintenance
expenses being reported as capital expenditures, rather than deductible expenses
for purposes of taxable income (loss).
The significant differences between tax basis net income (loss) determined on a
tax basis and net income (loss) determined on the basis of generally accepted
accounting principles ("GAAP") are as follows. First, for tax purposes,
residential apartment properties have a depreciable life of 27.5 years, compared
to 30 years under GAAP. Second, rental income is accounted for on a tax basis on
receipt, but accrued under GAAP accounting. According to management of the
Operating Partnership, the difference in accounting results attributable to the
different depreciable lives and timing of rental income under the two methods is
not material. Third, for tax purposes, the partnership's depreciable basis in
its residential apartment property was stepped up at the time of the investors'
acquisition of a limited partnership interest in the partnership to reflect
their purchase price. Under GAAP accounting, stepped up basis is not recognized.
For 1997, the difference between net income (loss) determined on a tax basis and
net income (loss) determined on a GAAP basis was approximately $3,000.
In certain cases, "cash distributions" may include net operating cash flow, a
portion of cash reserves funded out of net proceeds of the program's offering,
refinancing proceeds or advances from affiliates. "Other" includes ancillary
income such as forfeited security deposits, laundry and vending income, pet
fees, distribution supplements and interest income.
III-40
<PAGE>
TABLE III:
OPERATING RESULTS OF PRIOR PROGRAMS (cont'd)
Midwest Income Growth Fund VI, Ltd.
<TABLE>
<CAPTION>
1/1/99 -
3/31/99 1998 1997 1996
----------------------------------------------------------------
<S> <C> <C> <C> <C>
Gross Revenues: $ 68,386 $ 273,157 $ 257,567 $ 98,226
Other: 1,200 (953) 0 0
Less:
Operating Expenses: (18,122) (139,926) (84,233) (28,556)
Interest Expenses: (31,110) (98,286) (106,684) (28,631)
Depreciation and Amortization: (14,997) (59,349) (54,823) (17,563)
Other: Major Maintenance: 0 0 (61,985) 0
Net Income (Loss) - Tax Basis: 5,357 (25,357) (50,158) 23,476
Cash generated from operations: 19,154 34,945 4,665 41,039
Less: Cash distributions: 4,000 30,000 29,799 5,547
Cash generated after cash distributions: 15,154 4,945 (25,134) 35,492
Tax and distribution data per $1,000 invested:
Federal taxable income (loss): 18 116 (167) 78
Cash distributions to investors: 13 100 99 18
Annualized cash on cash
yield to investors: 5% 10% 10% 10%
Amount (in percentage terms) remaining
invested in program property at the
end of last year reported in table: 100% 100% 100% 100%
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
Net income (loss) - tax basis reflected in the table above differs from the
amount reported as taxable income (loss) due primarily to (a) in certain cases,
the inclusion of certain advances as taxable income and (b) major maintenance
expenses being reported as capital expenditures, rather than deductible expenses
for purposes of taxable income (loss).
The significant differences between tax basis net income (loss) determined on a
tax basis and net income (loss) determined on the basis of generally accepted
accounting principles ("GAAP") are as follows. First, for tax purposes,
residential apartment properties have a depreciable life of 27.5 years, compared
to 30 years under GAAP. Second, rental income is accounted for on a tax basis on
receipt, but accrued under GAAP accounting. According to management of the
Operating Partnership, the difference in accounting results attributable to the
different depreciable lives and timing of rental income under the two methods is
not material. Third, for tax purposes, the partnership's depreciable basis in
its residential apartment property was stepped up at the time of the investors'
acquisition of a limited partnership interest in the partnership to reflect
their purchase price. Under GAAP accounting, stepped up basis is not recognized.
For 1997, the difference between net income (loss) determined on a tax basis and
net income (loss) determined on a GAAP basis was approximately $(22,000).
In certain cases, "cash distributions" may include net operating cash flow, a
portion of cash reserves funded out of net proceeds of the program's offering,
refinancing proceeds or advances from affiliates. "Other" includes ancillary
income such as forfeited security deposits, laundry and vending income, pet
fees, distribution supplements and interest income.
III-41
<PAGE>
TABLE IV:
RESULTS OF COMPLETED PROGRAMS
The following table includes information relating to the financial results of
one program sponsored by an affiliate of the Managing Shareholder of the Trust,
Baron Advisors, Inc., which completed operations within the last five years. The
prior program had investment objectives similar to those of the Trust and the
Operating Partnership in that the program provided financing in respect of a
residential property for current income and capital appreciation.
Tampa Capital Income Fund, Ltd.
Dollar Amount Raised: $ 1,050,000
Number of Properties Purchased: one
Date of Closing of Offering: 7/95
Date of Acquisition of Property: 12/94
Date of Sale of Property: 2/97
Tax and Distribution Data per $1,000 Investment through 1996:
Federal Income Tax Results:
Ordinary Income (loss):
from operations: 171 est.
from recapture: Not applicable
Capital Gain (loss): 138
Deferred Gain(1):
Capital: 138
Ordinary: Not applicable
Cash Distribution to Investors: 10%
Source (on GAAP basis):
Investment Income: $ 180,000
Return of capital: $ 900,000
Source (on cash basis):
Sales: $ 900,000
Refinancing: Not applicable
Operations: $ 180,000
Other: Not applicable
Receivable on Net Purchase Money Financing: $ 6,333(2)
- --------------------------------------------------------------------------------
(1) "Deferred Gain" represents the amount of capital gain or ordinary gain that
is realized upon receipt of installment payments under the promissory note
received in exchange for the property sold.
(2) $295,000 of purchase price was paid with a promissory note payable in 36
equal monthly payments including 9% annual interest rate. As of May 25, 1999,
the principal balance owed on the note is approximately $6,333.
IV-1
<PAGE>
TABLE V:
SALES OR DISPOSALS OF PROPERTIES
The following table includes certain financial information concerning the sale
of a property within the most recent three years by an investment program
sponsored by an Affiliate of the Managing Shareholder.
Tampa Capital Income Fund, Ltd.
Property: Lakewood Apartments
Date Acquired: 12/94
Date of Sale: 2/97
Selling Price, Net of Closing Costs and GAAP Adjustments: $ 2,795,000
Cash Received net of closing costs: $ 900,000
Mortgage Balance at time of sale: $ 1,500,000
Purchase money mortgage taken back by program: $ 295,000(1)
Adjustments resulting from application of GAAP: Not applicable
Total: $ 2,695,000(2)
Cost of Properties Including Closing and Soft Costs:
Original Mortgage Financing: $ 1,500,000
Total acquisition cost, capital improvements,
Closing and soft costs: $ 1,050,000(3)
Total: $ 2,550,000
Excess of Property Operating Cash Receipts
Over Cash Expenditures: $ 180,000(4)
- --------------------------------------------------------------------------------
(1) $295,000 of purchase price was paid with a promissory note payable in 36
equal monthly payments including 9% annual interest rate. The current
principal balance owed on the note is approximately $6,333.
(2) The entire gain ($145,000) will be treated as a capital gain for tax
purposes.
(3) Does not include offering costs.
(4) Estimated.
V-1
<PAGE>
OTHER PROGRAMS SPONSORED BY
AFFILIATES OF MANAGING SHAREHOLDER
<TABLE>
<CAPTION>
MAXIMUM
DATE CAPITAL
FORMED RAISE PARTNERSHIP NAME GENERAL PARTNER
- ------ ----- ---------------- ---------------
<S> <C> <C> <C>
10/2/96 $ 650,000 Baron Mortgage Development Fund VIII, Ltd. Baron Capital XXXVIII, Inc.
4/02/97 1,000,000 Baron Mortgage Development Fund XII, Ltd. Baron Capital XLVI, Inc.
5/20/97 1,000,000 Baron First Mortgage Development Fund XVI, Ltd. Baron Capital LX, Inc.
5/22/97 1,000,000 Baron First Mortgage Development Fund XVII, Ltd. Baron Capital LXI, Inc.
9/15/97 1,000,000 Baron Mortgage Development Fund XIX, L.P. Baron Capital LXVI, Inc.
9/10/97 1,000,000 Baron Mortgage Development Fund XX, L.P. Baron Capital LXVII, Inc.
11/24/97 1,000,000 Baron Mortgage Development Fund XXI, L.P. Baron Capital LXVIII, Inc.
1/7/99 1,200,000 Baron Mezzanine Fund XXXVI, Ltd. Baron Capital LXXXVII, Inc.
1/7/99 1,200,000 Baron Mezzanine Fund XXXVII, Ltd. Baron Capital LXXXVIII, Inc.
4/7/99 1,200,000 Baron Mezannine Fund XXXVIII, Ltd. Baron Capital LXXXIX, Inc.
</TABLE>
<PAGE>
EXHIBIT B
SUMMARY OF EXCHANGE PROPERTY, MORTGAGE
AND EXCHANGE PARTNERSHIP INFORMATION
<PAGE>
EXHIBIT B
In the Exchange Offering, the Operating Partnership will offer to issue its
Units to limited partners in the Exchange Partnerships in exchange for their
limited partnership interests therein. The tables comprising Exhibit B set forth
information relating to each Exchange Partnership.
Exchange Equity Partnerships
The table relating to each of the 13 Exchange Equity Partnerships sets forth the
following information: (i) the name of the partnership and its general partner,
(ii) the name and location of the residential apartment property in which it
directly or indirectly owns equity, (iii) the year the property was completed,
(iv) the number of units, acreage, rentable area, average unit size and average
rental rate per unit and per square feet of rentable area as of April 1, 1999,
(v) physical occupancy of each property as of April 1, 1999 and for each of the
five prior years, (vi) the property's estimated appraised value, and (vii)
certain property tax information.
The table also sets forth for each partnership certain information relating to
the first mortgage (and in one case, second mortgage) indebtedness secured by or
associated with the property, including: (i) initial principal balance and
balance as of April 30, 1999 and due at maturity, (ii) interest rate, (iii)
annual and monthly debt service requirements, (iv) amortization term, (v)
maturity date, and (vi) name of lending institution.
In addition, the table for each Exchange Equity Partnership sets forth (i)
certain information relating to the partnership's original private offering,
including, the offering commencement and termination dates, number of investors,
paid in capital, number of units sold, price per unit and the allocations
between the limited partners and the general partner of distributable cash and
net proceeds from a sale or refinancing of property, (ii) the number of
Operating Partnership Units (and their initial assigned value) being offered to
each limited partner in the particular partnership per $1,000 of original
investment, and (iii) the estimated deferred taxable gain from the Exchange
Offering for limited partners electing to accept the offering, per $1,000 of
original investment.
Exchange Mortgage Partnerships
The table relating to each of the six Exchange Mortgage Partnerships sets forth
the same information as described above relating to the underlying property
which secures second mortgage loans held by the partnership, the first mortgage
loan which is senior to the partnership's loan interests, the partnership's
original offering and the estimated deferred taxable gain resulting from
participation in the offering. The table also sets forth the replacement cost
new of property securing second mortgage interests of the partnership and
information relating to the second mortgage loan and other debt interests held
by the partnership, including: (i) initial principal balances and balances as of
March 31, 1999 and due at maturity, (ii) interest rates, (iii) annual and
monthly debt service requirements, (iv) amortization term, (v) maturity dates,
(vi) annual monthly debt service requirements, and (vii) similar information
regarding other Exchange Partnerships which hold second mortgage interests
secured by the same property in which the partnership holds a second mortgage
interest.
Exchange Hybrid Partnerships
The table relating to each of the four Exchange Hybrid Partnerships sets forth
the same information as described above relating to: (i) properties in which the
partnership directly or indirectly owns an equity interest and properties which
secure second mortgage loans held by the partnership, first mortgage loans which
are senior to the partnership's equity interests and second mortgage interests,
the partnership's original private offering and the estimated deferred taxable
gain resulting from participation in the Exchange Offering and (ii) the second
mortgage loan and other debt interests held by the partnership.
<PAGE>
EXCHANGE EQUITY PARTNERSHIPS
2
<PAGE>
FLORIDA INCOME GROWTH FUND V, LTD.
(GP: Baron Capital XI, Inc.)
PARTNERSHIP PROPERTY INTEREST
The Partnership owns 100% of the limited partnership
interest in a limited partnership which holds fee simple
title to the property described below.
PROPERTY NAME AND ADDRESS: YEAR COMPLETED: 1980
BLOSSOM CORNERS APARTMENTS-PHASE I APPROX. ACREAGE: 3.67
2143 Raper Dairy Road
Orlando, Florida 32822
UNIT MIX AND RENTAL RATES:
--------------------------------------------------------------------
APPROXIMATE
APPROXIMATE RENTABLE AVERAGE MONTHLY
UNIT TYPE NUMBER AREA PER UNIT (Sq. Ft.) RENTAL RATE
--------------------------------------------------------------------
Studio 15 300 $ 419
--------------------------------------------------------------------
1 BR 49 600 $ 499
--------------------------------------------------------------------
2 BR 6 900 $ 650
--------------------------------------------------------------------
Total 70 39,300
--------------------------------------------------
<TABLE>
<S> <C> <C>
4/1/99 OCCUPANCY %: 93% ESTIMATED APPRAISED PARTNERSHIP VALUE: $2,195,000
1998 OCCUPANCY %: 97% APPRAISAL DATE: 1/98
1997 AVG. MONTHLY OCCUPANCY %: 91% 11/1/98 FEDERAL INCOME TAX BASIS: $1,629,182
1996 AVG. MONTHLY OCCUPANCY %: 89% DEPRECIATION LIFE CLAIMED: 24.5 yrs.
1995 AVG. MONTHLY OCCUPANCY %: 90% REALTY TAX RATE (MILLAGE): 21.6657
1994 AVG. MONTHLY OCCUPANCY %: 91% 1997 PROPERTY TAX VALUE: $1,194,445
</TABLE>
================================================================================
FIRST MORTGAGE INFORMATION
FIRST MORTGAGE HOLDER AND ADDRESS: MATURITY DATE: 11/1/06
Column Financial, Inc.
3414 Peachtree Road N.E., Suite 1140
Atlanta, Georgia 30326-1113
INITIAL PRINCIPAL BALANCE: $1,050,000 ANNUAL DEBT SERVICE: $105,288
4/30/99 BALANCE: $1,020,990 MONTHLY PAYMENT: $ 8,774
BALANCE DUE AT MATURITY: $ 882,430
MORTGAGE INTEREST AND AMORTIZATION PROVISIONS: The loan bears a fixed interest
rate of 9.04% and amortizes on a 25-year basis.
PREPAYMENT PROVISIONS: Prepayment penalty equal to 1% of prepayment amount if
prepaid prior to fifth anniversary of loan; no prepayment penalty thereafter.
================================================================================
INVESTMENT PROGRAM INFORMATION
DATE OFFERING BEGAN: 10/95 NUMBER OF UNITS SOLD: 2,300
NUMBER OF INVESTORS: 49 PRICE PER UNIT: $500
PAID IN CAPITAL: $1,150,000 DATE OFFERING TERMINATED: 2/97
ALLOCATION OF DISTRIBUTABLE CASH: Each fiscal year, all distributable cash is
distributed to the investors until they have received a 10% non-cumulative
return on their capital contributions; the GP is then entitled to receive a
similar return on its capital contribution. Thereafter, the investors are
entitled to receive any remaining distributable cash during the fiscal year
less a reasonable cash reserve determined by the GP.
ALLOCATION OF NET PROCEEDS FROM PROPERTY SALE OR REFINANCING: After investors
have received an aggregate amount (including prior distributions) equal to
their capital contributions plus a 10% yearly cash-on-cash return, the GP is
entitled to receive any remaining net proceeds until it has received a similar
return on its capital contribution; thereafter the investors and the GP share
any remaining net proceeds 70%/30%.
<TABLE>
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C>
NUMBER OF OPERATING PARTNERSHIP UNITS ESTIMATED DEFERRED CAPITAL GAIN TAX LIABILITY FROM EXCHANGE OFFERING
OFFERED IN EXCHANGE OFFERING (per $1,000 of Investors' original investment):
(per $1,000 of Investors' original investment): 114 Units Short Term Capital Gain (assuming 39% rate): $118
valued at $10 per Unit (or $1,140) Long Term Capital Gain (assuming 20% rate): $ 61
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(See Endnotes to Exchange Equity Partnerships)
3
<PAGE>
FLORIDA CAPITAL INCOME FUND III, LTD.
(GP: Baron Capital VII, Inc.)
PARTNERSHIP PROPERTY INTEREST
The Partnership owns 100% of the limited partnership interest in
a limited partnership which holds fee simple title to the
property described below.
PROPERTY NAME AND ADDRESS: YEAR COMPLETED: 1986
BRIDGE POINT APARTMENTS - PHASE II APPROX. ACREAGE: 3.39
1500 Monument Road
Jacksonville, Florida 32225
UNIT MIX AND RENTAL RATES:
--------------------------------------------------------------------
APPROXIMATE
APPROXIMATE RENTABLE AVERAGE MONTHLY
UNIT TYPE NUMBER AREA PER UNIT (Sq. Ft.) RENTAL RATE
--------------------------------------------------------------------
Studio 6 288 $369-389
--------------------------------------------------------------------
1 BR 37 576 $449
--------------------------------------------------------------------
2 BR 5 864 $589-599
--------------------------------------------------------------------
Total 48 27,360
---------------------------------------------------
<TABLE>
<S> <C> <C>
4/1/99 OCCUPANCY %: 94% ESTIMATED APPRAISED PARTNERSHIP VALUE: $1,610,000
1998 AVG. MONTHLY OCCUPANCY %: 96% APPRAISAL DATE: 2/98
1997 AVG. MONTHLY OCCUPANCY %: 93% 11/1/98 FEDERAL INCOME TAX BASIS: $1,152,374
1996 AVG. MONTHLY OCCUPANCY %: 95% DEPRECIATION LIFE CLAIMED: 25.5 yrs.
1995 AVG. MONTHLY OCCUPANCY %: 94% REALTY TAX RATE (MILLAGE): 21.4228
1994 AVG. MONTHLY OCCUPANCY %: 92% 1997 PROPERTY TAX VALUE: $904,775
</TABLE>
================================================================================
FIRST MORTGAGE INFORMATION
FIRST MORTGAGE HOLDER AND ADDRESS: MATURITY DATE: 7/1/06
Huntington Mortgage Co.
41 South High Street, Suite 900
Columbus, Ohio 43215
INITIAL PRINCIPAL BALANCE: $735,000 ANNUAL DEBT SERVICE: $76,572
4/30/99 BALANCE: $713,208 MONTHLY PAYMENT: $ 6,381
BALANCE DUE AT MATURITY: $625,327
MORTGAGE INTEREST AND AMORTIZATION PROVISIONS: The loan bears a fixed interest
rate of 9.52% and amortizes on a 25-year basis.
PREPAYMENT PROVISIONS: Prepayment permitted only after 7/1/05.
================================================================================
INVESTMENT PROGRAM INFORMATION
DATE OFFERING BEGAN: 6/95 NUMBER OF UNITS SOLD: 1,600
NUMBER OF INVESTORS: 32 PRICE PER UNIT: $500
PAID IN CAPITAL: $800,000 DATE OFFERING TERMINATED: 11/95
ALLOCATION OF DISTRIBUTABLE CASH: Each fiscal year, all distributable cash is
distributed to the investors until they have received a 10% non-cumulative
return on their capital contributions; the GP is then entitled to receive a
similar return on its capital contribution. Thereafter, the investors are
entitled to receive any remaining distributable cash during the fiscal year
less a reasonable cash reserve determined by the GP.
ALLOCATION OF NET PROCEEDS FROM PROPERTY SALE OR REFINANCING: After investors
have received an aggregate amount (including prior distributions) equal to
their capital contributions plus a 10% yearly cash-on-cash return, the GP is
entitled to receive any remaining net proceeds until it has received a similar
return on its capital contribution; thereafter the investors and the GP share
any remaining net proceeds 70%/30%.
<TABLE>
<S> <C>
-----------------------------------------------------------------------------------------------------------------------------------
NUMBER OF OPERATING PARTNERSHIP UNITS ESTIMATED DEFERRED CAPITAL GAIN TAX LIABILITY FROM EXCHANGE OFFERING
OFFERED IN EXCHANGE OFFERING (per $1,000 of Investors' original investment):
(per $1,000 of Investors' original investment): 117 Units Short Term Capital Gain (assuming 39% rate): $ 236
valued at $10 per Unit (or $1,170) Long Term Capital Gain (assuming 20% rate): $ 121
-----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(See Endnotes to Exchange Equity Partnerships)
4
<PAGE>
MIDWEST INCOME GROWTH FUND VI, LTD.
(GP: Baron Capital of Ohio III, Inc.,
formerly named Sigma Financial Capital VI, Inc.)
PARTNERSHIP PROPERTY INTEREST
The Partnership owns 100% of the limited partnership interest in
a limited partnership which holds fee simple title to the
property described below.
PROPERTY NAME AND ADDRESS: YEAR COMPLETED: 1974
BROOKWOOD WAY APARTMENTS APPROX. ACREAGE: 3.92
327 N. Brookwood Way
Mansfield, Ohio 44906
UNIT MIX AND RENTAL RATES:
--------------------------------------------------------------------
APPROXIMATE
APPROXIMATE RENTABLE AVERAGE MONTHLY
UNIT TYPE NUMBER AREA PER UNIT (Sq. Ft.) RENTAL RATE
--------------------------------------------------------------------
Studio 3 288 $299
--------------------------------------------------------------------
1 BR 60 576 $379
--------------------------------------------------------------------
2 BR 3 864 $399
--------------------------------------------------------------------
Total 66 38,016
---------------------------------------------------
<TABLE>
<S> <C> <C>
4/1/99 OCCUPANCY %: 89% ESTIMATED APPRAISED PARTNERSHIP VALUE: $1,780,000
1998 AVG. MONTHLY OCCUPANCY %: 99% APPRAISAL DATE: 9/98
1997 AVG. MONTHLY OCCUPANCY %: 94% 11/1/98 FEDERAL INCOME TAX BASIS: $1,737,619
1996 AVG. MONTHLY OCCUPANCY %: 97% DEPRECIATION LIFE CLAIMED: 25 yrs.
1995 AVG. MONTHLY OCCUPANCY %: 95% REALTY TAX RATE (MILLAGE): 78.13
1994 AVG. MONTHLY OCCUPANCY %: 96% 1997 PROPERTY TAX VALUE: $349,520
</TABLE>
===============================================================================
FIRST MORTGAGE INFORMATION
FIRST MORTGAGE HOLDER AND ADDRESS: MATURITY DATE: 12/1/06
Mellon Bank
1422 Euclid #900
Cleveland, Ohio 44115
INITIAL PRINCIPAL BALANCE: $1,075,000 ANNUAL DEBT SERVICE: $108,612
4/30/99 BALANCE: $1,046,599 MONTHLY PAYMENT: $ 9,051
BALANCE DUE AT MATURITY: $ 890,263
MORTGAGE INTEREST AND AMORTIZATION PROVISIONS: The loan bears a fixed
interest rate of 9.04% and amortizes on a 25-year basis.
PREPAYMENT PROVISIONS: Loan may be prepaid in whole at any time after December
1, 2001 provided written notice of such prepayment is received by lender not
more than 60 days and not less than 30 days prior to the date of such payment.
================================================================================
INVESTMENT PROGRAM INFORMATION
DATE OFFERING BEGAN: 4/96 NUMBER OF UNITS SOLD: 600
NUMBER OF INVESTORS: 7 PRICE PER UNIT: $500
PAID IN CAPITAL: $300,000 DATE OFFERING TERMINATED: 10/96
ALLOCATION OF DISTRIBUTABLE CASH: Each fiscal year, all distributable cash is
distributed to the investors until they have received a 10%
non-cumulative return on their capital contributions; any remaining
distributable cash during the fiscal year is to be deposited in a
cash reserve acount.
ALLOCATION OF NET PROCEEDS FROM PROPERTY SALE OR REFINANCING: After investors
have received an aggregate amount (including prior distributions)
equal to their capital contributions plus a 10% yearly cash-on-cash
return, the GP is entitled to receive any remaining net proceeds
until it has received a similar return on its capital contribution;
thereafter the investors and the GP share any remaining net proceeds
70%/30%.
<TABLE>
<S> <C>
-----------------------------------------------------------------------------------------------------------------------------------
NUMBER OF OPERATING PARTNERSHIP UNITS ESTIMATED DEFERRED CAPITAL GAIN TAX LIABILITY FROM EXCHANGE OFFERING
OFFERED IN EXCHANGE OFFERING (per $1,000 of Investors' original investment):
(per $1,000 of Investors' original investment): 127 Units Short Term Capital Gain (assuming 39% rate): $429
valued at $10 per Unit (or $1,270) Long Term Capital Gain (assuming 20% rate): $220
-----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(See Endnotes to Exchange Equity Partnerships)
5
<PAGE>
FLORIDA OPPORTUNITY INCOME PARTNERS, LTD.
(GP: Baron Capital III, Inc.)
PARTNERSHIP PROPERTY INTEREST
The Partnership owns 100% of the limited partnership interest in
a limited partnership which holds fee simple title to the
property described below.
PROPERTY NAME AND ADDRESS: YEAR COMPLETED: 1982
CAMELLIA COURT APARTMENTS APPROX. ACREAGE: 5.15
1401 S. Clyde Morris Boulevard
Daytona Beach, Florida 32114
UNIT MIX AND RENTAL RATES:
--------------------------------------------------------------------
APPROXIMATE
APPROXIMATE RENTABLE AVERAGE MONTHLY
UNIT TYPE NUMBER AREA PER UNIT (Sq. Ft.) RENTAL RATE
--------------------------------------------------------------------
1 BR 59 576 $435
--------------------------------------------------------------------
2 BR 1 864 $599
--------------------------------------------------------------------
Total 60 34,848
---------------------------------------------------
<TABLE>
<S> <C> <C>
4/1/99 OCCUPANCY %: 95% ESTIMATED APPRAISED PARTNERSHIP VALUE: $1,833,000
1998 AVG. MONTHLY OCCUPANCY %: 98% APPRAISAL DATE: 8/98:
1997 AVG. MONTHLY OCCUPANCY %: 75% 11/1/98 FEDERAL INCOME TAX BASIS: $1,384,565
1996 AVG. MONTHLY OCCUPANCY %: 91% DEPRECIATION LIFE CLAIMED: 24.5 yrs.
1995 AVG. MONTHLY OCCUPANCY %: 91% REALTY TAX RATE (MILLAGE): 26.77249
1994 AVG. MONTHLY OCCUPANCY %: 78% 1997 PROPERTY TAX VALUE: $1,100,618
</TABLE>
======================================================================
FIRST MORTGAGE INFORMATION
FIRST MORTGAGE HOLDER AND ADDRESS: MATURITY DATE: 11/1/06
Column Financial
6400 Congress Avenue #200
Boca Raton, Florida 33487
INITIAL PRINCIPAL BALANCE: $1,100,000 ANNUAL DEBT SERVICE: $111,132
4/30/99 BALANCE: $1,069,633 MONTHLY PAYMENT: $ 9,261
BALANCE DUE AT MATURITY: $ 984,430
MORTGAGE INTEREST AND AMORTIZATION PROVISIONS: The loan bears a fixed interest
rate of 9.04% and amortizes on a 30-year basis.
PREPAYMENT PROVISIONS: No prepayment permitted during the first five years of
the loan; thereafter, entire principal balance may be prepaid, provided during
the sixth and seventh years of the loan lender is paid a prepayment fee equal to
the greater of one percent of the outstanding loan balance or yield maintenance.
================================================================================
INVESTMENT PROGRAM INFORMATION
DATE OFFERING BEGAN: 8/95 NUMBER OF UNITS SOLD: 800
NUMBER OF INVESTORS: 29 PRICE PER UNIT: $1,000
PAID IN CAPITAL: $800,000 DATE OFFERING TERMINATED: 12/95
ALLOCATION OF DISTRIBUTABLE CASH: Each fiscal year, all distributable cash is
distributed to the investors until they have received a 10% non-cumulative
return on their capital contributions; the GP is then entitled to receive a
similar return on its capital contribution. Thereafter, the investors are
entitled to receive any remaining distributable cash during the fiscal year
less a reasonable cash reserve determined by the GP.
ALLOCATION OF NET PROCEEDS FROM PROPERTY SALE OR REFINANCING: After investors
have received an aggregate amount (including prior distributions) equal to
their capital contributions plus a 10% yearly cash-on-cash return, the GP is
entitled to receive any remaining net proceeds until it has received a similar
return on its capital contribution; thereafter the investors and the GP share
any remaining net proceeds 70%/30%.
<TABLE>
<S> <C>
-----------------------------------------------------------------------------------------------------------------------------------
NUMBER OF OPERATING PARTNERSHIP UNITS ESTIMATED DEFERRED CAPITAL GAIN TAX LIABILITY FROM EXCHANGE OFFERING
OFFERED IN EXCHANGE OFFERING (per $1,000 of Investors' original investment):
(per $1,000 of Investors' original investment): 105 Units Short Term Capital Gain (assuming 39% rate): $254
valued at $10 per Unit (or $1,050) Long Term Capital Gain (assuming 20% rate): $130
-----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(See Endnotes to Exchange Equity Partnerships)
6
<PAGE>
FLORIDA CAPITAL INCOME FUND, LTD.
(GP: Baron Capital II, Inc.)
PARTNERSHIP PROPERTY INTEREST
The Partnership owns 100% of the limited partnership interest in
a limited partnership which holds fee simple title to the
property described below.
PROPERTY NAME AND ADDRESS: YEAR COMPLETED: 1987
EAGLE LAKE APARTMENTS APPROXIMATE ACREAGE: 4.68
1025 Eagle Lake Trail
Port Orange, Florida 32119
UNIT MIX AND RENTAL RATES:
--------------------------------------------------------------------
APPROXIMATE
APPROXIMATE RENTABLE AVERAGE MONTHLY
UNIT TYPE NUMBER AREA PER UNIT (Sq. Ft.) RENTAL RATE
--------------------------------------------------------------------
1 BR 73 576 $459
--------------------------------------------------------------------
2 BR 4 864 $579
--------------------------------------------------------------------
Total 77 45,504
---------------------------------------------------
<TABLE>
<S> <C> <C>
4/1/99 OCCUPANCY %: 100% ESTIMATED APPRAISED PARTNERSHIP VALUE: $2,530,000
1998 AVG. MONTHLY OCCUPANCY %: 94% APPRAISAL DATE: 1/98
1997 AVG. MONTHLY OCCUPANCY %: 94% 11/1/98 FEDERAL INCOME TAX BASIS: $2,066,071
1996 AVG. MONTHLY OCCUPANCY %: 96% DEPRECIATION LIFE CLAIMED: 24 yrs.
1995 AVG. MONTHLY OCCUPANCY %: 92% REALTY TAX RATE (MILLAGE): 24.44549
1994 AVG. MONTHLY OCCUPANCY %: 95% 1997 PROPERTY TAX VALUE: $1,755,464
</TABLE>
================================================================================
FIRST MORTGAGE INFORMATION
FIRST MORTGAGE HOLDER AND ADDRESS: MATURITY DATE: 11/1/05
Column Financial, Inc.
3414 Peachtree Road N.E., Suite 1140
Atlanta, Georgia 30325-1113
INITIAL PRINCIPAL BALANCE: $1,500,000 ANNUAL DEBT SERVICE: $144,636
4/30/99 BALANCE: $1,433,616 MONTHLY PAYMENT: $ 12,053
BALANCE DUE AT MATURITY: $1,244,562
MORTGAGE INTEREST AND AMORTIZATION PROVISIONS: The loan bears a fixed interest
rate of 8.56% through maturity and amortizes on a 25-year basis.
PREPAYMENT PROVISIONS: May be prepaid after 10/25/00 with prepayment penalty
equal to 1% of prepayment amount.
================================================================================
INVESTMENT PROGRAM INFORMATION
DATE OFFERING BEGAN: 11/94 NUMBER OF UNITS SOLD: 1,614
NUMBER OF INVESTORS: 31 PRICE PER UNIT: $500
PAID IN CAPITAL: $807,000 DATE OFFERING TERMINATED: 6/95
ALLOCATION OF DISTRIBUTABLE CASH: Each fiscal year, all distributable cash is
distributed to the investors until they have received a 10% non-cumulative
return on their capital contributions. Thereafter, the investors are entitled
to receive all remaining distributable cash during the fiscal year less a
reasonable cash reserve determined by the GP.
ALLOCATION OF NET PROCEEDS FROM PROPERTY SALE OR REFINANCING: After investors
have received an aggregate amount (including prior distributions) equal to
their capital contributions plus a 10% yearly cash-on-cash return (and, in the
case of a property sale, after the holders of second mortgage financing have
received 10% of the net sale proceeds remaining after the investors have
received an aggregate amount equal to their capital contributions), the GP is
entitled to receive any remaining net proceeds until it has received a similar
return on its capital contribution; thereafter, investors and the GP share any
remaining net proceeds 70%/30%.
<TABLE>
<S> <C>
-----------------------------------------------------------------------------------------------------------------------------------
NUMBER OF OPERATING PARTNERSHIP UNITS ESTIMATED DEFERRED CAPITAL GAIN TAX LIABILITY
OFFERED IN EXCHANGE OFFERING FROM EXCHANGE OFFERING (per $1,000 of Investors'
(per $1,000 of Investors' original investment): 115 Units original investment):
valued at $10 per Unit (or $1,150) Short Term Capital Gain (assuming 39% rate): $312
Long Term Capital Gain (assuming 20% rate): $160
-----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(See Endnotes to Exchange Equity Partnerships)
7
<PAGE>
FLORIDA CAPITAL INCOME FUND II, LTD.
(GP: Baron Capital IV, Inc.)
PARTNERSHIP PROPERTY INTEREST
The Partnership owns 100% of the limited partnership interest in
a limited partnership which holds fee simple title to the
property described below.
PROPERTY NAME AND ADDRESS: YEAR COMPLETED: 1985
FOREST GLEN APARTMENTS - PHASE I APPROXIMATE ACREAGE: 6.85 (all 4
300 Forest Glen Boulevard phases)
Daytona Beach, Florida 32114
UNIT MIX AND RENTAL RATES:
--------------------------------------------------------------------
APPROXIMATE
APPROXIMATE RENTABLE AVERAGE MONTHLY
UNIT TYPE NUMBER AREA PER UNIT (Sq. Ft.) RENTAL RATE
--------------------------------------------------------------------
2 BR 28 1,075 $619-649
--------------------------------------------------------------------
3 BR 24 1,358 $719
--------------------------------------------------------------------
Total 52 62,692
---------------------------------------------------
<TABLE>
<S> <C> <C>
4/1/99 OCCUPANCY %: 98% ESTIMATED APPRAISED PARTNERSHIP VALUE: $2,990,820
1998 AVG. MONTHLY OCCUPANCY %: 99% APPRAISAL DATE: 10/97
1997 AVG. MONTHLY OCCUPANCY %: 82% 11/1/98 FEDERAL INCOME TAX BASIS: $1,512,371
1996 AVG. MONTHLY OCCUPANCY %: 85% DEPRECIATION LIFE CLAIMED: 23 yrs.
1995 AVG. MONTHLY OCCUPANCY %: 93% REALTY TAX RATE (MILLAGE): 26.41256
1994 AVG. MONTHLY OCCUPANCY %: 95% 1997 PROPERTY TAX VALUE: $1,594,041
</TABLE>
================================================================================
FIRST MORTGAGE INFORMATION
FIRST MORTGAGE HOLDER AND ADDRESS: MATURITY DATE: 3/2005
Prudential Mortgage Capital
One Ravinia Drive, Suite 1400
Atlanta, Georgia 30346
INITIAL PRINCIPAL BALANCE: $1,836,576 ANNUAL DEBT SERVICE: $145,920
4/30/99 BALANCE: $1,778,043 MONTHLY PAYMENT: $ 12,160
BALANCE DUE AT MATURITY: $1,681,926
MORTGAGE INTEREST AND AMORTIZATION PROVISIONS: The loan bears a fixed interest
rate of 7.01% and amortizes on a 30-year basis.
PREPAYMENT PROVISIONS: Prepayable after 4/2001 with yield maintenance until
10/2004; thereafter prepayable without penalty.
================================================================================
INVESTMENT PROGRAM INFORMATION
DATE OFFERING BEGAN: 5/94 NUMBER OF UNITS SOLD: 2,000*
NUMBER OF INVESTORS: 38 PRICE PER UNIT: $500
PAID IN CAPITAL: $1,000,000* DATE OFFERING TERMINATED: 7/95
ALLOCATION OF DISTRIBUTABLE CASH: Each fiscal year, all distributable cash is
distributed to the investors until they have received a 10% non-cumulative
return on their capital contributions; the GP is then entitled to receive a
similar return on its capital contribution. Thereafter, the investors are
entitled to receive all remaining distributable cash during the fiscal year
less a reasonable cash reserve determined by the GP.
ALLOCATION OF NET PROCEEDS FROM PROPERTY SALE OR REFINANCING: After investors
have received an aggregate amount (including prior distributions) equal to
their capital contributions plus a 10% yearly cash-on-cash return, the GP is
entitled to receive any remaining net proceeds until it has received a similar
return on its capital contribution; thereafter the investors and the GP share
any remaining net proceeds 70%/30%.
<TABLE>
<S> <C>
-----------------------------------------------------------------------------------------------------------------------------------
NUMBER OF OPERATING PARTNERSHIP UNITS ESTIMATED DEFERRED CAPITAL GAIN TAX LIABILITY FROM EXCHANGE OFFERING
OFFERED IN EXCHANGE OFFERING (per $1,000 of Investors' original investment):
(per $1,000 of Investors' original investment): 169 Units Short Term Capital Gain (assuming 39% rate): $464
valued at $10 per Unit (or $1,690) Long Term Capital Gain (assuming 20% rate): $238
-----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(See Endnotes to Exchange Equity Partnerships)
- ----------
* Includes 1,840 units sold in the program's offering plus 160 units issued to
four investors in exchange for property interests acquired by them in an earlier
unrelated program which was terminated.
8
<PAGE>
REALTY OPPORTUNITY INCOME FUND VIII, LTD.
(GP: Baron Capital IV, Inc.)
PARTNERSHIP PROPERTY INTEREST
The Partnership owns 100% of the limited partnership interest in
a limited partnership which holds fee simple title to the
property described below.
PROPERTY NAME AND ADDRESS: YEAR COMPLETED: 1985
FOREST GLEN APARTMENTS - PHASE II APPROXIMATE ACREAGE: 6.85 (all 4
300 Forest Glen Boulevard phases)
Daytona Beach, Florida 32114
UNIT MIX AND RENTAL RATES:
--------------------------------------------------------------------
APPROXIMATE
APPROXIMATE RENTABLE AVERAGE MONTHLY
UNIT TYPE NUMBER AREA PER UNIT (Sq. Ft.) RENTAL RATE
--------------------------------------------------------------------
2 BR 23 1,075 $619-649
--------------------------------------------------------------------
3 BR 7 1,358 $719
--------------------------------------------------------------------
Total 30 34,231
---------------------------------------------------
<TABLE>
<S> <C> <C>
4/1/99 OCCUPANCY %: 96% ESTIMATED APPRAISED PARTNERSHIP VALUE: $2,173,162
1998 AVG. MONTHLY OCCUPANCY %: 90% APPRAISAL DATE: 10/97
1997 AVG. MONTHLY OCCUPANCY %: 73% 11/1/98 FEDERAL INCOME TAX BASIS: $1,460,396
1996 AVG. MONTHLY OCCUPANCY %: 82% DEPRECIATION LIFE CLAIMED: 23 yrs.
1995 AVG. MONTHLY OCCUPANCY %: 91% REALTY TAX RATE (MILLAGE): 26.41256
1994 AVG. MONTHLY OCCUPANCY %: 92% 1997 PROPERTY TAX VALUE: $930,725
</TABLE>
================================================================================
FIRST MORTGAGE INFORMATION
FIRST MORTGAGE HOLDER AND ADDRESS: MATURITY DATE: 3/2005
Prudential Mortgage Capital
One Ravinia Drive, Suite 1400
Atlanta, Georgia 30346
INITIAL PRINCIPAL BALANCE: $ 1,072,132 ANNUAL DEBT SERVICE: $85,188
4/30/99 BALANCE: $ 1,025,794 MONTHLY PAYMENT: $ 7,099
BALANCE DUE AT MATURITY: $ 981,813
MORTGAGE INTEREST AND AMORTIZATION PROVISIONS: The loan bears a fixed interest
rate of 7.01% and amortizes on a 30-year basis.
PREPAYMENT PROVISIONS: Prepayable after 4/2001 with yield maintenance until
10/2004; thereafter prepayable without penalty.
================================================================================
INVESTMENT PROGRAM INFORMATION
DATE OFFERING BEGAN: 3/94 NUMBER OF UNITS SOLD: 944
NUMBER OF INVESTORS: 45 PRICE PER UNIT: $1,000
PAID IN CAPITAL: $944,000 DATE OFFERING TERMINATED: 6/94
ALLOCATION OF DISTRIBUTABLE CASH: Each fiscal year, all distributable cash is
distributed to the investors until they have received a 10% non-cumulative
return on their capital contributions; the GP is then entitled to receive a
similar return on its capital contribution. Thereafter, the investors are
entitled to receive all remaining distributable cash during the fiscal year
less a reasonable cash reserve determined by the GP.
ALLOCATION OF INTEREST IN NET PROCEEDS FROM PROPERTY SALE OR REFINANCING: After
investors have received an aggregate amount (including prior distributions)
equal to their capital contributions plus a 10% yearly cash-on-cash return,
the GP is entitled to receive any remaining net proceeds until it has received
a similar return on its capital contribution; thereafter the investors and the
GP share any remaining net proceeds 70%/30%.
<TABLE>
<S> <C>
-----------------------------------------------------------------------------------------------------------------------------------
NUMBER OF OPERATING PARTNERSHIP UNITS ESTIMATED DEFERRED CAPITAL GAIN TAX LIABILITY FROM EXCHANGE OFFERING
OFFERED IN EXCHANGE OFFERING (per $1,000 of Investors' original investment):
(per $1,000 of Investors' original investment): 105 Units Short Term Capital Gain (assuming 39% rate): $128
valued at $10 per Unit (or $1,050) Long Term Capital Gain (assuming 20% rate): $ 66
-----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(See Endnotes to Exchange Equity Partnerships)
- ----------
* The GP became a manager of this program in July 1995, replacing Realty Capital
I, Inc., the initial sponsor.
9
<PAGE>
FLORIDA INCOME ADVANTAGE FUND I, LTD.
(GP: Baron Capital IV, Inc.)
PARTNERSHIP PROPERTY INTEREST
The Partnership owns 100% of the limited partnership interest in
a limited partnership which holds fee simple title to the
property described below.
PROPERTY NAME AND ADDRESS: YEAR COMPLETED: 1985
FOREST GLEN APARTMENTS - PHASE III APPROXIMATE ACREAGE: 6.85 (all 4
300 Forest Glen Boulevard phases)
Daytona Beach, Florida 32114
UNIT MIX AND RENTAL RATES:
--------------------------------------------------------------------
APPROXIMATE
APPROXIMATE RENTABLE AVERAGE MONTHLY
UNIT TYPE NUMBER AREA PER UNIT (Sq. Ft.) RENTAL RATE
--------------------------------------------------------------------
2 BR 19 1,075 $619-649
--------------------------------------------------------------------
3 BR 7 1,358 $719
--------------------------------------------------------------------
Total 26 29,931
---------------------------------------------------
<TABLE>
<S> <C> <C>
4/1/99 OCCUPANCY %: 92% ESTIMATED APPRAISED PARTNERSHIP VALUE: $1,940,339
1998 AVG. MONTHLY OCCUPANCY %: 81% APPRAISAL DATE: 10/97
1997 AVG. MONTHLY OCCUPANCY %: 88% 11/1/98 FEDERAL INCOME TAX BASIS: $1,282,871
1996 AVG. MONTHLY OCCUPANCY %: 94% DEPRECIATION LIFE CLAIMED: 23 yrs.
1995 AVG. MONTHLY OCCUPANCY %: 98% REALTY TAX RATE (MILLAGE): 26.41256
1994 AVG. MONTHLY OCCUPANCY %: 92% 1997 PROPERTY TAX VALUE: $743,191
</TABLE>
================================================================================
FIRST MORTGAGE INFORMATION
FIRST MORTGAGE HOLDER AND ADDRESS: MATURITY DATE: 3/2005
Prudential Mortgage Capital
One Ravinia Drive, Suite 1400
Atlanta, Georgia 30346
INITIAL PRINCIPAL BALANCE: $ 854,708 ANNUAL DEBT SERVICE: $67,908
4/30/99 BALANCE: $ 889,021 MONTHLY PAYMENT: $ 5,659
BALANCE DUE AT MATURITY: $ 782,744
MORTGAGE INTEREST AND AMORTIZATION PROVISIONS: The loan bears a fixed interest
rate of 7.01% and amortizes on a 30-year basis.
PREPAYMENT PROVISIONS: Prepayable after 4/2001 with yield maintenance until
10/2004; thereafter prepayable without penalty.
================================================================================
INVESTMENT PROGRAM INFORMATION
DATE OFFERING BEGAN: 2/94 NUMBER OF UNITS SOLD: 940
NUMBER OF INVESTORS: 46 PRICE PER UNIT: $1,000
PAID IN CAPITAL: $940,000 DATE OFFERING TERMINATED: 5/94
ALLOCATION OF DISTRIBUTABLE CASH: Each fiscal year, all distributable cash is
distributed to the investors until they have received a 10% non-cumulative
return on their capital contributions; the GP is then entitled to receive a
similar return on its capital contribution. Thereafter, the investors are
entitled to receive all remaining distributable cash during the fiscal year
less a reasonable cash reserve determined by the GP.
ALLOCATION OF NET PROCEEDS FROM PROPERTY SALE OR REFINANCING: After investors
have received an aggregate amount (including prior distributions) equal to
their capital contributions plus a 10% yearly cash-on-cash return, the GP is
entitled to receive any remaining net proceeds until it has received a similar
return on its capital contribution; thereafter the investors and the GP share
any remaining net proceeds 70%/30%.
<TABLE>
<S> <C>
-----------------------------------------------------------------------------------------------------------------------------------
NUMBER OF OPERATING PARTNERSHIP UNITS ESTIMATED DEFERRED CAPITAL GAIN TAX LIABILITY FROM EXCHANGE OFFERING
OFFERED IN EXCHANGE OFFERING (per $1,000 of Investors' original investment):
(per $1,000 of Investors' original investment): 107 Units Short Term Capital Gain (assuming 39% rate): $129
valued at $10 per Unit (or $1,070) Long Term Capital Gain (assuming 20% rate): $ 66
-----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(See Endnotes to Exchange Equity Partnerships)
- ----------
The GP became a manager of this program in July 1995, replacing Realty Capital
IV, Inc., the initial sponsor.
10
<PAGE>
FLORIDA INCOME APPRECIATION FUND I, LTD.
(GP: Baron Capital IV, Inc.)
PARTNERSHIP PROPERTY INTEREST
The Partnership owns 100% of the limited partnership interest in
a limited partnership which holds fee simple title to the
property described below.
PROPERTY NAME AND ADDRESS: YEAR COMPLETED: 1985
FOREST GLEN APARTMENTS - PHASE IV APPROXIMATE ACREAGE: 6.85 (all 4
300 Forest Glen Boulevard phases)
Daytona Beach, Florida 32114
UNIT MIX AND RENTAL RATES:
--------------------------------------------------------------------
APPROXIMATE
APPROXIMATE RENTABLE AVERAGE MONTHLY
UNIT TYPE NUMBER AREA PER UNIT (Sq. Ft.) RENTAL RATE
--------------------------------------------------------------------
2 BR 6 1,075 $619-649
--------------------------------------------------------------------
3 BR 2 1,358 $719
--------------------------------------------------------------------
Total 8 9,166
---------------------------------------------------
<TABLE>
<S> <C> <C>
4/1/99 OCCUPANCY %: 100% ESTIMATED APPRAISED PARTNERSHIP VALUE: $471,679
1998 AVG. MONTHLY OCCUPANCY %: 100% APPRAISAL DATE: 10/97
1997 AVG. MONTHLY OCCUPANCY %: 91% 11/1/98 FEDERAL INCOME TAX BASIS: $216,381
1996 AVG. MONTHLY OCCUPANCY %: 91% DEPRECIATION LIFE CLAIMED: 23 yrs.
1995 AVG. MONTHLY OCCUPANCY %: 88% REALTY TAX RATE (MILLAGE): 26.41256
1994 AVG. MONTHLY OCCUPANCY %: 91% 1997 PROPERTY TAX VALUE: $204,899
</TABLE>
================================================================================
FIRST MORTGAGE INFORMATION
FIRST MORTGAGE HOLDER AND ADDRESS: MATURITY DATE: 3/2005
Prudential Mortgage Capital
One Ravinia Drive, Suite 1400
Atlanta, Georgia 30346
INITIAL PRINCIPAL BALANCE: $ 236,584 ANNUAL DEBT SERVICE: $18,792
4/30/99 BALANCE: $ 273,545 MONTHLY PAYMENT: $ 1,566
BALANCE DUE AT MATURITY: $ 216,712
MORTGAGE INTEREST AND AMORTIZATION PROVISIONS: The loan bears a fixed interest
rate of 7.01% and amortizes on a 30-year basis.
PREPAYMENT PROVISIONS: Prepayable after 4/2001 with yield maintenance until
10/2004; thereafter prepayable without penalty.
================================================================================
INVESTMENT PROGRAM INFORMATION
DATE OFFERING BEGAN: 4/94 NUMBER OF UNITS SOLD: 205
NUMBER OF INVESTORS: 13 PRICE PER UNIT: $1,000
PAID IN CAPITAL: $205,000 DATE OFFERING TERMINATED: 9/94
ALLOCATION OF DISTRIBUTABLE CASH: Each fiscal year, all distributable cash is
distributed to the investors until they have received a 10% non-cumulative
return on their capital contributions; the GP is then entitled to receive a
similar return on its capital contribution. Thereafter, the investors are
entitled to receive any remaining distributable cash during the fiscal year
less a reasonable cash reserve determined by the GP.
ALLOCATION OF NET PROCEEDS FROM PROPERTY SALE OR REFINANCING: After investors
have received an aggregate amount (including prior distributions) equal to
their capital contributions plus a 10% yearly cash-on-cash return, the GP is
entitled to receive any remaining net proceeds until it has received a similar
return on its capital contribution; thereafter the investors and the GP share
any remaining net proceeds 70%/30%.
<TABLE>
<S> <C>
-----------------------------------------------------------------------------------------------------------------------------------
NUMBER OF OPERATING PARTNERSHIP UNITS ESTIMATED DEFERRED CAPITAL GAIN TAX LIABILITY FROM EXCHANGE OFFERING
OFFERED IN EXCHANGE OFFERING (per $1,000 of Investors' original investment):
(per $1,000 of Investors' original investment): 124 Units Short Term Capital Gain (assuming 39% rate): $434
valued at $10 per Unit (or $1,240) Long Term Capital Gain (assuming 20% rate): $222
-----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(See Endnotes to Exchange Equity Partnerships)
- ----------
The GP became a manager of this program in July 1995, replacing Realty Capital
II, Inc., the initial sponsor.
11
<PAGE>
FLORIDA CAPITAL INCOME FUND IV, LTD.
(GP: Baron Capital V, Inc.)
PARTNERSHIP PROPERTY INTEREST
The Partnership owns 100% of the limited partnership interest in
a limited partnership which holds fee simple title to the
property described below.
PROPERTY NAME AND ADDRESS: YEAR COMPLETED: 1986
GLEN LAKE ARMS APARTMENTS APPROXIMATE ACREAGE: 7.16
2000 Gandy Boulevard North
St. Petersburg, Florida 33702
UNIT MIX AND RENTAL RATES:
--------------------------------------------------------------------
APPROXIMATE
APPROXIMATE RENTABLE AVERAGE MONTHLY
UNIT TYPE NUMBER AREA PER UNIT (Sq. Ft.) RENTAL RATE
--------------------------------------------------------------------
1 BR 144 550 $674
--------------------------------------------------------------------
Total 144 79,200
---------------------------------------------------
<TABLE>
<S> <C> <C>
4/1/99 OCCUPANCY %: 65% ESTIMATED APPRAISED PARTNERSHIP VALUE: $6,483,079
1998 AVG. MONTHLY OCCUPANCY %: 49% APPRAISAL DATE: 3/98
1997 AVG. MONTHLY OCCUPANCY %: 78% 11/1/98 FEDERAL INCOME TAX BASIS: $4,110,622
1996 AVG. MONTHLY OCCUPANCY %: 81% DEPRECIATION LIFE CLAIMED: 25 yrs.
1995 AVG. MONTHLY OCCUPANCY %: 72% REALTY TAX RATE (MILLAGE): 25.4849
1994 AVG. MONTHLY OCCUPANCY %: 79% 1997 PROPERTY TAX VALUE: $3,789,000
</TABLE>
================================================================================
MORTGAGE INFORMATION
FIRST MORTGAGE HOLDER AND ADDRESS: SECOND MORTGAGE HOLDER AND ADDRESS:
Republic Bank Glen Lake Arms Joint Venture
1301 Sixth Avenue West 10490 Gandy Boulevard North, Suite 2E
Bradenton, Florida 34205 St. Petersburg, Florida 33702
INITIAL PRINCIPAL BALANCE: $2,812,500 INITIAL PRINCIPAL BALANCE: $375,000
4/30/99 BALANCE: $2,690,614 4/30/99 BALANCE: $353,854
BALANCE DUE AT MATURITY: $2,652,341 BALANCE DUE AT MATURITY: $343,772
MATURITY DATE: 5/18/00 MATURITY DATE: 5/01/05
ANNUAL DEBT SERVICE: $ 293,700 ANNUAL DEBT SERVICE: $ 34,728
MONTHLY PAYMENT: $ 24,475 MONTHLY PAYMENT: $ 2,894
MORTGAGE INTEREST AND AMORTIZATION MORTGAGE INTEREST AND AMORTIZATION
PROVISIONS: The loan bears a fixed PROVISIONS: The loan bears a fixed
interest rate of 9.55% and amortizes interest rate of 8.0% and amortizes
on a 25-year basis. on a 25-year basis.
PREPAYMENT PROVISIONS:Prepayable without PREPAYMENT PROVISIONS:Prepayable
penalty without penalty
================================================================================
INVESTMENT PROGRAM INFORMATION
DATE OFFERING BEGAN: 1/95 NUMBER OF UNITS SOLD: 3,640
NUMBER OF INVESTORS: 60 PRICE PER UNIT: $500
PAID IN CAPITAL: $1,820,000 DATE OFFERING TERMINATED: 6/96
ALLOCATION OF DISTRIBUTABLE CASH: Each fiscal year, all distributable cash is
distributed to the investors until they have received a 10% non-cumulative
return on their capital contributions; the GP is then entitled to receive a
similar return on its capital contribution. Thereafter, the investors are
entitled to receive all remaining distributable cash during the fiscal year
less a reasonable cash reserve determined by the GP.
ALLOCATION OF NET PROCEEDS FROM PROPERTY SALE OR REFINANCING: After investors
have received an aggregate amount (including prior distributions) equal to
their capital contributions plus a 10% yearly cash-on-cash return (and, in the
case of a property sale, after the holder of collateral mortgage financing has
received 10% of the net sale proceeds remaining after investors have received
an aggregate amount equal to their capital contributions), the GP is entitled
to receive any remaining net proceeds until it has received a similar return
on its capital contribution; thereafter the investors and the GP share any
remaining net proceeds 70%/30%.
<TABLE>
<S> <C>
-----------------------------------------------------------------------------------------------------------------------------------
NUMBER OF OPERATING PARTNERSHIP UNITS ESTIMATED DEFERRED CAPITAL GAIN TAX LIABILITY FROM EXCHANGE OFFERING
OFFERED IN EXCHANGE OFFERING per $1,000 of Investors' original investment):
(per $1,000 of Investors' original investment): 136 Units Short Term Capital Gain (assuming 39% rate): $336
valued at $10 per Unit (or $1,360) Long Term Capital Gain (assuming 20% rate): $172
----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(See Endnotes to Exchange Equity Partnerships)
12
<PAGE>
CENTRAL FLORIDA INCOME APPRECIATION FUND, LTD.
(GP: Baron Capital of Florida, Inc.,
formerly named Sigma Financial Capital VI, Inc.)
PARTNERSHIP PROPERTY INTEREST
The Partnership owns 100% of the limited partnership interest in
a limited partnership which holds fee simple title to the
property described below.
PROPERTY NAME AND ADDRESS: YEAR COMPLETED: 1986
LAUREL OAKS APARTMENTS APPROXIMATE ACREAGE: 6.21
(FORMERLY GROVE HAMLET APARTMENTS
915B Grove Hamlet Way
Deland, Florida 32720
UNIT MIX AND RENTAL RATES:
--------------------------------------------------------------------
APPROXIMATE
APPROXIMATE RENTABLE AVERAGE MONTHLY
UNIT TYPE NUMBER AREA PER UNIT (Sq. Ft.) RENTAL RATE
--------------------------------------------------------------------
1 BR 11 576 $435
--------------------------------------------------------------------
2 BR 45 864 $540-569
--------------------------------------------------------------------
Total 56 45,216
---------------------------------------------------
<TABLE>
<S> <C> <C>
4/1/99 OCCUPANCY %: 93% ESTIMATED APPRAISED PARTNERSHIP VALUE: $2,881,000
1998 AVG. MONTHLY OCCUPANCY %: 96% APPRAISAL DATE: 9/98
1997 AVG. MONTHLY OCCUPANCY %: 71% 11/1/98 FEDERAL INCOME TAX BASIS: $1,908,139
1996 AVG. MONTHLY OCCUPANCY %: 75% DEPRECIATION LIFE CLAIMED: 23 yrs.
1995 AVG. MONTHLY OCCUPANCY %: 92% REALTY TAX RATE (MILLAGE): 25.17206
1994 AVG. MONTHLY OCCUPANCY %: 95% 1997 PROPERTY TAX VALUE: $1,240,948
</TABLE>
================================================================================
FIRST MORTGAGE INFORMATION
FIRST MORTGAGE HOLDER AND ADDRESS: MATURITY DATE: 12/1/28
Prudential Mortgage Capital Company, LLC
100 Mulberry Street - 9th Floor
Newark, NJ 07102-4069
INITIAL PRINCIPAL BALANCE: $1,600,000 ANNUAL DEBT SERVICE: $ 121,860
4/30/99 BALANCE: $1,592,583 MONTHLY PAYMENT: $ 10,155
BALANCE DUE AT MATURITY: $ 0
MORTGAGE INTEREST AND AMORTIZATION PROVISIONS: The loan bears a fixed interest
rate of 6.54% and amortizes on a 30-year basis.
PREPAYMENT PROVISIONS: No prepayment may be made until within six months of
maturity date.
================================================================================
INVESTMENT PROGRAM INFORMATION
DATE OFFERING BEGAN: 9/94 NUMBER OF UNITS SOLD: 2,100
NUMBER OF INVESTORS: 51 PRICE PER UNIT: $500
PAID IN CAPITAL: $1,050,000 DATE OFFERING TERMINATED: 10/95
ALLOCATION OF DISTRIBUTABLE CASH: Each fiscal year, all distributable cash is
distributed to the investors until they have received a 10% non-cumulative
return on their capital contributions; the GP is then entitled to receive a
similar return on its capital contribution. Thereafter, the investors are
entitled to receive any remaining distributable cash during the fiscal year
less a reasonable cash reserve determined by the GP.
ALLOCATION OF NET PROCEEDS FROM PROPERTY SALE OR REFINANCING: After investors
have received an aggregate amount (including prior distributions) equal to
their capital contributions plus a 10% yearly cash-on-cash return, the GP is
entitled to receive any remaining net proceeds until it has received a similar
return on its capital contribution; thereafter the investors and the GP share
any remaining net proceeds 70%/30%.
<TABLE>
<S> <C>
-----------------------------------------------------------------------------------------------------------------------------------
NUMBER OF OPERATING PARTNERSHIP UNITS ESTIMATED DEFERRED CAPITAL GAIN TAX LIABILITY FROM EXCHANGE OFFERING
OFFERED IN EXCHANGE OFFERING (per $1,000 of Investors' original investment):
(per $1,000 of Investors' original investment): 130 Units Short Term Capital Gain (assuming 39% rate): $405
valued at $10 per Unit (or $1,300) Long Term Capital Gain (assuming 20% rate): $208
-----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(See Endnotes to Exchange Equity Partnerships)
13
<PAGE>
GSU STADIUM STUDENT APARTMENTS, LTD.
(GP: Baron Capital X, Inc.)
PARTNERSHIP PROPERTY INTEREST
The Partnership owns 100% of the limited partnership interest in
a limited partnership which holds fee simple title to the
property described below.
PROPERTY NAME AND ADDRESS: YEAR COMPLETED: 1987
STADIUM CLUB APARTMENTS APPROXIMATE ACREAGE: 3.50
210 Lanier Drive
Statesboro, Georgia 30458
UNIT MIX AND RENTAL RATES:
--------------------------------------------------------------------
APPROXIMATE
APPROXIMATE RENTABLE AVERAGE MONTHLY
UNIT TYPE NUMBER AREA PER UNIT (Sq. Ft.) RENTAL RATE
--------------------------------------------------------------------
Studio 2 288 $345
--------------------------------------------------------------------
3 BR 3 880 $705-750
--------------------------------------------------------------------
4 BR 55 880 $940-1,000
--------------------------------------------------------------------
Total 60 51,616
---------------------------------------------------
<TABLE>
<S> <C> <C>
4/1/99 OCCUPANCY %: 70% ESTIMATED APPRAISED PARTNERSHIP VALUE: $2,800,000
1998 AVG. MONTHLY OCCUPANCY %: 64% APPRAISAL DATE: 12/97
1997 AVG. MONTHLY OCCUPANCY %: 86% 11/1/98 FEDERAL INCOME TAX BASIS: $2,014,060
1996 AVG. MONTHLY OCCUPANCY %: 90% DEPRECIATION LIFE CLAIMED: 25 yrs.
1995 AVG. MONTHLY OCCUPANCY %: 74% REALTY TAX RATE (MILLAGE): 28.93
1994 AVG. MONTHLY OCCUPANCY %: 86% 1997 PROPERTY TAX VALUE: $1,802,200
</TABLE>
================================================================================
FIRST MORTGAGE INFORMATION
FIRST MORTGAGE HOLDER AND ADDRESS: MATURITY DATE: 10/1/05
GMAC
650 Dresher Road
Horsham, Pennsylvania 19044
INITIAL PRINCIPAL BALANCE: $1,750,000 ANNUAL DEBT SERVICE: $151,272
4/30/99 BALANCE: $1,718,457 MONTHLY PAYMENT: $ 12,606
BALANCE DUE AT MATURITY: $1,615,458
MORTGAGE INTEREST AND AMORTIZATION PROVISIONS: The loan bears a fixed interest
rate of 7.87% and amortizes on a 30-year basis.
PREPAYMENT PROVISIONS: Prepayable with prepayment fee in an amount equal to 1%
of the then outstanding principal balance.
================================================================================
INVESTMENT PROGRAM INFORMATION
DATE OFFERING BEGAN: 11/95 NUMBER OF UNITS SOLD: 2,000
NUMBER OF INVESTORS: 38 PRICE PER UNIT: $500
PAID IN CAPITAL: $1,000,000 DATE OFFERING TERMINATED: 2/96
ALLOCATION OF DISTRIBUTABLE CASH: Each fiscal year, all distributable cash is
distributed to the investors until they have received a 10% non-cumulative
return on their capital contributions; thereafter, the GP receives all
remaining distributable cash during the fiscal year.
ALLOCATION OF NET PROCEEDS FROM PROPERTY SALE OR REFINANCING: After investors
have received an aggregate amount (including prior distributions) equal to
their capital contributions plus a 10% yearly cash-on-cash return, the GP is
entitled to receive any remaining net proceeds until it has received a similar
return on its capital contribution; thereafter the investors and the GP share
any remaining net proceeds 70%/30%.
<TABLE>
<S> <C>
-----------------------------------------------------------------------------------------------------------------------------------
NUMBER OF OPERATING PARTNERSHIP UNITS ESTIMATED DEFERRED CAPITAL GAIN TAX LIABILITY FROM EXCHANGE OFFERING
OFFERED IN EXCHANGE OFFERING (per $1,000 of Investors' original investment):
(per $1,000 of Investors' original investment): 117 Units Short Term Capital Gain (assuming 39% rate): $262
valued at $10 per Unit (or $1,170) Long Term Capital Gain (assuming 20% rate): $135
-----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(See Endnotes to Exchange Equity Partnerships)
14
<PAGE>
BARON STRATEGIC INVESTMENT FUND II, LTD.
(GP: Baron Capital XXXI, Inc.)
PARTNERSHIP PROPERTY INTEREST
The Partnership owns 100% of the limited partnership interest in
a limited partnership which holds fee simple title to the
property described below.
PROPERTY NAME AND ADDRESS: YEAR COMPLETED: 1977
STEEPLECHASE APARTMENTS APPROXIMATE ACREAGE: 3.2
841 W. 53rd Street
Anderson, Indiana 46013
UNIT MIX AND RENTAL RATES:
--------------------------------------------------------------------
APPROXIMATE
APPROXIMATE RENTABLE AVERAGE MONTHLY
UNIT TYPE NUMBER AREA PER UNIT (Sq. Ft.) RENTAL RATE
--------------------------------------------------------------------
1 BR 12 550 $399
--------------------------------------------------------------------
2 BR 60 678 $435-445
--------------------------------------------------------------------
Total 72 47,280
---------------------------------------------------
<TABLE>
<S> <C> <C>
4/1/99 OCCUPANCY %: 86% ESTIMATED APPRAISED PARTNERSHIP VALUE: $1,690,000
1998 AVG. MONTHLY OCCUPANCY %: 76% APPRAISAL DATE: 8/98
1997 AVG. MONTHLY OCCUPANCY %: 73% 11/1/98 FEDERAL INCOME TAX BASIS: $1,273,899
1996 AVG. MONTHLY OCCUPANCY %: 70% DEPRECIATION LIFE CLAIMED: 25 yrs.
1995 AVG. MONTHLY OCCUPANCY %: 82% REALTY TAX RATE (MILLAGE): 12.3716
1994 AVG. MONTHLY OCCUPANCY %: 78% 1997 PROPERTY TAX VALUE: $285,170
</TABLE>
================================================================================
FIRST MORTGAGE INFORMATION
FIRST MORTGAGE HOLDER AND ADDRESS: MATURITY DATE: 10/1/06
Crown Bank
105 Live Oaks Garden #129
Castleberry, Florida 32707
INITIAL PRINCIPAL BALANCE: $1,260,000 ANNUAL DEBT SERVICE: $ 91,344
4/30/99 BALANCE: $1,260,000 MONTHLY PAYMENT: $ 7,612
BALANCE DUE AT MATURITY: $1,099,557
MORTGAGE INTEREST AND AMORTIZATION PROVISIONS: During loan years 1 and 2,
interest rate is 7.25%; during years 3 and 4, interest rate is 7.75%;
thereafter, 8.25%. The loan is payable interest only for years 1 - 3 and then
amortizes on a 30-year basis.
PREPAYMENT PROVISIONS: Prepayable without penalty.
================================================================================
INVESTMENT PROGRAM INFORMATION
DATE OFFERING BEGAN: 7/96 NUMBER OF UNITS SOLD: 1,600
NUMBER OF INVESTORS: 16 PRICE PER UNIT: $500
PAID IN CAPITAL: $800,000 DATE OFFERING TERMINATED: 10/96
ALLOCATION OF DISTRIBUTABLE CASH: Each fiscal year, all distributable cash is
distributed to the investors until they have received a 12.5% non-cumulative
return on their capital contributions; the GP is then entitled to receive a
similar return on its capital contribution. Thereafter, the investors are
entitled to receive 50% of any remaining distributable cash during the fiscal
year less a reasonable cash reserve determined by the GP, and the GP the
remaining 50%.
ALLOCATION OF NET PROCEEDS FROM PROPERTY SALE OR REFINANCING: After investors
have received an aggregate amount (including prior distributions) equal to
their capital contributions plus a 12.5% yearly cash-on-cash return, the GP is
entitled to receive any remaining net proceeds until it has received a similar
return on its capital contribution; thereafter the investors and the GP share
any remaining net proceeds 50%/50%.
<TABLE>
<S> <C>
-----------------------------------------------------------------------------------------------------------------------------------
NUMBER OF OPERATING PARTNERSHIP UNITS ESTIMATED DEFERRED TAXABLE GAIN FROM EXCHANGE OFFERING
OFFERED IN EXCHANGE OFFERING (per $1,000 of Investors' original investment):
(per $1,000 of Investors' original investment): 103 Units Short Term Capital Gain (assuming 39% rate): $271
valued at $10 per Unit (or $1,030) Long Term Capital Gain (assuming 20% rate): $139
-----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(See Endnotes to Exchange Equity Partnerships)
15
<PAGE>
Endnotes to Exchange Equity Partnerships:
1. The First Mortgage Loan is not insured by the Federal Housing
Administration or guaranteed by the Veterans Administration or otherwise
insured or guaranteed.
2. The Property is in good overall condition and is suitable and adequate for
the purpose for which it was built.
3. The Property is subject to significant competition from other residential
apartment properties in the general vicinity of the Property.
4. In the opinion of the Managing Shareholder, the Property is covered by
insurance of the types and amounts which are comparable for similar
properties located in the general vicinity of the Property.
5. Each Property is a residential apartment property (other than Glen Lake
Arms Apartments, which are short-term corporate residential units) which
generally leases units to tenants under lease agreements with terms of one
year or less which are common in the industry.
6. The purchase price to be paid by the Operating Partnership in the Exchange
Offering for limited partnership interests in each Exchange Equity
Partnership and in each Exchange Hybrid Partnership (to the extent of its
equity interest in the property) is based upon the following factors: (a)
the estimated appraised market value of the underlying property determined
by qualified and licensed independent appraisal firms; (b) the operating
history of the property; (c) the current principal balance of first
mortgage and other indebtedness to which the property is subject; (d) the
amount of distributable cash flow currently being generated by the
property; plus (e) additional factors which the Managing Shareholder
believes are appropriate to consider including, among others, the
property's overall current condition and prospects for the property based
upon improvements made or to be made to the property and, in certain
cases, the combination of two or more phases of the property, which are
expected to be owned upon the completion of the Exchange Offering, and the
actual or potential benefits to be obtained by the sub-metering of
utilities in order to pass costs from the owner of the property to
individual tenants. There can be no assurance that the value of equity
interests acquired in properties will reflect their fair market value. See
the Prospectus at "THE EXCHANGE OFFERING."
7. The overall depreciable life of the Property is 30 years; depreciation is
determined using the straight-line method.
8. Based on certain factual representations made by the Operating Partnership
and on certain conditions specified at "FEDERAL INCOME TAX CONSIDERATIONS
- Exchange of Exchange Partnership Units for Operating Partnership Units,"
special tax counsel to the Operating Partnership has opined that Offerees
who accept the Exchange Offering will generally not incur any immediate
tax liability for any taxable gain in connection with such transaction.
Any such tax liability generally will be deferred until a later date. The
schedule at "Estimated Deferred Taxable Gain from Exchange Offering (per
$1,000 of Investors' original investment)" (prepared by the Managing
Shareholder and not reviewed by tax or other counsel) indicates the amount
of capital gain tax liability each Offeree who accepts the Exchange
Offering will defer in connection with such transaction per each $1,000 of
his original investment.
16
<PAGE>
EXCHANGE MORTGAGE PARTNERSHIPS
17
<PAGE>
BARON STRATEGIC INVESTMENT FUND, LTD.
(GP: Baron Capital XXXII, Inc.)
I. PARTNERSHIP PROPERTY INTERESTS
This Exchange Partnership owns (i) three unrecorded second
mortgage loans secured by the Blossom Corners Property-Phase II
and (ii) an unrecorded second mortgage loan secured by the Lake
Sycamore Property under development. The properties, interest of
the partnership and other Exchange Partnerships in the second
mortgages, terms of the first mortgage loans secured by the
properties, and other information are described below.
1. BLOSSOM CORNERS SECOND MORTGAGE LOANS:
NAME AND ADDRESS OF PROPERTY SECURING MORTGAGE LOANS:
BLOSSOM CORNERS APARTMENTS - PHASE II YEAR COMPLETED: 1981
("Blossom Corners Property") APPROX. ACREAGE: 3.51
2143 Raper Dairy Road
Orlando, Florida 32822
UNIT MIX AND RENTAL RATES:
--------------------------------------------------------------------
APPROXIMATE
APPROXIMATE RENTABLE AVERAGE MONTHLY
UNIT TYPE NUMBER AREA PER UNIT (Sq. Ft.) RENTAL RATE
--------------------------------------------------------------------
Studio 16 300 $419
--------------------------------------------------------------------
1 BR 45 600 $499
--------------------------------------------------------------------
2 BR 7 864 $650
--------------------------------------------------------------------
Total 68 38,100
---------------------------------------------------
4/1/99 OCCUPANCY %: 97% APPRAISED VALUE: $2,250,000
1998 AVG. MONTHLY OCCUPANCY %: 97% Cost Approach: $2,239,000
1997 AVG. MONTHLY OCCUPANCY %: 91% Income Approach: $2,322,000
1996 AVG. MONTHLY OCCUPANCY %: 81% Market Approach: $2,160,000
1995 AVG. MONTHLY OCCUPANCY %: 88% REPLACEMENT COST NEW: $3,390,187
1994 AVG. MONTHLY OCCUPANCY %: 91% APPRAISAL DATE: 1/98
PARTNERSHIP'S BLOSSOM CORNERS SECOND MORTGAGE LOAN INTERESTS:
<TABLE>
<S> <C>
DEBTOR: Blossom Corners Apartments II, Ltd. PARTNERSHIP'S UNDIVIDED INTEREST IN
(affiliate of Managing Shareholder) SECOND MORTGAGE NOTES: 100%
AGGREG. ORIGINAL PRINCIPAL BALANCE: $977,645 AGGREG. ANNUAL DEBT SERVICE: $62,552
AGGREG. 3/31/99 BALANCE: $850,966 (plus participation interest)
AGGREG. BALANCE DUE AT MATURITY: $850,966 AGGREG. MONTHLY PAYMENT: $ 5,213
AGGREG. ACCRUED UNPAID INTEREST: $ 43,113 MATURITY DATE: 4/02
</TABLE>
MORTGAGE INTEREST/AMORTIZATION PROVISIONS: (i) Fixed interest rate of 6% as to
$622,103 of principal (plus non-cumulative participation interest at the rate of
3% on the unpaid principal balance to the extent of any available cash flow
during the year and additional non-cumulative participation interest equal to
30% of any remaining available cash flow during the year), (ii) adjustable
interest rate of 1% over the prime rate (current adjustable rate of 8.75%) as to
$68,861 of principal, and (iii) fixed interest rate of 12% as to $160,002 of
principal. The loans require payments of interest only until maturity.
PREPAYMENT PROVISIONS: Prepayable without penalty.
OTHER SECOND MORTGAGES SECURED BY PROPERTY: None
OTHER MATTERS: Prior to 12/15/98, the second mortgage loans consisted of an
unrecorded second mortgage note with a principal balance of $622,103, an
unsecured promissory note with a principal balance of $68,861, an unsecured
demand note with a principal balance of $130,270 and advances of $29,732. On
12/15/98, the debtor restated and amended the $622,103 second mortgage note and
the $68,861 unsecured promissory note and made a new promissory note in favor of
the Exchange Partnership in the original principal amount of $160,002 (to
consolidate the $130,270 demand note and advances of $29,732). The debtor and
the Exchange Partnership also entered into a mortgage modification agreement.
Pursuant to the arrangement, the Exchange Partnership agreed to set the maturity
date on the unsecured notes at the same maturity date as the second mortgage
note, in exchange for the debtor's agreement to secure its repayment obligations
on the unsecured notes with a second mortgage on the property.
18
<PAGE>
BARON STRATEGIC INVESTMENT FUND, LTD. (cont'd)
BLOSSOM CORNERS FIRST MORTGAGE INFORMATION:
FIRST MORTGAGE HOLDER AND ADDRESS:
GMAC REPAYMENT SECURED BY:
650 Dresher Road, P.O. Box 809 First Mortgage on Blossom Corners
Horsham, Pennsylvania 19044-0809 Property
ORIGINAL PRINCIPAL BALANCE: $1,130,000 ANNUAL DEBT SERVICE: $106,824
4/30/99 BALANCE: $1,098,951 MONTHLY PAYMENT: $ 8,902
BALANCE DUE AT MATURITY: $1,050,024 MATURITY DATE: 3/02
MORTGAGE INTEREST/ AMORTIZATION PROVISIONS: Fixed interest rate of 8.24% and
amortizes on a 25-year basis.
PREPAYMENT PROVISIONS: Prepayment penalty equal to 1% of prepayment amount if
prepaid prior to third anniversary of loan; no prepayment penalty thereafter.
2. LAKE SYCAMORE SECOND MORTGAGE LOAN
NAME AND ADDRESS OF PROPERTY
SECURING MORTGAGE LOAN:
VILLAS AT LAKE SYCAMORE
("Lake Sycamore Property")
1911 Chaucer Drive
Cincinnati, Ohio 45237
PARTNERSHIP'S SECOND MORTGAGE INTEREST:
The Partnership owns an unrecorded second mortgage note with a current principal
balance of $230,000. Accrued unpaid interest on the note as of 3/31/99 is
$20,415. The debtor is Sycamore Real Estate Development, L.P., an affiliate of
the Managing Shareholder. The note bears interest at the fixed rate of 12%
(annual interest payable of $27,600 or $2,300 per month) and matures on 12/03.
The note is secured by a second mortgage on the Villas at Lake Sycamore, a 164
townhome property under construction on 22.44 acres in Cincinnati, Ohio. Each
townhome has a rentable area per unit of approximately 1,325 square feet (or a
total area of 217,300 square feet). Construction commenced in December 1997 and
is expected to be completed in the last quarter of 2003. Each unit is expected
to have an initial monthly rental rate in the range of $889 to $990. In July
1998, an independent Cincinnati appraisal firm estimated the "as is" value of
the property at $1,080,000 and the value of the completed property to be
$14,312,000 (assuming completion of the project as designed, full rent up and
satisfactory environment-quality test).
Two other Exchange Partnerships, Baron Strategic Investment Fund VIII, Ltd. and
Baron Strategic Investment Fund IX, Ltd., own separate second mortgage notes
secured by the property with the same terms except that they are in the
principal amounts of $98,000 and $243,500 (with accrued unpaid interest in the
amounts of $2,683 and $7,204), respectively. The lending parties have agreed to
share the benefits of the second mortgage on a pari passu basis.
LAKE SYCAMORE FIRST MORTGAGE INFORMATION:
FIRST MORTGAGE HOLDER AND ADDRESS:
Metropolitan Savings REPAYMENT SECURED BY:
8050 Hosbrook Road, Suite 408 First Mortgage on Lake Sycamore
Cincinnati, Ohio 45236 Property
<TABLE>
<S> <C>
ORIGINAL PRINCIPAL BALANCE: $2,000,000 CURRENT ANNUAL DEBT SERVICE: $89,369
maximum approved CURRENT MONTHLY PAYMENT: $ 7,447
4/30/99 BALANCE: $1,021,362 MATURITY DATE: 11/01
EXPECTED BALANCE
DUE AT MATURITY: $2,000,000
</TABLE>
MORTGAGE INTEREST/ AMORTIZATION PROVISIONS: Adjustable interest rate equal to
lender's prime rate plus 1% (currently 8.75%); requires payments of interest
only until maturity.
PREPAYMENT PROVISIONS: Prepayable without penalty.
19
<PAGE>
BARON STRATEGIC INVESTMENT FUND, LTD. (cont'd)
II. PARTNERSHIP INVESTMENT PROGRAM INFORMATION
DATE OFFERING BEGAN: 6/96 NUMBER OF UNITS SOLD: 2,400
NUMBER OF INVESTORS: 42 PRICE PER UNIT: $500
PAID IN CAPITAL: $1,200,000 DATE OFFERING TERMINATED: 12/96
ALLOCATION OF DISTRIBUTABLE CASH: Each fiscal year, all distributable cash is to
be distributed to investors until they have received a 12.5% non-cumulative
return on their capital contributions; thereafter, investors and the GP share
any remaining distributable cash during the fiscal year 50%/50%.
ALLOCATION OF NET PROCEEDS FROM PROPERTY SALE OR REFINANCING: After investors
have received an aggregate amount (including prior distributions) equal to
their capital contributions plus an 12.5% yearly cash-on-cash return, the GP
is entitled to receive a similar return on its capital contribution;
thereafter, investors and the GP share any remaining net proceeds 50%/50%.
<TABLE>
<S> <C>
-----------------------------------------------------------------------------------------------------------------------------------
NUMBER OF OPERATING PARTNERSHIP UNITS ESTIMATED DEFERRED CAPITAL GAIN TAX LIABILITY FROM EXCHANGE OFFERING
OFFERED IN EXCHANGE OFFERING (per $1,000 of Investors' original investment):
(per $1,000 of Investors' original investment): 111 Units Short Term Capital Gain (assuming 39% rate): $90
valued at $10 per Unit (or $1,110) Long Term Capital Gain (assuming 20% rate): $46
-----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(See Endnotes to Exchange Mortgage Partnerships)
20
<PAGE>
BARON STRATEGIC INVESTMENT FUND IV, LTD.
(GP: Baron Capital XVII, Inc.)
I. PARTNERSHIP PROPERTY INTERESTS
This Exchange Partnership owns two unrecorded second mortgage
loans secured by the Country Square Property-Phase I described
below. The Exchange Partnership's interest in the second
mortgage loans, terms of the first mortgage loan secured by the
property, and other information are described below.
COUNTRY SQUARE SECOND MORTGAGE LOANS
NAME AND ADDRESS OF PROPERTY
SECURING MORTGAGE LOANS:
COUNTRY SQUARE APARTMENTS - PHASE I YEAR COMPLETED: 1981
("Country Square Property") APPROX. ACREAGE: 4.56
8401 Aiken Court
Tampa, Florida 33615
UNIT MIX AND RENTAL RATES:
--------------------------------------------------------------------
APPROXIMATE
APPROXIMATE RENTABLE AVERAGE MONTHLY
UNIT TYPE NUMBER AREA PER UNIT (Sq. Ft.) RENTAL RATE
--------------------------------------------------------------------
Studio 14 288 $345
--------------------------------------------------------------------
1 BR 52 576 $449
--------------------------------------------------------------------
2 BR 7 864 $559
--------------------------------------------------------------------
Total 73 40,032
---------------------------------------------------
4/1/99 OCCUPANCY %: 95% APPRAISED VALUE: $2,185,000
1998 AVG. MONTHLY OCCUPANCY %: 95% Cost Approach: $2,185,000
1997 AVG. MONTHLY OCCUPANCY %: 83% Income Approach: $2,281,000
1996 AVG. MONTHLY OCCUPANCY %: 84% Market Approach: $2,090,000
1995 AVG. MONTHLY OCCUPANCY %: 86% REPLACEMENT COST NEW: $3,554,776
1994 AVG. MONTHLY OCCUPANCY %: 84% APPRAISAL DATE: 1/98
- --------------------------------------------------------------------------------
PARTNERSHIP'S COUNTRY SQUARE SECOND MORTGAGE LOAN INTERESTS:
DEBTOR: PARTNERSHIP'S UNDIVIDED %
Country Square Apartments, Ltd. INTEREST IN SECOND
(affiliate of Managing Shareholder) MORTGAGE NOTES: 100%
<TABLE>
<S> <C>
AGGREG. ORIGINAL PRINCIPAL BALANCE: $1,372,237 AGGREG. ANNUAL DEBT SERVICE: $163,746
AGGREG. 3/31/99 BALANCE: $1,364,549 AGGREG. MONTHLY PAYMENT: $ 13,645
AGGREG. BALANCE DUE AT MATURITY: $1,364,549 MATURITY DATE: 4/08
AGGREG. ACCRUED UNPAID INTEREST: $ 166,140
</TABLE>
MORTGAGE INTEREST/AMORTIZATION PROVISIONS: Fixed rate of 12%; requires payments
of interest only until maturity.
PREPAYMENT PROVISIONS: Prepayable without penalty.
OTHER SECOND MORTGAGES SECURED BY PROPERTY: None.
OTHER MATTERS: In 3/97, the Exchange Partnership received a loan with a current
principal balance of $259,639 (with accrued unpaid interest of $46,934) from
Baron Strategic Investment Fund VI, Ltd. ("Baron Fund VI"). The Exchange
Partnership, in turn, lent the loan proceeds to the debtor as part of the
Country Square Second Mortgage Loans. The loan from Baron Fund VI bears interest
at the rate of 15%, payable monthly, matures in 9/02 and is secured by the
Exchange Partnership's interest in two second mortgage notes and a second
mortgage.
Prior to 12/15/98, the second mortgage loans consisted of a second mortgage note
with a principal balance of $1,192,987 and an unsecured demand note with a
principal balance of $179,250. On 12/15/98, the debtor restated and amended the
notes and the debtor and the Exchange Partnership entered into a mortgage
modification agreement. Pursuant to the arrangement, the Exchange Partnership
agreed to set the maturity date on the demand note at the same maturity date as
the second mortgage note, in exchange for the debtor's agreement to secure its
repayment obligation on the demand note with a second mortgage on the Country
Square Property.
21
<PAGE>
BARON STRATEGIC INVESTMENT FUND IV, LTD. (cont'd)
COUNTRY SQUARE FIRST MORTGAGE INFORMATION:
FIRST MORTGAGE HOLDER AND ADDRESS:
Prudential Mortgage Capital Company, LLC REPAYMENT SECURED BY:
100 Mulberry Street - 9th Floor First Mortgage on Country Square
Newark, NJ 07102-4069 Property
ORIGINAL PRINCIPAL BALANCE: $1,600,000 ANNUAL DEBT SERVICE: $133,068
4/30/99 BALANCE: $1,584,989 MONTHLY PAYMENT: $ 11,089
BALANCE DUE AT MATURITY: $1,385,953 MATURITY DATE: 3/08
MORTGAGE INTEREST/ AMORTIZATION PROVISIONS: The loan bears a fixed interest rate
of 7.41% and amortizes on a 30-year basis.
PREPAYMENT PROVISIONS: No prepayment permitted during the first four years of
the loan term; thereafter, loan may be prepaid in whole subject to a prepayment
premium in accordance with the following schedule: yield maintenance for the
term of the loan, subject to a minimum of 1%, except that for the last six
months of the loan term, it may be prepaid at par.
II. PARTNERSHIP INVESTMENT PROGRAM INFORMATION
DATE OFFERING BEGAN: 11/96 NUMBER OF UNITS SOLD: 2,000
NUMBER OF INVESTORS: 43 PRICE PER UNIT: $500
PAID IN CAPITAL: $1,000,000 DATE OFFERING TERMINATED: 3/97
ALLOCATION OF DISTRIBUTABLE CASH: Each fiscal year, all distributable cash is to
be distributed to the investors until they have received a 12% non-cumulative
return on their capital contributions; thereafter, any remaining
distributable cash during the fiscal year is to be distributed to the GP.
ALLOCATION OF NET PROCEEDS FROM PROPERTY SALE OR REFINANCING: After investors
have received an aggregate amount (including prior distributions) equal to
their capital contributions plus an 18% yearly cash-on-cash return, the GP is
entitled to receive any remaining net proceeds.
<TABLE>
<S> <C>
-----------------------------------------------------------------------------------------------------------------------------------
NUMBER OF OPERATING PARTNERSHIP UNITS ESTIMATED DEFERRED CAPITAL GAIN TAX LIABILITY FROM EXCHANGE OFFERING
OFFERED IN EXCHANGE OFFERING (per $1,000 of Investors' original investment):
(per $1,000 of Investors' original investment): 104 Units Short Term Capital Gain (assuming 39% rate): $82
valued at $10 per Unit (or $1,040) Long Term Capital Gain (assuming 20% rate): $42
-----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(See Endnotes of Exchange Mortgage Partnerships)
22
<PAGE>
BARON STRATEGIC INVESTMENT FUND V, LTD.
(GP: Baron Capital XL, Inc.)
I. PARTNERSHIP PROPERTY INTERESTS
The Exchange Partnership owns (i) an unrecorded second mortgage
loan secured by the Candlewood Property-Phase II, (ii) an
undivided interest in three unrecorded second mortgage loans and
a 100% interest in an unrecorded second mortgage loan secured by
the Curiosity Creek Property and (iii) four unrecorded second
mortgage loans secured by the Sunrise Property-Phase I. The
interest of the Exchange Partnership and other Exchange
Partnerships in the second mortgage loans, terms of the first
mortgage loans secured by the properties, and other information
are described below.
1. CANDLEWOOD SECOND MORTGAGE LOAN
NAME AND ADDRESS OF PROPERTY
SECURING MORTGAGE LOAN:
CANDLEWOOD APARTMENTS - PHASE II YEAR COMPLETED: 1984
("Candlewood Property") APPROX. ACREAGE: 2.75
5901 Bryce Lane
Tampa, Florida 33615
UNIT MIX AND RENTAL RATES:
--------------------------------------------------------------------
APPROXIMATE
APPROXIMATE RENTABLE AVERAGE MONTHLY
UNIT TYPE NUMBER AREA PER UNIT (Sq. Ft.) RENTAL RATE
--------------------------------------------------------------------
Studio 6 288 $345
--------------------------------------------------------------------
1 BR 26 576 $449
--------------------------------------------------------------------
2 BR 1 864 $559
--------------------------------------------------------------------
Total 33 17,568
----------------------------------------------
4/1/99 OCCUPANCY %: 94% APPRAISED VALUE: $925,000
1998 AVG. MONTHLY OCCUPANCY %: 94% Cost Approach: $926,000
1997 AVG. MONTHLY OCCUPANCY %: 94% Income Approach: $922,000
1996 AVG. MONTHLY OCCUPANCY %: 95% Market Approach: $932,000
1995 AVG. MONTHLY OCCUPANCY %: 93% REPLACEMENT COST NEW: $1,590,447
1994 AVG. MONTHLY OCCUPANCY %: 94% APPRAISAL DATE: 1/98
PARTNERSHIP'S CANDLEWOOD SECOND MORTGAGE LOAN INTEREST:
DEBTOR: Baron Strategic Investment Fund PARTNERSHIP'S UNDIVIDED INTEREST
III, Ltd. (affiliate of Managing IN SECOND MORTGAGE NOTE: 100%
Shareholder)
ORIGINAL PRINCIPAL BALANCE: $21,000 ANNUAL DEBT SERVICE: $2,520
3/31/99 BALANCE: $21,000 MONTHLY PAYMENT: $ 210
BALANCE DUE AT MATURITY: $21,000 MATURITY DATE: 3/03
ACCRUED UNPAID INTEREST: $ 2,472
MORTGAGE INTEREST/ AMORTIZATION PROVISIONS: Fixed rate of 12%; requires payments
of interest only until maturity.
PREPAYMENT PROVISIONS: Prepayable without penalty.
OTHER SECOND MORTGAGES SECURED BY PROPERTY: Baron Strategic Investment Fund VI,
Ltd. ("Baron Fund VI") and Baron Strategic Investment Fund IX, Ltd. ("Baron Fund
IX") own separate second mortgage loans secured by the Candlewood Property. The
original principal balance, aggregate 3/31/99 principal balance, and balance due
at maturity in respect of Baron Fund VI's and Baron Fund IX's second mortgage
loans are $68,000 (accrued unpaid interest of $7,927) and $75,500 (accrued
unpaid interest of $8,357), respectively; the annual (and monthly) payments due
them are $8,160 ($680) and $9,060 ($755), respectively. The other terms relating
to Baron Fund VI's and Baron Fund IX's second mortgage loans are the same as
stated herein in respect of the Exchange Partnership's loan.
OTHER MATTERS: Prior to 12/15/98, the Candlewood Second Mortgage Loan consisted
of an unsecured demand note with a principal balance of $21,000. On 12/15/98,
the debtor and the Exchange Partnership entered into a second mortgage agreement
under which the debtor agreed to secure its repayment obligation on the note
with a second mortgage on the Candlewood Property. At the same time, the debtor
agreed to secure the loans in favor of Baron Fund VI and Baron Fund IX with
separate second mortgages on the property. The lending parties have agreed to
share the benefits of the second mortgages on a pari passu basis.
23
<PAGE>
BARON STRATEGIC INVESTMENT FUND V, LTD. (cont'd)
CANDLEWOOD FIRST MORTGAGE INFORMATION:
FIRST MORTGAGE HOLDER AND ADDRESS:
Republic Bank REPAYMENT SECURED BY:
P.O. Box 33009 First Mortgage on Candlewood Property
St. Petersburg, Florida 33733-8009
ORIGINAL PRINCIPAL BALANCE: $605,000 ANNUAL DEBT SERVICE: $56,153
4/30/99 BALANCE: $589,671 MONTHLY PAYMENT: $ 4,679
BALANCE DUE AT MATURITY: $533,678 MATURITY DATE: 2/03
MORTGAGE INTEREST/ AMORTIZATION PROVISIONS: Fixed interest rate of
7.79%;amortizes on a 25-year basis.
PREPAYMENT PROVISIONS: Prepayable without penalty.
2. CURIOSITY CREEK SECOND MORTGAGE LOANS
NAME AND ADDRESS OF PROPERTY
SECURING MORTGAGE LOANS:
CURIOSITY CREEK APARTMENTS YEAR COMPLETED: 1982
("Curiosity Creek Property") APPROX. ACREAGE: 4.51
102 Curiosity Creek Lane
Tampa, Florida 33612
UNIT MIX AND RENTAL RATES:
--------------------------------------------------------------------
APPROXIMATE
APPROXIMATE RENTABLE AVERAGE MONTHLY
UNIT TYPE NUMBER AREA PER UNIT (Sq. Ft.) RENTAL RATE
--------------------------------------------------------------------
Studio 16 288 $370
--------------------------------------------------------------------
1 BR/ 1 Bath 59 576 $450
--------------------------------------------------------------------
2 BR/ 1 Bath 6 864 $565
--------------------------------------------------------------------
Total 81 43,776
---------------------------------------------------
4/1/99 OCCUPANCY %: 93% APPRAISED VALUE: $2,425,000
1998 AVG. MONTHLY OCCUPANCY %: 93% Cost Approach: $2,426,000
1997 AVG. MONTHLY OCCUPANCY %: 88% Income Approach: $2,552,000
1996 AVG. MONTHLY OCCUPANCY %: 86% Market Approach: $2,297,000
1995 AVG. MONTHLY OCCUPANCY %: 92% REPLACEMENT COST NEW: $3,941,164
1994 AVG. MONTHLY OCCUPANCY %: 89% APPRAISAL DATE: 3/98
PARTNERSHIP'S CURIOSITY CREEK SECOND MORTGAGE LOAN INTERESTS:
DEBTOR: Curiosity Creek Apartments, Ltd. PARTNERSHIP'S UNDIVIDED 26.3% in three
(affiliate of Managing Shareholder) % INTEREST IN SECOND loans and 100%
MORTGAGE NOTES: in one loan
<TABLE>
<S> <C>
AGGREG. ORIGINAL PRINCIPAL BALANCE: $474,703 AGGREG. ANNUAL DEBT SERVICE: $41,238
AGGREG. 3/31/99 BALANCE: $474,703 (plus any participation interest)
AGGREG. BALANCE DUE AT MATURITY: $474,703 AGGREG. MONTHLY PAYMENT: $ 3,437
AGGREG. ACCRUED UNPAID INTEREST: $ 22,837 MATURITY DATE: 4/07
</TABLE>
MORTGAGE INTEREST/ AMORTIZATION PROVISIONS: (i) Fixed interest rate of 6% as to
$212,227 of principal (plus non-cumulative participation interest at the rate of
3% on the unpaid principal to the extent of available cash flow, plus additional
non-cumulative participation interest equal to 30% of any remaining available
cash flow), (ii) adjustable interest rate of prime plus 1% (currently 8.75%) as
to $108,899 of principal, (iii) fixed interest rate of 12.5% as to $109,325 of
principal and (iv) fixed interest rate of 12% as to $44,253 of principal. The
loans require payments of interest only until maturity.
PREPAYMENT PROVISIONS: Prepayable without penalty.
24
<PAGE>
BARON STRATEGIC INVESTMENT FUND V, LTD. (cont'd)
PARTNERSHIP'S CURIOSITY CREEK SECOND MORTGAGE LOAN INTERESTS (cont'd)
OTHER SECOND MORTGAGES SECURED BY PROPERTY: Baron Strategic Vulture Fund I, Ltd.
("Baron Vulture Fund") owns the remaining undivided 73.7% interest in three
second mortgage loans and a 100% interest in one second mortgage loan secured by
the Curiosity Creek Property ("Curiosity Creek Second Mortgage Loans"). The
aggregate original principal balance, aggregate 3/31/99 principal balance, and
aggregate balance due at maturity in respect of Baron Vulture Fund's interest in
the loans is $1,243,847 (accrued unpaid interest of $108,473); the aggregate
annual and monthly payments due it are $105,149 and $8,762, respectively. The
other terms relating to Baron Vulture Fund's interest in the loans are the same
as stated herein.
OTHER MATTERS: Prior to 12/15/98, the Curiosity Creek Second Mortgage Loans
consisted of a second mortgage note with a principal balance of $807,560, two
unsecured demand notes with a an aggregate principal balance of $830,360 and
advances in the amount of $66,171. On 12/15/98, the debtor, the Exchange
Partnership and Baron Vulture Fund entered into a mortgage modification
agreement pursuant to which the Exchange Partnership and Baron Vulture Fund
agreed to set the maturity date on the demand notes and the advances at the same
maturity date as the second mortgage note, in exchange for the debtor's
agreement to secure its repayment obligations on the unsecured notes and
advances with a second mortgage on the Curiosity Creek Property.
CURIOSITY CREEK FIRST MORTGAGE INFORMATION:
FIRST MORTGAGE HOLDER AND ADDRESS:
Prudential Mortgage Capital Company, LLC REPAYMENT SECURED BY:
100 Mulberry Street - 9th Floor First Mortgage on Curiosity Creek
Newark, NJ 07102-4069 Property
ORIGINAL PRINCIPAL BALANCE: $1,300,000 ANNUAL DEBT SERVICE: $106,737
4/30/99 BALANCE: $1,288,568 MONTHLY PAYMENT: $ 8,895
BALANCE DUE AT MATURITY: $1,122,800 MATURITY DATE: 4/08
MORTGAGE INTEREST/ AMORTIZATION PROVISIONS: Fixed interest rate of 7.28%;
amortizes on a 30-year basis.
PREPAYMENT PROVISIONS: No prepayment permitted during the first four years of
the loan term; thereafter, loan may be prepaid in whole subject to a prepayment
premium in accordance with the following schedule: yield maintenance for the
term of the loan, subject to a minimum of 1%, except that for the last six
months of the loan term, it may be prepaid at par.
3. SUNRISE SECOND MORTGAGE LOANS
NAME AND ADDRESS OF
PROPERTY SECURING MORTGAGES:
SUNRISE APARTMENTS - PHASE I YEAR COMPLETED: 1981
("Sunrise Property") APPROX. ACREAGE: 4.08
3805 Hopkins Avenue
Titusville, Florida 32780
UNIT MIX AND RENTAL RATES:
--------------------------------------------------------------------
APPROXIMATE
APPROXIMATE RENTABLE AVERAGE MONTHLY
UNIT TYPE NUMBER AREA PER UNIT (Sq. Ft.) RENTAL RATE
--------------------------------------------------------------------
1 BR/ 1 Bath 54 576 $380
--------------------------------------------------------------------
2 BR/ 1Bath 6 864 $490
--------------------------------------------------------------------
Total 60 36,288
---------------------------------------------------
4/1/99 OCCUPANCY %: 88% APPRAISED VALUE: $1,510,000
1998 AVG. MONTHLY OCCUPANCY %: 88% Cost Approach: $1,361,500
1997 AVG. MONTHLY OCCUPANCY %: 90% Income Method: $1,424,000
1996 AVG. MONTHLY OCCUPANCY %: 85% Market Approach: $1,591,000
1995 AVG. MONTHLY OCCUPANCY %: 83% REPLACEMENT COST NEW: $2,700,611
1994 AVG. MONTHLY OCCUPANCY %: 89% APPRAISAL DATE: 4/98
25
<PAGE>
BARON STRATEGIC INVESTMENT FUND V, LTD. (cont'd)
PARTNERSHIP'S SUNRISE SECOND MORTGAGE LOAN INTEREST:
DEBTOR: Sunrise Apartments I, Ltd. PARTNERSHIP'S UNDIVIDED INTEREST
(affiliate of Managing Shareholder) IN SECOND MORTGAGE NOTES: 100%
<TABLE>
<S> <C>
AGGREG. ORIGINAL PRINCIPAL BALANCE: $1,036,450 AGGREG. ANNUAL DEBT SERVICE: $53,995
(plus any participation interest)
AGGREG. 3/31/99 BALANCE: $1,031,801 AGGREG. MONTHLY PAYMENT: $ 4,500
AGGREG. BALANCE DUE AT MATURITY: $1,031,801 MATURITY DATE: 10/07
AGGREG. ACCRUED UNPAID INTEREST: $ 15,893
</TABLE>
MORTGAGE INTEREST/ AMORTIZATION PROVISIONS: (i) Fixed interest rate of 6% as to
$335,000 of principal (plus non-cumulative participation interest at the rate of
3% on the unpaid principal to the extent of available cash flow plus additional
non-cumulative participation interest equal to 20% of any remaining available
cash flow), (ii) fixed interest rate of 4% as to $621,515 of principal, (iii)
fixed interest rate of 12% as to $16,000 of principal and (iv) adjustable rate
of 1% over prime rate (currently 8.75%) as to $1,467. The loans require payments
of interest only until maturity.
PREPAYMENT PROVISIONS: Prepayable without penalty.
OTHER SECOND MORTGAGES SECURED BY PROPERTY: None
OTHER MATTERS: Prior to 12/15/98, the second mortgage loans secured by the
Sunrise Property (the "Sunrise Second Mortgage Loans") consisted of a second
mortgage note with a principal balance of $335,000, two unsecured demand notes
with an aggregate principal balance of $622,982 and advances in the amount of
$73,819. On 12/15/98, the debtor restated and amended the second mortgage note
and the demand notes and created a new promissory note in favor of the Exchange
Partnership in the original principal amount of $16,000 (to cover prior
advances). The debtor and the Partnership also entered into a mortgage
modification agreement. Pursuant to the arrangement, the Exchange Partnership
agreed to set the maturity date on the demand notes and the advances at the same
maturity date as the second mortgage note, in exchange for the debtor's
agreement to secure its repayment obligations on the unsecured notes and
advances with a second mortgage on the Sunrise Property.
SUNRISE FIRST MORTGAGE INFORMATION:
FIRST MORTGAGE HOLDER AND ADDRESS:
GMAC Commercial Mortgage Company REPAYMENT SECURED BY:
650 Dresher Road, P.O. Box 809 First Mortgage on Sunrise Property
Horsham, Pennsylvania 19044-0809
ORIGINAL PRINCIPAL BALANCE: $1,307,000 ANNUAL DEBT SERVICE: $174,020
4/30/99 BALANCE: $1,024,937 MONTHLY PAYMENT: $ 14,502
BALANCE DUE AT MATURITY: $ 932,217 MATURITY DATE: 1/05
MORTGAGE INTEREST AND AMORTIZATION PROVISIONS: Fixed interest rate of 7.5%;
amortizes on a 30-year basis.
PREPAYMENT PROVISIONS: No prepayment permitted during the first four years of
the loan term; thereafter, loan may be prepaid in whole subject to a prepayment
premium in accordance with the following schedule: yield maintenance for the
term of the loan, subject to a minimum of 1%, except that for the last six
months of the loan term, it may be prepaid at par.
II. PARTNERSHIP INVESTMENT PROGRAM INFORMATION
DATE OFFERING BEGAN: 11/96 NUMBER OF UNITS SOLD: 2,400
NUMBER OF INVESTORS: 56 PRICE PER UNIT: $500
PAID IN CAPITAL: $1,200,000 DATE OFFERING TERMINATED: 6/97
ALLOCATION OF DISTRIBUTABLE CASH: Each fiscal year, all distributable cash is
to be distributed to the investors until they have received a 15%
non-cumulative return on their capital contributions; thereafter, any
remaining distributable cash during the fiscal year is to be distributed to
the GP.
ALLOCATION OF NET PROCEEDS FROM PROPERTY SALE OR REFINANCING: After investors
have received an aggregate amount (including prior distributions) equal to
their capital contributions plus a 15% yearly cash-on-cash return, the
investors and the GP will share any remaining net proceeds 50%/50%.
<TABLE>
<S> <C>
-----------------------------------------------------------------------------------------------------------------------------------
NUMBER OF OPERATING PARTNERSHIP UNITS ESTIMATED DEFERRED CAPITAL GAIN TAX LIABILITY FROM EXCHANGE OFFERING
OFFERED IN EXCHANGE OFFERING (per $1,000 of Investors' original investment):
(per $1,000 of Investors' original investment): 105 Units Short Term Capital Gain (assuming 39% rate): $73
valued at $10 per Unit (or $1,050) Long Term Capital Gain (assuming 20% rate): $38
-----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(See Endnotes of Exchange Mortgage Partnerships)
26
<PAGE>
BARON STRATEGIC INVESTMENT FUND VIII, LTD.
(GP: Baron Capital XLIV, Inc.)
I. PARTNERSHIP PROPERTY INTERESTS
The Exchange Partnership owns (i) an undivided interest in an
unrecorded second mortgage loan secured by the Heatherwood
Property-Phase II and three unsecured loans associated with such
property, (ii) three unrecorded second mortgage loans secured by the
Longwood Property-Phase I and (iii) an unrecorded second mortgage loan
secured by the Lake Sycamore Property (under development). The
interest of the Exchange Partnership and other Exchange Partnerships
in the second mortgage loans, terms of the first mortgage loans
secured by each property, and other information are described below.
1. HEATHERWOOD SECOND MORTGAGE LOANS
NAME AND ADDRESS OF
PROPERTY SECURING MORTGAGES:
HEATHERWOOD APARTMENTS - PHASE II YEAR COMPLETED: 1982
("Heatherwood Property") APPROX. ACREAGE: 2.26
1105 North Hoagland Blvd.
Kissimmee, Florida 34741
UNIT MIX AND RENTAL RATES:
--------------------------------------------------------------------
APPROXIMATE
APPROXIMATE RENTABLE AVERAGE MONTHLY
UNIT TYPE NUMBER AREA PER UNIT (Sq. Ft.) RENTAL RATE
--------------------------------------------------------------------
Studio 10 288 $395-425
--------------------------------------------------------------------
1 BR/1 Bath 26 576 $510-530
--------------------------------------------------------------------
2 BR/1 Bath 4 864 $625
--------------------------------------------------------------------
2BR/2 Bath 1 864 $625
--------------------------------------------------------------------
Total 41 22,176
---------------------------------------------------
4/1/99 OCCUPANCY %: 98% APPRAISED VALUE: $1,285,000
1998 AVG. MONTHLY OCCUPANCY %: 98% Cost Approach: $1,188,000
1997 AVG. MONTHLY OCCUPANCY %: 97% Income Approach: $1,259,000
1996 AVG. MONTHLY OCCUPANCY %: 93% Market Approach: $1,312,000
1995 AVG. MONTHLY OCCUPANCY %: 88% REPLACEMENT COST NEW: $1,862,475
1994 AVG. MONTHLY OCCUPANCY %: 91% APPRAISAL DATE: 3/98
PARTNERSHIP'S HEATHERWOOD SECOND MORTGAGE LOAN INTERESTS:
DEBTOR: Heatherwood Apartments II, Ltd. PARTNERSHIP'S UNDIVIDED
(an affiliate of Managing Shareholder) % INTEREST IN LOANS: 58%
<TABLE>
<S> <C>
AGGREG. ORIGINAL PRINCIPAL BALANCE: $206,260 AGGREG. ANNUAL DEBT SERVICE: $13,408
AGGREG. 3/31/99 BALANCE: $206,260 (plus any participation interest)
AGGREG. BALANCE DUE AT MATURITY: $206,260 AGGREG. MONTHLY PAYMENT: $ 1,117
AGGREG. ACCRUED UNPAID INTEREST: $ 1,955 AGGREG. MATURITY DATE: 10/04
</TABLE>
MORTGAGE INTEREST AND AMORTIZATION PROVISIONS: (i) Fixed interest rate of 6% as
to $188,500 of principal (plus non-cumulative participation interest at the rate
of 3% on the unpaid principal to the extent of available cash flow plus
additional non-cumulative participation interest equal to 30% of any remaining
available cash flow), (ii) adjustable interest rate of 1% over prime rate
(currently 8.75%) as to $1,010 of principal, and (iii) fixed interest rate of
12% as to $16,749 of principal. The loans require payments of interest only
until maturity.
PREPAYMENT PROVISIONS: Prepayable without penalty.
OTHER SECOND MORTGAGES SECURED BY PROPERTY: Baron Strategic Investment Fund X,
Ltd. ("Baron Fund X") owns the remaining undivided 42% interest in the second
mortgage loans secured by the Heatherwood Property and in the unsecured loans
associated with the property ("Heatherwood Loans"). The aggregate original
principal balance, aggregate 3/31/99 principal balance, and aggregate balance
due at maturity in respect of Baron Fund X's interest in the Heatherwood Loans
is $155,787 (accrued unpaid interest of $5,645); the aggregate annual (and
monthly) payments due it are $9,710 ($809). The other terms relating to Baron
Fund X's interest in the Heatherwood Loans are the same as stated herein.
OTHER MATTERS: The Heatherwood Loans consist of a second mortgage note secured
by the Heatherwood Property with a principal balance at 3/31/99 of $325,000 and
unsecured loans in the aggregate principal amount of $37,047.
27
<PAGE>
BARON STRATEGIC INVESTMENT FUND VIII, LTD. (cont'd)
HEATHERWOOD FIRST MORTGAGE INFORMATION:
FIRST MORTGAGE HOLDER AND ADDRESS:
GMAC REPAYMENT SECURED BY:
650 Dresher Road, P.O. Box 809 First Mortgage on Heatherwood Property
Horsham, Pennsylvania 19044-0809
ORIGINAL PRINCIPAL BALANCE: $710,000 ANNUAL DEBT SERVICE: $61,038
4/30/99 BALANCE: $701,026 MONTHLY PAYMENT: $ 5,087
BALANCE DUE AT MATURITY: $655,856 MATURITY DATE: 11/04
MORTGAGE INTEREST/ AMORTIZATION PROVISIONS: Fixed interest rate of 7.75%;
amortizes on a 30-year basis.
PREPAYMENT PROVISIONS: No prepayment permitted during the first four years of
the loan term; thereafter, loan may be prepaid in whole subject to a prepayment
premium in accordance with the following schedule: yield maintenance for the
term of the loan, subject to a minimum of 1%, except that for the last six
months of the loan term, it may be prepaid at par.
3. LONGWOOD SECOND MORTGAGE LOANS
NAME AND ADDRESS OF
PROPERTY SECURING MORTGAGES:
LONGWOOD APARTMENTS - PHASE I YEAR COMPLETED: 1981
("Longwood Property") APPROX. ACREAGE: 4.00
1524 Clearlake Road
Cocoa, Florida 32922
UNIT MIX AND RENTAL RATES:
--------------------------------------------------------------------
APPROXIMATE
APPROXIMATE RENTABLE AVERAGE MONTHLY
UNIT TYPE NUMBER AREA PER UNIT (Sq. Ft.) RENTAL RATE
--------------------------------------------------------------------
1 BR/1 Bath 51 576 $419
--------------------------------------------------------------------
2 BR/1 Bath 8 864 $525
--------------------------------------------------------------------
Total 59 36,288
---------------------------------------------------
4/1/99 OCCUPANCY %: 100% APPRAISED VALUE: $1,820,000
1998 AVG. MONTHLY OCCUPANCY %: 99% Cost Approach: $1,664,000
1997 AVG. MONTHLY OCCUPANCY %: 86% Income Approach: $1,788,000
1996 AVG. MONTHLY OCCUPANCY %: 93% Market Approach: $1,844,000
1995 AVG. MONTHLY OCCUPANCY %: 93% REPLACEMENT COST NEW: $2,666,862
1994 AVG. MONTHLY OCCUPANCY %: 95% APPRAISAL DATE: 3/98
PARTNERSHIP'S LONGWOOD SECOND MORTGAGE LOAN INTERESTS:
DEBTOR: Longwood Apartments I, Ltd. PARTNERSHIP'S UNDIVIDED
(an affiliate of Managing Shareholder) % INTEREST IN SECOND
MORTGAGE NOTES: 100%
<TABLE>
<S> <C>
AGGREG. ORIGINAL PRINCIPAL BALANCE: $969,268 AGGREG. ANNUAL DEBT SERVICE: $77,088
AGGREG. 3/31/99 BALANCE: $969,268 (plus any participation interest)
AGGREG. BALANCE DUE AT MATURITY: $969,268 AGGREG. MONTHLY PAYMENT: $6,424
AGGREG. ACCRUED UNPAID INTEREST: $ 43,432 MATURITY DATE: 10/07
</TABLE>
MORTGAGE INTEREST/ AMORTIZATION PROVISIONS: (i) Fixed interest rate of 6% as to
$368,558 of principal (plus non-cumulative participation interest at the rate of
3% on the unpaid principal to the extent of available cash flow plus additional
non-cumulative participation interest equal to 30% of any remaining available
cash flow), (ii) adjustable interest rate of 1% over prime rate (currently
8.75%) as to $526,465 of principal, and (iii) fixed interest rate of 12% as to
$74,245 of principal. The loans require payments of interest only until
maturity.
PREPAYMENT PROVISIONS: Prepayable without penalty.
OTHER SECOND MORTGAGES SECURED BY PROPERTY: None
28
<PAGE>
BARON STRATEGIC INVESTMENT FUND VIII, LTD. (cont'd)
PARTNERSHIP'S LONGWOOD SECOND MORTGAGE LOAN INTERESTS (cont'd):
OTHER MATTERS: Prior to 12/15/98, the Longwood Second Mortgage Loans consisted
of a second mortgage note with a principal balance of $368,558, an unsecured
demand note with a principal balance of $526,465, and advances of $74,245. On
12/15/98, the debtor restated and amended the second mortgage note and the
demand note and created a new promissory note in the original principal amount
of $74,245 (to cover prior advances). The debtor and the Exchange Partnership
also entered into a mortgage modification agreement. Pursuant to the
arrangement, the Exchange Partnership agreed to set the maturity date on the
demand note and the advances at the same maturity date as the second mortgage
note, in exchange for the debtor's agreement to secure its repayment obligations
on the demand note and advances with a second mortgage on the Longwood Property.
LONGWOOD FIRST MORTGAGE INFORMATION:
FIRST MORTGAGE HOLDER AND ADDRESS:
GMAC REPAYMENT SECURED BY:
650 Dresher Road, P.O. Box 809 First Mortgage on Longwood Property
Horsham, Pennsylvania 19044-0809
ORIGINAL PRINCIPAL BALANCE: $1,307,000 ANNUAL DEBT SERVICE: $89,150
4/30/99 BALANCE: $1,023,894 MONTHLY PAYMENT: $ 7,429
BALANCE DUE AT MATURITY: $1,204,545 MATURITY DATE: 11/04
MORTGAGE INTEREST/ AMORTIZATION PROVISIONS: Fixed interest rate of 7.75%;
amortizes on a 30-year basis.
PREPAYMENT PROVISIONS: No prepayment permitted during the first four years of
the loan term; thereafter, loan may be prepaid in whole subject to a prepayment
premium in accordance with the following schedule: yield maintenance for the
term of the loan, subject to a minimum of 1%, except that for the last six
months of the loan term, it may be prepaid at par.
3. LAKE SYCAMORE SECOND MORTGAGE LOAN:
NAME AND ADDRESS
OF PROPERTY SECURING
MORTGAGE:
VILLAS AT LAKE SYCAMORE
("Lake Sycamore Property")
1911 Chaucer Drive
Cincinnati, Ohio 45237
PARTNERSHIP'S SECOND MORTGAGE INTEREST:
The Partnership owns an unrecorded second mortgage note with a current principal
balance of $98,000. Accrued unpaid interest on the note as of 3/31/99 is $2,683.
The debtor is Sycamore Real Estate Development, L.P., an affiliate of the
Managing Shareholder. The note bears interest at the fixed rate of 12% (annual
interest payable of $11,760 or $980 per month) and matures on 12/03. The note is
secured by a second mortgage on the Villas at Lake Sycamore, a 164 townhome
property under construction on 22.44 acres in Cincinnati, Ohio. Each townhome
has a rentable area per unit of approximately 1,325 square feet (or a total area
of 217,300 square feet). Construction commenced in December 1997 and is expected
to be completed in the last quarter of 2003. Each unit is expected to have an
initial monthly rental rate in the range of $889 to $990. In July 1998, an
independent Cincinnati appraisal firm estimated the "as is" value of the
property at $1,080,000 and the value of the completed property to be $14,312,000
(assuming completion of the project as designed, full rent up and satisfactory
environment-quality test).
Two other Exchange Partnerships, Baron Strategic Investment Fund, Ltd. and Baron
Strategic Investment Fund IX, Ltd., own separate second mortgage notes secured
by the property with the same terms except that they are in the principal
amounts of $230,000 and $243,500 (with accrued unpaid interest in the amounts of
$20,415 and $7,204), respectively. The lending parties have agreed to share the
benefits of the second mortgage on a pari passu basis.
29
<PAGE>
BARON STRATEGIC INVESTMENT FUND VIII, LTD. (cont'd)
LAKE SYCAMORE FIRST MORTGAGE INFORMATION:
FIRST MORTGAGE HOLDER AND ADDRESS:
Metropolitan Savings REPAYMENT SECURED BY:
8050 Hosbrook Road, Suite 408 First Mortgage on Lake Sycamore
Cincinnati, Ohio 45236 Property
<TABLE>
<S> <C>
ORIGINAL PRINCIPAL BALANCE: $2,000,000 CURRENT ANNUAL DEBT SERVICE: $89,369
maximum approved CURRENT MONTHLY PAYMENT: $ 7,447
4/30/99 BALANCE: $1,021,362 MATURITY DATE: 11/01
EXPECTED BALANCE
DUE AT MATURITY: $2,000,000
</TABLE>
MORTGAGE INTEREST/AMORTIZATION PROVISIONS: Adjustable interest rate equal to
lender's prime rate plus 1% (currently 8.75%); requires payments of interest
only until maturity.
PREPAYMENT PROVISIONS: Prepayable without penalty.
II. PARTNERSHIP INVESTMENT PROGRAM INFORMATION
DATE OFFERING BEGAN: 4/97 NUMBER OF UNITS SOLD: 2,400
NUMBER OF INVESTORS: 43 PRICE PER UNIT: $500
PAID IN CAPITAL: $1,200,000 DATE OFFERING TERMINATED: 2/98
ALLOCATION OF DISTRIBUTABLE CASH: Each fiscal year, all distributable cash is to
be distributed to the investors until they have received a 12.5%
non-cumulative return on their capital contributions; thereafter, investors
and the GP share any remaining distributable cash during the fiscal year
50%/50%.
ALLOCATION OF NET PROCEEDS FROM PROPERTY SALE OR REFINANCING: After investors
have received an aggregate amount (including prior distributions) equal to
their capital contributions plus an 12.5% yearly cash-on-cash return,
investors and the GP share any remaining net proceeds 50%/50%.
<TABLE>
<S> <C>
-----------------------------------------------------------------------------------------------------------------------------------
NUMBER OF OPERATING PARTNERSHIP UNITS ESTIMATED DEFERRED CAPITAL GAIN TAX LIABILITY FROM EXCHANGE OFFERING
OFFERED IN EXCHANGE OFFERING (per $1,000 of Investors' original investment):
(per $1,000 of Investors' original investment): 105 Units Short Term Capital Gain (assuming 39% rate): $73
valued at $10 per Unit (or $1,050) Long Term Capital Gain (assuming 20% rate): $37
-----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(See Endnotes to Exchange Mortgage Partnerships)
30
<PAGE>
BARON STRATEGIC VULTURE FUND I, LTD.
(GP: Baron Capital XXVI, Inc.)
I. PARTNERSHIP PROPERTY INTERESTS
The Exchange Partnership owns an undivided interest in three unrecorded
second mortgage loans and a 100% interest in one loan secured by the
Curiosity Creek Property described below. The interest of the Exchange
Partnership and a separate Exchange Partnership in the second mortgage
loans, terms of the first mortgage loan secured by the property, and other
information are described below.
CURIOSITY CREEK SECOND MORTGAGE LOANS
NAME AND ADDRESS OF
PROPERTY SECURING MORTGAGES:
CURIOSITY CREEK APARTMENTS
("Curiosity Creek Property") YEAR COMPLETED: 1982
102 Curiosity Creek Lane APPROX. ACREAGE: 4.51
Tampa, Florida 33612
UNIT MIX AND RENTAL RATES:
--------------------------------------------------------------------
APPROXIMATE
APPROXIMATE RENTABLE AVERAGE MONTHLY
UNIT TYPE NUMBER AREA PER UNIT (Sq. Ft.) RENTAL RATE
--------------------------------------------------------------------
Studio 16 288 $370
--------------------------------------------------------------------
1 BR/ 1 Bath 59 576 $450
--------------------------------------------------------------------
2 BR/ 1 Bath 6 864 $565
--------------------------------------------------------------------
Total 81 43,776
----------------------------------------------------
4/1/99 OCCUPANCY %: 93% APPRAISED VALUE: $2,425,000
1998 AVG. MONTHLY OCCUPANCY %: 93% Cost Approach: $2,426,000
1997 AVG. MONTHLY OCCUPANCY %: 88% Income Approach: $2,552,000
1996 AVG. MONTHLY OCCUPANCY %: 86% Market Approach: $2,297,000
1995 AVG. MONTHLY OCCUPANCY %: 92% REPLACEMENT COST NEW: $3,941,164
1994 AVG. MONTHLY OCCUPANCY %: 89% APPRAISAL DATE: 3/98
PARTNERSHIP'S CURIOSITY CREEK SECOND MORTGAGE LOAN INTERESTS:
DEBTOR: Curiosity Creek Apartments, Ltd. PARTNERSHIP'S UNDIVIDED 73.7% in three
(an affiliate of Managing Shareholder) % INTEREST IN SECOND loans and 100%
MORTGAGE NOTES: in one loan
<TABLE>
<S> <C>
AGGREG. ORIGINAL PRINCIPAL BALANCE: $1,243,847 AGGREG. ANNUAL DEBT SERVICE: $105,149
AGGREG. 3/31/99 BALANCE: $1,243,847 (plus participation interest)
AGGREG. BALANCE DUE AT MATURITY: $1,243,847 AGGREG. MONTHLY PAYMENT: $ 8,762
AGGREG. ACCRUED UNPAID INTEREST: $ 108,473 MATURITY DATE: 4/07
</TABLE>
MORTGAGE INTEREST/ AMORTIZATION PROVISIONS: (i) Fixed interest rate of 6% as to
$595,333 of principal (plus non-cumulative participation interest at the rate of
3% on the unpaid principal to the extent of available cash flow plus additional
non-cumulative participation interest equal to 30% of any remaining available
cash flow), (ii) adjustable interest rate of prime plus 1% (currently 8.75%) as
to $305,407 of principal, (iv) fixed interest rate of 12.5% as to $306,675 of
principal, and (iii) fixed interest rate of 12% as to $36,431 of principal. The
loans require payments of interest only until maturity.
PREPAYMENT PROVISIONS: Prepayable without penalty.
OTHER SECOND MORTGAGES SECURED BY PROPERTY: Baron Strategic Investment Fund V,
Ltd. ( "Baron Fund V") owns the remaining undivided 26.3% interest in three
second mortgage loans and a 100% interest in one second mortgage loan secured by
the Curiosity Creek Property ("Curiosity Creek Second Mortgage Loans"). The
aggregate original principal balance, aggregate 3/31/99 principal balance, and
aggregate balance due at maturity in respect of Baron Fund V's interest in the
Curiosity Creek Second Mortgage Loans is $474,703 (accrued unpaid interest of
$22,837); the aggregate annual and monthly payments due it are $41,238 and
$3,437, respectively. The other terms relating to Baron Fund V's interest in the
Curiosity Creek Second Mortgage Loans are the same as stated herein.
OTHER MATTERS: Prior to 12/15/98, the Curiosity Creek Second Mortgage Loans
consisted of a second mortgage note with a principal balance of $807,560, two
unsecured demand notes with an aggregate principal balance of $830,360 and
advances in the amount of $66,171. On 12/15/98, the debtor, the Exchange
Partnership and Baron Fund V entered into a mortgage modification agreement
pursuant to which the Exchange Partnership and Baron Fund V agreed to set the
maturity date on the demand notes and the advances at the same maturity date as
the second mortgage note, in exchange for the debtor's agreement to secure its
repayment obligations on the unsecured notes and advances with a second mortgage
on the Curiosity Creek Property.
31
<PAGE>
BARON STRATEGIC VULTURE FUND I, LTD. (cont'd)
CURIOSITY CREEK FIRST MORTGAGE INFORMATION:
FIRST MORTGAGE HOLDER AND ADDRESS:
Prudential Mortgage Capital Company, LLC REPAYMENT SECURED BY:
100 Mulberry Street - 9th Floor First Mortgage on Curiosity Creek
Newark, NJ 07102-4069 Property
ORIGINAL PRINCIPAL BALANCE: $1,300,000 ANNUAL DEBT SERVICE: $106,737
4/30/99 BALANCE: $1,288,568 MONTHLY PAYMENT: $8,895
BALANCE DUE AT MATURITY: $1,122,800 MATURITY DATE: 4/08
MORTGAGE INTEREST/ AMORTIZATION PROVISIONS: Fixed interest rate of 7.28%;
amortizes on a 30-year basis.
PREPAYMENT PROVISIONS: No prepayment permitted during the first four years of
the loan term; thereafter, loan may be prepaid in whole subject to a prepayment
premium in accordance with the following schedule: yield maintenance for the
term of the loan, subject to a minimum of 1%, except that for the last six
months of the loan term, it may be prepaid at par.
II. PARTNERSHIP INVESTMENT PROGRAM INFORMATION
DATE OFFERING BEGAN: 5/96 NUMBER OF UNITS SOLD: 1,800
NUMBER OF INVESTORS: 42 PRICE PER UNIT: $500
PAID IN CAPITAL: $900,000 DATE OFFERING TERMINATED: 10/96
ALLOCATION OF DISTRIBUTABLE CASH: Each fiscal year, all distributable cash is to
be distributed to the investors until they have received a 15% non-cumulative
return on their capital contributions; thereafter, any remaining
distributable cash during the fiscal year is to be distributed to the GP.
ALLOCATION OF NET PROCEEDS FROM PROPERTY SALE OR REFINANCING: After investors
have first received an aggregate amount (including prior distributions) equal
to the amount of their capital contributions plus a 10% yearly cash-on-cash
return and the GP has then received a similar return on the amount of its
capital contribution, investors and the GP share any remaining net proceeds
50%/50%.
<TABLE>
<S> <C>
-----------------------------------------------------------------------------------------------------------------------------------
NUMBER OF OPERATING PARTNERSHIP UNITS ESTIMATED DEFERRED CAPITAL GAIN TAX LIABILITY FROM EXCHANGE OFFERING
OFFERED IN EXCHANGE OFFERING (per $1,000 of Investors' original investment):
(per $1,000 of Investors' original investment): 110 Units Short Term Capital Gain (assuming 39% rate): $175
valued at $10 per Unit (or $1,100) Long Term Capital Gain (assuming 20% rate): $ 90
-----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(See Endnotes to Exchange Mortgage Partnerships)
32
<PAGE>
BREVARD MORTGAGE PROGRAM, LTD.
(GP: Baron Capital XII, Inc.)
I. PARTNERSHIP PROPERTY INTERESTS
The Exchange Partnership owns three unrecorded second mortgage
loans secured by the Meadowdale Property described below. The
Exchange Partnership's interest in the Second Mortgage Loans, terms
of the first mortgage loan secured by the property, and other
information are described below.
MEADOWDALE SECOND MORTGAGE LOANS
NAME AND ADDRESS OF
PROPERTY SECURING MORTGAGES:
MEADOWDALE APARTMENTS
("Meadowdale Property") YEAR COMPLETED: 1984
248 E. University Boulevard APPROX. ACREAGE: 4.81
Melbourne, Florida 32901
UNIT MIX AND RENTAL RATES:
--------------------------------------------------------------------
APPROXIMATE
APPROXIMATE RENTABLE AVERAGE MONTHLY
UNIT TYPE NUMBER AREA PER UNIT (Sq. Ft.) RENTAL RATE
--------------------------------------------------------------------
1 BR 56 576 $399
--------------------------------------------------------------------
2 BR 8 864 $499
--------------------------------------------------------------------
Total 64 39,168
----------------------------------------------------
4/1/99 OCCUPANCY %: 70% APPRAISED VALUE: $1,717,000
1998 AVG. MONTHLY OCCUPANCY %: 70% Cost Approach: $1,636,000
1997 AVG. MONTHLY OCCUPANCY %: 89% Income Approach: $1,629,000
1996 AVG. MONTHLY OCCUPANCY %: 90% Market Approach: $1,643,000
1995 AVG. MONTHLY OCCUPANCY %: 92% REPLACEMENT COST NEW: $3,084,043
1994 AVG. MONTHLY OCCUPANCY %: 91% APPRAISAL DATE: 8/98
PARTNERSHIP'S MEADOWDALE SECOND MORTGAGE LOAN INTERESTS:
DEBTOR: Florida Opportunity Income Fund III, Ltd. PARTNERSHIP'S UNDIVIDED
(affiliate of Managing Shareholder) % INTEREST IN SECOND
MORTGAGE NOTES: 100%
<TABLE>
<S> <C>
AGGREG. ORIGINAL PRINCIPAL BALANCE: $1,048,861 AGGREG. ANNUAL DEBT SERVICE: $71,861
AGGREG. 3/31/99 BALANCE: $1,048,861 (plus any participation interest)
AGGREG. BALANCE DUE AT MATURITY: $1,048,861 AGGREG. MONTHLY PAYMENT: $ 5,988
AGGREG. ACCRUED UNPAID INTEREST: $ 107,151 MATURITY DATE: 10/07
</TABLE>
MORTGAGE INTEREST/ AMORTIZATION PROVISIONS: (i) Fixed interest rate of 6% as to
$752,747 of principal (plus non-cumulative participation interest at the rate of
3% on the unpaid principal to the extent of available cash flow plus additional
non-cumulative participation interest equal to 20% of any remaining available
cash flow), (ii) adjustable interest rate of 1% over prime rate (currently
8.75%) as to $271,923 of principal and (iii) fixed rate of 12% as to $24,191 of
principal.
PREPAYMENT PROVISIONS: Prepayable without penalty.
OTHER SECOND MORTGAGES SECURED BY PROPERTY: None
OTHER MATTERS: Prior to 12/15/98, the second mortgage loans consisted of a
second mortgage note with a principal balance of $752,747, an unsecured demand
note with a principal balance of $271,923 and advances of $24,191. On 12/15/98,
the debtor restated and amended the second mortgage note and the demand note and
created a new promissory note in favor of the Exchange Partnership in the
original principal amount of $24,191 (to cover the prior advances). The debtor
and the Exchange Partnership also entered into a mortgage modification
agreement. Pursuant to the arrangement, the Exchange Partnership agreed to set
the maturity date on the demand note and the advances at the same maturity date
as the second mortgage note, in exchange for the debtor's agreement to secure
its repayment obligations on the demand note and the advances with a second
mortgage on the Meadowdale Property.
33
<PAGE>
BREVARD MORTGAGE PROGRAM, LTD. (cont'd)
MEADOWDALE FIRST MORTGAGE INFORMATION:
FIRST MORTGAGE HOLDER AND ADDRESS:
Republic Bank REPAYMENT SECURED BY:
P.O. Box 33009 First Mortgage on Meadowdale Property
St. Petersburg, Florida 33733-8009
ORIGINAL PRINCIPAL BALANCE: $1,000,000 ANNUAL DEBT SERVICE: $93,935
4/30/99 BALANCE: $ 947,936 MONTHLY PAYMENT: $ 7,828
BALANCE DUE AT MATURITY: $ 905,918 MATURITY DATE: 7/01
MORTGAGE INTEREST AND AMORTIZATION PROVISIONS: Fixed interest rate of 8.75%;
amortizes on a 22-year basis.
PREPAYMENT PROVISIONS: Prepayable without penalty.
II. PARTNERSHIP INVESTMENT PROGRAM INFORMATION
DATE OFFERING BEGAN: 1/96 NUMBER OF UNITS SOLD: 575
NUMBER OF INVESTORS: 23 PRICE PER UNIT: $1,000
PAID IN CAPITAL: $575,000 DATE OFFERING TERMINATED: 4/96
ALLOCATION OF DISTRIBUTABLE CASH: Each fiscal year, investors and the GP share
distributable cash 99%/1%.
ALLOCATION OF NET PROCEEDS FROM PROPERTY SALE OR REFINANCING: Investors are
entitled to 100% of net proceeds until the entire amount of the Partnership's
Second Mortgage Loans have been repaid and the GP is entitled to receive any
remaining net proceeds.
<TABLE>
<S> <C>
-----------------------------------------------------------------------------------------------------------------------------------
NUMBER OF OPERATING PARTNERSHIP UNITS ESTIMATED DEFERRED CAPITAL GAIN TAX LIABILITY FROM EXCHANGE OFFERING
OFFERED IN EXCHANGE OFFERING (per $1,000 of Investors' original investment):
(per $1,000 of Investors' original investment): 109 Units Short Term Capital Gain (assuming 39% rate): $210
valued at $10 per Unit (or $1,090) Long Term Capital Gain (assuming 20% rate): $108
-----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(See Endnotes on Exchange Mortgage Partnerships)
34
<PAGE>
Endnotes to Exchange Mortgage Partnerships:
1. The second mortgage interests held by the Exchange Partnership and the
first mortgage loans identified are not insured by the Federal Housing
Administration or guaranteed by the Veterans Administration or otherwise
insured or guaranteed. Repayment of each of the loans indicated is
non-recourse beyond the underlying property and /or other assets of the
particular debtor.
2. In the opinion of the Managing Shareholder, each residential apartment
property identified is in good overall condition and is suitable and
adequate for the purpose for which it was built.
3. Each property is subject to significant competition from other residential
apartment properties in its general vicinity.
4. In the opinion of the Managing Shareholder, each property is covered by
insurance of the types and amounts which are comparable for similar
properties located in its general vicinity.
5. The purchase price to be paid by the Operating Partnership in the Exchange
Offering for limited partnership interests in each Exchange Mortgage
Partnership and in each Exchange Hybrid Partnership (to the extent of its
mortgage interest in the property) is based upon the following factors:
(a) the current principal balance of the amount of debt which is senior to
the mortgage interest to be acquired and other indebtedness to which the
property is subject; (b) the estimated appraised market value of the
underlying property determined by qualified and licensed independent
appraisal firms; (c) the operating history of the property; (d) the amount
of distributable cash flow currently being generated by the property; plus
(e) additional factors which the Managing Shareholder believes are
appropriate to consider including, among others, the property's overall
current condition and prospects for the property based upon improvements
made or to be made to the property and, in certain cases, the combination
of two or more phases of the property, which are expected to be owned upon
the completion of the Exchange Offering, and the actual or potential
benefits to be obtained by the sub-metering of utilities in order to pass
costs from the owner of the property to individual tenants. There can be
no assurance that the value of mortgage interests acquired in properties
will reflect their fair market value. See the Prospectus at "THE EXCHANGE
OFFERING."
6. Each property is a residential apartment property (other than Glen Lake
Arms Apartments, which are short-term corporate residential units) which
generally leases units to tenants under lease agreements with terms of one
year or less which are common in the industry.
7. The overall depreciable life of each property is 30 years; depreciation is
determined using the straight-line method.
8. Based on certain factual representations made by the Operating Partnership
and on certain conditions specified at "FEDERAL INCOME TAX CONSIDERATIONS
- Exchange of Exchange Partnership Units for Operating Partnership Units,"
special tax counsel to the Operating Partnership has opined that Offerees
who accept the Exchange Offering generally will not incur any immediate
tax liability for any taxable gain in connection with such transaction.
Any such tax liability will be deferred until a later date. The schedule
at "Estimated Deferred Taxable Gain from Exchange Offering (per $1,000 of
Investors' original investment)" (prepared by the Managing Shareholder and
not reviewed by tax or other counsel) indicates the amount of capital gain
tax liability each Offeree who accepts the Exchange Offering will defer in
connection with such transaction per each $1,000 of his original
investment.
35
<PAGE>
EXCHANGE HYBRID PARTNERSHIPS
36
<PAGE>
BARON STRATEGIC INVESTMENT FUND VI, LTD.
(GP: Baron Capital XXXI, Inc.)
I. PARTNERSHIP PROPERTY INTERESTS
The Exchange Partnership owns (1) a 52.44% limited partnership
interest in a limited partnership which holds fee simple title to the
Pineview Property, (2) an unrecorded second mortgage loan secured by
the Candlewood Property-Phase II, (3) an undivided interest in two
recorded second mortgage loans secured by the Garden Terrace
Property-Phase III, and (4) a note receivable from another Exchange
Partnership which is secured by two unrecorded second mortgage notes
and a second mortgage on the Country Square Property-Phase I. The
interest of the Exchange Partnership and other Exchange Partnerships
in the Pineview Property and the second mortgage loans, the note
payable to the Exchange Partnership from another Exchange Partnership,
terms of the respective first mortgage loan and the Exchange
Partnership's second mortgage loans secured by the three properties
described below, and other information are described below.
1. EQUITY INTEREST IN PINEVIEW PROPERTY
NAME AND ADDRESS OF PROPERTY:
PINEVIEW APARTMENTS
("Pineview Property") YEAR COMPLETED: 1988
4731 Pine Hills Road APPROX. ACREAGE: 4.38
Orlando, Florida 32808
UNIT MIX AND RENTAL RATES:
--------------------------------------------------------------------
APPROXIMATE
APPROXIMATE RENTABLE AVERAGE MONTHLY
UNIT TYPE NUMBER AREA PER UNIT (Sq. Ft.) RENTAL RATE
--------------------------------------------------------------------
Studio 26 288 $409
--------------------------------------------------------------------
1 BR 59 576 $469
--------------------------------------------------------------------
2 BR 6 864 $600-625
--------------------------------------------------------------------
Total 91 46,656
---------------------------------------------------
<TABLE>
<S> <C>
4/1/99 OCCUPANCY %: 98% ESTIMATED APPRAISED VALUE: $2,848,000
1998 AVG. MONTHLY OCCUPANCY %: 95% APPRAISAL DATE: 3/98
1997 AVG. MONTHLY OCCUPANCY %: 92% 11/1/98 FEDERAL INCOME TAX BASIS: $1,747,499
1996 AVG. MONTHLY OCCUPANCY %: 93% DEPRECIATION LIFE CLAIMED: 30 years
1995 AVG. MONTHLY OCCUPANCY %: 90% REALTY TAX RATE (MILLAGE): 21.4657
1994 AVG. MONTHLY OCCUPANCY %: 92% 1997 PROPERTY TAX VALUE: $1,384,273
</TABLE>
PINEVIEW FIRST MORTGAGE INFORMATION:
FIRST MORTGAGE HOLDER AND ADDRESS:
GMAC REPAYMENT SECURED BY:
650 Dresher Road, P.O. Box 809 First Mortgage on Pineview Property
Horsham, Pennsylvania 19044-0809
ORIGINAL PRINCIPAL BALANCE: $1,620,000 ANNUAL DEBT SERVICE: $139,271
4/30/99 BALANCE: $1,599,549 MONTHLY PAYMENT: $ 11,606
BALANCE DUE AT MATURITY: $1,493,008 MATURITY DATE: 11/04
MORTGAGE INTEREST/ AMORTIZATION PROVISIONS: Fixed interest rate of 7.75%;
amortizes on a 30-year basis.
PREPAYMENT PROVISIONS: No prepayment permitted prior to May 1, 2004; thereafter,
may be prepaid subject to a yield maintenance fee payable until 6 months prior
to maturity.
37
<PAGE>
BARON STRATEGIC INVESTMENT FUND VI, LTD. (cont'd)
2. CANDLEWOOD SECOND MORTGAGE LOAN
NAME AND ADDRESS OF
PROPERTY SECURING MORTGAGES:
CANDLEWOOD APARTMENTS - PHASE II YEAR COMPLETED: 1984
("Candlewood Property") APPROX. ACREAGE: 2.75
5901 Bryce Lane
Tampa, Florida 33615
UNIT MIX AND RENTAL RATES:
--------------------------------------------------------------------
APPROXIMATE
APPROXIMATE RENTABLE AVERAGE MONTHLY
UNIT TYPE NUMBER AREA PER UNIT (Sq. Ft.) RENTAL RATE
--------------------------------------------------------------------
Studio 6 288 $345
--------------------------------------------------------------------
1 BR 26 576 $449
--------------------------------------------------------------------
2 BR 1 864 $559
--------------------------------------------------------------------
Total 33 17,568
----------------------------------------------------
4/1/99 OCCUPANCY %: 94% APPRAISED VALUE: $ 925,000
1998 AVG. MONTHLY OCCUPANCY %: 94% Cost Approach: $ 926,000
1997 AVG. MONTHLY OCCUPANCY %: 94% Income Approach: $ 922,000
1996 AVG. MONTHLY OCCUPANCY %: 95% Market Approach: $ 932,000
1995 AVG. MONTHLY OCCUPANCY %: 93% REPLACEMENT COST NEW: $1,590,447
1994 AVG. MONTHLY OCCUPANCY %: 94% APPRAISAL DATE: 1/98
PARTNERSHIP'S CANDLEWOOD SECOND MORTGAGE LOAN INTEREST:
DEBTOR: Baron Strategic Investment Fund III, Ltd. PARTNERSHIP'S UNDIVIDED
(affiliate of Managing Shareholder) % INTEREST IN SECOND
MORTGAGE NOTE: 100%
ORIGINAL PRINCIPAL BALANCE: $68,000 ANNUAL DEBT SERVICE: $8,160
3/31/99 BALANCE: $68,000 MONTHLY PAYMENT: $ 680
BALANCE DUE AT MATURITY: $68,000 MATURITY DATE: 3/03
ACCRUED UNPAID INTEREST: $ 7,927
MORTGAGE INTEREST/ AMORTIZATION PROVISIONS: Fixed rate of 12%; requires payments
of interest only until maturity.
PREPAYMENT PROVISIONS: Prepayable without penalty.
OTHER SECOND MORTGAGES SECURED BY PROPERTY: Baron Strategic Investment Fund V,
Ltd. ("Baron Fund V") and Baron Strategic Investment Fund IX, Ltd. ("Baron Fund
IX") own separate second mortgage loans secured by the Candlewood Property. The
original principal balance, aggregate 3/31/99 principal balance, and balance due
at maturity in respect of Baron Fund V's and Baron Fund IX's loans are $21,000
(accrued unpaid interest of $2,472) and $75,500 (accrued unpaid interest of
$8,357), respectively; the annual (and monthly) payments due them are $2,520
($210) and $9,060 ($755), respectively. The other terms relating to Baron Fund
V's and Baron Fund IX's loans are the same as stated herein in respect of the
Exchange Partnership's loan.
OTHER MATTERS: Prior to 12/15/98, the Candlewood Second Mortgage Loan consisted
of an unsecured demand note with a principal balance of $68,000. On 12/15/98,
the debtor and the Exchange Partnership entered into a second mortgage agreement
under which the debtor agreed to secure its repayment obligation on the note
with a second mortgage on the Candlewood Property. At the same time, the debtor
agreed to secure the loans in favor of Baron Fund V and Baron Fund IX with
separate mortgages on the property. The lending parties have agreed to share the
benefits of the second mortgages on a pari passu basis.
38
<PAGE>
BARON STRATEGIC INVESTMENT FUND VI, LTD. (cont'd)
CANDLEWOOD FIRST MORTGAGE INFORMATION:
FIRST MORTGAGE HOLDER AND ADDRESS:
Republic Bank REPAYMENT SECURED BY:
P.O. Box 33009 First Mortgage on Candlewood Property
St. Petersburg, Florida 33733-8009
ORIGINAL PRINCIPAL BALANCE: $605,000 ANNUAL DEBT SERVICE: $56,153
4/1/99 BALANCE: $589,671 MONTHLY PAYMENT: $ 4,679
BALANCE DUE AT MATURITY: $533,678 MATURITY DATE: 2/03
MORTGAGE INTEREST/ AMORTIZATION PROVISIONS: Fixed interest rate of 7.79%;
amortizes on a 25-year basis.
PREPAYMENT PROVISIONS: Prepayable without penalty.
3. GARDEN TERRACE SECOND MORTGAGE LOAN
NAME AND ADDRESS OF
PROPERTY SECURING MORTGAGES:
GARDEN TERRACE APARTMENTS - PHASE III
("Garden Terrace Property") YEAR COMPLETED: 1983
8725 Del Ray Court APPROX. ACREAGE: 5.16
Tampa, Florida 33617
Orlando, Florida 32822
UNIT MIX AND RENTAL RATES:
--------------------------------------------------------------------
APPROXIMATE
APPROXIMATE RENTABLE AVERAGE MONTHLY
UNIT TYPE NUMBER AREA PER UNIT (Sq. Ft.) RENTAL RATE
--------------------------------------------------------------------
Studio 8 288 $344
--------------------------------------------------------------------
1 BR 67 576 $399
--------------------------------------------------------------------
2 BR 16 864 $530
--------------------------------------------------------------------
Total 91 54,720
----------------------------------------------------
4/1/99 OCCUPANCY %: 91% APPRAISED VALUE: $1,850,000
1998 AVG. MONTHLY OCCUPANCY %: 90% Cost Approach: $1,835,000
1997 AVG. MONTHLY OCCUPANCY %: 78% Income Approach: $1,782,000
1996 AVG. MONTHLY OCCUPANCY %: 81% Market Approach: $1,901,000
1995 AVG. MONTHLY OCCUPANCY %: 86% REPLACEMENT COST NEW: $4,297,897
1994 AVG. MONTHLY OCCUPANCY %: 90% APPRAISAL DATE: 6/98
PARTNERSHIP'S GARDEN TERRACE SECOND MORTGAGE LOAN INTEREST:
DEBTOR: Garden Terrace Apartments III, Ltd. PARTNERSHIP'S UNDIVIDED INTEREST
IN SECOND MORTGAGE LOANS: 20%
ORIGINAL PRINCIPAL BALANCE: $248,353 ANNUAL DEBT SERVICE: $22,353
3/31/99 BALANCE: $248,353 MONTHLY PAYMENT: $ 1,863
BALANCE DUE AT MATURITY: $248,353 MATURITY DATE: 1/07
ACCRUED UNPAID INTEREST: $ 5,607
MORTGAGE INTEREST/ AMORTIZATION PROVISIONS: (i) Fixed interest rate of 2% as to
$147,000 of principal if cash flow available (plus non-cumulative participation
interest at the rate of 7% on the unpaid principal to the extent of available
cash flow, plus additional participation interest equal to 30% of any remaining
cash flow (payable only to holders of note referred to in (ii) below) and (ii)
fixed interest rate of 9% as to $101,353 of principal, payable only from excess
cash flow after payment of 2% minimum interest and 7% participation interest due
on the note referred to in (i) above. The loans require payments of interest
only until maturity.
PREPAYMENT PROVISIONS: Prepayable without penalty.
OTHER SECOND MORTGAGES SECURED BY PROPERTY: Baron Strategic Investment Fund IX,
Ltd. ("Baron Fund IX") and Baron Strategic Investment Fund X, Ltd. ("Baron Fund
X") own the remaining undivided 80% interest in the second mortgage loans
secured by the Garden Terrace Property ("Garden Terrace Second Mortgage Loans").
The original principal balance, 3/31/99 principal balance, and balance due at
maturity in respect of Baron Fund IX's and Baron Fund X's interest in the Garden
Terrace Second Mortgage Loans is $310,442 (accrued unpaid interest of $7,246)
and $682,972 (accrued unpaid interest of $16,132), respectively; the annual (and
monthly) payments due them are $27,940 ($2,328) and $61,467 ($5,122),
respectively. The other terms relating to Baron Fund IX's and Baron Fund X's
interest in the Garden Terrace Second Mortgage Loans are the same as stated
herein.
39
<PAGE>
BARON STRATEGIC INVESTMENT FUND VI, LTD. (cont'd)
GARDEN TERRACE FIRST MORTGAGE INFORMATION:
FIRST MORTGAGE HOLDER AND ADDRESS:
Mellon Mortgage Company REPAYMENT SECURED BY:
1422 Euclid Ave., Suite 900 First Mortgage Garden Terrace Property
Cleveland, Ohio 44115-2092
ORIGINAL PRINCIPAL BALANCE: $1,010,000 ANNUAL DEBT SERVICE: $96,047
4/30/99 BALANCE: $ 967,012 MONTHLY PAYMENT: $ 8,004
BALANCE DUE AT MATURITY: $ 822,063 MATURITY DATE: 5/05
MORTGAGE INTEREST/ AMORTIZATION PROVISIONS: Fixed interest rate of 8.31%;
amortizes on a 25-year basis.
PREPAYMENT PROVISIONS: May be prepaid beginning 4/99 with a 5% prepayment fee;
the fee decreases 1% per year until maturity.
4. NOTE PAYABLE BY BARON STRATEGIC INVESTMENT FUND IV, LTD.:
In 3/97, the Exchange Partnership provided a loan with a current principal
balance of $259,639 (with accrued and unpaid interest of $46,934) to another
Exchange Partnership, Baron Strategic Investment Fund IV, Ltd. ("Baron Fund
IV"). Baron Fund IV, in turn, lent the loan proceeds to the borrower as part of
the Country Square Second Mortgage Loans. (See the table for Baron Fund IV
above.) The loan from Baron Fund VI to Baron Fund IV bears interest at the
annual rate of 15%, payable monthly, matures in 9/02 and is secured by Baron
Fund IV's interest in the second mortgage note and second mortgage. Set forth
below is information relating to the Country Square Property and the Country
Second Mortgage Loans.
NAME AND ADDRESS OF
PROPERTY SECURING MORTGAGES:
COUNTRY SQUARE APARTMENTS - PHASE I
("Country Square Property") YEAR COMPLETED: 1981
8401 Aiken Court APPROX. ACREAGE: 4.56
Tampa, Florida 33615
UNIT MIX AND RENTAL RATES:
--------------------------------------------------------------------
APPROXIMATE
APPROXIMATE RENTABLE AVERAGE MONTHLY
UNIT TYPE NUMBER AREA PER UNIT (Sq. Ft.) RENTAL RATE
--------------------------------------------------------------------
Studio 14 288 $345
--------------------------------------------------------------------
1 BR 52 576 $449
--------------------------------------------------------------------
2 BR 7 864 $559
--------------------------------------------------------------------
Total 73 40,032
---------------------------------------------------
4/1/99 OCCUPANCY %: 95% APPRAISED VALUE: $2,185,000
1998 AVG. MONTHLY OCCUPANCY %: 95% Cost Approach: $2,185,000
1997 AVG. MONTHLY OCCUPANCY %: 83% Income Approach: $2,281,000
1996 AVG. MONTHLY OCCUPANCY %: 84% Market Approach: $2,090,000
1995 AVG. MONTHLY OCCUPANCY %: 86% REPLACEMENT COST NEW: $3,554,776
1994 AVG. MONTHLY OCCUPANCY %: 84% APPRAISAL DATE: 1/98
BARON FUND IV'S SECOND MORTGAGE LOAN INTEREST IN COUNTRY SQUARE PROPERTY:
DEBTOR: Country Square Apartments, Ltd. BARON FUND IV'S UNDIVIDED %
(affiliate of Managing Shareholder) INTEREST IN SECOND MORTGAGE
LOANS: 100%
ORIGINAL PRINCIPAL BALANCE: $1,372,237 ANNUAL DEBT SERVICE: $163,746
3/31/99 BALANCE: $1,364,549 MONTHLY PAYMENT: $ 13,645
BALANCE DUE AT MATURITY: $1,364,549 MATURITY DATE: 4/08
ACCRUED UNPAID INTEREST: $ 166,140
MORTGAGE INTEREST/ AMORTIZATION PROVISIONS: Fixed rate of 12%; requires payments
of interest only until maturity.
PREPAYMENT PROVISIONS: Prepayable without penalty.
OTHER MATTERS: Prior to 12/15/98, the second mortgage loans consisted of a
second mortgage note with a principal balance of $1,192,987 and an unsecured
demand note with a principal balance of $179,250. On 12/15/98, the debtor
restated and amended the notes and the debtor and the Exchange Partnership
entered into a mortgage modification agreement. Pursuant to the arrangement, the
Exchange Partnership agreed to set the maturity date on the demand note at the
same maturity date as the second mortgage note, in exchange for the debtor's
agreement to secure its repayment obligation on the demand note with a second
mortgage on the Country Square Property.
40
<PAGE>
BARON STRATEGIC INVESTMENT FUND VI, LTD. (cont'd)
COUNTRY SQUARE FIRST MORTGAGE INFORMATION:
FIRST MORTGAGE HOLDER AND ADDRESS:
Prudential Mortgage Capital Company, LLC REPAYMENT SECURED BY:
100 Mulberry Street - 9th Floor First Mortgage on Country Square
Newark, NJ 07102-4069 Property
ORIGINAL PRINCIPAL BALANCE: $1,600,000 ANNUAL DEBT SERVICE: $133,068
4/30/99 BALANCE: $1,584,989 MONTHLY PAYMENT: $ 11,089
BALANCE DUE AT MATURITY: $1,385,953 MATURITY DATE: 3/08
MORTGAGE INTEREST/ AMORTIZATION PROVISIONS: Fixed interest rate of 7.41%;
amortizes on a 30-year basis.
PREPAYMENT PROVISIONS: No prepayment permitted during the first four years of
the loan term; thereafter, loan may be prepaid in whole subject to a prepayment
premium in accordance with the following schedule: yield maintenance for the
term of the loan, subject to a minimum of 1%, except that for the last six
months of the loan term, it may be prepaid at par.
II. PARTNERSHIP INVESTMENT PROGRAM INFORMATION
DATE OFFERING BEGAN: 11/96 NUMBER OF UNITS SOLD: 2,400
NUMBER OF INVESTORS: 43 PRICE PER UNIT: $500
PAID IN CAPITAL: $1,200,000 DATE OFFERING TERMINATED: 4/97
ALLOCATION OF DISTRIBUTABLE CASH: Each fiscal year, all distributable cash is to
be distributed to the investors until they have received a 12.5%
non-cumulative return on their capital contributions; thereafter, investors
and the GP share any remaining distributable cash during the fiscal year
50%/50%.
ALLOCATION OF NET PROCEEDS FROM PROPERTY SALE OR REFINANCING: After investors
have received an aggregate amount (including prior distributions) equal to
their capital contributions plus an 12.5% yearly cash-on-cash return,
investors and the GP share any remaining net proceeds 50%/50%.
<TABLE>
<S> <C>
-----------------------------------------------------------------------------------------------------------------------------------
NUMBER OF OPERATING PARTNERSHIP UNITS ESTIMATED DEFERRED CAPITAL GAIN TAX LIABILITY FROM EXCHANGE OFFERING
OFFERED IN EXCHANGE OFFERING (per $1,000 of Investors' original investment):
(per $1,000 of Investors' original investment): 107 Units Short Term Capital Gain (assuming 39% rate): $95
valued at $10 per Unit (or $1,070) Long Term Capital Gain (assuming 20% rate): $49
-----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(See Endnotes on Exchange Hybrid Partnerships)
41
<PAGE>
BARON STRATEGIC INVESTMENT FUND IX, LTD.
(GP: Baron Capital LXII, Inc.)
I. PARTNERSHIP PROPERTY INTERESTS
The Partnership owns (i) a 44.96% limited partnership interest in a
limited partnership which holds fee simple title to the Crystal Court
Property-Phase I, (ii) an undivided interest in an unrecorded second
mortgage loan secured by the Candlewood Property - Phase II, (iii) an
undivided interest in two recorded second mortgage loans secured by
the Garden Terrace Property-Phase III, and (iv) an unrecorded second
mortgage loan secured by the Lake Sycamore Property (under
development). The interest of the Exchange Partnership and other
Exchange Partnerships in the Crystal Court Property and the respective
second mortgage loans, terms of the respective first mortgage loan
secured by the Candlewood Property, the Garden Terrace Property and
the Lake Sycamore Property, and other information are described below.
1. EQUITY INTEREST IN CRYSTAL COURT PROPERTY
NAME AND ADDRESS OF PROPERTY:
CRYSTAL COURT APARTMENTS - PHASE I YEAR COMPLETED: 1982
("Crystal Court Property") APPROX. ACREAGE: 4.5
1969 Crystal Court Drive
Lakeland, Florida 33801
UNIT MIX AND RENTAL RATES:
--------------------------------------------------------------------
APPROXIMATE
APPROXIMATE RENTABLE AVERAGE MONTHLY
UNIT TYPE NUMBER AREA PER UNIT (Sq. Ft.) RENTAL RATE
--------------------------------------------------------------------
1 BR 64 576 $389
--------------------------------------------------------------------
2 BR 8 864 $499-509
--------------------------------------------------------------------
Total 72 43,776
---------------------------------------------------
<TABLE>
<S> <C>
4/1/99 OCCUPANCY %: 94% APPRAISED VALUE: $2,040,000
1998 AVG. MONTHLY OCCUPANCY %: 94% APPRAISAL DATE: 6/98
1997 AVG. MONTHLY OCCUPANCY %: 95% 11/1/98 FEDERAL INCOME TAX BASIS: $1,673,788
1996 AVG. MONTHLY OCCUPANCY %: 90% DEPRECIATION LIFE CLAIMED: 28 yrs.
1995 AVG. MONTHLY OCCUPANCY %: 91% REALTY TAX RATE (MILLAGE 21.508
1994 AVG. MONTHLY OCCUPANCY %: 91% 1997 PROPERTY TAX VALUE: $1,240,680
</TABLE>
CRYSTAL COURT FIRST MORTGAGE INFORMATION:
FIRST MORTGAGE HOLDER AND ADDRESS:
GMAC REPAYMENT SECURED BY:
650 Dresher Road, P.O. Box 809 First Mortgage on Crystal Court
Horsham, Pennsylvania 19044-0809 Property
ORIGINAL PRINCIPAL BALANCE: $1,222,000 ANNUAL DEBT SERVICE: $102,533
4/30/99 BALANCE: $1,205,806 MONTHLY PAYMENT: $ 8,544
BALANCE DUE AT MATURITY: $1,126,207 MATURITY DATE: 11/04
MORTGAGE INTEREST/ AMORTIZATION PROVISIONS: Fixed interest rate of 7.50%;
amortizes on a 30-year basis.
PREPAYMENT PROVISIONS: No prepayment permitted prior to 5/04; thereafter, may be
prepaid subject to a yield maintenance fee payable until 6 months prior to
maturity.
42
<PAGE>
BARON STRATEGIC INVESTMENT FUND IX, LTD. (cont'd)
2. CANDLEWOOD SECOND MORTGAGE LOAN
NAME AND ADDRESS OF
PROPERTY SECURING MORTGAGES:
CANDLEWOOD APARTMENTS - PHASE II YEAR COMPLETED: 1984
("Candlewood Property") APPROX. ACREAGE: 2.75
5901 Bryce Lane
Tampa, Florida 33615
UNIT MIX AND RENTAL RATES:
--------------------------------------------------------------------
APPROXIMATE
APPROXIMATE RENTABLE AVERAGE MONTHLY
UNIT TYPE NUMBER AREA PER UNIT (Sq. Ft.) RENTAL RATE
--------------------------------------------------------------------
Studio 6 288 $345
--------------------------------------------------------------------
1 BR 26 576 $449
--------------------------------------------------------------------
2 BR 1 864 $559
--------------------------------------------------------------------
Total 33 17,568
----------------------------------------------------
4/1/99 OCCUPANCY % 94% APPRAISED VALUE: $ 925,000
1998 AVG. MONTHLY OCCUPANCY %: 94% Cost Approach: $ 926,000
1997 AVG. MONTHLY OCCUPANCY %: 94% Income Approach: $ 922,000
1996 AVG. MONTHLY OCCUPANCY %: 95% Market Approach: $ 932,000
1995 AVG. MONTHLY OCCUPANCY %: 93% REPLACEMENT COST NEW: $1,590,447
1994 AVG. MONTHLY OCCUPANCY %: 94% APPRAISAL DATE: 1/98
PARTNERSHIP'S CANDLEWOOD SECOND MORTGAGE LOAN INTEREST:
DEBTOR: Baron Strategic Investment Fund III, Ltd. PARTNERSHIP'S UNDIVIDED
(affiliate of Managing Shareholder) % INTEREST IN SECOND
MORTGAGE NOTE: 100%
ORIGINAL PRINCIPAL BALANCE: $75,500 ANNUAL DEBT SERVICE: $9,060
3/31/99 BALANCE: $75,500 MONTHLY PAYMENT: $ 755
BALANCE DUE AT MATURITY: $75,500 MATURITY DATE: 3/03
ACCRUED UNPAID INTEREST: $ 8,357
MORTGAGE INTEREST/ AMORTIZATION PROVISIONS: Fixed rate of 12%; requires payments
of interest only until maturity.
PREPAYMENT PROVISIONS: Prepayable without penalty.
OTHER SECOND MORTGAGES SECURED BY PROPERTY: Baron Strategic Investment Fund V,
Ltd. ("Baron Fund V") and Baron Strategic Investment Fund VI, Ltd. ("Baron Fund
VI") own separate second mortgage loans secured by the Candlewood Property. The
original principal balance, aggregate 3/31/99 principal balance, and balance due
at maturity in respect of Baron Fund V's and Baron Fund VI's loans are $21,000
(accrued unpaid interest of $2,472) and $68,000 (accrued unpaid interest of
$7,927), respectively; the annual (and monthly) payments due them are $2,520
($210) and $8,160 ($680), respectively. The other terms relating to Baron Fund
V's and Baron Fund VI's loans are the same as stated herein in respect of the
Exchange Partnership's loan.
OTHER MATTERS: Prior to 12/15/98, the Candlewood Second Mortgage Loan consisted
of an unsecured demand note with a principal balance of $75,500. On 12/15/98,
the debtor and the Exchange Partnership entered into a second mortgage agreement
under which the debtor agreed to secure its repayment obligation on the note
with a second mortgage on the Candlewood Property. At the same time, the debtor
agreed to secure the loans in favor of Baron Fund V and Baron Fund VI with
separate mortgages on the property. The lending parties have agreed to share the
benefits of the second mortgages on a pari passu basis.
CANDLEWOOD FIRST MORTGAGE INFORMATION:
FIRST MORTGAGE HOLDER AND ADDRESS:
Republic Bank REPAYMENT SECURED BY:
P.O. Box 33009 First Mortgage on Candlewood Property
St. Petersburg, Florida 33733-8009
ORIGINAL PRINCIPAL BALANCE: $605,000 ANNUAL DEBT SERVICE: $56,153
4/30/99 BALANCE: $589,671 MONTHLY PAYMENT: $ 4,679
BALANCE DUE AT MATURITY: $533,678 MATURITY DATE: 2/03
MORTGAGE INTEREST AND AMORTIZATION PROVISIONS: Fixed interest rate of 7.79%;
amortizes on a 25-year basis.
PREPAYMENT PROVISIONS: Prepayable without penalty.
43
<PAGE>
BARON STRATEGIC INVESTMENT FUND IX, LTD. (cont'd)
3. GARDEN TERRACE SECOND MORTGAGE LOANS
NAME AND ADDRESS OF
PROPERTY SECURING MORTGAGES:
GARDEN TERRACE APARTMENTS - PHASE III
("Garden Terrace Property") YEAR COMPLETED: 1983
8725 Del Ray Court APPROX. ACREAGE: 5.16
Tampa, Florida 33617
Orlando, Florida 32822
UNIT MIX AND RENTAL RATES:
--------------------------------------------------------------------
APPROXIMATE
APPROXIMATE RENTABLE AVERAGE MONTHLY
UNIT TYPE NUMBER AREA PER UNIT (Sq. Ft.) RENTAL RATE
--------------------------------------------------------------------
Studio 8 288 $344
--------------------------------------------------------------------
1 BR 67 576 $399
--------------------------------------------------------------------
2 BR 16 864 $530
--------------------------------------------------------------------
Total 91 54,720
----------------------------------------------------
4/1/99 OCCUPANCY %: 91% APPRAISED VALUE: $1,850,000
1998 AVG. MONTHLY OCCUPANCY %: 90% Cost Approach: $1,835,000
1997 AVG. MONTHLY OCCUPANCY %: 78% Income Approach: $1,782,000
1996 AVG. MONTHLY OCCUPANCY %: 81% Market Approach: $1,901,000
1995 AVG. MONTHLY OCCUPANCY %: 86% REPLACEMENT COST NEW: $4,297,897
1994 AVG. MONTHLY OCCUPANCY %: 90% APPRAISAL DATE: 6/98
PARTNERSHIP'S GARDEN TERRACE SECOND MORTGAGE LOAN INTEREST:
DEBTOR: Garden Terrace Apartments III, Ltd. PARTNERSHIP'S UNDIVIDED %
INTEREST IN SECOND
MORTGAGE LOANS: 25%
ORIGINAL PRINCIPAL BALANCE: $310,442 ANNUAL DEBT SERVICE: $27,940
3/31/99 BALANCE: $310,442 (plus any participation interest)
BALANCE DUE AT MATURITY: $310,442 MONTHLY PAYMENT: $ 2,328
ACCRUED UNPAID INTEREST: $ 7,246 MATURITY DATE: 1/07
MORTGAGE INTEREST/ AMORTIZATION PROVISIONS: (i) Fixed interest rate of 2% as to
$183,500 of principal if cash flow available (plus non-cumulative participation
interest at the rate of 7% on the unpaid principal to the extent of available
cash flow, plus additional participation interest equal to 30% of any remaining
cash flow (payable only to holders of note referred to in (ii) below) and (ii)
fixed interest rate of 9% as to $126,692 of principal, payable only from excess
cash flow after payment of 2% minimum interest and 7% participation interest due
on the note referred to in (i) above. The loans require payments of interest
only until maturity.
PREPAYMENT PROVISIONS: Prepayable without penalty.
OTHER SECOND MORTGAGES SECURED BY PROPERTY: Baron Strategic Investment Fund VI,
Ltd. ("Baron Fund VI") and Baron Strategic Investment Fund X, Ltd. ("Baron Fund
X") own the remaining undivided 75% interest in the second mortgage loans
secured by the Garden Terrace Property ("Garden Terrace Second Mortgage Loans").
The original principal balance, 3/31/99 principal balance, and balance due at
maturity in respect of Baron Fund VI's and Baron Fund X's interest in the Garden
Terrace Second Mortgage Loans is $248,353 (accrued unpaid interest of $5,607)
and $682,972 (accrued unpaid interest of $16,132), respectively; the annual (and
monthly) payments due them are $22,352 ($1,863) and $61,467 ($5,122),
respectively. The other terms relating to Baron Fund VI's and Baron Fund X's
interest in the Garden Terrace Second Mortgage Loans are the same as stated
herein.
GARDEN TERRACE FIRST MORTGAGE INFORMATION:
FIRST MORTGAGE HOLDER AND ADDRESS:
Mellon Mortgage Company REPAYMENT SECURED BY:
1422 Euclid Ave., Suite 900 First Mortgage Garden Terrace Property
Cleveland, Ohio 44115-2092
ORIGINAL PRINCIPAL BALANCE: $1,010,000 ANNUAL DEBT SERVICE: $96,047
4/30/99 BALANCE: $ 967,012 MONTHLY PAYMENT: $ 8,004
BALANCE DUE AT MATURITY: $ 822,063 MATURITY DATE: 5/05
MORTGAGE INTEREST/ AMORTIZATION PROVISIONS: Fixed interest rate of 8.31%;
amortizes on a 25-year basis.
PREPAYMENT PROVISIONS: May be prepaid beginning 4/99 with a 5% prepayment fee;
the fee decreases 1% per year until maturity.
44
<PAGE>
BARON STRATEGIC INVESTMENT FUND IX, LTD. (cont'd)
4. LAKE SYCAMORE SECOND MORTGAGE LOAN
NAME AND ADDRESS OF PROPERTY
SECURING MORTGAGE LOAN:
VILLAS AT LAKE SYCAMORE
("Lake Sycamore Property")
1911 Chaucer Drive
Cincinnati, Ohio 45237
PARTNERSHIP'S SECOND MORTGAGE INTEREST:
The Partnership owns an unrecorded second mortgage note with a current principal
balance of $243,500. Accrued unpaid interest on the note as of 3/31/99 is
$7,204. The debtor is Sycamore Real Estate Development, L.P., an affiliate of
the Managing Shareholder. The note bears interest at the fixed rate of 12%
(annual interest payable of $29,220 or $2,435 per month) and matures on 12/03.
The note is secured by a second mortgage on the Villas at Lake Sycamore, a 164
townhome property under construction on 22.44 acres in Cincinnati, Ohio. Each
townhome has a rentable area per unit of approximately 1,325 square feet (or a
total area of 217,300 square feet). Construction commenced in December 1997 and
is expected to be completed in the last quarter of 2003. Each unit is expected
to have an initial monthly rental rate in the range of $889 to $990. In July
1998, an independent Cincinnati appraisal firm estimated the "as is" value of
the property at $1,080,000 and the value of the completed property to be
$14,312,000 (assuming completion of the project as designed, full rent up and
satisfactory environment-quality test).
Two other Exchange Partnerships, Baron Strategic Investment Fund, Ltd. and Baron
Strategic Investment Fund VIII, Ltd., own separate second mortgage notes secured
by the property with the same terms except that they are in the principal
amounts of $230,000 and $98,000 (with accrued unpaid interest in the amounts of
$20,415 and $2,683), respectively. The lending parties have agreed to share the
benefits of the second mortgage on a pari passu basis.
LAKE SYCAMORE FIRST MORTGAGE INFORMATION:
FIRST MORTGAGE HOLDER AND ADDRESS:
Metropolitan Savings REPAYMENT SECURED BY:
8050 Hosbrook Road, Suite 408 First Mortgage on Lake Sycamore
Cincinnati, Ohio 45236 Property
<TABLE>
<S> <C>
ORIGINAL PRINCIPAL BALANCE: $2,000,000 CURRENT ANNUAL DEBT SERVICE: $89,369
maximum approved CURRENT MONTHLY PAYMENT: $ 7,447
4/30/99 BALANCE: $1,021,362 MATURITY DATE: 11/01
EXPECTED BALANCE
DUE AT MATURITY: $2,000,000
</TABLE>
MORTGAGE INTEREST/AMORTIZATION PROVISIONS: Adjustable interest rate equal to
lender's prime rate plus 1% (currently 8.75%); requires payments of interest
only until maturity.
PREPAYMENT PROVISIONS: Prepayable without penalty.
45
<PAGE>
BARON STRATEGIC INVESTMENT FUND IX, LTD. (cont'd)
II. PARTNERSHIP INVESTMENT PROGRAM INFORMATION
DATE OFFERING BEGAN: 6/97 NUMBER OF UNITS SOLD: 2,400
NUMBER OF INVESTORS: 51 PRICE PER UNIT: $500
PAID IN CAPITAL: $1,200,000 DATE OFFERING TERMINATED: 5/98
ALLOCATION OF DISTRIBUTABLE CASH: Each fiscal year, all distributable cash is to
be distributed to investors until they have received a 15% non-cumulative
return on their capital contributions; the GP is then entitled to receive any
remaining distributable cash during the fiscal year.
ALLOCATION OF NET PROCEEDS FROM PROPERTY SALE OR REFINANCING: After investors
have received an aggregate amount (including prior distributions) equal to
their capital contributions plus an 15% yearly cash-on-cash return, investors
and the GP share any remaining net proceeds 50%/50%.
<TABLE>
<S> <C>
-----------------------------------------------------------------------------------------------------------------------------------
NUMBER OF OPERATING PARTNERSHIP UNITS ESTIMATED DEFERRED CAPITAL GAIN TAX LIABILITY FROM EXCHANGE OFFERING
OFFERED IN EXCHANGE OFFERING (per $1,000 of Investors' original investment):
(per $1,000 of Investors' original investment): 104 Units Short Term Capital Gain (assuming 39% rate): $88
valued at $10 per Unit (or $1,040) Long Term Capital Gain (assuming 20% rate): $45
-----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(See Endnotes on the Exchange Hybrid Partnerships)
46
<PAGE>
BARON STRATEGIC INVESTMENT FUND X, LTD.
(GP: Baron Capital LXIV, Inc.)
I. PARTNERSHIP PROPERTY INTERESTS
The Partnership owns (1) a 47.59% limited partnership interest in a
limited partnership which holds fee simple title to the Crystal Court
Property-Phase I, (2) a 39.56% limited partnership interest in a
limited partnership which holds fee simple title to the Pineview
Property, (3) an undivided interest in two recorded second mortgage
loans secured by the Garden Terrace Property-Phase III, and (4) an
undivided interest in an unrecorded second mortgage loan secured by
the Heatherwood Property-Phase II and in three unsecured loans
associated with such property. The interest of the Exchange
Partnership and other Exchange Partnerships in the Crystal Court
Property and the Pineview Property and the respective second mortgage
loans, terms of the respective first mortgage loans secured by the
Garden Terrace Property and the Heatherwood Property, and other
information are described below.
1. EQUITY INTEREST IN CRYSTAL COURT PROPERTY
NAME AND ADDRESS OF PROPERTY:
CRYSTAL COURT APARTMENTS - PHASE I YEAR COMPLETED: 1982
("Crystal Court Property") APPROX. ACREAGE: 4.5
1969 Crystal Court Drive
Lakeland, Florida 33801
UNIT MIX AND RENTAL RATES:
--------------------------------------------------------------------
APPROXIMATE
APPROXIMATE RENTABLE AVERAGE MONTHLY
UNIT TYPE NUMBER AREA PER UNIT (Sq. Ft.) RENTAL RATE
--------------------------------------------------------------------
1 BR 64 576 $389
--------------------------------------------------------------------
2 BR 8 864 $499-509
--------------------------------------------------------------------
Total 72 43,776
----------------------------------------------------
<TABLE>
<S> <C>
4/1/99 OCCUPANCY %: 94% ESTIMATED APPRAISED VALUE: $2,040,000
1998 AVG. MONTHLY OCCUPANCY %: 94% APPRAISAL DATE: 6/98
1997 AVG. MONTHLY OCCUPANCY %: 95% 11/1/98 FEDERAL INCOME TAX BASIS: $1,673,788
1996 AVG. MONTHLY OCCUPANCY %: 90% DEPRECIATION LIFE CLAIMED: 28 yrs.
1995 AVG. MONTHLY OCCUPANCY %: 91% REALTY TAX RATE (MILLAGE): 21.508
1994 AVG. MONTHLY OCCUPANCY %: 91% 1997 PROPERTY TAX VALUE: $1,240,680
</TABLE>
CRYSTAL COURT FIRST MORTGAGE INFORMATION:
FIRST MORTGAGE HOLDER AND ADDRESS:
GMAC REPAYMENT SECURED BY:
650 Dresher Road, P.O. Box 809 First Mortgage on Crystal Court
Horsham, Pennsylvania 19044-0809 Property
ORIGINAL PRINCIPAL BALANCE: $1,222,000 ANNUAL DEBT SERVICE: $102,533
4/30/99 BALANCE: $1,205,806 MONTHLY PAYMENT: $ 8,544
BALANCE DUE AT MATURITY: $1,126,207 MATURITY DATE: 11/04
MORTGAGE INTEREST/ AMORTIZATION PROVISIONS: Fixed interest rate of 7.50%;
amortizes on a 30-year basis.
PREPAYMENT PROVISIONS: No prepayment permitted prior to 5/04; thereafter, may be
prepaid subject to a yield maintenance fee payable until 6 months prior to
maturity.
47
<PAGE>
BARON STRATEGIC INVESTMENT FUND X, LTD. (cont'd)
2. EQUITY INTEREST IN PINEVIEW PROPERTY
NAME AND ADDRESS OF PROPERTY:
PINEVIEW APARTMENTS
("Pineview Property") YEAR COMPLETED: 1988
4731 Pine Hills Road APPROX. ACREAGE: 4.38
Orlando, Florida 32808
UNIT MIX AND RENTAL RATES:
--------------------------------------------------------------------
APPROXIMATE
APPROXIMATE RENTABLE AVERAGE MONTHLY
UNIT TYPE NUMBER AREA PER UNIT (Sq. Ft.) RENTAL RATE
--------------------------------------------------------------------
Studio 26 288 $409
--------------------------------------------------------------------
1 BR 59 576 $469
--------------------------------------------------------------------
2 BR 6 864 $600-625
--------------------------------------------------------------------
Total 91 46,656
---------------------------------------------------
<TABLE>
<S> <C>
4/1/99 OCCUPANCY %: 98% ESTIMATED APPRAISED VALUE: $2,848,000
1998 AVG. MONTHLY OCCUPANCY %: 95% APPRAISAL DATE: 3/98
1997 AVG. MONTHLY OCCUPANCY %: 92% 11/1/98 FEDERAL INCOME TAX BASIS: $1,747,499
1996 AVG. MONTHLY OCCUPANCY %: 93% DEPRECIATION LIFE CLAIMED: 30 years
1995 AVG. MONTHLY OCCUPANCY %: 90% REALTY TAX RATE (MILLAGE): 21.4657
1994 AVG. MONTHLY OCCUPANCY %: 92% 1997 PROPERTY TAX VALUE: $1,384,273
</TABLE>
PINEVIEW FIRST MORTGAGE INFORMATION:
FIRST MORTGAGE HOLDER AND ADDRESS:
GMAC REPAYMENT SECURED BY:
650 Dresher Road, P.O. Box 809 First Mortgage on Pineview Property
Horsham, Pennsylvania 19044-0809
ORIGINAL PRINCIPAL BALANCE: $1,620,000 ANNUAL DEBT SERVICE: $139,271
4/30/99 BALANCE: $1,599,549 MONTHLY PAYMENT: $ 11,606
BALANCE DUE AT MATURITY: $1,493,008 MATURITY DATE: 11/04
MORTGAGE INTEREST/ AMORTIZATION PROVISIONS: Fixed interest rate of 7.75%;
amortizes on a 30-year basis.
PREPAYMENT PROVISIONS: No prepayment permitted prior to May 1, 2004; thereafter,
may be prepaid subject to a yield maintenance fee payable until 6 months prior
to maturity.
3. HEATHERWOOD SECOND MORTGAGE LOANS
NAME AND ADDRESS OF
PROPERTY SECURING MORTGAGES:
HEATHERWOOD APARTMENTS - PHASE II
("Heatherwood Property") YEAR COMPLETED: 1982
1105 North Hoagland Blvd. APPROX. ACREAGE: 2.26
Kissimmee, Florida 34741
UNIT MIX AND RENTAL RATES:
--------------------------------------------------------------------
APPROXIMATE
APPROXIMATE RENTABLE AVERAGE MONTHLY
UNIT TYPE NUMBER AREA PER UNIT (Sq. Ft.) RENTAL RATE
--------------------------------------------------------------------
Studio 10 288 $395-425
--------------------------------------------------------------------
1 BR/1 Bath 26 576 $510-530
--------------------------------------------------------------------
2 BR/1 Bath 4 864 $625
--------------------------------------------------------------------
2BR/2 Bath 1 864 $625
--------------------------------------------------------------------
Total 41 22,176
----------------------------------------------------
4/1/99 OCCUPANCY %: 98% APPRAISED VALUE: $1,285,000
1998 AVG. MONTHLY OCCUPANCY %: 97% Cost Approach: $1,188,000
1997 AVG. MONTHLY OCCUPANCY %: 97% Income Approach: $1,259,000
1996 AVG. MONTHLY OCCUPANCY %: 93% Market Approach: $1,312,000
1995 AVG. MONTHLY OCCUPANCY %: 88% REPLACEMENT COST NEW: $1,862,475
1994 AVG. MONTHLY OCCUPANCY %: 91% APPRAISAL DATE: 3/98
48
<PAGE>
BARON STRATEGIC INVESTMENT FUND X, LTD. (cont'd)
PARTNERSHIP'S HEATHERWOOD SECOND MORTGAGE LOAN INTERESTS:
DEBTOR: Heatherwood Apartments II, Ltd. PARTNERSHIP'S UNDIVIDED
(an affiliate of Managing Shareholder) % INTEREST IN LOANS: 42%
<TABLE>
<S> <C>
AGGREG. ORIGINAL PRINCIPAL BALANCE: $149,361 AGGREG. ANNUAL DEBT SERVICE: $9,710
AGGREG. 3/31/99 BALANCE: $149,361 (plus any participation interest)
AGGREG. BALANCE DUE AT MATURITY: $149,361 AGGREG. MONTHLY PAYMENT: $ 809
AGGREG. ACCRUED UNPAID INTEREST: $ 5,645 AGGREG. MATURITY DATE: 10/04
</TABLE>
MORTGAGE INTEREST/ AMORTIZATION PROVISIONS: (i) Fixed interest rate of 6% as to
$136,500 of principal (plus non-cumulative participation interest at the rate of
3% on the unpaid principal to the extent of available cash flow plus additional
non-cumulative participation interest equal to 30% of any remaining available
cash flow), (ii) adjustable interest rate of 1% over prime rate (currently
8.75%) as to $732 of principal, and (iii) fixed interest rate of 12% as to
$12,310 of principal. The loans require payments of interest only until
maturity.
PREPAYMENT PROVISIONS: Prepayable without penalty.
OTHER SECOND MORTGAGES SECURED BY PROPERTY: Baron Strategic Investment Fund
VIII, Ltd. ("Baron Fund VIII") owns the remaining undivided 58% interest in the
second mortgage loans secured by the Heatherwood Property and in the unsecured
loans associated with the property ("Heatherwood Loans"). The aggregate original
principal balance, aggregate 3/31/99 principal balance, and aggregate balance
due at maturity in respect of Baron Fund VIII's interest in the Heatherwood
Loans is $206,260 (accrued unpaid interest of $1,955); the aggregate annual (and
monthly) payments due it are $13,408 ($1,117). The other terms relating to Baron
Fund VIII's interest in the Heatherwood Loans are the same as stated herein.
OTHER MATTERS: The Heatherwood Loans consist of a second mortgage note secured
by the Heatherwood Property with a principal balance at 3/31/99 of $325,000 and
unsecured loans in the aggregate principal amount of $37,047.
HEATHERWOOD FIRST MORTGAGE INFORMATION:
FIRST MORTGAGE HOLDER AND ADDRESS:
GMAC REPAYMENT SECURED BY:
650 Dresher Road, P.O. Box 809 First Mortgage on Heatherwood Property
Horsham, Pennsylvania 19044-0809
ORIGINAL PRINCIPAL BALANCE: $710,000 ANNUAL DEBT SERVICE: $61,038
4/30/99 BALANCE: $701,026 MONTHLY PAYMENT: $ 5,087
BALANCE DUE AT MATURITY: $655,856 MATURITY DATE: 11/04
MORTGAGE INTEREST/ AMORTIZATION PROVISIONS: Fixed interest rate of 7.75%;
amortizes on a 30-year basis.
PREPAYMENT PROVISIONS: No prepayment permitted during the first four years of
the loan term; thereafter, loan may be prepaid in whole subject to a prepayment
premium in accordance with the following schedule: yield maintenance for the
term of the loan, subject to a minimum of 1%, except that for the last six
months of the loan term, it may be prepaid at par.
49
<PAGE>
BARON STRATEGIC INVESTMENT FUND X, LTD. (cont'd)
4. GARDEN TERRACE SECOND MORTGAGE LOANS
NAME AND ADDRESS OF
PROPERTY SECURING MORTGAGES:
GARDEN TERRACE APARTMENTS - PHASE III
("Garden Terrace Property") YEAR COMPLETED: 1983
8725 Del Ray Court APPROX. ACREAGE: 5.16
Tampa, Florida 33617
Orlando, Florida 32822
UNIT MIX AND RENTAL RATES:
--------------------------------------------------------------------
APPROXIMATE
APPROXIMATE RENTABLE AVERAGE MONTHLY
UNIT TYPE NUMBER AREA PER UNIT (Sq. Ft.) RENTAL RATE
--------------------------------------------------------------------
Studio 8 288 $344
--------------------------------------------------------------------
1 BR 67 576 $399
--------------------------------------------------------------------
2 BR 16 864 $530
--------------------------------------------------------------------
Total 91 54,720
---------------------------------------------------
4/1/99 OCCUPANCY %: 91% APPRAISED VALUE: $1,850,000
1998 AVG. MONTHLY OCCUPANCY %: 90% Cost Approach: $1,835,000
1997 AVG. MONTHLY OCCUPANCY %: 78% Income Approach: $1,782,000
1996 AVG. MONTHLY OCCUPANCY %: 81% Market Approach: $1,901,000
1995 AVG. MONTHLY OCCUPANCY %: 86% REPLACEMENT COST NEW: $4,297,897
1994 AVG. MONTHLY OCCUPANCY %: 90% APPRAISAL DATE: 6/98
PARTNERSHIP'S GARDEN TERRACE SECOND MORTGAGE LOAN INTEREST:
<TABLE>
<S> <C> <C>
DEBTOR: Garden Terrace Apartments III, Ltd. PARTNERSHIP'S UNDIVIDED %
INTEREST IN SECOND
MORTGAGE LOANS: 55%
ORIGINAL PRINCIPAL BALANCE: $682,972 ANNUAL DEBT SERVICE:
3/31/99 BALANCE: $682,972 (plus any participation interest) $61,467
BALANCE DUE AT MATURITY: $682,972 MONTHLY PAYMENT: $ 5,122
ACCRUED UNPAID INTEREST: $ 16,132 MATURITY DATE: 1/07
</TABLE>
MORTGAGE INTEREST/ AMORTIZATION PROVISIONS: (i) Fixed interest rate of 2% as to
$404,250 of principal if cash flow available (plus non-cumulative participation
interest at the rate of 7% on the unpaid principal to the extent of available
cash flow, plus additional participation interest equal to 30% of any remaining
cash flow (payable only to holders of note referred to in (ii) below) and (ii)
fixed interest rate of 9% as to $278,222 of principal, payable only from excess
cash flow after payment of 2% minimum interest and 7% participation interest due
on the note referred to in (i) above. The loans require payments of interest
only until maturity.
PREPAYMENT PROVISIONS: Prepayable without penalty.
OTHER SECOND MORTGAGES SECURED BY PROPERTY: Baron Strategic Investment Fund VI,
Ltd. ("Baron Fund VI") and Baron Strategic Investment Fund IX, Ltd. ("Baron Fund
IX") own the remaining undivided 45% interest in the second mortgage loans
secured by the Garden Terrace Property ("Garden Terrace Second Mortgage Loans").
The original principal balance, 3/31/99 principal balance, and balance due at
maturity in respect of Baron Fund VI's and Baron Fund IX's interest in the
Garden Terrace Second Mortgage Loans is $248,353 (accrued unpaid interest of
$5,607) and $310,442 (accrued unpaid interest of $7,246), respectively; the
annual (and monthly) payments due them are $22,352 ($1,863) and $27,940
($2,328), respectively. The other terms relating to Baron Fund VI's and Baron
Fund IX's interest in the Garden Terrace Second Mortgage Loans are the same as
stated herein.
The Exchange Partnership paid a note (the "Note") with a current principal
balance of $400,000 to the seller in connection with its acquisition of an
undivided 75% interest in the Garden Terrace Second Mortgage Loans. The
partnership in turn sold to Baron Fund VI an undivided 20% interest (and
retained a 55% interest) in the loans. The Note bears an annual interest rate of
10%, has a maturity date of 1/1/07 and is secured by a collateral assignment of
the partnership's interest in the loans and a second mortgage on the property.
50
<PAGE>
BARON STRATEGIC INVESTMENT FUND X, LTD. (cont'd)
GARDEN TERRACE FIRST MORTGAGE INFORMATION:
FIRST MORTGAGE HOLDER AND ADDRESS:
Mellon Mortgage Company REPAYMENT SECURED BY:
1422 Euclid Ave., Suite 900 First Mortgage Garden Terrace Property
Cleveland, Ohio 44115-2092
ORIGINAL PRINCIPAL BALANCE: $1,010,000 ANNUAL DEBT SERVICE: $96,047
4/30/99 BALANCE: $ 967,012 MONTHLY PAYMENT: $ 8,004
BALANCE DUE AT MATURITY: $ 822,063 MATURITY DATE: 5/05
MORTGAGE INTEREST/ AMORTIZATION PROVISIONS: Fixed interest rate of 8.31%;
amortizes on a 25-year basis.
PREPAYMENT PROVISIONS: May be prepaid beginning 4/99 with a 5% prepayment fee;
the fee decreases 1% per year until maturity.
II. PARTNERSHIP INVESTMENT PROGRAM INFORMATION
DATE OFFERING BEGAN: 7/97 NUMBER OF UNITS SOLD: 2,400
NUMBER OF INVESTORS: 57 PRICE PER UNIT: $500
PAID IN CAPITAL: $1,200,000 DATE OFFERING TERMINATED: 3/98
ALLOCATION OF DISTRIBUTABLE CASH: Each fiscal year, all distributable cash is to
be distributed to investors until they have received a 12.5% non-cumulative
return on their capital contributions; thereafter investors and the GP will
share any remaining distributable cash during the fiscal year 50%/50%.
ALLOCATION OF NET PROCEEDS FROM PROPERTY SALE OR REFINANCING: After investors
have received an aggregate amount (including prior distributions) equal to
their capital contributions plus an 12.5% yearly cash-on-cash return,
investors and the GP share any remaining net proceeds 50%/50%.
<TABLE>
<S> <C>
-----------------------------------------------------------------------------------------------------------------------------------
NUMBER OF OPERATING PARTNERSHIP UNITS ESTIMATED DEFERRED CAPITAL GAIN TAX LIABILITY FROM EXCHANGE OFFERING
OFFERED IN EXCHANGE OFFERING (per $1,000 of Investors' original investment):
(per $1,000 of Investors' original investment): 107 Units Short Term Capital Gain (assuming 39% rate): $144
valued at $10 per Unit (or $1,070) Long Term Capital Gain (assuming 20% rate): $ 74
-----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(See Endnotes on Exchange Hybrid Partnerships)
51
<PAGE>
LAMPLIGHT COURT OF BELLEFONTAINE APARTMENTS, LTD.
(GP: Baron Capital IX, Inc.)
I. PARTNERSHIP PROPERTY INTERESTS
The Exchange Partnership owns (1) a 31.7% limited partnership
interest in a limited partnership which holds fee simple title to the
Lamplight Property and (2) two unrecorded second mortgage loans
secured by the Lamplight Property. The Lamplight Property, the
partnership's equity and second mortgage interest in the property and
other information are described below.
1. EQUITY INTEREST IN LAMPLIGHT COURT PROPERTY
NAME AND ADDRESS OF PROPERTY:
LAMPLIGHT COURT APARTMENTS YEAR COMPLETED: 1973
("Lamplight Property") APPROXIMATE ACREAGE: 6.00
1600 S. Detroit
Bellefontaine, OH 43311
UNIT MIX AND RENTAL RATES:
--------------------------------------------------------------------
APPROXIMATE
APPROXIMATE RENTABLE AVERAGE MONTHLY
UNIT TYPE NUMBER AREA PER UNIT (Sq. Ft.) RENTAL RATE
---------------------------------------------------------------------
Studio 12 288 5 unfurnished $339
7 furnished $359
---------------------------------------------------------------------
1 BR/1 Bath 53 576 $375
---------------------------------------------------------------------
2 BR/1 Bath 15 864 $499
---------------------------------------------------------------------
Total 80 46,944
--------------------------------------------------
<TABLE>
<S> <C> <C>
4/1/99 OCCUPANCY %: 93% ESTIMATED APPRAISED VALUE: $2,183,000
1998 AVG. MONTHLY OCCUPANCY %: 91% Cost Approach: $2,295,000
1997 AVG. MONTHLY OCCUPANCY %: 87% Income Approach: $2,214,000
1996 AVG. MONTHLY OCCUPANCY %: 93% Market Approach: $2,111,000
1995 AVG. MONTHLY OCCUPANCY %: 88% REPLACEMENT COST NEW: $3,727,599
1994 AVG. MONTHLY OCCUPANCY %: 90% APPRAISAL DATE: 9/98
REALTY TAX RATE (MILLAGE): 46.67 11/1/98 FEDERAL INCOME TAX BASIS: $1,704,052
1997 PROPERTY TAX VALUE: $518,000 DEPRECIATION LIFE CLAIMED: 15.25 yrs.
</TABLE>
LAMPLIGHT COURT FIRST MORTGAGE INFORMATION
FIRST MORTGAGE HOLDER AND ADDRESS:
Column Financial
3414 Peachtree Road N.E.
Suite 1140
Atlanta, Georgia 30326
ORIGINAL PRINCIPAL BALANCE: $1,400,000 ANNUAL DEBT SERVICE: $141,445
4/30/99 BALANCE: $1,359,962 MONTHLY PAYMENT: $ 11,787
BALANCE DUE AT MATURITY: $1,158,349 MATURITY DATE: 11/06
MORTGAGE INTEREST/ AMORTIZATION PROVISIONS: Fixed interest rate of 9.04%;
amortizes on a 25-year basis.
PREPAYMENT PROVISIONS: No prepayment permitted during the first five years of
the loan; thereafter, may be prepaid in whole; provided that during the sixth
and seventh years of the loan, lender is paid a prepayment fee equal to the
greater of one percent of the outstanding loan balance or yield maintenance.
52
<PAGE>
LAMPLIGHT COURT OF BELLEFONTAINE APARTMENTS, LTD. (cont'd)
2. PARTNERSHIP'S LAMPLIGHT COURT SECOND MORTGAGE LOAN INTEREST:
<TABLE>
<S> <C>
DEBTOR: Independence Village, Ltd. PARTNERSHIP'S UNDIVIDED %
(affiliate of Managing Shareholder) INTEREST IN SECOND
MORTGAGE NOTES: 100%
AGGREG. ORIGINAL PRINCIPAL BALANCE: $678,302 AGGREG. ANNUAL DEBT SERVICE: $60,634
AGGREG. 3/31/99 BALANCE: $678,302 AGGREG. MONTHLY PAYMENT: $ 5,053
AGGREG. BALANCE DUE AT MATURITY: $678,302 MATURITY DATE: 12/06
AGGREG. ACCRUED UNPAID INTEREST $125,554
</TABLE>
MORTGAGE INTEREST AND AMORTIZATION PROVISIONS: (i) Adjustable interest rate of
1% over prime rate (currently 8.75%) as to $585,000 of principal, and (ii) fixed
interest rate of 12% as to $93,302 of principal. The loans require payments of
interest only until maturity.
PREPAYMENT PROVISIONS: Prepayable without penalty.
OTHER MATTERS: Prior to 12/15/98, the Lamplight Court Second Mortgage Loans
consisted of a second mortgage note with a principal balance of $585,000 and an
unsecured demand note with a principal balance of $93,302. On 12/15/98, the
debtor and the Exchange Partnership entered into a mortgage modification
agreement under which the Exchange Partnership agreed to set the maturity date
on the demand note at 12/06, the same maturity date as the second mortgage note,
in exchange for the agreement of the debtor to secure its repayment obligations
on the demand note with a second mortgage on the Lamplight Court Property.
II. PARTNERSHIP INVESTMENT PROGRAM INFORMATION
DATE OFFERING BEGAN: 4/96 NUMBER OF UNITS SOLD: 700
NUMBER OF INVESTORS: 27 PRICE PER UNIT: $1,000
PAID IN CAPITAL: $700,000 DATE OFFERING TERMINATED: 11/96
ALLOCATION OF DISTRIBUTABLE CASH: Each fiscal year, all distributable cash is
distributed to the investors until they have received a 10% non-cumulative
return on their capital contributions; thereafter, the GP is entitled to
receive any remaining distributable cash during the fiscal year.
ALLOCATION OF NET PROCEEDS FROM PROPERTY SALE OR REFINANCING: All net proceeds
are allocated to investors until the entire principal amount of the Lamplight
Court Second Mortgage Loans has been repaid; then 31.7% of up to $350,000 of
any remaining net proceeds to the investors; and any balance to the GP.
<TABLE>
<S> <C>
-----------------------------------------------------------------------------------------------------------------------------------
NUMBER OF OPERATING PARTNERSHIP UNITS ESTIMATED DEFERRED CAPITAL GAIN TAX LIABILITY FROM EXCHANGE OFFERING
OFFERED IN EXCHANGE OFFERING (per $1,000 of Investors' original investment):
(per $1,000 of Investors' original investment): 112 Units Short Term Capital Gain (assuming 39% rate): $214
valued at $10 per Unit (or $1,120) Long Term Capital Gain (assuming 20% rate): $110
-----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(See Endnotes on Exchange Hybrid Partnerships)
53
<PAGE>
Endnotes to Exchange Hybrid Partnerships:
1. The second mortgage interests held by the Exchange Partnership and the
first mortgage loans identified are not insured by the Federal Housing
Administration or guaranteed by the Veterans Administration or otherwise
insured or guaranteed. Repayment of each of the loans indicated is
non-recourse beyond the underlying property and/or other assets of the
particular debtor.
2. In the opinion of the Managing Shareholder, each residential apartment
property identified is in good overall condition and is suitable and
adequate for the purpose for which it was built.
3. Each property is subject to significant competition from other residential
apartment properties in its general vicinity.
4. In the opinion of the Managing Shareholder, each property is covered by
insurance of the types and amounts which are comparable for similar
properties located in its general vicinity.
5. Each property is a residential apartment property (other than Glen Lake
Arms Apartments, which are short-term corporate residential units) which
generally leases units to tenants under lease agreements with terms of one
year or less which are common in the industry.
6. The purchase price to be paid by the Operating Partnership in the Exchange
Offering for limited partnership interests in each Exchange Equity
Partnership and in each Exchange Hybrid Partnership (to the extent of its
equity interest in the property) is based upon the following factors: (a)
the estimated appraised market value of the underlying property determined
by qualified and licensed independent appraisal firms; (b) the operating
history of the property; (c) the current principal balance of first
mortgage and other indebtedness to which the property is subject; (d) the
amount of distributable cash flow currently being generated by the
property; plus (e) additional factors which the Managing Shareholder
believes are appropriate to consider including, among others, the
property's overall current condition and prospects for the property based
upon improvements made or to be made to the property and, in certain
cases, the combination of two or more phases of the property, which are
expected to be owned upon the completion of the Exchange Offering, and the
actual or potential benefits to be obtained by the sub-metering of
utilities in order to pass costs from the owner of the property to
individual tenants.
The purchase price to be paid by the Operating Partnership in the Exchange
Offering for limited partnership interests in each Exchange Mortgage
Partnership and in each Exchange Hybrid Partnership (to the extent of its
mortgage interest in the property) is based upon the following factors:
(a) the current principal balance of the amount of debt which is senior to
the mortgage interest to be acquired and other indebtedness to which the
property is subject; (b) the estimated appraised market value of the
underlying property determined by qualified and licensed independent
appraisal firms; (c) the operating history of the property; (d) the amount
of distributable cash flow currently being generated by the property; plus
(e) additional factors which the Managing Shareholder believes are
appropriate to consider including, among others, the property's overall
current condition and prospects for the property based upon improvements
made or to be made to the property and, in certain cases, the combination
of two or more phases of the property, which are expected to be owned upon
the completion of the Exchange Offering, and the actual or potential
benefits to be obtained by the sub-metering of utilities in order to pass
costs from the owner of the property to individual tenants. There can be
no assurance that the value of equity or mortgage interests acquired in
properties will reflect their fair market value. See the Prospectus at
"THE EXCHANGE OFFERING."
7. The overall depreciable life of each property is 30 years; depreciation is
determined using the straight-line method.
8. Based on certain factual representations made by the Operating Partnership
and on certain conditions specified at "FEDERAL INCOME TAX CONSIDERATIONS
- Exchange of Exchange Partnership Units for Operating Partnership Units,"
special tax counsel to the Operating Partnership has opined that Offerees
who accept the Exchange Offering will generally not incur any immediate
tax liability for any taxable gain in connection with such transaction.
Any such tax liability will be deferred until a later date. The schedule
at "Estimated Deferred Taxable Gain from Exchange Offering (per $1,000 of
Investors' original investment)" (prepared by the Managing Shareholder and
not reviewed by tax or other counsel) indicates the amount of capital gain
tax liability each Offeree who accepts the Exchange Offering will defer in
connection with such transaction per each $1,000 of his original
investment.
54
<PAGE>
EXHIBIT C
FINANCIAL STATEMENTS OF THE TRUST,
THE OPERATING PARTNERSHIP AND
THE MANAGING SHAREHOLDER
<PAGE>
BARON CAPITAL PROPERTIES, L.P.
FINANCIAL STATEMENTS
MARCH 31, 1999 AND DECEMBER 31, 1998
<PAGE>
BARON CAPITAL PROPERTIES, L.P.
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS F-1
CONSOLIDATED FINANCIAL STATEMENTS
Balance Sheets F-2
Statements of Operations F-3
Statements of Partners' Capital F-4
Statements of Cash Flows F-5
Notes to Financial Statements F-6-F-20
</TABLE>
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Partners
Baron Capital Properties, L.P.
Cincinnati, Ohio
We have audited the accompanying consolidated balance sheet of Baron Capital
Properties, L.P. (the "Partnership") as of December 31, 1998 and the related
consolidated statements of operations, partners' capital and cash flows from
inception (February 3, 1998) to December 31, 1998. These consolidated financial
statements are the responsibility of the Partnership's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of Baron
Capital Properties, L.P. as of December 31, 1998, and the consolidated results
of their operations and their cash flows from inception (February 3, 1998) to
December 31, 1998, in conformity with generally accepted accounting principles.
RACHLIN COHEN & HOLTZ LLP
Miami, Florida
April 13, 1999
F-1
<PAGE>
BARON CAPITAL PROPERTIES, L.P.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
March 31, December 31,
1999 1998
---- ----
(Unaudited)
<S> <C> <C>
ASSETS
Rental Apartments:
Land $ 1,178,693 $ 1,178,693
Depreciable property 6,189,095 6,189,095
----------- -----------
7,367,788 7,367,788
Less accumulated depreciation 1,283,080 1,246,627
----------- -----------
6,084,708 6,121,161
Investments in Partnerships 1,403,330 730,330
Cash and Cash Equivalents 4,853 77,724
Restricted Cash 68,540 45,379
Property Management Reimbursements Receivable, Affiliates 155,071 155,071
Other Receivables 80,700 79,712
Due from Affiliate 151,668 239,164
Advances to Affiliates 10,750 10,750
Other Property and Equipment 170,496 168,982
Other Assets 176,779 199,699
----------- -----------
$ 8,306,895 $ 7,827,972
----------- -----------
----------- -----------
LIABILITIES AND PARTNERS' CAPITAL
Liabilities:
Mortgages payable $ 4,029,810 $ 4,039,718
Note payable 375,000 375,000
Accounts payable and accrued liabilities 150,362 243,354
Capital lease obligation 55,984 55,984
Security deposits 40,865 38,336
----------- -----------
Total liabilities 4,652,021 4,752,392
----------- -----------
Commitments, Contingencies and Other Matters -- --
Partners' Capital:
General partner; issued and outstanding; 18,041 and 16,826 partnership units (11,523) (8,826)
Limited partners; issued and outstanding; 1,786,010 and 1,665,810
partnership units, of which 1,202,160 units are subject to escrow restrictions 3,666,397 3,084,406
----------- -----------
Total partners' capital 3,654,874 3,075,580
----------- -----------
$ 8,306,895 $ 7,827,972
----------- -----------
----------- -----------
</TABLE>
See notes to consolidated financial statements.
F-2
<PAGE>
BARON CAPITAL PROPERTIES, L.P.
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
From
Three Inception
Months (February 3,
Ended 1998) to
March 31, December 31,
1999 1998
---- ----
(Unaudited)
<S> <C> <C>
Revenues:
Property:
Rental $ 257,350 $ 358,949
Other 40,910 35,155
Interest income 126 1,449
----------- -----------
298,386 395,553
----------- -----------
Real Estate Expenses:
Depreciation 36,453 80,296
Interest 73,186 164,333
Repairs and maintenance 17,476 86,349
Personnel 29,040 53,860
Property taxes 20,596 34,496
Property insurance 7,206 20,477
Utilities 11,551 27,299
Other, net of reimbursements 9,214 138,905
----------- -----------
204,722 606,015
----------- -----------
Administrative Expenses:
Personnel 272,661 721,715
Professional services 44,335 84,322
Other, net of reimbursements 46,374 (133,839)
----------- -----------
363,370 672,198
----------- -----------
Total expenses 568,092 1,278,213
----------- -----------
Net Loss $ (269,706) $ (882,660)
----------- -----------
----------- -----------
</TABLE>
See notes to consolidated financial statements.
F-3
<PAGE>
BARON CAPITAL PROPERTIES, L.P.
CONSOLIDATED STATEMENTS OF PARTNERS' CAPITAL
<TABLE>
<CAPTION>
General Partner Limited Partners
--------------- ----------------
Units Amount Units Amount Total
----- ------ ----- ------ -----
<S> <C> <C> <C> <C> <C>
From Inception (February 3, 1998) to December 31, 1998:
Initial limited partners contribution -- $ -- 1,202,160 $ 100,000 $ 100,000
Capital contributions - Trust 16,826 -- 463,650 3,858,240 3,858,240
Net loss -- (8,826) -- (873,834) (882,660)
----------- ----------- ----------- ----------- -----------
Partners' Capital, December 31, 1998 16,826 (8,826) 1,665,810 3,084,406 3,075,580
Three Months Ended March 31, 1999 (Unaudited):
Net loss -- (2,697) -- (267,009) (269,706)
Capital contributions 1,215 -- 120,200 849,000 849,000
----------- ----------- ----------- ----------- -----------
Partners' Capital, March 31, 1999 (Unaudited) 18,041 $ (11,523) 1,786,010 $ 3,666,397 $ 3,654,874
----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- -----------
</TABLE>
See notes to consolidated financial statements.
F-4
<PAGE>
BARON CAPITAL PROPERTIES, L.P.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
From
Three Inception
Months (February 3,
Ended 1998) to
March 31, December 31,
1999 1998
---- ----
(Unaudited)
<S> <C> <C>
Cash Flows from Operating Activities:
Net loss $ (269,706) $ (882,660)
Adjustments to reconcile net loss to
net cash used by operating activities:
Depreciation 36,453 80,296
Changes in operating assets and liabilities:
(Increase) decrease in:
Other receivables (988) (79,712)
Property management reimbursements receivable -- (155,071)
Other assets 22,920 (191,611)
Due from affiliate 87,496 (239,164)
Increase (decrease) in:
Accounts payable and accrued liabilities (92,992) 243,354
Security deposits -- 38,336
Other 2,529 (8,088)
----------- -----------
Net cash used in operating activities (214,288) (1,194,320)
----------- -----------
Cash Flows from Investing Activities:
Acquisitions of rental apartments -- (1,559,162)
Investment in partnerships, net of cash distributions (673,000) (730,330)
Purchases of other property and equipment (1,514) (117,771)
Advances to affiliates -- (10,750)
----------- -----------
Net cash used in investing activities (674,514) (2,418,013)
----------- -----------
Cash Flows from Financing Activities:
Partners' capital contributions 849,000 3,858,240
Initial capital contributions -- 100,000
Payment on note payable -- (200,000)
Payments on mortgages payable (9,908) (19,019)
Payments on capital lease obligation -- (3,785)
----------- -----------
Net cash provided by financing activities 839,092 3,735,436
----------- -----------
Net Increase (Decrease) in Cash and Cash Equivalents (49,710) 123,103
Cash and Cash Equivalents, Beginning 123,103 --
----------- -----------
Cash and Cash Equivalents, Ending $ 73,393 $ 123,103
----------- -----------
----------- -----------
Supplemental Disclosure of Cash Flow Information:
Cash paid for mortgage and other interest $ 73,186 $ 164,333
----------- -----------
----------- -----------
</TABLE>
See notes to consolidated financial statements.
F-5
<PAGE>
BARON CAPITAL PROPERTIES, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1999 AND DECEMBER 31, 1998
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION
Baron Capital Properties, L.P. (the "Partnership"), a Delaware
limited partnership, is the operating partner of Baron Capital
Trust (the "Trust"). Together with the Trust, the Partnership
constitutes a real estate company which has been organized to
indirectly acquire equity interests in existing residential
apartment properties located in the United States and to provide or
acquire debt financing secured by mortgages on such types of
property. The Partnership with the Trust intends to acquire, own,
operate, manage and improve residential apartment properties for
long-term ownership, and thereby to seek to maximize current and
long-term income and the value of its assets.
In its proposed exchange offering, the Partnership intends to issue
up to 2,500,000 units of limited partnership interest ("Units") in
exchange for limited partnership interests owned by limited
partners in real estate limited partnerships which own direct or
indirect equity or debt interests in residential apartment
properties. Holders of Units will have the right, exercisable at
any time following the offering, to exchange all or a portion of
their units into an equivalent number of Common Shares of
beneficial interest in the Trust.
The Trust, as General Partner of the Partnership, is authorized to
cause the Partnership to issue additional limited partnership
interests in the Partnership for any purpose of the Partnership at
any time to such persons and on such terms and conditions as may be
determined by the Trust in its sole and absolute discretion. Since
Units are exchangeable by Unitholders into an equivalent number of
Common Shares of the Trust, the maximum number of Units that may be
issued by the Partnership is limited to the number of authorized
shares of the Trust, which is 25,000,000, less shares issued by the
Trust directly, excluding Common Shares issued in exchanges of
Units for Common Shares.
In exchange for a cash capital contribution and other consideration
paid to the Partnership, in 1998, the founders, Gregory K. McGrath
and Robert S. Geiger, were issued an amount of units which are
exchangeable (subject to certain escrow restrictions) for a total
of 19% of the Common Shares of the Trust (up to 1,202,160 Common
Shares) outstanding after the completion of the exchange offering
and the cash public offering to be made by the Trust, on a fully
diluted basis assuming that all then outstanding Units (other than
those owned by the Trust) have been exchanged into an equivalent
number of Common Shares.
The Partnership commenced operations on February 3, 1998, at which
time it received an initial limited partnership capital
contribution.
See Note 2 for a summary of the Agreement of Limited Partnership.
F-6
<PAGE>
BARON CAPITAL PROPERTIES, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
BASIS OF PRESENTATION
The accompanying consolidated financial statements include the
accounts of the Partnership and all of the Partnership's interest
in the partnerships that own Heatherwood Kissimmee, Ltd., Riverwalk
Enterprises, Ltd., and Crystal Court Apartments II, Ltd.
All significant intercompany transactions and balances have been
eliminated in consolidation.
UNAUDITED FINANCIAL INFORMATION
The accompanying financial information as of and for the three
months ended March 31, 1999 is unaudited. However, in the opinion
of management, all adjustments, consisting of normal recurring
accruals and adjustments, necessary for a fair presentation of
financial position, results of operations and cash flows have been
made.
The results of operations for interim periods are not necessarily
indicative of results to be expected for a full year.
CONCENTRATIONS OF CREDIT RISK
Financial instruments that potentially subject the Partnership to
concentrations of credit risk are comprised of cash and
receivables.
CASH
At various times during the year the Partnership had deposits in
financial institutions in excess of the federally insured
limits. The Partnership maintains its cash with high quality
financial institutions, which the Partnership believes limits
these risks.
PROPERTY MANAGEMENT REIMBURSEMENTS AND OTHER RECEIVABLES
Receivables are comprised mainly of property management
reimbursements due to the Partnership from various properties it
manages and monthly rents due. The Partnership monitors exposure
to credit losses and does not maintain an allowance for these
receivables, as it believes that these receivables are fully
collectible.
REAL ESTATE RENTAL PROPERTIES AND DEPRECIATION
Real estate rental properties are stated at cost less accumulated
depreciation. Ordinary repairs and maintenance are expensed as
incurred; replacements having an estimated useful life of at least
one year and improvements are capitalized and depreciated over
their estimated useful lives.
F-7
<PAGE>
BARON CAPITAL PROPERTIES, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
REAL ESTATE RENTAL PROPERTIES AND DEPRECIATION (Continued)
Depreciation is computed on a straight-line basis over useful lives
of the properties as follows:
<TABLE>
<CAPTION>
Estimated Useful
Lives (Years)
-------------
<S> <C>
Building 30
Leasehold improvements 10
Furniture and fixtures 7
Computer equipment and software 3-5
</TABLE>
Losses in carrying values of investment assets are provided by
management when the losses become apparent and the investment asset
is considered impaired in accordance with Statement of Financial
Accounting Standards No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to Be Disposed Of."
Management evaluates its investment properties annually to assess
whether any impairment indications are present. If any investment
asset is considered impaired, a loss is provided to reduce the
carrying value of the property to its estimated fair value. No such
losses have been required or provided in the accompanying
consolidated financial statements.
REVENUE RECOGNITION
Apartment units are leased under operating leases with terms of
generally one year or less. Rental income is recognized when due
from tenants.
CASH AND CASH EQUIVALENTS
For purposes of the statement of cash flows, the Partnership
considers all investments purchased with an original maturity of
three months or less to be cash equivalents. For purposes of
presentation of the statement of cash flows, the Partnership has
also included restricted cash with cash and cash equivalents.
INVESTMENTS IN PARTNERSHIPS
In 1998, the Partnership's investments in unconsolidated
partnerships are accounted for on the cost method inasmuch as the
respective ownership interests represent less than 20% of the
equity ownership therein. The Partnership periodically assesses the
realizable value of these investments in order to ascertain that
there has been no impairment in their recorded value.
As of March 31, 1999, the Partnership holds a 24.6% limited partner
interest in Alexandria Development, L.P. ("Alexandria"), (see Note
4 "Investments in Partnership"). The investment in Alexandria is
accounted for using the equity method of accounting commencing in
1999 as a result of the Partnership owning more than 20% of the
ownership interests of Alexandria and the ability to exercise
significant influence over its operations. As such, the investment
in Alexandria is carried at cost and adjusted for the Partnership's
share of undistributed earnings or losses using the equity method
of accounting.
F-8
<PAGE>
BARON CAPITAL PROPERTIES, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
CAPITAL RESERVE
In connection with the acquisition of the investment properties, as
required by the lending institutions, the Partnership has
established a capital reserve account, which is to be used for
significant improvements to the property.
LOAN COSTS
The Partnership has capitalized those costs incurred with obtaining
financing on the investment properties. Such costs (included with
other assets) are being amortized over the estimated term of the
financing of ten years.
USE OF ESTIMATES
The preparation of financial statements in conformity with
generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the
reported amounts of revenues and expenses during the reporting
period. Actual results could differ from those estimates.
INCOME TAXES
The Partnership is treated as a limited partnership for federal
income tax purposes and as such does not incur income taxes.
Instead, its earnings and losses are included in the personal
returns of the partners and taxed depending on their personal tax
situations. The consolidated financial statements do not reflect a
provision for income taxes.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The respective carrying value of certain on-balance-sheet financial
instruments approximated their fair value. These instruments
include cash, receivables, accounts payable and accrued
liabilities. Fair values were assumed to approximate carrying
values for these financial instruments since they are short-term in
nature and their carrying amounts approximate fair values or they
are receivable or payable on demand.
The fair value of debt instruments has been estimated by using
discounted cash flow models incorporating discount rates based on
current market interest rates for similar types of instruments. At
March 31, 1999 and December 31, 1998, the differences between
estimated fair value and the carrying value of debt instruments
were not material.
F-9
<PAGE>
BARON CAPITAL PROPERTIES, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
RECENT ACCOUNTING PRONOUNCEMENTS
In June 1997, the Financial Accounting Standards Board issued SFAS
No. 130, "Reporting Comprehensive Income" and No. 131, "Disclosures
about Segments of an Enterprise and Related Information." SFAS No.
130 establishes standards for reporting and displaying
comprehensive income, its components, and accumulated balances.
SFAS No. 131 establishes standards for the way that public
companies report information about operating segments in annual
financial statements and requires reporting of selected information
about operating segments in interim financial statements issued to
the public. Both SFAS No. 130 and SFAS No. 131 are effective for
periods beginning after December 15, 1997. The Partnership adopted
these new accounting standards in 1998, and their adoption had no
effect on the Partnership's financial statements and disclosures.
In June 1998, the Financial Accounting Standards Board issued SFAS
No. 133, "Accounting for Derivative Instruments and Hedging
Activities." SFAS No. 133 requires companies to recognize all
derivatives contracts as either assets or liabilities in the
balance sheet and to measure them at fair value. If certain
conditions are met, a derivative may be specifically designated as
a hedge, the objective of which is to match the timing of the gain
or loss recognition of the hedging derivative with the recognition
of (i) the changes in the fair value of the hedged asset or
liability that are attributable to the hedged risk or (ii) the
earnings effect of the hedged forecasted transaction. For a
derivative not designated as a hedging instrument, the gain or loss
is recognized in income in the period of change. SFAS No. 133 is
effective for all fiscal quarters of fiscal years beginning after
June 15, 1999.
Historically, the Partnership has not entered into derivatives
contracts to hedge existing risks or for speculative purposes.
Accordingly, the Partnership does not expect adoption of the new
standard on January 1, 2000 to affect its financial statements.
NOTE 2. AGREEMENT OF LIMITED PARTNERSHIP
The following is a summary of the significant provisions of the
Agreement of Limited Partnership ("the Agreement") made and entered in
1998.
TERM
The Partnership will continue through December 31, 2098, unless
sooner terminated by law or under certain provisions of the
Agreement.
F-10
<PAGE>
BARON CAPITAL PROPERTIES, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
NOTE 2. AGREEMENT OF LIMITED PARTNERSHIP (Continued)
DISTRIBUTIONS
CASH DISTRIBUTIONS
The General Partner shall distribute not less frequently than
quarterly an amount equal to 100% of distributable cash
generated by the Partnership during such quarter to the Partners
who are Partners on the Partnership Record Date with respect to
such quarter (i) first, with respect to any class of partnership
interest, (ii) thereafter, in accordance with their respective
percentage interest on such Partnership Record Date.
ALLOCATION OF INCOME AND LOSS
Allocations of all items of income, gain, expense, loss, deduction
and credit recognized by the Partnership for federal income tax
purposes will be made as follows:
INCOME
After giving effect to the special allocations set forth in the
Partnership Agreement, net income shall be allocated (i) first,
to the general partner to the extent that, on a cumulative
basis, net losses previously allocated to the general partner
exceed net income previously allocated to the general partner,
and (ii) thereafter, to the partners in accordance with their
respective percentage interests.
LOSSES
After giving effect to certain allocations set forth in the
Partnership Agreement, net losses shall be allocated to the
Partners in accordance with their respective percentage
interest; provided, however, that net losses shall not be
allocated to any limited partner to the extent that such
allocation would cause such limited partner to have an adjusted
capital account deficit at the end of such taxable year. All net
losses in excess of the limitations set forth in the preceding
sentence shall be allocated to the general partner.
DISSOLUTION
The Partnership will be dissolved upon (a) the expiration of the
term of the Agreement; (b) withdrawal of the general partner,
unless, within 90 days after the withdrawal a majority interest of
all the remaining partners agree in writing to continue the
business of the Partnership and to the appointment, effective as of
the date of withdrawal, of a substitute general partner; (c) the
election to dissolve the Partnership made by the general partner
with the consent of a majority of the percentage interest of the
limited partners; (d) entry of judicial dissolution of the
Partnership pursuant to the provisions of the Delaware Revised
Uniform Limited Partnership Act (the "Act"), (e) the sale or
disposition of all or substantially all of the Partnership's
property; (f) the merger or other combination of the Partnership
with or into another entity; (g) bankruptcy or insolvency of
general partner; and (h) the occurrence of any other event which,
by law, would require the Partnership to be dissolved.
F-11
<PAGE>
BARON CAPITAL PROPERTIES, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
NOTE 2. AGREEMENT OF LIMITED PARTNERSHIP (Continued)
WINDING UP
Upon the dissolution of the partnership, the general partner will
take full account of the Partnership's assets and liabilities, and
the assets will be liquidated as promptly as is consistent with
obtaining fair value of the assets, and the proceeds will be
applied and distributed (a) first, to the payment and discharge of
all of the Partnership's debts and liabilities to creditors, other
than partners; (b) then, any loans owed by the Partnership to the
partners shall be paid in proportion thereto; and (c) finally, to
the limited partners and the general partner in proportion to their
respective capital accounts, after giving effect to all
contributions, distributions, and allocations for all periods.
NOTE 3. RENTAL APARTMENTS
HEATHERWOOD APARTMENTS
On June 30, 1998, the Partnership acquired the entire limited
partnership interest in Heatherwood Kissimmee, Ltd., (the
"Heatherwood Property") a Florida limited partnership which owns
fee simple title to a 67-unit residential property located at
Kissimmee, Florida for a purchase price of approximately $830,000.
The Heatherwood Property is subject to first mortgage financing
with an original balance of approximately $1,250,000 collateralized
by the property. The mortgage calls for monthly payments of
principal and interest of $8,847 and bears a fixed interest rate of
7.625%. The entire balance, including accrued interest, is due on
December 2004 and may be prepaid with a prepayment fee equal to 1%
of the then outstanding principal balance. The principal balance
outstanding as of March 31, 1999 and December 31, 1998 was
$1,236,785 and $1,238,755, respectively.
During the three month period ended March 31, 1999, the Partnership
received $7,000 in distributions from the Heatherwood Property.
CRYSTAL COURT APARTMENTS
On July 31, 1998, the Partnership acquired the entire limited
partnership interest in Crystal Court Apartments II, Ltd., (the
"Crystal Court Property") a Florida limited Partnership which owns
fee simple title to an 80-unit residential apartment property
located in Lakeland, Florida for a purchase price of approximately
$704,000. The Crystal Court Property is subject to first mortgage
financing with an original balance of $1,494,000 collateralized by
the property. The mortgage calls for monthly payments of principal
and interest of $10,446 and bears a fixed interest rate of 7.5%.
The entire balance, including accrued interest, is due on October
2004 and may be prepaid with a prepayment fee equal to 1% of the
then outstanding principal balance. The principal balance
outstanding as of March 31, 1999 and December 31, 1998 was
$1,475,404 and $1,477,797, respectively.
F-12
<PAGE>
BARON CAPITAL PROPERTIES, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
NOTE 3. RENTAL APARTMENTS (Continued)
CRYSTAL COURT APARTMENTS (Continued)
Included in other assets, there is a minority interest of $8,088
which represents the ownership interest of Crystal Court Property's
general partner.
During the three month period ended March 31, 1999, the Partnership
received $20,000 in distributions from the Crystal Court Property.
RIVERWALK APARTMENTS
On September 1, 1998, the Partnership acquired the entire limited
partnership interest in Riverwalk Enterprises, Ltd., (the
"Riverwalk Property") a Florida limited partnership which owns fee
simple title to a 50-unit residential property located at New
Smyrna Beach, Florida for a purchase price of approximately
$700,000. The Riverwalk Property is subject to first mortgage
financing with an original balance of approximately $1,400,000
collateralized by the property. The mortgage calls for monthly
payments of principal and interest of $11,626 and bears a fixed
interest rate of 8.75% amortized over 25 years. The holder of the
first mortgage has the right to adjust the rate in October 1999 for
the remaining five years of the loan to a rate equal to 200 basis
points above the then current rate for five-year treasury notes.
The entire balance, including accrued interest, is due on October
2004 and may be prepaid with a prescribed prepayment fee. The
principal balance outstanding as of March 31, 1999 and December 31,
1998 was $1,317,621 and $1,323,166, respectively.
In connection with the purchase of the Riverwalk Property, the
Partnership executed a promissory note payable to the sellers of
the Riverwalk Property with an original balance of $575,000. The
note called for a lump-sum payment of principal and accrued
interest at a rate of 18% per annum on December 1, 1998. In
December 1998, the Partnership paid $226,163 of principal and
interest towards the note and exercised its option to extend the
maturity of the note to February 1, 1999 for an extension fee of
one (1%) percent of the original loan amount or $5,750. The
principal balance outstanding as of March 31, 1999 and December 31,
1998 was $375,000.
During the three month period ended March 31, 1999, the Partnership
exercised another option to extend the note to September 1, 1999
for an extension fee of one (1%) percent of the outstanding loan
amount or $3,750. In addition, the Partnership received $17,000
from the Riverwalk Property.
NOTE 4. INVESTMENTS IN PARTNERSHIPS
<TABLE>
<CAPTION>
March 31, December 31,
1999 1998
---- ----
(Unaudited)
<S> <C> <C>
Alexandria Property, net of distributions $1,062,050 $389,050
Other Limited Partnership Interests 341,280 341,280
---------- -------
$1,403,330 $730,330
---------- --------
---------- --------
</TABLE>
F-13
<PAGE>
BARON CAPITAL PROPERTIES, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
NOTE 4. INVESTMENTS IN PARTNERSHIPS (Continued)
ALEXANDRIA APARTMENTS
On October 14, 1998, the Partnership acquired an approximate 12.3%
limited partnership interest in Alexandria Development, L.P. (the
"Alexandria Property"), a Delaware limited partnership which is the
owner and developer of a 168-unit residential apartment property
under construction in Alexandria, Kentucky. The Partnership paid
$400,000 for eight (8) units of limited partnership interest out of
a total of sixty-five (65) units and retains an option to acquire
the remaining fifty-seven (57) units of limited partnership
interests for $50,000 per unit or approximately $2,850,000. The
option is exercisable as additional apartments are completed and
rented and expires on October 15, 1999. An affiliate of the
Partnership, affiliated through common ownership, sold the
partnership interest in the Alexandria Property to the Partnership
and also serves as the managing general partner of the Alexandria
Property. During the construction stage of the apartment property,
the Partnership's limited partnership interest in the Alexandria
Property is entitled to an annual 12% preferential return, which is
senior to the other limited partnership interests and the general
partner's nominal 1% interest.
During the three month period ended March 31, 1999, the Partnership
exercised its option to purchase an additional fourteen (14) units
of limited partnership interest for $675,000, thereby increasing
its ownership interest to 24.6%. In addition, $12,000 was
distributed to the Partnership.
The Partnership's investment in Alexandria has been accounted for
under the equity method for 1999, as the ownership interest has
increased over 20% and the Partnership has the ability to exercise
significant control over the operations of Alexandria. The
following is a summary of the financial position and results of
operations of the Partnership's investment in Alexandria as of
March 31, 1999 and for the three months then ended.
<TABLE>
<CAPTION>
March 31,
1999
----
(Unaudited)
<S> <C>
Financial Position:
Rental apartments $ 3,528,200
Construction in progress 7,043,346
Other assets 589,333
------------
Total assets $ 11,160,879
------------
------------
Mortgage payable $ 7,689,749
Other liabilities 2,238,631
------------
Total liabilities 9,928,380
Partners' Capital 1,232,499
------------
$ 11,160,879
------------
------------
Results of Operations:
Rental income $ 69,993
Other income 9,101
Costs and expenses (89,443)
------------
Net loss $ (10,349)
------------
------------
</TABLE>
F-14
<PAGE>
BARON CAPITAL PROPERTIES, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
NOTE 4. INVESTMENTS IN PARTNERSHIPS (Continued)
OTHER LIMITED PARTNERSHIP INTERESTS
In July 1998, the Partnership also was admitted as a limited
partner in 13 real estate limited partnerships managed by
affiliates of the Managing Partnership. The Partnership acquired
the interests in consideration of a capital contribution ranging
from approximately $2,900 to $83,300 in each such partnership. The
aggregate contribution made by the Partnership was approximately
$341,000. The percentage interest acquired by the Partnership (less
than 4% in each case) was calculated at fair market value. In each
instance, the Partnership agreed that its right to receive
distributions from cash flow or from a capital event would be
subordinate to the right of the existing limited partners to
receive any preferred return described in the partnership agreement
of the respective partnership.
NOTE 5. OTHER PROPERTY AND EQUIPMENT
<TABLE>
<CAPTION>
March 31, December 31,
1999 1998
---- ----
(Unaudited)
<S> <C> <C>
Furniture and equipment $112,272 $112,272
Computer equipment and software 46,280 44,455
Leasehold improvements 20,502 20,813
-------- --------
179,054 177,540
Less accumulated depreciation 8,558 8,558
-------- --------
$170,496 $168,982
-------- --------
-------- --------
</TABLE>
NOTE 6. MORTGAGES PAYABLE
<TABLE>
<CAPTION>
Balance at Balance at
Original Maturity Interest March 31, December 31,
Property Amount Date Rate 1999 1998
-------- ------ ---- ---- ---- ----
(Unaudited)
<S> <C> <C> <C> <C> <C>
Heatherwood Apartments $1,250,000 12/31/2004 7.625% $1,236,785 $1,238,755
Crystal Court Apartments 1,494,000 10/31/2004 7.5 1,475,404 1,477,797
Riverwalk Apartments 1,400,000 10/31/2004 8.75 1,317,621 1,323,166
--------- --------- ---------
Total mortgage note payables $4,139,000 $4,029,810 $4,039,718
---------- ---------- ----------
---------- ---------- ----------
</TABLE>
All mortgage notes payable are collateralized by the underlying
properties described in Note 3 above.
F-15
<PAGE>
BARON CAPITAL PROPERTIES, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
NOTE 6. MORTGAGES PAYABLE (Continued)
The aggregate maturities of mortgages payable for each of the five
years subsequent to December 31, 1998 are as follows:
<TABLE>
<CAPTION>
Year ending December 31:
<S> <C>
1999 $ 50,544
2000 54,799
2001 59,415
2002 64,420
2003 69,872
Thereafter (2004) 3,740,668
----------
Total $4,039,718
----------
----------
</TABLE>
NOTE 7. CAPITAL LEASE OBLIGATION
During 1998, the Partnership purchased office furniture financed
through a capital lease obligation. The loan is non-interest bearing,
secured by the office furniture purchased and requires forty-eight (48)
monthly payments of $1,245. Future minimum capital lease payments and
the net present value of the future minimum lease payments at December
31, 1998 are as follows:
<TABLE>
<CAPTION>
Year Ending December 31:
<S> <C>
1999 $14,942
2000 14,942
2001 14,942
2002 11,158
------
Total minimum lease payments $55,984
-------
-------
</TABLE>
NOTE 8. COMMITMENTS AND CONTINGENCIES
OFFICERS' COMPENSATION
A founder of the Trust and the Partnership serves as Chief
Executive Officer of the Trust, the Partnership and the managing
shareholder of the Trust. He has agreed to serve a Chief Executive
Officer for the first year in exchange for compensation in the form
of common shares or units of the Trust in an amount not to exceed
25,000 shares or units, as applicable, to be determined by the
Executive Compensation Committee based upon his performance, in
addition to benefits and eligibility for participation in any
option plan and bonus incentive compensation plan which may be
implemented by the Partnership.
The other founder of the Trust and Partnership serves as the Chief
Operating Officer of the Trust, the Partnership and the managing
shareholder of the Trust. His initial annual salary has been set at
$100,000, in addition to benefits, and eligibility for
participation in any common share option plan and bonus incentive
compensation plan which may be implemented by the Partnership.
F-16
<PAGE>
BARON CAPITAL PROPERTIES, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
NOTE 8. COMMITMENTS AND CONTINGENCIES (Continued)
OPERATING LEASES
During 1998, the Partnership executed an operating lease for its
office facilities. The lease, which expires in June 15, 2003,
requires monthly payments of $5,000. The Partnership has three
options of five years each to extend its lease for a total of
fifteen additional years.
Minimum future lease payments on this lease are as follows:
<TABLE>
<CAPTION>
Year ending December 31:
<S> <C>
1999 $ 60,000
2000 60,000
2001 60,000
2002 60,000
2003 30,000
--------
Total $270,000
--------
--------
</TABLE>
Rent expense was approximately $ 24,000 for 1998.
NOTE 9. RELATED PARTY TRANSACTIONS
INTERCOMPANY LINE
The Partnership has an intercompany line with the Trust, its
general partner. During 1998, the Partnership loaned $239,168 to
the Trust which remains outstanding as of December 31, 1998. During
the three month period ended March 31, 1999, the Partnership
received $87,496 from the Trust reducing the balance to $151,668 as
of March 31, 1999. The intercompany loan is due on demand and is
non-interest bearing.
TRANSACTIONS WITH AFFILIATED ENTITIES
During 1998, the Partnership paid approximately $12,000 to an
affiliated corporation for computers being used by the Partnership.
PROPERTY MANAGEMENT REIMBURSEMENTS
The Partnership is reimbursed for administrative expenses relating
to the management of 36 rental properties affiliated to the
Partnership through common ownership. During 1998 and for the three
month period ended March 31, 1999, the Partnership was reimbursed
for approximately $496,000 and $207,000, respectively, for expenses
relating to administrative duties performed for the rental
properties, which has been presented as a reduction of other
administrative expenses.
F-17
<PAGE>
BARON CAPITAL PROPERTIES, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
NOTE 9. RELATED PARTY TRANSACTIONS (Continued)
ADVANCES
From time to time, the Partnership advances funds to affiliates.
These advances do not accrue interest and are due on demand. As of
March 31, 1999 and December 31, 1998, the Partnership had advanced
$10,750 to two affiliates.
NOTE 10. PARTNERS CAPITAL
LIMITED PARTNERS' CAPITAL CONTRIBUTION
During 1998, the Partnership issued 463,650 units of limited
partner interest at $8.32 per unit based upon net proceeds of
$3,858,240 to the Trust. In addition, 120,200 units were issued at
$7.06 per unit based upon net proceeds of $849,000 to the Trust
during the three months ended March 31, 1999.
EXCHANGE OFFERING
The Partnership has filed a registration statement on Form S-4 with
the Securities and Exchange Commission covering up to 2,500,000
units of limited partnership interest ("Units") to be registered
under the Securities Act of 1933, as amended (the "Act") ("Exchange
Offering").
It is proposed that these units would be exchanged for units of
limited partnership interest in 23 limited partnerships (the
"Exchange Partnerships"), which directly or indirectly own equity
and/or mortgage interests in one or more residential apartment
properties. The Exchange Partnerships are managed by corporate
general partners which are affiliated with one of the founders of
the Partnership, who is the sole stockholder and director of the
Managing Shareholder of the Partnership. This registration
statement has not yet become effective.
The number of Units being offered in exchange for the limited
partnership interests in the Exchange Partnerships will be based on
appraisals prepared by qualified and licensed independent appraisal
firms for each underlying residential apartment property. For
purposes of the Exchange Offering, each Unit has been arbitrarily
assigned an initial value of $10, which corresponds to the offering
price of each Trust Common Share currently being offered to the
public pursuant to the Cash Offering. The value of each Unit and
Common Share outstanding will be substantially identical since Unit
holders, including recipients of Units in the Exchange Offering,
will be entitled to exchange all or a portion of their Units at any
time and from time to time for an equivalent number of Trust Common
Shares, so long as the exchange would not cause the exchanging
party to own (taking into account certain ownership attribution
rules) in excess of 5% of the then outstanding shares in the Trust,
subject to the Trust's right to cash out any holder of Units who
requests an exchange and subject to certain other exceptions. To
facilitate such exchanges of Units into Common Shares, 2,500,000
Common Shares (in addition to the 2,500,000 Common Shares being
offered by the Trust in the Cash Offering) have been registered
with the Commission.
F-18
<PAGE>
BARON CAPITAL PROPERTIES, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
NOTE 10. CAPITAL (Continued)
EXCHANGE OFFERING (Continued)
As its initial investment targets in the Exchange Offering, the
Partnership is offering to acquire equity and/or subordinated
mortgage interests in 26 properties (the "Exchange Properties")
directly or indirectly owned by the 23 Exchange Partnerships. The
Partnership will acquire interests in a particular property and/or
mortgages by acquiring from limited partners their units of limited
partnership interest in the respective Exchange Partnership. Each
of the Exchange Partnerships directly or indirectly owns equity
and/or mortgage interests in one or more properties. Certain of the
Exchange Partnerships directly or indirectly own equity interests
in 16 properties which consist of an aggregate of 1,012 residential
units (comprised of studio, one, two, three and four bedroom
units). Certain of the Exchange Partnerships directly or indirectly
own mortgage interests in 10 properties, which consist of an
aggregate of 813 existing residential units (studio and one and two
bedroom units) and 168 units (two and three bedroom units) under
development. Of the Exchange Properties, 21 properties are located
in Florida, three properties in Ohio and one property each in
Georgia and Indiana.
PARTNERSHIP LIMITED PARTNERSHIP UNITS
In connection with the formation of the Trust and the Partnership,
the Original Investors each subscribed for 601,080 limited
partnership units of the Partnership (a total of 1,202,160 units).
In consideration for the units subscribed for by them, the Original
Investors made a $100,000 capital contribution to the Partnership.
If the Cash Offering and the Exchange Offering are fully
subscribed, those Units would represent 19% of the total Common
Shares outstanding after completion of the Cash Offering and
exchange by the Partnership of 2,500,000 of its Units for units of
limited partnership interest in real estate limited partnerships
(including any exchange pursuant to the Exchange Offering),
calculated on a fully diluted basis assuming all then outstanding
Units (other than those acquired by the Trust) have been exchanged
into an equivalent number of Common Shares. If, however, as of
November 30, 1999, the Cash Offering and/or the Exchange Offering
has been completed and the number of Units subscribed for by each
Original Investment represents a percentage greater than 19% of the
then outstanding Common Shares, calculated on a fully diluted basis
assuming that all then outstanding Units (other than those acquired
by the Trust) have been exchanged into an equivalent number of
Common Shares, each Original Investor has agreed to return any
excess Units to the Partnership for cancellation. The Original
Investors have deposited Units subscribed for by them into a
security escrow account for six to nine years, subject to earlier
release under certain conditions.
Under the subscription agreement, the Original Investors agreed to
waive future administrative fees for managing Participating
Exchange Partnerships; agreed to assign to the Partnership the
right to receive all residual economic rights attributable to the
general partner interests in Participating Exchange Partnerships;
and, in order to permit management of the Exchange Properties by
the Partnership, caused the Exchange Partnerships to cancel the
prior property management agreements and agreed to forego the right
to have a property management firm controlled by the Original
Investors assume the property management role in respect of
properties in which the Trust or the Partnership invest.
F-19
<PAGE>
BARON CAPITAL PROPERTIES, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
NOTE 10. CAPITAL (Continued)
PARTNERSHIP LIMITED PARTNERSHIP UNITS (Continued)
Based upon the total Common Shares outstanding as of December 31,
1998, the Original Investors would be entitled to exchange their
limited partnership units for a net amount of 108,757 Common
Shares.
NOTE 11. SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING AND FINANCING
ACTIVITIES
During 1998, the Partnership acquired three rental apartment properties
through the assumption of mortgage payables and a note payable, as
follows:
<TABLE>
<S> <C>
Mortgages payable $4,058,737
Note payable 575,000
----------
$4,633,737
----------
----------
</TABLE>
Also, the Partnership acquired furniture and equipment in 1998 by means
of capital lease financing in the amount of $59,769.
F-20
<PAGE>
================================================================================
BARON CAPITAL TRUST
FINANCIAL STATEMENTS
DECEMBER 31, 1998
================================================================================
<PAGE>
BARON CAPITAL TRUST
INDEX TO FINANCIAL STATEMENTS
PAGE
----
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS F-1
CONSOLIDATED FINANCIAL STATEMENTS
Balance Sheet F-2
Statement of Operations F-3
Statement of Shareholders' Equity F-4
Statement of Cash Flows F-5
Notes to Financial Statements F-6-F-19
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Board of Trustees and Shareholders
Baron Capital Trust
Cincinnati, Ohio
We have audited the accompanying consolidated balance sheet of Baron Capital
Trust (the "Trust") as of December 31, 1998 and the related consolidated
statements of operations, shareholders' equity and cash flows from inception
(February 3, 1998) to December 31, 1998. These consolidated financial statements
are the responsibility of the Trust's management. Our responsibility is to
express an opinion on these consolidated financial statements based on our
audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of Baron
Capital Trust as of December 31, 1998, and the consolidated results of their
operations and their cash flows from inception (February 3, 1998) to December
31, 1998, in conformity with generally accepted accounting principles.
RACHLIN COHEN & HOLTZ LLP
Miami, Florida
April 13, 1999
<PAGE>
BARON CAPITAL TRUST
CONSOLIDATED BALANCE SHEET
DECEMBER 31, 1998
<TABLE>
<CAPTION>
ASSETS
<S> <C>
Rental Apartments:
Land $ 1,178,693
Depreciable property 6,189,095
-----------
7,367,788
Less accumulated depreciation 1,246,627
-----------
6,121,161
Investments in Partnerships 730,330
Cash and Cash Equivalents 177,299
Restricted Cash 66,199
Property Management Reimbursements Receivable, Affiliates 155,071
Other Receivables 80,112
Advances to Affiliates 10,750
Other Property and Equipment 168,982
Other Assets 221,611
-----------
$ 7,731,515
===========
<CAPTION>
LIABILITIES AND SHAREHOLDERS' EQUITY
<S> <C>
Liabilities:
Mortgages payable $ 4,039,718
Note payable 375,000
Accounts payable and accrued liabilities, including
$136,941 to Managing Shareholder 388,385
Capital lease obligation 55,984
Security deposits 38,336
-----------
Total liabilities 4,897,423
===========
Commitments, Contingencies and Other Matters --
Shareholders' Equity:
Common shares of beneficial interest, no par value; 2,500,000
shares authorized; 463,650 shares issued and outstanding 4,257,101
Operating Partnership limited partnership units; 1,202,160 units issued and
outstanding, which are subject to escrow
restrictions (108,757 units convertible into common shares) 100,000
Deficit (1,450,850)
Distributions (72,159)
-----------
Total shareholders' equity 2,834,092
-----------
$ 7,731,515
===========
</TABLE>
See notes to consolidated financial statements.
F-2
<PAGE>
BARON CAPITAL TRUST
CONSOLIDATED STATEMENT OF OPERATIONS
FROM INCEPTION (FEBRUARY 3, 1998) TO DECEMBER 31, 1998
Revenues:
Property:
Rental $ 358,949
Other 35,155
Interest income 2,780
-----------
396,884
-----------
Real Estate Expenses:
Depreciation 80,296
Interest 164,333
Repairs and maintenance 86,349
Personnel 53,860
Property taxes 34,496
Property insurance 20,477
Utilities 27,299
Other 138,905
-----------
606,015
-----------
Administrative Expenses:
Personnel 721,715
Management, investment and administrative fees,
Managing Shareholder 324,213
Professional services 175,646
Other 20,145
-----------
1,241,719
-----------
Total expenses 1,847,734
-----------
Net Loss $(1,450,850)
===========
Net Loss Per Common Share $ (5.52)
===========
See notes to consolidated financial statements.
F-3
<PAGE>
BARON CAPITAL TRUST
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
FROM INCEPTION (FEBRUARY 3, 1998) TO DECEMBER 31, 1998
<TABLE>
<CAPTION>
Common Shares of Limited
Beneficial Interest Partnership Units
---------------------- --------------------------
Shares Amount Units Amount
------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Initial Capital Contributions:
Managing Shareholder 10 $ 100 -- $ --
Founders -- -- 1,202,160 100,000
Proceeds from Sale of Common Shares of
Beneficial Interest, Net of Offering Costs 463,640 4,257,001 -- --
Distributions Paid -- -- -- --
Net Loss -- -- -- --
------- ----------- ----------- -----------
Balance, December 31, 1998 463,650 $ 4,257,101 1,202,160 $ 100,000
======= =========== =========== ===========
</TABLE>
<TABLE>
<CAPTION>
Deficit Distributions Total
----------- ------------- -----------
<S> <C> <C> <C>
Initial Capital Contributions:
Managing Shareholder $ -- $ -- $ 100
Founders -- -- 100,000
Proceeds from Sale of Common Shares of
Beneficial Interest, Net of Offering Costs -- -- 4,257,001
Distributions Paid -- (72,159) (72,159)
Net Loss (1,450,850) -- (1,450,850)
----------- ----------- -----------
Balance, December 31, 1998 $(1,450,850) $ (72,159) $ 2,834,092
=========== =========== ===========
</TABLE>
See notes to consolidated financial statements.
F-4
<PAGE>
BARON CAPITAL TRUST
CONSOLIDATED STATEMENT OF CASH FLOWS
FROM INCEPTION (FEBRUARY 3, 1998) TO DECEMBER 31, 1998
<TABLE>
<S> <C>
Cash Flows from Operating Activities:
Net loss $(1,450,850)
Adjustments to reconcile net loss to
net cash used by operating activities:
Depreciation 80,296
Increase in operating assets and liabilities:
Other receivables (80,112)
Property management reimbursements receivable (155,071)
Other assets (221,611)
Accounts payable and accrued liabilities 388,385
Security deposits 38,336
Other (8,088)
-----------
Net cash used by operating activities (1,408,715)
-----------
Cash Flows from Investing Activities:
Acquisitions of rental apartments (1,559,162)
Investment in partnerships, net of cash distributions (730,330)
Purchases of other property and equipment (117,771)
Advances to affiliates (10,750)
-----------
Net cash used in investing activities (2,418,013)
-----------
Cash Flows from Financing Activities:
Proceeds from sale of common shares of beneficial interest 4,265,089
Dividends paid (72,159)
Initial capital contributions 100,100
Payment on note payable (200,000)
Payments on mortgages payable (19,019)
Payments on capital lease obligation (3,785)
-----------
Net cash provided by financing activities 4,070,226
-----------
Net Increase in Cash and Cash Equivalents 243,498
Cash and Cash Equivalents, Beginning --
-----------
Cash and Cash Equivalents, Ending $ 243,498
===========
Supplemental Disclosure of Cash Flow Information:
Cash paid for mortgage and other interest $ 164,333
===========
</TABLE>
See notes to consolidated financial statements.
F-5
<PAGE>
BARON CAPITAL TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization and Capitalization
Baron Capital Trust (the "Trust") was organized as a business trust
in Delaware on July 31, 1997. The Trust and its affiliate, Baron
Capital Properties, L.P. (the "Operating Partnership"), a Delaware
limited partnership, have been organized to acquire equity interests
in residential apartment properties located in the United States and
to provide or acquire debt mortgage loans secured by such types of
property.
The Managing Shareholder of the Trust is Baron Advisors, Inc., a
Delaware corporation which will manage the operations of the Trust
and the Operating Partnership subject to the supervisory authority
of the Board of the Trust over the activities of the Trust and the
Operating Partnership and the Board's prior approval authority in
respect of certain actions of the Trust and the Operating
Partnership specified in the Declaration of Trust of the Trust.
The Trust's Declaration authorizes it to issue up to 25,000,000
shares of beneficial interest, no par value per share, consisting of
common shares and of preferred shares of such classes with such
preferences, conversion or other rights, voting powers,
restrictions, limitations as to dividends, qualifications, or terms
or conditions of redemption as the Managing Shareholder may create
and authorize from time to time in accordance with Delaware law and
the Declaration.
The Trust commenced operations on February 3, 1998, at which time it
received its initial capital contribution.
Basis of Presentation
The accompanying consolidated financial statements include the
accounts of the Trust and the Operating Partnership and all of the
Trust's interest in the partnerships that own Heatherwood Kissimmee,
Ltd., Riverwalk Enterprises, Ltd., and Crystal Court Apartments II,
Ltd.
All significant inter-company transactions and balances have been
eliminated in consolidation.
Concentrations of Credit Risk
Financial instruments that potentially subject the Trust to
concentrations of credit risk are comprised of cash and receivables.
Cash
At various times during the year the Trust had deposits in financial
institutions in excess of the federally insured limits. The Trust
maintains its cash with high quality financial institutions, which
the Trust believes limits these risks.
F-6
<PAGE>
BARON CAPITAL TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Concentrations of Credit Risk (Continued)
Property Management Reimbursements and Other Receivables
Receivables are comprised mainly of property management
reimbursements due to the Operating Partnership from various
properties it manages and monthly rents due. The Operating
Partnership monitors exposure to credit losses and does not maintain
an allowance for these receivables, as it believes that these
receivables are fully collectible.
Real Estate Rental Properties and Depreciation
Real estate rental properties are stated at cost less accumulated
depreciation. Ordinary repairs and maintenance are expensed as
incurred; replacements having an estimated useful life of at least
one year and improvements are capitalized and depreciated over their
estimated useful lives.
Depreciation is computed on a straight-line basis over useful lives
of the properties as follows:
Estimated Useful
Lives (Years)
Building 30
Leasehold improvements 10
Furniture and fixtures 7
Computer equipment and software 3-5
Losses in carrying values of investment assets are provided by
management when the losses become apparent and the investment asset
is considered impaired in accordance with Statement of Financial
Accounting Standards No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to Be Disposed Of."
Management evaluates its investment properties annually to assess
whether any impairment indications are present. If any investment
asset is considered impaired, a loss is provided to reduce the
carrying value of the property to its estimated fair value. No such
losses have been required or provided in the accompanying
consolidated financial statements.
Revenue Recognition
Apartment units are leased under operating leases with terms of
generally one year or less. Rental income is recognized when due
from tenants.
Cash and Cash Equivalents
For purposes of the statement of cash flows, the Trust considers all
investments purchased with an original maturity of three months or
less to be cash equivalents.
F-7
<PAGE>
BARON CAPITAL TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Investments in Partnerships
The Trust's investments in unconsolidated partnerships are accounted
for on the cost method inasmuch as the respective ownership
interests represent less than 20% of the equity ownership therein.
The Trust periodically assesses the realizable value of these
investments in order to ascertain that there has been no impairment
in their recorded value.
Capital Reserve
In connection with the acquisition of the investment properties, as
required by the lending institutions, the Trust has established a
capital reserve account, which is to be used for significant
improvements to the property.
Loan Costs
The Trust has capitalized those costs incurred with obtaining
financing on the investment properties. Such costs (included with
other assets) are being amortized over the estimated term of the
financing of ten years.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at
the date of the financial statements and the reported amounts of
revenues and expenses during the reporting period. Actual results
could differ from those estimates.
Income Taxes
The Trust has not provided for federal income taxes because the
Trust believes it qualifies as a real estate investment trust (REIT)
under Section 856 to 860 of the Internal Revenue Code. A REIT will
generally not be subject to Federal income taxation on that portion
of its income that qualifies as REIT taxable income to the extent
that it distributes substantially all of its taxable income to its
stockholders and complies with certain other requirements.
Fair Value of Financial Instruments
The respective carrying value of certain on-balance-sheet financial
instruments approximated their fair value. These instruments include
cash, receivables, accounts payable and accrued liabilities. Fair
values were assumed to approximate carrying values for these
financial instruments since they are short-term in nature and their
carrying amounts approximate fair values or they are receivable or
payable on demand.
F-8
<PAGE>
BARON CAPITAL TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Fair Value of Financial Instruments (Continued)
The fair value of debt instruments has been estimated by using
discounted cash flow models incorporating discount rates based on
current market interest rates for similar types of instruments. At
December 31, 1998, the differences between estimated fair value and
the carrying value of debt instruments were not material.
Recent Accounting Pronouncements
In June 1997, the Financial Accounting Standards Board issued SFAS
No. 130, "Reporting Comprehensive Income" and No. 131, "Disclosures
about Segments of an Enterprise and Related Information." SFAS No.
130 establishes standards for reporting and displaying comprehensive
income, its components, and accumulated balances. SFAS No. 131
establishes standards for the way that public companies report
information about operating segments in annual financial statements
and requires reporting of selected information about operating
segments in interim financial statements issued to the public. Both
SFAS No. 130 and SFAS No. 131 are effective for periods beginning
after December 15, 1997. The Trust adopted these new accounting
standards in 1998, and their adoption had no effect on the Trust's
financial statements and disclosures.
In June 1998, the Financial Accounting Standards Board issued SFAS
No. 133, "Accounting for Derivative Instruments and Hedging
Activities." SFAS No. 133 requires companies to recognize all
derivatives contracts as either assets or liabilities in the balance
sheet and to measure them at fair value. If certain conditions are
met, a derivative may be specifically designated as a hedge, the
objective of which is to match the timing of the gain or loss
recognition of the hedging derivative with the recognition of (i)
the changes in the fair value of the hedged asset or liability that
are attributable to the hedged risk or (ii) the earnings effect of
the hedged forecasted transaction. For a derivative not designated
as a hedging instrument, the gain or loss is recognized in income in
the period of change. SFAS No. 133 is effective for all fiscal
quarters of fiscal years beginning after June 15, 1999.
Historically, the Trust has not entered into derivatives contracts
to hedge existing risks or for speculative purposes. Accordingly,
the Trust does not expect adoption of the new standard on January 1,
2000 to affect its financial statements.
NOTE 2. RENTAL APARTMENTS
Heatherwood Apartments
On June 30, 1998, the Operating Partnership acquired the entire
limited partnership interest in Heatherwood Kissimmee, Ltd., (the
"Heatherwood Property") a Florida limited partnership which owns fee
simple title to a 67-unit residential property located at Kissimmee,
Florida for
F-9
<PAGE>
BARON CAPITAL TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
NOTE 2. RENTAL APARTMENTS (Continued)
Heatherwood Apartments (Continued)
a purchase price of approximately $830,000. The Heatherwood Property
is subject to first mortgage financing with an original balance of
approximately $1,250,000 collateralized by the property. The
mortgage calls for monthly payments of principal and interest of
$8,847 and bears a fixed interest rate of 7.625%. The entire
balance, including accrued interest, is due on December 2004 and may
be prepaid with a prepayment fee equal to 1% of the then outstanding
principal balance. The principal balance outstanding as of December
31, 1998 was $1,238,755.
Subsequent to December 31, 1998, the Operating Partnership received
$7,000 in distributions from the Heatherwood Property.
Crystal Court Apartments
On July 31, 1998, the Operating Partnership acquired the entire
limited partnership interest in Crystal Court Apartments II, Ltd.,
(the "Crystal Court Property") a Florida limited Partnership which
owns fee simple title to an 80-unit residential apartment property
located in Lakeland, Florida for a purchase price of approximately
$704,000. The Crystal Court Property is subject to first mortgage
financing with an original balance of $1,494,000 collateralized by
the property. The mortgage calls for monthly payments of principal
and interest of $10,446 and bears a fixed interest rate of 7.5%. The
entire balance, including accrued interest, is due on October 2004
and may be prepaid with a prepayment fee equal to 1% of the then
outstanding principal balance. The principal balance outstanding as
of December 31, 1998 was $1,477,797.
Subsequent to December 31, 1998, the Operating Partnership received
$20,000 in distributions from the Crystal Court Property.
Riverwalk Apartments
On September 1, 1998, the Operating Partnership acquired the entire
limited partnership interest in Riverwalk Enterprises, Ltd., (the
"Riverwalk Property") a Florida limited partnership which owns fee
simple title to a 50-unit residential property located at New Smyrna
Beach, Florida for a purchase price of approximately $700,000. The
Riverwalk Property is subject to first mortgage financing with an
original balance of approximately $1,400,000 collateralized by the
property. The mortgage calls for monthly payments of principal and
interest of $11,626 and bears a fixed interest rate of 8.75%
amortized over 25 years. The holder of the first mortgage has the
right to adjust the rate in October 1999 for the remaining five
years of the loan to a rate equal to 200 basis points above the then
current rate for five-year treasury notes. The entire balance,
including accrued interest, is due on October 2004 and may be
prepaid with a prescribed prepayment fee. The principal balance
outstanding as of December 31, 1998 was $1,323,166.
F-10
<PAGE>
BARON CAPITAL TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
NOTE 2. RENTAL APARTMENTS (Continued)
Riverwalk Apartments (Continued)
In connection with the purchase of the Riverwalk Property, the Trust
executed a promissory note payable to the sellers of the Riverwalk
Property with an original balance of $575,000. The note called for a
lump-sum payment of principal and accrued interest at a rate of 18%
per annum on December 1, 1998. In December 1998, the Operating
Partnership paid $226,163 of principal and interest towards the note
and exercised its option to extend the maturity of the note to
February 1, 1999 for an extension fee of one (1%) percent of the
original loan amount or $5,750. The principal balance outstanding as
of December 31, 1998 was $375,000.
Subsequent to December 31, 1998, the Operating Partnership exercised
another option to extend the note to June 1, 1999 for an extension
fee of one (1%) percent of the outstanding loan amount or $3,750.
Also, subsequent to December 31, 1998, the Operating Partnership
received $17,000 in distributions from the Riverwalk Property.
NOTE 3. INVESTMENTS IN PARTNERSHIPS
Alexandria Property, net of distributions $389,050
Other Limited Partnership Interests 341,280
--------
$730,330
========
Alexandria Apartments
On October 14, 1998, the Operating Partnership acquired an
approximate 12.3% limited partnership interest in Alexandria
Development, L.P. (the "Alexandria Property"), a Delaware limited
partnership which is the owner and developer of a 168-unit
residential apartment property under construction in Alexandria,
Kentucky. The Operating Partnership paid $400,000 for eight (8)
units of limited partnership interest out of a total of sixty-five
(65) units and retains an option to acquire the remaining
fifty-seven (57) units of limited partnership interests for $50,000
per unit or approximately $2,850,000. The option is exercisable as
additional apartments are completed and rented and expires on
October 15, 1999. An affiliate of the Trust, affiliated through
common ownership, sold the partnership interest in the Alexandria
Property to the Operating Partnership and also serves as the
managing general partner of the Alexandria Property. During the
construction stage of the apartment property, the Operating
Partnership's limited partnership interest in the Alexandria
Property is entitled to an annual 12% preferential return, which is
senior to the other limited partnership interests and the general
partner's nominal 1% interest.
Subsequent to December 31, 1998, the Operating Partnership exercised
its option to purchase an additional fourteen (14) units of limited
partnership interest for $675,000. In addition, $12,000 was
distributed to the Operating Partnership.
F-11
<PAGE>
BARON CAPITAL TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
NOTE 3. INVESTMENTS IN PARTNERSHIPS (Continued)
Other Limited Partnership Interests
In July 1998, the Operating Partnership also was admitted as a
limited partner in 13 real estate limited partnerships managed by
affiliates of the Managing Partnership. The Operating Partnership
acquired the interests in consideration of a capital contribution
ranging from approximately $2,900 to $83,300 in each such
partnership. The aggregate contribution made by the Operating
Partnership was approximately $341,000. The percentage interest
acquired by the Operating Partnership (less than 4% in each case)
was calculated at fair market value. In each instance, the Operating
Partnership agreed that its right to receive distributions from cash
flow or from a capital event would be subordinate to the right of
the existing limited partners to receive any preferred return
described in the partnership agreement of the respective
partnership.
NOTE 4. OTHER PROPERTY AND EQUIPMENT
Furniture and equipment $112,272
Computer equipment and software 44,455
Leasehold improvements 20,813
--------
177,540
Less accumulated depreciation 8,558
--------
$168,982
========
NOTE 5. MORTGAGES PAYABLE
<TABLE>
<CAPTION>
Balance at
Original Maturity Interest December 31,
Property Amount Date Rate 1998
-------- ------ ---- ---- ----
<S> <C> <C> <C> <C>
Heatherwood Apartments $1,250,000 12/31/2004 7.625% $1,238,755
Crystal Court Apartments 1,494,000 10/31/2004 7.5 1,477,797
Riverwalk Apartments 1,400,000 10/31/2004 8.75 1,323,166
---------- ----------
Total mortgage note payables $4,139,000 $4,039,718
========== ==========
</TABLE>
All mortgage notes payable are collateralized by the underlying properties
described in Note 2 above.
The aggregate maturities of mortgages payable for each of the five years
subsequent to December 31, 1998 are as follows:
Principal
----------
Year ending December 31:
1999 $50,544
2000 54,799
2001 59,415
2002 64,420
2003 69,872
Thereafter (2004) 3,740,668
----------
Total $4,039,718
----------
F-12
<PAGE>
BARON CAPITAL TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
NOTE 6. CAPITAL LEASE OBLIGATION
During 1998, the Operating Partnership purchased office furniture
financed through a capital lease obligation. The loan is
non-interest bearing, secured by the office furniture purchased and
requires forty-eight (48) monthly payments of $1,245. Future minimum
capital lease payments and the net present value of the future
minimum lease payments at December 31, 1998 are as follows:
Year Ending December 31:
1999 $14,942
2000 14,942
2001 14,942
2002 11,158
-------
Total minimum lease payments $55,984
-------
NOTE 7. COMMITMENTS AND CONTINGENCIES
Contract to Purchase Additional Properties
In September 1998, the Trust entered in an agreement with three real
estate development companies to acquire two luxury residential
apartment properties in the development stage upon the completion of
construction. The development companies (Brentwood at Southgate,
Ltd., Burlington Residential, Ltd. and The Shoppes at Burlington,
Ltd.) are controlled by one of the Trust's founders and chief
executive officer. The properties are scheduled to have a total of
652 units, comprised of one, two and three bedroom/one or two
bathroom apartments. Construction of one of the properties, located
in Louisville, Kentucky, is expected to be completed prior to the
end of 2000, and construction of the other property, located in
Burlington, Kentucky (part of the Cincinnati metropolitan area), is
expected to be completed by the end of 2001. The aggregate purchase
price for the two properties is in the range of approximately
$41,000,000 to $43,000,000. The closing of each acquisition, which
is expected to occur shortly following the completion of
construction, is conditioned on, among other things, the completion
of the respective apartment property, the availability of first
mortgage financing and the Trust's raising the balance of the funds
necessary for the acquisition in its ongoing Cash Offering or
otherwise have funds available to make the acquisition.
In connection with the transaction and in exchange for certain
benefits described below, the Trust agreed to co-guarantee (along
with the chief executive officer), up to 35% (or approximately
$12,500,000) of the development portion of long-term construction
loans with an aggregate principal amount of up to $36,000,000 to be
provided by a bank to the development companies. As of December 31,
1998, approximately $4,600,000 of such loans had been drawn down,
resulting in outstanding guarantees of approximately $1,600,000.
Subject to the fulfillment of certain closing and funding
conditions, the construction loans will be made to the development
companies in connection with the development and construction of the
two apartment properties and of an 111,000 square foot shopping
center being developed in Burlington, Kentucky. The interest rates
on the construction loans range from 7.36% to 7.52%. The Trust also
agreed that, if the loans are not repaid prior to the expiration of
the guarantee, it will either buy out the bank's position on the
entire amount of the construction loans or arrange for a third party
to do so. The construction loans are expected to be replaced by a
long-term credit facility.
F-13
<PAGE>
BARON CAPITAL TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
NOTE 7. COMMITMENTS AND CONTINGENCIES (Continued)
Contract to Purchase Additional Properties (Continued)
The Trust expects to receive significant benefits from the
transaction in addition to the acquisition of two large luxury
apartment properties located in attractive communities. In exchange
for the guarantee of the development portion of the construction
loans, the Trust will receive a discount of approximately $212,500
(representing a one-half of one percent reduction) on the purchase
price of the properties. The Trust and the development companies are
negotiating a further price reduction which would apply if the
development portion of the loans is not repaid prior to the
expiration of the guarantee period and the Trust is required to buy
out or arrange for the buyout of the lender's position on the loans.
Officers' Compensation
A founder of the Trust and the Operating Partnership serves as Chief
Executive Officer of the Trust, the Operating Partnership and the
Managing Shareholder. He has agreed to serve a Chief Executive
Officer for the first year in exchange for compensation in the form
of common shares or units of the Operating Partnership in an amount
not to exceed 25,000 shares or units, as applicable, to be
determined by the Executive Compensation Committee based upon his
performance, in addition to benefits and eligibility for
participation in any option plan and bonus incentive compensation
plan which may be implemented by the Trust.
The other founder of the Trust and Operating Partnership serves as
the Chief Operating Officer of the Trust, the Operating Partnership
and the Managing Shareholder. His initial annual salary has been set
at $100,000, in addition to benefits, and eligibility for
participation in any common share option plan and bonus incentive
compensation plan which may be implemented by the Trust.
Operating Leases
During 1998, the Operating Partnership executed an operating lease
for its office facilities. The lease, which expires in June 15,
2003, requires monthly payments of $5,000. The Operating Partnership
has three options of five years each to extend its lease for a total
of fifteen additional years.
Minimum future lease payments on this lease are as follows:
Year ending December 31:
1999 $ 60,000
2000 60,000
2001 60,000
2002 60,000
2003 30,000
--------
Total $270,000
========
Rent expense was approximately $ 24,000 for 1998.
F-14
<PAGE>
BARON CAPITAL TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
NOTE 8. RELATED PARTY TRANSACTIONS
Trust Management Agreement
The Trust has entered into a Trust Management Agreement with the
Managing Shareholder under which the Managing Shareholder is
obligated to provide management, administrative and investment
advisory services to the Trust. The services to be rendered include,
among other things, communicating with and reporting to investors,
administering accounts, providing to the Trust of office space,
equipment and facilities and other services necessary for the
Trust's operation, and representing the Trust in its relations with
custodians, depositories, accountants, attorneys, brokers and
dealers, corporate fiduciaries, insurers, banks and others, as
required. The Managing Shareholder is also responsible for
determining which real estate investments and non-real estate
investments (including the temporary investment of the Trust's
available funds prior to their commitment to particular real estate
investments) the Trust will make and for making divestment
decisions, subject to the provisions of the Declaration. The Trust
Management Agreement has an initial term of one year and may be
extended on a year-to-year basis on approval of (i) the Board or a
majority of the stockholders entitled to vote on such matter or (ii)
a majority of the Independent Trustees.
The Trust will reimburse the Managing Shareholder for all Trust
expenses in an amount not to exceed 2% of gross proceeds from the
sale by the Trust of common shares in the Trust's initial offering.
Under the Trust Management Agreement, the Trust will reimburse the
Managing Shareholder, on a monthly basis during the term of the
agreement, for its operating expenses relating to the business of
the Trust and the Operating Partnership in an amount up to the sum
of (i) 1% of the gross proceeds from the sale by the Trust of common
shares in the Trust's initial offering, and (ii) 1% of the initial
stock price for each unit of limited partnership interest ("Unit")
in the Operating Partnership issued in connection with a Proposed
Exchange Offering of Units as contemplated in the Trust's
Prospectus. The Managing Shareholder in its sole discretion may
elect to receive payment for its service in the form of common
shares with an equivalent value. The Trust will also reimburse the
Managing Shareholders for expenses incurred prior to and during the
Cash Offering in investigating and evaluating investment
opportunities and assisting the Trust in consummating its
investments in an amount not to exceed 4% of the gross proceeds from
the sale by the Trust of common shares in the Trust's initial
offering for the Managing Shareholder's services.
During 1998, the Trust paid the Managing Shareholder $92,393 for
reimbursable expenses incurred during the Cash Offering, $185,456
for reimbursable investment expenses and $46,364 for reimbursable
management expenses. As of December 31, 1998, $136,941 is due to the
Managing Shareholder for reimbursable expenses and investment fees.
Transactions with Affiliated Entities
During 1998, the Operating Partnership paid approximately $12,000 to
an affiliated corporation for computers being used by the Operating
Partnership.
F-15
<PAGE>
BARON CAPITAL TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
NOTE 8. RELATED PARTY TRANSACTIONS (Continued)
Property Management Reimbursements
The Operating Partnership is reimbursed for administrative expenses
relating to the management of 36 rental properties affiliated to the
Trust through common ownership. During 1998, the Operating
Partnership was reimbursed for approximately $496,000 in expenses
relating to administrative duties performed for the rental
properties.
Advances
From time to time, the Operating Partnership advances funds to
affiliates. These advances do not accrue interest and are due on
demand. As of December 31, 1998, the Operating Partnership had
advanced $10,750 to two affiliates.
NOTE 9. SHAREHOLDERS' EQUITY
Cash Offering
On May 15, 1998, pursuant to a registration statement on Form SB-2,
the Trust commenced an initial public offering of a maximum of
2,500,000 common shares of beneficial interest in the Trust at $10
per common share, which is payable in full upon subscription, for
proposed total gross proceeds of $25,000,000 (the Cash Offering).
All of the common shares to be issued or sold by the Trust in the
offering will be tradable without restriction under the Securities
Act, but will be subject to certain restrictions designed to permit
the Trust to qualify and maintain its status as a Real Estate
Investment Trust under the Internal Revenue Code. The Cash Offering
will terminate no later than November 30, 1999.
Exchange Offering
The Operating Partnership has filed a registration statement on Form
S-4 with the Securities and Exchange Commission covering up to
2,500,000 units of limited partnership interest ("Units") to be
registered under the Securities Act of 1933, as amended (the "Act")
("Exchange Offering").
It is proposed that these units would be exchanged for units of
limited partnership interest in 23 limited partnerships (the
"Exchange Partnerships"), which directly or indirectly own equity
and/or mortgage interests in one or more residential apartment
properties. The Exchange Partnerships are managed by corporate
general partners which are affiliated with one of the founders of
the Operating Partnership, who is the sole stockholder and director
of the Managing Shareholder of the Trust. This registration
statement has not yet become effective.
F-16
<PAGE>
BARON CAPITAL TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
NOTE 9. SHAREHOLDERS' EQUITY (Continued)
Exchange Offering (Continued)
The number of Units being offered in exchange for the limited
partnership interests in the Exchange Partnerships will be based on
appraisals prepared by qualified and licensed independent appraisal
firms for each underlying residential apartment property. For
purposes of the Exchange Offering, each Unit has been arbitrarily
assigned an initial value of $10, which corresponds to the offering
price of each Trust Common Share currently being offered to the
public pursuant to the Cash Offering. The value of each Unit and
Common Share outstanding will be substantially identical since Unit
holders, including recipients of Units in the Exchange Offering,
will be entitled to exchange all or a portion of their Units at any
time and from time to time for an equivalent number of Trust Common
Shares, so long as the exchange would not cause the exchanging party
to own (taking into account certain ownership attribution rules) in
excess of 5% of the then outstanding shares in the Trust, subject to
the Trust's right to cash out any holder of Units who requests an
exchange and subject to certain other exceptions. To facilitate such
exchanges of Units into Common Shares, 2,500,000 Common Shares (in
addition to the 2,500,000 Common Shares being offered by the Trust
in the Cash Offering) have been registered with the Commission.
As its initial investment targets in the Exchange Offering, the
Operating Partnership is offering to acquire equity and/or
subordinated mortgage interests in 26 properties (the "Exchange
Properties") directly or indirectly owned by the 23 Exchange
Partnerships. The Operating Partnership will acquire interests in a
particular property and/or mortgages by acquiring from limited
partners their units of limited partnership interest in the
respective Exchange Partnership. Each of the Exchange Partnerships
directly or indirectly owns equity and/or mortgage interests in one
or more properties. Certain of the Exchange Partnerships directly or
indirectly own equity interests in 16 properties which consist of an
aggregate of 1,012 residential units (comprised of studio, one, two,
three and four bedroom units). Certain of the Exchange Partnerships
directly or indirectly own mortgage interests in 10 properties,
which consist of an aggregate of 813 existing residential units
(studio and one and two bedroom units) and 168 units (two and three
bedroom units) under development. Of the Exchange Properties, 21
properties are located in Florida, three properties in Ohio and one
property each in Georgia and Indiana.
Operating Partnership Limited Partnership Units
In connection with the formation of the Trust and the Operating
Partnership, the Original Investors each subscribed for 601,080
limited partnership units of the Operating Partnership (a total of
1,202,160 units). In consideration for the units subscribed for by
them, the Original Investors made a $100,000 capital contribution to
the Operating Partnership. If the Cash Offering and the Exchange
Offering are fully subscribed, those Units would represent 19% of
the total Common Shares outstanding after completion of the Cash
Offering and exchange by the Operating Partnership of 2,500,000 of
its Units for units of limited partnership interest in real estate
limited partnerships (including any exchange pursuant to the
F-17
<PAGE>
BARON CAPITAL TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
NOTE 9. SHAREHOLDERS' EQUITY (Continued)
Operating Partnership Limited Partnership Units (Continued)
Exchange Offering), calculated on a fully diluted basis assuming all
then outstanding Units (other than those acquired by the Trust) have
been exchanged into an equivalent number of Common Shares. If,
however, as of November 30, 1999, the Cash Offering and/or the
Exchange Offering has been completed and the number of Units
subscribed for by each Original Investment represents a percentage
greater than 19% of the then outstanding Common Shares, calculated
on a fully diluted basis assuming that all then outstanding Units
(other than those acquired by the Trust) have been exchanged into an
equivalent number of Common Shares, each Original Investor has
agreed to return any excess Units to the Operating Partnership for
cancellation. The Original Investors have deposited Units subscribed
for by them into a security escrow account for six to nine years,
subject to earlier release under certain conditions.
Under the subscription agreement, the Original Investors agreed to
waive future administrative fees for managing Participating Exchange
Partnerships; agreed to assign to the Operating Partnership the
right to receive all residual economic rights attributable to the
general partner interests in Participating Exchange Partnerships;
and, in order to permit management of the Exchange Properties by the
Operating Partnership, caused the Exchange Partnerships to cancel
the partnerships' prior property management agreements and agreed to
forego the right to have a property management firm controlled by
the Original Investors assume the property management role in
respect of properties in which the Trust or the Operating
Partnership invest.
Based upon the total Common Shares outstanding as of December 31,
1998, the Original Investors would be entitled to exchange their
limited partnership units for a net amount of 108,757 Common Shares.
These equivalent common shares have been taken into consideration in
the calculation of net loss per share on an as-converted basis (see
Note 10).
Distributions
During 1998, the Board of Trustees authorized the payment of two
quarterly distributions aggregating $72,159 ($.225 per common share
of beneficial interest) from the surplus of the Trust. This amount
is presented in the accompanying consolidated financial statements
as a deduction from shareholders' equity under the caption
"Distributions".
NOTE 10. NET LOSS PER SHARE
The Trust computes per share data in accordance with Statement of
Financial Accounting Standards No. 128 (SFAS 128), "Earnings Per
Share". SFAS 128 requires dual presentation of basic and diluted
earnings per share on the face of the income statement.
F-18
<PAGE>
BARON CAPITAL TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
NOTE 10. NET LOSS PER SHARE (Continued)
Basic net loss per share equals net loss divided by the weighted
average shares outstanding during the year. The computation of
diluted net loss per share that includes dilutive common stock
equivalents in the weighted average shares outstanding has not been
presented as it is anti-dilutive in 1998.
The components used in calculating basic net loss per share are as
follows:
Weighted
Average Loss
Net Loss Shares (a) Per Share
-------- ---------- ---------
1998 $(1,450,850) 262,631 $(5.52)
=========== ======= ======
(a) Weighted average shares are comprised of the following: 1998
----
Investors 212,731
Founders (on an as-converted basis) 49,900
-------
Total 262,631
=======
NOTE 11. SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING AND FINANCING
ACTIVITIES
During 1998, the Operating Partnership acquired three rental
apartment properties through the assumption of mortgage payables and
a note payable, as follows:
Mortgages payable $4,058,737
Note payable 575,000
----------
$4,633,737
==========
Also, the Operating Partnership acquired furniture and equipment in
1998 by means of capital lease financing in the amount of $59,769.
F-19
<PAGE>
U. S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
(Mark One)
|X| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1999
|_| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period ended ______________ to ______________
Commission file number 333-35063
Baron Capital Trust
(Exact name of small business issuer as specified in its charter)
Delaware 31-1574856
(State or other jurisdiction (IRS Employer
of incorporation or organization) Identification No.)
7826 Cooper Road, Cincinnati, Ohio 45242
(Address of principal executive offices)
(513) 984-5001
(Issuer's telephone number)
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days.
Yes |X| No |_|
1
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
BARON CAPITAL TRUST
CONSOLIDATED BALANCE SHEET
DECEMBER 31, 1998 AND MARCH 31, 1999
<TABLE>
<CAPTION>
DECEMBER 31, 1998 MARCH 31, 1999
<S> <C> <C>
ASSETS
Rental Apartments:
Land $ 1,178,693 $ 1,178,693
Depreciable Property 6,189,095 6,189,095
----------- -----------
7,367,788 7,367,788
Less: Accumulated Depreciation (1,246,627) (1,287,894)
----------- -----------
6,121,161 6,079,894
Investments in Partnerships 730,330 1,409,497
Cash and Cash Equivalents 177,299 10,261
Restricted Cash 66,199 68,540
Property Management Reimbursements Rec., Affiliates 155,071 155,071
Other Receivables 80,112 99,754
Advances to Affiliates 10,750 10,750
Other Property and Equipment 168,982 199,403
Other Assets 221,611 208,178
----------- -----------
880,024 751,957
Total Assets $ 7,731,515 $ 8,241,348
----------- -----------
LIABILITIES AND SHAREHOLDERS EQUITY
Liabilities:
Mortgages Payable $ 4,039,718 $ 4,029,810
Notes Payables 375,000 375,000
Accounts Payable and accrued liabilities
including $105,573 due to Managing Shareholder 388,385 237,922
Capital Lease Obligation 55,984 55,984
Security Deposit 38,336 40,865
----------- -----------
Total Liabilities 4,897,423 4,739,581
Shareholder's Equity:
Common Shares of beneficial interest, no par value; $ 4,257,101 $ 5,389,503
2,500,000 shares authorized; 583,850 shares issued and outstanding
Operating Partnership limited partnership units; 100,000 100,000
1,202,160 units issued and outstanding; which are subject to
escrow restrictions (122,561 convertible into common shares)
Distributions (72,159) (146,341)
Retained Earnings (1,450,850) (1,450,850)
Current Year Deficit -- (390,545)
----------- -----------
Total Shareholders Equity 2,834,092 3,501,767
Total Liabilities and Shareholders Equity $ 7,731,515 $ 8,241,348
----------- -----------
</TABLE>
See notes to consolidated financial statements
2
<PAGE>
BARON CAPITAL TRUST
CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31, 19998 AND 1999
<TABLE>
<CAPTION>
MARCH 31, 1998 MARCH 31, 1999
<S> <C> <C>
REVENUES:
Property $ 257,350
Rental 4,844
Other 383
Total Revenues 0 262,577
REAL ESTATE EXPENSES:
Depreciation 36,453
Interest 73,186
Repairs and Maintenance 17,476
Personnel 29,040
Property Taxes 20,596
Property Insurance 7,206
Utilities 11,551
Other 9,214
---------
0 204,722
ADMINISTRATIVE EXPENSES:
Personnel 23,600 272,661
Management, investment and administrative fees, 92,873
Managing Shareholder
Professional Services 9,785 59,710
Other 13,768 29,323
--------- ---------
47,153 454,567
Total Expenses 47,153 659,289
Income/(Loss) from Investment 6,167
Net Loss ($47,153) ($390,545)
========= =========
Net Loss per Common Share ($471.53) ($0.61)
========= =========
</TABLE>
See notes to consolidated financial statements
3
<PAGE>
BARON CAPITAL TRUST
CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE THREE MONTHS ENDED MARCH 31, 1998 AND 1999
<TABLE>
<CAPTION>
MARCH 31, 1998 MARCH 31, 1999
-------------- --------------
<S> <C> <C>
Cash Flows from Operating Activities
Net Loss ($ 47,153) ($ 390,545)
Adjustments to Reconcile Net Loss to Net Cash
Depreciation -- 41,267
Other Receivables (2,062) (19,642)
Other Assets -- 13,433
Accounts Payable and Accrued Expenses (150,463)
Security Deposits -- 2,529
----------- -----------
(2,062) (112,876)
Cash Flows from Investing Activities:
Investment in Partnerships -- (679,167)
Purchases of Other Property and Equipment -- (30,421)
----------- -----------
-- (709,588)
Cash Flows from Financing Activities:
Proceeds from Sale of Common Stock 100 1,132,402
Dividends (74,182)
Proceeds from Sale of Operating Partnership Units 50,000
Payments on Mortgages -- (9,908)
----------- -----------
50,100 1,048,312
Net Increase (Decrease) in Cash and Equivalents $ 885 ($ 164,697)
Cash and Equivalents, Beginning 0 243,498
Cash and Equivalents, Ending $ 885 $ 78,801
</TABLE>
See notes to consolidated financial statements
4
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1999
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION AND CAPITALIZATION
Baron Capital Trust (the "Trust") was organized as a business trust in
Delaware on July 31, 1997. The Trust and its affiliate, Baron Capital
Properties, L.P. (the "Operating Partnership"), a Delaware limited
partnership, constitute an integrated real estate company which has been
organized to acquire equity interests in residential apartment properties
located in the United States and to provide or acquire debt mortgage loans
secured by such types of property.
The Managing Shareholder of the Trust is Baron Advisors, Inc., a Delaware
corporation which will manage the operations of the Trust and the
Operating Partnership subject to the supervisory authority of the Board of
the Trust over the activities of the Trust and the Operating Partnership
and the Board's prior approval authority in respect of certain actions of
the Trust and the Operating Partnership specified in the Declaration of
Trust of the Trust.
The Trust's Declaration authorizes it to issue up to 25,000,000 shares of
beneficial interest, no par value per share, consisting of common shares
and of preferred shares of such classes with such preferences, conversion
or other rights, voting powers, restrictions, limitations as to dividends,
qualifications, or terms or conditions of redemption as the Managing
Shareholder may create and authorize from time to time in accordance with
Delaware law and the Declaration.
The Trust commenced operations on February 3, 1998, at which time it
received its initial capital contribution.
BASIS OF PRESENTATION
The accompanying consolidated financial statements include the accounts of
the Trust and the Operating Partnership and all of the Trust's interest in
the partnerships that own Heatherwood Kissimmee, Ltd., Riverwalk
Enterprises, Ltd., and Crystal Court Apartments II, Ltd.
All significant inter-company transactions and balances have been
eliminated in consolidation.
The accompanying condensed consolidated financial statements at March 31,
1999 have been prepared in accordance with generally accepted accounting
principles for interim financial information and with the instructions to
Form 10-QSB promulgated by the Securities and Exchange Commission. These
condensed consolidated financial statements include all adjustments which,
in the opinion of management, are necessary in order to make the financial
statements not misleading and for a fair presentation of financial
position as of March 31, 1999 and results of operations for the three
months ended March 31, 1999 and 1998 and cash flows for the three months
ended March 31, 1999 and 1998. All such adjustments are of a normal
recurring nature. The results of operations for interim periods are not
necessarily indicative of the results to be expected for a full year.
CONCENTRATIONS OF CREDIT RISK
Financial instruments that potentially subject the Trust to concentrations
of credit risk are comprised of cash and receivables.
Cash
At various times during the year the Trust had deposits in financial
institutions in excess of the federally insured limits. The Trust
maintains its cash with high quality financial institutions, which the
Trust believes limits these risks.
Property Management Reimbursements and Other Receivables
Receivables are comprised mainly of property management reimbursements due
to the Operating Partnership from various properties it manages
5
<PAGE>
and monthly rents due. The Operating Partnership monitors exposure to
credit losses and does not maintain an allowance for these receivables, as
it believes that these receivables are fully collectible.
REAL ESTATE RENTAL PROPERTIES AND DEPRECIATION
Real estate rental properties are stated at cost less accumulated
depreciation. Ordinary repairs and maintenance are expensed as incurred;
replacements having an estimated useful life of at least one year and
improvements are capitalized and depreciated over their estimated useful
lives.
Depreciation is computed on a straight-line basis over useful lives of the
properties as follows:
Estimated Useful
Lives (Years)
-------------
Building 30
Leasehold improvements 10
Furniture and fixtures 7
Computer equipment and software 3-5
Losses in carrying values of investment assets are provided by management
when the losses become apparent and the investment asset is considered
impaired in accordance with Statement of Financial Accounting Standards
No. 121, "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to Be Disposed Of." Management evaluates its investment
properties annually to assess whether any impairment indications are
present. If any investment asset is considered impaired, a loss is
provided to reduce the carrying value of the property to its estimated
fair value. No such losses have been required or provided in the
accompanying consolidated financial statements.
REVENUE RECOGNITION
Apartment units are leased under operating leases with terms of generally
one year or less. Rental income is recognized when due from tenants.
CASH AND CASH EQUIVALENTS
For purposes of the statement of cash flows, the Trust considers all
investments purchased with an original maturity of three months or less to
be cash equivalents.
INVESTMENTS IN PARTNERSHIPS
The Trust's investments in unconsolidated partnerships are accounted for
on the cost method inasmuch as the respective ownership interests
represent less than 20% of the general partnership interest therein. The
Trust periodically assesses the realizable value of these investments in
order to ascertain that there has been no impairment in their recorded
value.
CAPITAL RESERVE
In connection with the acquisition of the investment properties, as
required by the lending institutions, the Trust has established a capital
reserve account, which is to be used for significant improvements to the
property.
LOAN COSTS
The Trust has capitalized those costs incurred with obtaining financing on
the investment properties. Such costs (included with other assets) are
being amortized over the estimated term of the financing of ten years.
6
<PAGE>
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those
estimates.
INCOME TAXES
The Trust has not provided for federal income taxes because the Trust
believes it qualifies as a real estate investment trust (REIT) under
Section 856 to 860 of the Internal Revenue Code. A REIT will generally not
be subject to federal income taxation on that portion of its income that
qualifies a REIT taxable income to the extent that it distributes
substantially all of its taxable income to its stockholders and complies
with certain other requirements. The Trust made an REIT election for the
year ended December 31, 1998.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The respective carrying value of certain on-balance-sheet financial
instruments approximated their fair value. These instruments include cash,
receivables, accounts payable and accrued liabilities. Fair values were
assumed to approximate carrying values for these financial instruments
since they are short-term in nature and their carrying amounts approximate
fair values or they are receivable or payable on demand.
The fair value of debt instruments has been estimated by using discounted
cash flow models incorporating discount rates based on current market
interest rates for similar types of instruments. At December 31, 1998, the
differences between estimated fair value and the carrying value of debt
instruments were not material.
RECENT ACCOUNTING PRONOUNCEMENTS
In June 1997, the Financial Accounting Standards Board issued SFAS No.
130, "Reporting Comprehensive Income" and No. 131, "Disclosures about
Segments of an Enterprise and Related Information." SFAS No. 130
establishes standards for reporting and displaying comprehensive income,
its components, and accumulated balances. SFAS No. 131 establishes
standards for the way that public companies report information about
operating segments in annual financial statements and requires reporting
of selected information about operating segments in interim financial
statements issued to the public. Both SFAS No. 130 and SFAS No. 131 are
effective for periods beginning after December 15, 1997. The Trust adopted
these new accounting standards in 1998, and their adoption had no effect
on the Trust's financial statements and disclosures.
In June 1998, the Financial Accounting Standards Board issued SFAS No.
133, "Accounting for Derivative Instruments and Hedging Activities." SFAS
No. 133 requires companies to recognize all derivatives contracts as
either assets or liabilities in the balance sheet and to measure them at
fair value. If certain conditions are met, a derivative may be
specifically designated as a hedge, the objective of which is to match the
timing of the gain or loss recognition of the hedging derivative with the
recognition of (i) the changes in the fair value of the hedged asset or
liability that are attributable to the hedged risk or (ii) the earnings
effect of the hedged forecasted transaction. For a derivative not
designated as a hedging instrument, the gain or loss is recognized in
income in the period of change. SFAS No. 133 is effective for all fiscal
quarters of fiscal years beginning after June 15, 1999.
Historically, the Trust has not entered into derivatives contracts to
hedge existing risks or for speculative purposes. Accordingly, the Trust
does not expect adoption of the new standard on January 1, 2000 to affect
its financial statements.
NOTE 2. MATERIAL SUBSEQUENT EVENTS AND CONTINGENCIES
Alexandria Property, net of distributions $ 1,062,050
Other Limited Partnership Interests 341,280
-----------
$ 1,403,330
ALEXANDRIA APARTMENTS
7
<PAGE>
On October 14, 1998, the Operating Partnership acquired an approximate
12.3% limited partnership interest in Alexandria Development, L.P. (the
"Alexandria Property"), a Delaware limited partnership which is the owner
and developer of a 168-unit residential apartment property under
construction in Alexandria, Kentucky. The Operating Partnership paid
$400,000 for eight (8) units of limited partnership interest out of a
total of sixty-five (65) units and retains an option to acquire the
remaining fifty-seven (57) units of limited partnership interests for
$50,000 per unit or approximately $2,850,000. The option is exercisable as
additional apartments are completed and rented and expires on October 15,
1999. An affiliate of the Trust, affiliated through common ownership, sold
the partnership interest in the Alexandria Property to the Operating
Partnership and also serves as the managing general partner of the
Alexandria Property. During the construction stage of the apartment
property, the Operating Partnership's limited partnership interest in the
Alexandria Property is entitled to an annual 12% preferential return,
which is senior to the other limited partnership interests and the general
partner's nominal 1% interest.
As of March 31, 1999 the Operating Partnership owned twenty-one and seven
tenths (21.7) units of limited partnership interest for which it paid
$1,085,000. Subsequent to March 31, 1999, the Operating Partnership
exercised its option to purchase an additional two and one half (2.5)
units of limited partnership interest for $125,000. In addition, $12,000
was distributed to the Operating Partnership during the three (3) months
ended March 31, 1999 and $10,000 was distributed to the Operating
Partnership subsequent to March 31, 1999.
CONTRACT TO PURCHASE ADDITIONAL PROPERTIES
In September 1998, the Trust entered in an agreement with three real
estate development companies to acquire two luxury residential apartment
properties in the development stage upon the completion of construction.
The development companies (Brentwood at Southgate, Ltd., Burlington
Residential, Ltd. and The Shoppes at Burlington, Ltd.) are controlled by
one of the Trust's founders and chief executive officer. The properties
are scheduled to have a total of 652 units, comprised of one, two and
three bedroom/one or two bathroom apartments. Construction of one of the
properties, located in Louisville, Kentucky, is expected to be completed
prior to the end of 2000, and construction of the other property, located
in Burlington, Kentucky (part of the Cincinnati metropolitan area), is
expected to be completed by the end of 2001. The aggregate purchase price
for the two properties is in the range of approximately $41,000,000 to
$43,000,000. The closing of each acquisition, which is expected to occur
shortly following the completion of construction, is conditioned on, among
other things, the completion of the respective apartment property, the
availability of first mortgage financing and the Trust's raising the
balance of the funds necessary for the acquisition in its ongoing Cash
Offering or otherwise have funds available to make the acquisition.
In connection with the transaction and in exchange for certain benefits
described below, the Trust agreed to co-guarantee (along with the chief
executive officer), up to 35% (or approximately $12,500,000) of the
development portion of long-term construction loans with an aggregate
principal amount of up to $36,000,000 to be provided by a bank to the
development companies. As of March 31, 1999, approximately $4,850,000 of
such loans had been drawn down, resulting in outstanding guarantees of
approximately $1,700,000. Subject to the fulfillment of certain closing
and funding conditions, the construction loans will be made to the
development companies in connection with the development and construction
of the two apartment properties and of an 111,000 square foot shopping
center being developed in Burlington, Kentucky. The interest rates on the
construction loans range from 7.36% to 7.52%. The Trust also agreed that,
if the loans are not repaid prior to the expiration of the guarantee, it
will either buy out the bank's position on the entire amount of the
construction loans or arrange for a third party to do so. The construction
loans are expected to be replaced by a long-term credit facility.
The Trust expects to receive significant benefits from the transaction in
addition to the acquisition of two large luxury apartment properties
located in attractive communities. In exchange for the guarantee of the
development portion of the construction loans, the Trust will receive a
discount of approximately $212,500 (representing a one-half of one percent
reduction) on the purchase price of the properties. The Trust and the
development companies are negotiating a further price reduction which
would apply if the development portion of the loans is not repaid prior to
the expiration of the guarantee period and the Trust is required to buy
out or arrange for the buyout of the lender's position on the loans.
NOTE 3. SHAREHOLDERS' EQUITY
CASH OFFERING
On May 15, 1998, pursuant to a registration statement on Form SB-2, the
Trust commenced an initial public offering of a maximum of 2,500,000
common shares of beneficial interest in the Trust at $10 per common share,
which is payable in full upon subscription, for proposed total gross
proceeds of $25,000,000 (the Cash Offering). All of the common shares to
be issued or sold by the Trust in the offering will be tradable without
restriction under the Securities Act, but will be subject to certain
restrictions designed to permit the Trust to qualify and maintain its
status as a Real Estate Investment Trust under the Internal Revenue Code.
The Cash Offering will terminate no later than November 30, 1999.
EXCHANGE OFFERING
The Operating Partnership has filed a registration statement on Form S-4
with the Securities and Exchange Commission covering up to 2,500,000 units
of limited partnership interest ("Units") to be registered under the
Securities Act of 1933, as amended (the "Act") ("Exchange Offering"). It
is proposed that these units would be exchanged for units of limited
partnership interest in 23 limited partnerships (the "Exchange
Partnerships"), which directly or indirectly own equity and/or mortgage
interests in one or more residential apartment properties. The Exchange
Partnerships are managed by corporate general partners which are
affiliated with one of the founders of the Operating Partnership, who is
the
8
<PAGE>
sole stockholder and director of the Managing Shareholder of the Trust.
This registration statement has not yet become effective.
The number of Units being offered in exchange for the limited partnership
interests in the Exchange Partnerships will be based on appraisals of the
respective real property prepared by qualified and licensed independent
appraisal firms for each underlying residential apartment property. For
purposes of the Exchange Offering, each Unit has been arbitrarily assigned
an initial value of $10, which corresponds to the offering price of each
Trust Common Share currently being offered to the public pursuant to the
Cash Offering. The value of each Unit and Common Share outstanding will be
substantially identical since Unit holders, including recipients of Units
in the Exchange Offering, will be entitled to exchange all or a portion of
their Units at any time and from time to time for an equivalent number of
Trust Common Shares, so long as the exchange would not cause the
exchanging party to own (taking into account certain ownership attribution
rules) in excess of 5% of the then outstanding shares in the Trust,
subject to the Trust's right to cash out any holder of Units who requests
an exchange and subject to certain other exceptions. To facilitate such
exchanges of Units into Common Shares, 2,500,000 Common Shares (in
addition to the 2,500,000 Common Shares being offered by the Trust in the
Cash Offering) have been registered with the Commission.
As its initial investment targets in the Exchange Offering, the Operating
Partnership is offering to acquire equity and/or subordinated mortgage
interests in 26 properties (the "Exchange Properties") directly or
indirectly owned by the 23 Exchange Partnerships. The Operating
Partnership will acquire interests in a particular property and/or
mortgages by acquiring from limited partners their units of limited
partnership interest in the respective Exchange Partnership. Each of the
Exchange Partnerships directly or indirectly owns equity and/or mortgage
interests in one or more properties. Certain of the Exchange Partnerships
directly or indirectly own equity interests in 16 properties which consist
of an aggregate of 1,012 residential units (comprised of studio, one, two,
three and four bedroom units). Certain of the Exchange Partnerships
directly or indirectly own mortgage interests in 10 properties, which
consist of an aggregate of 813 existing residential units (studio and one
and two bedroom units) and 168 units (two and three bedroom units) under
development. Of the Exchange Properties, 21 properties are located in
Florida, three properties in Ohio and one property each in Georgia and
Indiana.
OPERATING PARTNERSHIP LIMITED PARTNERSHIP UNITS
In connection with the formation of the Trust and the Operating
Partnership, each of the Original Investors subscribed for 601,080 limited
partnership units of the Operating Partnership (a total of 1,202,160
units). In consideration for the units subscribed for by them, each of the
Original Investors made a $50,000 capital contribution to the Operating
Partnership. If the Cash Offering and the Exchange Offering are fully
subscribed, those Units would represent 19% of the total Common Shares
outstanding after completion of the Cash Offering and exchange by the
Operating Partnership of 2,500,000 of its Units for units of limited
partnership interest in real estate limited partnerships (including any
exchange pursuant to the Exchange Offering), calculated on a fully diluted
basis assuming all then outstanding Units (other than those acquired by
the Trust) have been exchanged into an equivalent number of Common Shares.
If, however, as of November 30, 1999, the Cash Offering and/or the
Exchange Offering has been completed and the number of Units subscribed
for by each Original Investment represents a percentage greater than 19%
of the then outstanding Common Shares, calculated on a fully diluted basis
assuming that all then outstanding Units (other than those acquired by the
Trust) have been exchanged into an equivalent number of Common Shares,
each Original Investor has agreed to return any excess Units to the
Operating Partnership for cancellation. The Original Investors have
deposited Units subscribed for by them into a security escrow account for
six to nine years, subject to earlier release under certain conditions.
Based upon the total Common Shares outstanding as of March 31, 1999, the
Original Investors would be entitled to exchange their limited partnership
units for a net amount of 122,561 Common Shares. These equivalent common
shares have been taken into consideration in the calculation of net loss
per share on an as-converted basis (see Note 4).
NOTE 4. NET LOSS PER SHARE
The Trust computes per share data in accordance with Statement of
Financial Accounting Standards No. 128 (SFAS 128), "Earnings Per Share".
SFAS 128 requires dual presentation of basic and diluted earnings per
share on the face of the income statement.
Basic net loss per share equals net loss divided by the weighted average
shares outstanding during the year. The computation of diluted net loss
per share that includes dilutive common stock equivalents in the weighted
average shares outstanding has not been presented as it is anti-dilutive
for the three months ended March 31, 1999.
The components used in calculating basic net loss per share are as
follows:
Weighted
Average Loss
Net Loss Shares (a) Per Share
-------- ---------- ---------
Three months ended
March 31, 1999 $(390,545) 645,056 $(0.61)
========= ======= ======
(a) Weighted average shares are comprised of the following:
9
<PAGE>
1998
----
Investors 522,495
Founders (on an as-converted basis) 122,561
-------
Total 645,056
=======
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
The following discussion should be read in conjunction with the Company's
Consolidated Financial Statements and Notes thereto.
FORWARD-LOOKING STATEMENTS
This Management's Discussion and Analysis of Financial Condition and
Results of Operations and other sections of this Report contains certain
forward-looking statements within the meaning of the Securities Litigation
Reform Act of 1995 that are based on current expectations, estimates and
projections about the Trust's business, management's beliefs and assumptions
made by management. Words such as "expects," "anticipates," "intends," "plans,"
"believes," "seeks," "estimates," and variations of such words and similar
expressions are intended to identify such forward-looking statements. These
statements are not guarantees of future performance and involve certain risks,
uncertainties and assumptions that are difficult to predict. Therefore, actual
outcomes and results may differ materially from what is expressed or forecasted
in such forward-looking statements due to numerous factors, including, but not
limited to those discussed in Management's Discussion and Analysis of Financial
Condition and Results of Operations, as well as those discussed elsewhere in
this Report and from time to time in the Trust's other Securities and Exchange
Commission filings and reports. In addition, such statements could be affected
by general domestic and international economic conditions. The forward-looking
statements contained in this report speak only as of the date on which they are
made, and the Trust does not undertake any obligation to update any
forward-looking statement to reflect events or circumstances after the date of
this Report. If the Trust does update one or more forward-looking statements,
investors and others should not conclude that the Trust will make additional
updates with respect thereto or with respect to other forward-looking
statements.
PLAN OF OPERATION
The Trust commenced operations on May 17, 1998. Through its Operating
Partnership, it started acquiring interests in properties including the total
limited partnership interests in Heatherwood I Apartments in June, 1998; Crystal
Court II Apartments in July 1998; and Riverwalk Apartments in September, 1998.
In July, 1998 it acquired a limited partnership interest in 20 real estate
limited partnerships managed by affiliates of Gregory K. McGrath (a founder and
Chief Executive Officer of the Registrant and the Operating Partnership). In
October, 1998 it acquired a 12.3 percent interest in Alexandria Apartments (see
Item 2 - Description of Properties).
The Trust plans to continue raising equity under its current offering
dated May 15, 1998. The current offering is for $25,000,000, and is effective
through November 30, 1999. Through March 31, 1999 the Trust has raised
$5,838,403. The net cash proceeds from the issuance of Common Shares in
connection with this offering and the net cash proceeds of any subsequent
issuance of Common Shares will be contributed by the Trust to the Operating
Partnership in exchange for an equivalent number of Units in the Operating
Partnership. The Operating Partnership will use the net cash proceeds of the
offering, unissued units of limited partnership interest in the operating
partnership or a combination of net cash proceeds and unissued units to acquire
interests in residential apartment properties or interests in other partnerships
substantially all of whose assets consist of residential apartment property
interests, and payment of fees and expenses as described in the Prospectus dated
May 15, 1998. The Trust has the ability to satisfy its cash requirements for the
foreseeable future. However, it will be necessary to raise additional capital
during the next 12 months to make acquisitions and to meet management's revenue
and cash flow goals.
The Operating Partnership intends to conduct an exchange offering under
which it will offer to issue units ("Units") of limited partnership interest to
be registered, with an initial assigned value of $25,000,000, in exchange for
limited partnership interests in real estate limited partnerships which directly
or indirectly own interests in residential apartments in the United States. The
Registrant and the Operating Partnership intend to investigate making an
additional public or private offering of Common Shares and/or Units within the
next 12 months.
The Registrant and the Operating Partnership expect no material change in
the number of employees over the next 12 months.
PART II - OTHER INFORMATION
10
<PAGE>
ITEM 1. LEGAL PROCEEDINGS
The Registrant is a claimant in the Georgia-Pacific class action lawsuit.
ITEM 2. CHANGES IN SECURITIES
There were no material modifications in the instruments defining the
rights of any class of registered securities. There were no sales of any
unregistered securities.
The Registrant's Form SB-2 Registration Statement (the "Registration
Statement") (Commission file number 333-35063) was declared effective by the
Commission on May 15, 1998. On May 18, 1998, the Registrant commenced its public
offering (the "Offering") of common shares of beneficial interest in the
Registrant ("Common Shares"), the class of securities registered, and the
Offering is currently ongoing. The name of the managing underwriter of the
Offering is Sigma Financial Corporation. The amount of Common Shares registered
is 2,500,000 shares. The offering price per Common Share is $10.00, and the
aggregate price of the offering amount registered is $25,000,000. As of the date
of this report, 614,110 Common Shares have been sold in the Offering, for an
aggregate offering price of $6,141,103.
From the effective date of the Registration Statement through March 31,
1999, the following expenses have been incurred for the Registrant's account in
connection with the issuance and distribution of the registered Common Shares:
<TABLE>
<S> <C>
Underwriting discounts and commissions: $448,999 (plus five-year warrants to Acquire
33,107 Common Shares at an exercise
price of $13.00 per share)
Finder's Fees: $ 0
Expenses Paid to or for Underwriter: $ 0
Other Expenses (reimbursement for
Advisory and investment expenses): $374,024
Total Expenses: $823,023
</TABLE>
Of such expense payments, $361,233 were made directly to Baron Advisors,
Inc., the Managing Shareholder of the Registrant. The remaining payments of
$316,388 were made directly or indirectly to others. The net offering proceeds
to the Registrant after deducting the foregoing total expenses were $5,015,380.
From the effective date of the Registration Statement through March 31,
1999, the net offering proceeds to the Registrant were used for the following
purposes:
Improvements to buildings and facilities: $ 0
Purchase and installation of equipment: $ 0
Repayment of indebtedness: $ 0
Working capital: $ 0
Temporary investments: $ 0
Investment in Baron Capital Properties, L.P.
(the Operating Partnership) - 3/31/99 value $4,707,240
Other purposes for which 5% or more of net
offering proceeds or $100,000 (whichever
is less) have been used: $ 0
11
<PAGE>
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
ITEM 5. OTHER INFORMATION
On October 14, 1998, the Operating Partnership acquired an approximate
12.3% limited partnership interest in Alexandria Development, L.P. (the
"Alexandria Property"), a Delaware limited partnership which is the owner and
developer of a 168-unit residential apartment property under construction in
Alexandria, Kentucky. The Operating Partnership paid $400,000 for eight (8)
units of limited partnership interest out of a total of sixty-five (65) units
and retains an option to acquire the remaining fifty-seven (57) units of limited
partnership interests for $50,000 per unit or approximately $2,850,000. The
option is exercisable as additional apartments are completed and rented and
expires on October 15, 1999. An affiliate of the Trust, affiliated through
common ownership, sold the partnership interest in the Alexandria Property to
the Operating Partnership and also serves as the managing general partner of the
Alexandria Property. During the construction stage of the apartment property,
the Operating Partnership's limited partnership interest in the Alexandria
Property is entitled to an annual 12% preferential return, which is senior to
the other limited partnership interests and the general partner's nominal 1%
interest.
As of March 31, 1999 the Operating Partnership owned twenty-one and seven
tenths (21.7) units of limited partnership interest for which it paid
$1,085,000. Subsequent to March 31, 1999, the Operating Partnership exercised
its option to purchase an additional two and one half (2.5) units of limited
partnership interest for $125,000. During the three (3) months ended March 31,
1999, $12,000 was distributed to the Operating Partnership from the Alexandria
Property and subsequent to March 31, 1999, $10,000 was distributed to the
Operating Partnership from the Alexandria Property.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibit No. Description
----------- -----------
20.1 1998 Annual Report to Shareholders
27.1* Financial Data Schedule (3/31/99)
27.2* Financial Data Schedule (12/31/98)
----------
* Contained in electronic filing only.
(b) No reports on Form 8-K were filed during the quarter ended March 31,
1999.
In accordance with the requirements of the Exchange Act, the Registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
12
<PAGE>
May 14, 1999 BARON CAPITAL TRUST
By: /s/ Gregory K. McGrath
---------------------------------
Gregory K. McGrath
Chief Executive Officer
By: /s/ Mark L. Wilson
---------------------------------
Mark L. Wilson
Interim-Chief Financial Officer
13
<PAGE>
================================================================================
BARON ADVISORS, INC.
FINANCIAL STATEMENTS
DECEMBER 31, 1998
================================================================================
<PAGE>
BARON ADVISORS, INC.
TABLE OF CONTENTS
PAGE
----
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS 1
FINANCIAL STATEMENTS
Balance Sheet 2
Statement of Income and Retained Earnings 3
Statement of Cash Flows 4
Notes to Financial Statements 5-7
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Stockholder
Baron Advisors, Inc.
Cincinnati, Ohio
We have audited the accompanying balance sheet of Baron Advisors, Inc. (an
S-Corporation) as of December 31, 1998 and the related statements of income and
retained earnings and cash flows from inception (February 28, 1998) to December
31, 1998. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above presents fairly, in
all material respects, the financial position of Baron Advisors, Inc. as of
December 31, 1998 and the results of its operations and its cash flows for the
period from inception (February 28, 1998) to December 31, 1998 in conformity
with generally accepted accounting principles.
Miami, Florida
April 13, 1999
<PAGE>
BARON ADVISORS, INC.
BALANCE SHEET
DECEMBER 31, 1998
ASSETS
Cash $ 587
Due from the Trust 136,941
--------
$137,528
========
LIABILITIES AND STOCKHOLDER'S EQUITY
Liabilities:
Accounts payable and accrued expenses $ 11,022
--------
Total liabilities 11,022
--------
Commitments and Subsequent Events --
Stockholder's Equity:
Common stock, $.10 par value; 1,000 shares
authorized; issued and outstanding 100
Retained earnings 126,406
--------
Total stockholder's equity 126,506
--------
$137,528
========
See notes to financial statements.
-2-
<PAGE>
BARON ADVISORS, INC.
STATEMENT OF INCOME AND RETAINED EARNINGS
FROM INCEPTION (FEBRUARY 28, 1998) TO DECEMBER 31, 1998
Revenue $324,213
--------
Operating Expenses:
Investment consulting services 131,040
Legal services 64,000
Filing fees 2,700
Bank charges 67
--------
Total operating expenses 197,807
--------
Net Income 126,406
Retained Earnings, Beginning --
--------
Retained Earnings, ending $126,406
========
See notes to financial statements.
-3-
<PAGE>
BARON ADVISORS, INC.
STATEMENT OF CASH FLOWS
FROM INCEPTION (FEBRUARY 28, 1998) TO DECEMBER 31, 1998
Cash Flows from Operating Activities:
Net income $ 126,406
Adjustments to reconcile net income to
net cash provided by operating activities:
Increase in due from affiliate (136,941)
Increase in accounts payable and accrued expenses 11,022
---------
Net cash provided by operating activities 487
---------
Cash Flows from Financing Activities:
Proceeds from issuance of common stock 100
---------
Net cash provided by financing activities 100
---------
Net Increase in Cash 587
Cash, Beginning --
---------
Cash, Ending $ 587
=========
See notes to financial statements.
-4-
<PAGE>
BARON ADVISORS, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1998
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization
Baron Advisors, Inc., (the "Management Company") was incorporated in
July 1997 as a Delaware corporation. The Management Company was
formed for the sole purpose of managing the Baron Capital Trust (the
"Trust") and, therefore, there was no activity for the period since
incorporation until February 28, 1998, when operations for the Trust
began. The Management Company is the managing shareholder of the
Trust.
As the Management Company of the Trust, Baron Advisors, Inc., will
have direct and exclusive discretion in management and control of
the affairs of the Trust and Baron Capital Properties, L.P. (the
"Operating Partnership"), subject to general supervision and review
by the Independent Trustees and the Management Company acting
together as the Board of the Trust and to prior approval of a
majority of the Board and a majority of the Independent Trustees in
respect of certain specified actions. The Corporate Trustee, Baron
Capital Properties, Inc. (an affiliate of the Management Company),
will act on the instructions of the Management Company, and will not
take independent discretionary action on behalf of the Trust.
Concentration of Credit Risk
The Management Company's entire receivable balance is due from the
Trust.
Revenue Recognition
Revenue is recognized when services are performed.
Income Taxes
The Management Company and its stockholders have elected "S
Corporation" status for federal income tax purposes. As an S
Corporation, the tax liability for income generated and the benefit
for losses incurred pass directly to the stockholders. Accordingly,
no provision for income taxes is presented in the accompanying
financial statements.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that affect the amounts reported in the financial
statements and accompanying notes. Although these estimates are
based on management's knowledge of current events and actions it may
undertake in the future, they may ultimately differ from actual
results.
-5-
<PAGE>
BARON ADVISORS, INC.
NOTES TO FINANCIAL STATEMENTS
(Continued)
NOTE 2. RELATED PARTY TRANSACTION
Trust Management Agreement
On May 15, 1998, the Management Company entered into a Trust
Management Agreement with the Trust under which the Management
Company is obligated to provide management, administrative and
investment advisory services to the Trust. The services to be
rendered include, among other things, communicating with and
reporting to investors, administering accounts, providing to the
Trust office space, equipment and facilities and other services
necessary for the Trust's operation, and representing the Trust in
its relations with custodians, depositories, accountants, attorneys,
brokers and dealers, corporate fiduciaries, insurers, banks and
others, as required. The Management Company will also be responsible
for determining which real estate investments and non-real estate
investments (including the temporary investment of the Trust's
available funds prior to their commitment to particular real estate
investments) the Trust will make and for making divestment
decisions, subject to the provisions of the Amended and Restated
Declaration of Trust. The Trust Management Agreement has an initial
term of one year and may be extended on a year-to-year basis on
approval of (i) the Board or a majority of the shareholders entitled
to vote on such matter or (ii) a majority of the Independent
Trustees.
The Trust will reimburse the Management Company for all Trust
expenses in an amount not to exceed 2% of gross proceeds from the
sale by the Trust of Common Shares in the Trust's initial offering.
As compensation for the Management Company's performance under the
Trust Management Agreement, beginning June 1, 1998, the Trust will
pay to the Management Company, on a monthly basis during the term of
the agreement, an annual management fee in the sum of (i) 1% of the
gross proceeds from the sale by the Trust of Common Shares in the
Trust's initial offering, and (ii) 1% of the initial stock price for
each unit of limited partnership interest ("Unit") in the Operating
Partnership issued in connection with a Proposed Exchange Offering
of Units as contemplated in the Trust's Prospectus, (iii) an
investment fee in an amount equal to 4% of the gross proceeds from
the sale by the Trust of common shares in the Trust's initial
offering for the Management Company's services in investigating and
evaluating investment opportunities and assisting the Trust in
consummating its investments. The Management Company in its sole
discretion may elect to receive payment for its service in the form
of common shares with an equivalent value.
During 1998, the Management Company received from the Trust
approximately $92,000 in reimbursed expenses, $185,000 for
investment fees and $46,000 as management fees. As of December 31,
1998, $136,941 is due from the Trust for reimbursable expenses and
investment fees.
Subsequent to year end, the Management Company received
approximately $28,000 in reimbursed expenses and $53,000 in
investment fees from the Trust.
-6-
<PAGE>
BARON ADVISORS, INC.
NOTES TO FINANCIAL STATEMENTS
(Continued)
NOTE 3. YEAR 2000 (UNAUDITED)
As the Year 2000 approaches, the Management Company recognizes the
need to ensure its operations will not be adversely impacted by Year
2000 software failures. The Management Company is addressing this
issue to ensure the availability and integrity of its financial
systems and the reliability of its operating systems. Processes have
been established for evaluating and managing the risks and costs
associated with this problem. The Management Company has and will
continue to make certain investments in its software systems and
applications to ensure that it is Year 2000 compliant.
NOTE 4. SUBSEQUENT EVENT
Effective March 1999, the Management Company's sole investment
consultant raised the investment fees from two percent (2%) to 4
percent (4%). The investment consultant charges a commission based
on the gross proceeds from the sale by the Trust of Common Shares in
the Trust's initial cash offering.
-7-
<PAGE>
EXHIBIT D
FINANCIAL STATEMENTS OF THE
EXCHANGE PROPERTIES/
EXCHANGE PARTNERSHIPS
<PAGE>
INDEPENDENT AUDITOR'S REPORT
The Board of Baron Capital Trust:
I have audited the accompanying statement of revenues and certain expenses
(defined as being operating revenues less direct operating expenses) of the
Blossom Corners Apartments, Phase I, for the years ended December 31, 1997 and
1998. This financial statement is the responsibility of the Company's
management. My responsibility is to express an opinion on this financial
statement based upon my audit.
I conducted my audit in accordance with generally accepted auditing standards.
Those standards require that I plan and perform the audits to obtain reasonable
assurance about whether the statement of revenues and certain expenses is free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the statement of revenues and certain
expenses. An audit also includes assessing the accounting principles used and
significant estimates made by management as well as evaluating the overall
presentation of the statement of revenues and certain expenses. I believe that
my audit provides a reasonable basis for my opinion.
The accompanying statement of revenues and certain expenses was prepared for the
purpose of complying with the rules and regulations of the Securities and
Exchange Commission (for inclusion in the Registration Statement on Form SB-2 of
Baron Capital Trust, a Delaware business trust) and excludes material expenses
described in Note 1 to the statement of revenues and certain expenses, that
would not be comparable to those resulting from the proposed future operations
of the property.
In my opinion, the statement of revenues and certain expenses presents fairly,
in all material respects, the revenues and certain expenses, as defined above,
of the Blossom Corners Apartments, Phase I, for the years ended December 31,
1997 and 1998 in conformity with generally accepted accounting principles.
Elroy D. Miedema
Certified Public Accountant
Ft. Lauderdale, Florida
April 15, 1999
<PAGE>
INDEPENDENT AUDITOR'S REPORT
The Board of Baron Capital Trust:
I have audited the accompanying statement of revenues and certain expenses
(defined as being operating revenues less direct operating expenses) of the
Blossom Corners Apartments, Phase I, for the years ended December 31, 1997 and
1998. This financial statement is the responsibility of the Company's
management. My responsibility is to express an opinion on this financial
statement based upon my audit.
I conducted my audit in accordance with generally accepted auditing standards.
Those standards require that I plan and perform the audit to obtain reasonable
assurance about whether the statement of revenues and certain expenses is free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the statement of revenues and certain
expenses. An audit also includes assessing the accounting principles used and
significant estimates made by management as well as evaluating the overall
presentation of the statement of revenues and certain expenses. I believe that
my audit provides a reasonable basis for my opinion.
The accompanying statement of revenues and certain expenses was prepared for the
purpose of complying with the rules and regulations of the Securities and
Exchange Commission (for inclusion in the Registration Statement on Form S-4 of
Baron Capital Properties, L.P., a Delaware limited partnership) and excludes
material expenses described in Note 1 to the combined statement of revenues and
certain expenses, that would not be comparable to those resulting from the
proposed future operations of the property.
In my opinion, the statement of revenues and certain expenses presents fairly,
in all material respects, the revenues and certain expenses, as defined above,
of the Blossom Corners Apartments, Phase I, for the years ended December 31,
1997 and 1998 in conformity with generally accepted accounting principles.
Elroy D. Miedema
Certified Public Accountant
Ft. Lauderdale, Florida
April 15, 1999
<PAGE>
BLOSSOM CORNERS APARTMENTS, PHASE I
STATEMENT OF REVENUES AND CERTAIN EXPENSES
FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997
AND FOR THE THREE MONTH PERIODS ENDED MARCH 31, 1999 AND 1998
<TABLE>
<CAPTION>
December 31, December 31, March 31, March 31,
1998 1997 1999 1998
------------ ------------ ----------- -----------
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
REVENUES
Rental income $ 338,755 $ 273,596 $ 78,458 $ 84,869
Other income 14,260 20,987 1,440 3,565
--------- --------- --------- ---------
Total revenues 353,015 294,583 79,898 88,434
--------- --------- --------- ---------
CERTAIN EXPENSES
Personnel 43,980 38,493 7,078 10,995
Real estate taxes and insurance 32,696 33,224 8,366 8,174
Mortgage interest expense 93,696 94,358 22,999 23,424
Management fees and
reimbursed expenses 27,362 20,039 6,464 6,841
Other operating expenses 60,038 71,416 14,739 19,735
--------- --------- --------- ---------
Total certain expenses 257,772 257,530 59,646 69,169
--------- --------- --------- ---------
REVENUES IN EXCESS
OF CERTAIN EXPENSES $ 95,243 $ 37,053 $ 20,252 $ 19,265
========= ========= ========= =========
</TABLE>
See Note to Statement of Revenues and Certain Expenses
<PAGE>
BLOSSOM CORNERS APARTMENTS, PHASE I
NOTE TO STATEMENT OF REVENUES AND CERTAIN EXPENSES
FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997
AND FOR THE THREE MONTH PERIODS ENDED MARCH 31, 1999 AND 1998
1. Descriptions and Summary of Significant Accounting Policies
Description
Blossom Corners Apartments, Phase I, consist of 70 units located in
Orlando, Florida. The property was acquired by purchase July 7, 1995 by
Florida Income Growth Fund V, Ltd. The following percentage of units were
occupied at the various period ending dates:
December 31, 1997 93%
December 31, 1998 87%
Basis Of Presentation
Operating revenues and direct operating expenses are presented on the
accrual basis of accounting. The accompanying financial statement is not
representative of the actual operations for the period presented as certain
expenses, which may not be comparable to the expenses expected to be
incurred by Baron Capital Properties, L.P., a Delaware limited partnership
which will conduct the future real property operations of Baron Capital
Trust, have been excluded. Expenses excluded consist of depreciation due to
basis and method changes, professional fees, and other costs not directly
related to the future operations of the Blossom Corners Apartments, Phase
I.
Income Recognition
Rental income attributable to residential leases is recorded when due from
tenants.
Leases
Apartment units are rented under lease agreements with terms of one year or
less.
Property Management
In exchange for services performed during 1997 and 1998, a property manager
was paid a property management fee equal to 5% of collected rental income
from the property, a performance fee of $2.00 per residential apartment
unit for each month the property manager collected more than 96% of gross
potential rents and a monthly bookkeeping fee in the range of $275 to $325.
Effective June 30, 1998, this property management agreement was terminated.
Other Matters
In connection with a proposed Exchange Offering, Baron Capital Properties,
L.P. (the "Operating Partnership"), will offer to exchange Operating
Partnership Units to the limited partners of partnerships which directly or
indirectly own the equity interest in residential apartment properties,
including the subject property. These Units are exchangeable for an
equivalent number of Common Shares of beneficial interest in Baron Capital
Trust, a real estate investment trust for which Baron Capital Properties,
L.P. is the operating partnership. Subject to the completion of the
proposed Exchange Offering, the Trust and the Operating Partnership will
account for the acquisition of the limited partnership interests in the
offering on the purchase method and therefore record the assets acquired
and liabilities assumed at their fair value at the date of acquisition.
<PAGE>
BLOSSOM CORNERS APARTMENTS, PHASE I
NOTE TO STATEMENT OF REVENUES AND CERTAIN EXPENSES
FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997
AND FOR THE THREE MONTH PERIODS ENDED MARCH 31, 1999 AND 1998
Unaudited Financial Information
The accompanying financial information for the quarters ended March 31,
1998 and 1999 is unaudited. However, in the opinion of management, all
adjustments, consisting of normal recurring accruals and adjustments for a
fair presentation of revenues and certain expenses have been made. The
results of operations for the quarters is not necessarily indicative of
results to be expected for a full year.
<PAGE>
INDEPENDENT AUDITOR'S REPORT
The Board of Baron Capital Trust:
I have audited the accompanying statement of revenues and certain expenses
(defined as being operating revenues less direct operating expenses) of
Bridgepoint Apartments for the years ended December 31, 1997 and 1998. This
financial statement is the responsibility of the Company's management. My
responsibility is to express an opinion on this financial statement based upon
my audit.
I conducted my audit in accordance with generally accepted auditing standards.
Those standards require that I plan and perform the audits to obtain reasonable
assurance about whether the statement of revenues and certain expenses is free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the statement of revenues and certain
expenses. An audit also includes assessing the accounting principles used and
significant estimates made by management as well as evaluating the overall
presentation of the statement of revenues and certain expenses. I believe that
my audit provides a reasonable basis for my opinion.
The accompanying statement of revenues and certain expenses was prepared for the
purpose of complying with the rules and regulations of the Securities and
Exchange Commission (for inclusion in the Registration Statement on Form SB-2 of
Baron Capital Trust, a Delaware business trust) and excludes material expenses
described in Note 1 to the statement of revenues and certain expenses, that
would not be comparable to those resulting from the proposed future operations
of the property.
In my opinion, the statement of revenues and certain expenses presents fairly,
in all material respects, the revenues and certain expenses, as defined above,
of Bridgepoint Apartments for the years ended December 31, 1997 and 1998 in
conformity with generally accepted accounting principles.
Elroy D. Miedema
Certified Public Accountant
Ft. Lauderdale, Florida
April 15, 1999
<PAGE>
INDEPENDENT AUDITOR'S REPORT
The Board of Baron Capital Trust:
I have audited the accompanying statement of revenues and certain expenses
(defined as being operating revenues less direct operating expenses) of
Bridgepoint Apartments for the years ended December 31, 1997 and 1998. This
financial statement is the responsibility of the Company's management. My
responsibility is to express an opinion on this financial statement based upon
my audit.
I conducted my audit in accordance with generally accepted auditing standards.
Those standards require that I plan and perform the audit to obtain reasonable
assurance about whether the statement of revenues and certain expenses is free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the statement of revenues and certain
expenses. An audit also includes assessing the accounting principles used and
significant estimates made by management as well as evaluating the overall
presentation of the statement of revenues and certain expenses. I believe that
my audit provides a reasonable basis for my opinion.
The accompanying statement of revenues and certain expenses was prepared for the
purpose of complying with the rules and regulations of the Securities and
Exchange Commission (for inclusion in the Registration Statement on Form S-4 of
Baron Capital Properties, L.P., a Delaware limited partnership) and excludes
material expenses described in Note 1 to the combined statement of revenues and
certain expenses, that would not be comparable to those resulting from the
proposed future operations of the property.
In my opinion, the statement of revenues and certain expenses presents fairly,
in all material respects, the revenues and certain expenses, as defined above,
of Bridgepoint Apartments for the years ended December 31, 1997 and 1998 in
conformity with generally accepted accounting principles.
Elroy D. Miedema
Certified Public Accountant
Ft. Lauderdale, Florida
April 15, 1999
<PAGE>
BRIDGEPOINT APARTMENTS
STATEMENT OF REVENUES AND CERTAIN EXPENSES
FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997
AND FOR THE THREE MONTH PERIODS ENDED MARCH 31, 1999 AND 1998
<TABLE>
<CAPTION>
December 31, December 31, March 31, March 31,
1998 1997 1999 1998
------------ ------------ ----------- -----------
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
REVENUES
Rental income $ 237,872 $ 212,608 $ 58,461 $ 59,468
Other income 13,760 6,605 7,274 3,440
--------- --------- --------- ---------
Total revenues 251,632 219,213 65,735 62,908
--------- --------- --------- ---------
CERTAIN EXPENSES
Personnel 19,159 14,531 4,552 4,790
Real estate taxes and insurance 24,924 24,715 6,076 6,231
Mortgage interest expense 68,574 69,345 17,011 17,144
Management fees and
reimbursed expenses 20,712 14,751 5,346 5,178
Other operating expenses 73,929 62,047 14,752 23,067
--------- --------- --------- ---------
Total certain expenses 207,298 185,389 47,737 56,410
--------- --------- --------- ---------
REVENUES IN EXCESS
OF CERTAIN EXPENSES $ 44,334 $ 33,824 $ 17,998 $ 6,498
========= ========= ========= =========
</TABLE>
See Note to Statement of Revenues and Certain Expenses
<PAGE>
BRIDGEPOINT APARTMENTS
NOTE TO STATEMENT OF REVENUES AND CERTAIN EXPENSES
FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997
AND FOR THE THREE MONTH PERIODS ENDED MARCH 31, 1999 AND 1998
1. Descriptions and Summary of Significant Accounting Policies
Description
Bridgepoint Apartments consist of 48 units located in Jacksonville,
Florida. The property was acquired by purchase July 17, 1995 by Florida
Capital Income Fund III, Ltd. The following percentage of units that were
occupied at the various period ending dates:
December 31, 1997 85%
December 31, 1998 92%
Basis Of Presentation
Operating revenues and direct operating expenses are presented on the
accrual basis of accounting. The accompanying financial statement is not
representative of the actual operations for the period presented as certain
expenses, which may not be comparable to the expenses expected to be
incurred by Baron Capital Properties, L.P., a Delaware limited partnership
which will conduct the future real property operations of Baron Capital
Trust, have been excluded. Expenses excluded consist of depreciation due to
basis and method changes, professional fees, and other costs not directly
related to the future operations of the Bridgepoint Apartments.
Income Recognition
Rental income attributable to residential leases is recorded when due from
tenants.
Leases
Apartment units are rented under lease agreements with terms of one year or
less.
Property Management
In exchange for services performed during 1997 and 1998, a property manager
was paid a property management fee equal to 5% of collected rental income
from the property, a performance fee of $2.00 per residential apartment
unit for each month the property manager collected more than 96% of gross
potential rents and a monthly bookkeeping fee in the range of $275 to $325.
Effective June 30, 1998, this property management agreement was terminated.
Other Matters
In connection with a proposed Exchange Offering, Baron Capital Properties,
L.P. (the "Operating Partnership"), will offer to exchange Operating
Partnership Units to the limited partners of partnerships which directly or
indirectly own the equity interest in residential apartment properties,
including the subject property. These Units are exchangeable for an
equivalent number of Common Shares of beneficial interest in Baron Capital
Trust, a real estate investment trust for which Baron Capital Properties,
L.P. is the operating partnership. Subject to the completion of the
proposed Exchange Offering, the Trust and the Operating Partnership will
account for the acquisition of the limited partnership interests in the
offering on the purchase method and therefore record the assets acquired
and liabilities assumed at their fair value at the date of acquisition.
<PAGE>
BRIDGEPOINT APARTMENTS
NOTE TO STATEMENT OF REVENUES AND CERTAIN EXPENSES
FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997
AND FOR THE THREE MONTH PERIODS ENDED MARCH 31, 1999 AND 1998
Unaudited Financial Information
The accompanying financial information for the quarters ended March 31,
1998 and 1999 is unaudited. However, in the opinion of management, all
adjustments, consisting of normal recurring accruals and adjustments for a
fair presentation of revenues and certain expenses have been made. The
results of operations for the quarters is not necessarily indicative of
results to be expected for a full year.
<PAGE>
INDEPENDENT AUDITOR'S REPORT
The Board of Baron Capital Trust:
I have audited the accompanying statement of revenues and certain expenses
(defined as being operating revenues less direct operating expenses) of the
Brookwood Way Apartments for the years ended December 31, 1997 and 1998. This
financial statement is the responsibility of the Company's management. My
responsibility is to express an opinion on this financial statement based upon
my audit.
I conducted my audit in accordance with generally accepted auditing standards.
Those standards require that I plan and perform the audits to obtain reasonable
assurance about whether the statement of revenues and certain expenses is free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the statement of revenues and certain
expenses. An audit also includes assessing the accounting principles used and
significant estimates made by management as well as evaluating the overall
presentation of the statement of revenues and certain expenses. I believe that
my audit provides a reasonable basis for my opinion.
The accompanying statement of revenues and certain expenses was prepared for the
purpose of complying with the rules and regulations of the Securities and
Exchange Commission (for inclusion in the Registration Statement on Form SB-2 of
Baron Capital Trust, a Delaware business trust) and excludes material expenses
described in Note 1 to the statement of revenues and certain expenses, that
would not be comparable to those resulting from the proposed future operations
of the property.
In my opinion, the statement of revenues and certain expenses presents fairly,
in all material respects, the revenues and certain expenses, as defined above,
of the Brookwood Way Apartments for the years ended December 31, 1997 and 1998
in conformity with generally accepted accounting principles.
Elroy D. Miedema
Certified Public Accountant
Ft. Lauderdale, Florida
April 15, 1999
<PAGE>
INDEPENDENT AUDITOR'S REPORT
The Board of Baron Capital Trust:
I have audited the accompanying statement of revenues and certain expenses
(defined as being operating revenues less direct operating expenses) of the
Brookwood Way Apartments for the years ended December 31, 1997 and 1998. This
financial statement is the responsibility of the Company's management. My
responsibility is to express an opinion on this financial statement based upon
my audit.
I conducted my audit in accordance with generally accepted auditing standards.
Those standards require that I plan and perform the audit to obtain reasonable
assurance about whether the statement of revenues and certain expenses is free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the statement of revenues and certain
expenses. An audit also includes assessing the accounting principles used and
significant estimates made by management as well as evaluating the overall
presentation of the statement of revenues and certain expenses. I believe that
my audit provides a reasonable basis for my opinion.
The accompanying statement of revenues and certain expenses was prepared for the
purpose of complying with the rules and regulations of the Securities and
Exchange Commission (for inclusion in the Registration Statement on Form S-4 of
Baron Capital Properties, L.P., a Delaware limited partnership) and excludes
material expenses described in Note 1 to the combined statement of revenues and
certain expenses, that would not be comparable to those resulting from the
proposed future operations of the property.
In my opinion, the statement of revenues and certain expenses presents fairly,
in all material respects, the revenues and certain expenses, as defined above,
of the Brookwood Way Apartments for the years ended December 31, 1997 and 1998
in conformity with generally accepted accounting principles.
Elroy D. Miedema
Certified Public Accountant
Ft. Lauderdale, Florida
April 15, 1999
<PAGE>
BROOKWOOD WAY APARTMENTS
STATEMENT OF REVENUES AND CERTAIN EXPENSES
FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997
AND FOR THE THREE MONTH PERIODS ENDED MARCH 31, 1999 AND 1998
<TABLE>
<CAPTION>
December 31, December 31, March 31, March 31,
1998 1997 1999 1998
------------ ------------ ----------- -----------
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
REVENUES
Rental income $ 275,189 $ 248,950 $ 68,386 $ 68,797
Other income 8,015 7,988 1,200 2,004
--------- --------- --------- ---------
Total revenues 283,204 256,938 69,586 70,801
--------- --------- --------- ---------
CERTAIN EXPENSES
Personnel 30,819 22,296 7,074 7,705
Real estate taxes and insurance 22,640 17,645 5,973 5,660
Mortgage interest expense 102,287 96,565 31,110 25,572
Management fees and
reimbursable expenses 21,964 15,720 4,159 5,491
Other operating expenses 51,148 45,855 916 11,635
--------- --------- --------- ---------
Total certain expenses 228,858 198,081 49,232 56,063
--------- --------- --------- ---------
REVENUES IN EXCESS
OF CERTAIN EXPENSES $ 54,346 $ 58,857 $ 20,354 $ 14,738
========= ========= ========= =========
</TABLE>
See Note to Statement of Revenues and Certain Expenses
<PAGE>
BROOKWOOD WAY APARTMENTS
NOTE TO STATEMENT OF REVENUES AND CERTAIN EXPENSES
FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997
AND FOR THE THREE MONTH PERIODS ENDED MARCH 31, 1999 AND 1998
1. Descriptions and Summary of Significant Accounting Policies
Description
Brookwood Way Apartments consist of 66 units located in Mansfield, Ohio.
The property was acquired by purchase in November 1996 by Midwest Income
Growth Fund VI, Ltd. The following percentage of units were occupied at the
various period ending dates:
December 31, 1997 88%
December 31, 1998 97%
Basis Of Presentation
Operating revenues and direct operating expenses are presented on the
accrual basis of accounting. The accompanying financial statement is not
representative of the actual operations for the period presented as certain
expenses, which may not be comparable to the expenses expected to be
incurred by Baron Capital Properties, L.P., a Delaware limited partnership
which will conduct the future real property operations of Baron Capital
Trust, have been excluded. Expenses excluded consist of depreciation due to
basis and method changes, professional fees, and other costs not directly
related to the future operations of the Brookwood Way Apartments.
Income Recognition
Rental income attributable to residential leases is recorded when due from
tenants.
Leases
Apartment units are rented under lease agreements with terms of one year or
less.
Property Management
In exchange for services performed during 1997 and 1998, a property manager
was paid a property management fee equal to 5% of collected rental income
from the property, a performance fee of $2.00 per residential apartment
unit for each month the property manager collected more than 96% of gross
potential rents and a monthly bookkeeping fee in the range of $275 to $325.
Effective June 30, 1998, this property management agreement was terminated.
Other Matters
In connection with a proposed Exchange Offering, Baron Capital Properties,
L.P. (the "Operating Partnership"), will offer to exchange Operating
Partnership Units to the limited partners of partnerships which directly or
indirectly own the equity interest in residential apartment properties,
including the subject property. These Units are exchangeable for an
equivalent number of Common Shares of beneficial interest in Baron Capital
Trust, a real estate investment trust for which Baron Capital Properties,
L.P. is the operating partnership. Subject to the completion of the
proposed Exchange Offering, the Trust and the Operating Partnership will
account for the acquisition of the limited partnership interests in the
offering on the purchase method and therefore record the assets acquired
and liabilities assumed at their fair value at the date of acquisition.
<PAGE>
BROOKWOOD WAY APARTMENTS
NOTE TO STATEMENT OF REVENUES AND CERTAIN EXPENSES
FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997
AND FOR THE THREE MONTH PERIODS ENDED MARCH 31, 1999 AND 1998
Unaudited Financial Information
The accompanying financial information for the quarters ended March 31,
1998 and 1999 is unaudited. However, in the opinion of management, all
adjustments, consisting of normal recurring accruals and adjustments for a
fair presentation of revenues and certain expenses have been made. The
results of operations for the quarters is not necessarily indicative of
results to be expected for a full year.
<PAGE>
INDEPENDENT AUDITOR'S REPORT
The Board of Baron Capital Trust:
I have audited the accompanying statement of revenues and certain expenses
(defined as being operating revenues less direct operating expenses) of the
Camellia Court Apartments for the years ended December 31, 1997 and 1998. This
financial statement is the responsibility of the Company's management. My
responsibility is to express an opinion on this financial statement based upon
my audit.
I conducted my audit in accordance with generally accepted auditing standards.
Those standards require that I plan and perform the audits to obtain reasonable
assurance about whether the statement of revenues and certain expenses is free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the statement of revenues and certain
expenses. An audit also includes assessing the accounting principles used and
significant estimates made by management as well as evaluating the overall
presentation of the statement of revenues and certain expenses. I believe that
my audit provides a reasonable basis for my opinion.
The accompanying statement of revenues and certain expenses was prepared for the
purpose of complying with the rules and regulations of the Securities and
Exchange Commission (for inclusion in the Registration Statement on Form SB-2 of
Baron Capital Trust, a Delaware business trust) and excludes material expenses
described in Note 1 to the statement of revenues and certain expenses, that
would not be comparable to those resulting from the proposed future operations
of the property.
In my opinion, the statement of revenues and certain expenses presents fairly,
in all material respects, the revenues and certain expenses, as defined above,
of the Camellia Court Apartments for the years ended December 31, 1997 and 1998
in conformity with generally accepted accounting principles.
Elroy D. Miedema
Certified Public Accountant
Ft. Lauderdale, Florida
April 15, 1999
<PAGE>
INDEPENDENT AUDITOR'S REPORT
The Board of Baron Capital Trust:
I have audited the accompanying statement of revenues and certain expenses
(defined as being operating revenues less direct operating expenses) of the
Camellia Court Apartments for the years ended December 31, 1997 and 1998. This
financial statement is the responsibility of the Company's management. My
responsibility is to express an opinion on this financial statement based upon
my audit.
I conducted my audit in accordance with generally accepted auditing standards.
Those standards require that I plan and perform the audit to obtain reasonable
assurance about whether the statement of revenues and certain expenses is free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the statement of revenues and certain
expenses. An audit also includes assessing the accounting principles used and
significant estimates made by management as well as evaluating the overall
presentation of the statement of revenues and certain expenses. I believe that
my audit provides a reasonable basis for my opinion.
The accompanying statement of revenues and certain expenses was prepared for the
purpose of complying with the rules and regulations of the Securities and
Exchange Commission (for inclusion in the Registration Statement on Form S-4 of
Baron Capital Properties, L.P., a Delaware limited partnership) and excludes
material expenses described in Note 1 to the combined statement of revenues and
certain expenses, that would not be comparable to those resulting from the
proposed future operations of the property.
In my opinion, the statement of revenues and certain expenses presents fairly,
in all material respects, the revenues and certain expenses, as defined above,
of the Camellia Court Apartments for the years ended December 31, 1997 and 1998
in conformity with generally accepted accounting principles.
Elroy D. Miedema
Certified Public Accountant
Ft. Lauderdale, Florida
April 15, 1999
<PAGE>
CAMELLIA COURT APARTMENTS
STATEMENT OF REVENUES AND CERTAIN EXPENSES
FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997
AND FOR THE THREE MONTH PERIODS ENDED MARCH 31, 1999 AND 1998
<TABLE>
<CAPTION>
December 31, December 31, March 31, March 31,
1998 1997 1999 1998
------------ ------------ ----------- -----------
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
REVENUES
Rental income $ 266,911 $ 213,718 $ 72,811 $ 66,728
Other income 23,575 16,516 5,850 5,894
--------- --------- --------- ---------
Total revenues 290,486 230,234 78,661 72,622
--------- --------- --------- ---------
CERTAIN EXPENSES
Personnel 35,205 35,481 8,584 8,801
Real estate taxes and insurance 39,651 35,934 10,011 9,913
Mortgage interest expense 98,620 98,851 24,118 24,655
Management fees and
reimbursed expenses 22,465 13,884 5,887 5,616
Other operating expenses 60,671 64,905 14,544 27,092
--------- --------- --------- ---------
Total certain expenses 256,612 249,055 63,144 76,077
--------- --------- --------- ---------
REVENUES IN EXCESS
OF CERTAIN EXPENSES $ 33,874 $ (18,821) $ 15,517 $ (3,455)
========= ========= ========= ========
</TABLE>
See Note to Statement of Revenues and Certain Expenses
<PAGE>
CAMELLIA COURT APARTMENTS
NOTE TO STATEMENT OF REVENUES AND CERTAIN EXPENSES
FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997
AND FOR THE THREE MONTH PERIODS ENDED MARCH 31, 1999 AND 1998
1. Descriptions and Summary of Significant Accounting Policies
Description
Camellia Court Apartments consist of 60 units located in Daytona Beach,
Florida. The property was acquired by purchase March 6, 1995 by Florida
Opportunity Income Partners, Ltd. The following percentage of units were
occupied at the various period ending dates:
December 31, 1997 78%
December 31, 1998 95%
Basis Of Presentation
Operating revenues and direct operating expenses are presented on the
accrual basis of accounting. The accompanying financial statement is not
representative of the actual operations for the period presented as certain
expenses, which may not be comparable to the expenses expected to be
incurred by Baron Capital Properties, L.P., a Delaware limited partnership
which will conduct the future real property operations of Baron Capital
Trust, have been excluded. Expenses excluded consist of depreciation due to
basis and method changes, professional fees, and other costs not directly
related to the future operations of the Camellia Court Apartments.
Income Recognition
Rental income attributable to residential leases is recorded when due from
tenants.
Leases
Apartment units are rented under lease agreements with terms of one year or
less.
Property Management
In exchange for services performed during 1997 and 1998, a property manager
was paid a property management fee equal to 5% of collected rental income
form the property, a performance fee of $2.00 per residential apartment
unit for each month the property manager collected more than 96% of gross
potential rents and a monthly bookkeeping fee in the range of $275 to $325.
Effective June 30, 1998, this property management agreement was terminated.
Other Matters
In connection with a proposed Exchange Offering, Baron Capital Properties,
L.P. (the "Operating Partnership"), will offer to exchange Operating
Partnership Units to the limited partners of partnerships which directly or
indirectly own the equity interest in residential apartment properties,
including the subject property. These Units are exchangeable for an
equivalent number of Common Shares of beneficial interest in Baron Capital
Trust, a real estate investment trust for which Baron Capital Properties,
L.P. is the operating partnership. Subject to the completion of the
proposed Exchange Offering, the Trust and the Operating Partnership will
account for the acquisition of the limited partnership interests in the
offering on the purchase method and therefore record the assets acquired
and liabilities assumed at their fair value at the date of acquisition.
<PAGE>
CAMELLIA COURT APARTMENTS
NOTE TO STATEMENT OF REVENUES AND CERTAIN EXPENSES
FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997
AND FOR THE THREE MONTH PERIODS ENDED MARCH 31, 1999 AND 1998
Unaudited Financial Information
The accompanying financial information for the quarters ended March 31,
1998 and 1999 is unaudited. However, in the opinion of management, all
adjustments, consisting of normal recurring accruals and adjustments for a
fair presentation of revenues and certain expenses have been made. The
results of operations for the quarters is not necessarily indicative of
results to be expected for a full year.
<PAGE>
INDEPENDENT AUDITOR'S REPORT
The Board of Baron Capital Trust:
I have audited the accompanying statement of revenues and certain expenses
(defined as being operating revenues less direct operating expenses) of the
Eagle Lake Apartments for the years ended December 31, 1997 and 1998. This
financial statement is the responsibility of the Company's management. My
responsibility is to express an opinion on this financial statement based upon
my audit.
I conducted my audit in accordance with generally accepted auditing standards.
Those standards require that I plan and perform the audits to obtain reasonable
assurance about whether the statement of revenues and certain expenses is free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the statement of revenues and certain
expenses. An audit also includes assessing the accounting principles used and
significant estimates made by management as well as evaluating the overall
presentation of the statement of revenues and certain expenses. I believe that
my audit provides a reasonable basis for my opinion.
The accompanying statement of revenues and certain expenses was prepared for the
purpose of complying with the rules and regulations of the Securities and
Exchange Commission (for inclusion in the Registration Statement on Form SB-2 of
Baron Capital Trust, a Delaware business trust) and excludes material expenses
described in Note 1 to the statement of revenues and certain expenses, that
would not be comparable to those resulting from the proposed future operations
of the property.
In my opinion, the statement of revenues and certain expenses presents fairly,
in all material respects, the revenues and certain expenses, as defined above,
of the Eagle Lake Apartments for the years ended December 31, 1997 and 1998 in
conformity with generally accepted accounting principles.
Elroy D. Miedema
Certified Public Accountant
Ft. Lauderdale, Florida
April 15, 1999
<PAGE>
INDEPENDENT AUDITOR'S REPORT
The Board of Baron Capital Trust:
I have audited the accompanying statement of revenues and certain expenses
(defined as being operating revenues less direct operating expenses) of the
Eagle Lake Apartments for the years ended December 31, 1997 and 1998. This
financial statement is the responsibility of the Company's management. My
responsibility is to express an opinion on this financial statement based upon
my audit.
I conducted my audit in accordance with generally accepted auditing standards.
Those standards require that I plan and perform the audit to obtain reasonable
assurance about whether the statement of revenues and certain expenses is free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the statement of revenues and certain
expenses. An audit also includes assessing the accounting principles used and
significant estimates made by management as well as evaluating the overall
presentation of the statement of revenues and certain expenses. I believe that
my audit provides a reasonable basis for my opinion.
The accompanying statement of revenues and certain expenses was prepared for the
purpose of complying with the rules and regulations of the Securities and
Exchange Commission (for inclusion in the Registration Statement on Form S-4 of
Baron Capital Properties, L.P., a Delaware limited partnership) and excludes
material expenses described in Note 1 to the combined statement of revenues and
certain expenses, that would not be comparable to those resulting from the
proposed future operations of the property.
In my opinion, the statement of revenues and certain expenses presents fairly,
in all material respects, the revenues and certain expenses, as defined above,
of the Eagle Lake Apartments for the years ended December 31, 1997 and 1998 in
conformity with generally accepted accounting principles.
Elroy D. Miedema
Certified Public Accountant
Ft. Lauderdale, Florida
April 15, 1999
<PAGE>
EAGLE LAKE APARTMENTS
STATEMENT OF REVENUES AND CERTAIN EXPENSES
FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997
AND FOR THE THREE MONTH PERIODS ENDED MARCH 31, 1999 AND 1998
<TABLE>
<CAPTION>
December 31, December 31, March 31, March 31,
1998 1997 1999 1998
------------ ------------ ----------- -----------
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
REVENUES
Rental income $ 382,121 $ 346,154 $ 94,139 $ 95,530
Other income 25,123 21,065 3,447 6,281
--------- --------- --------- ---------
Total revenues 407,244 367,219 97,586 101,811
--------- --------- --------- ---------
CERTAIN EXPENSES
Personnel 48,167 34,983 10,538 12,042
Real estate taxes and insurance 55,688 49,694 13,457 13,922
Mortgage interest expense 127,820 158,727 30,723 31,955
Management fees and
reimbursable expenses 37,896 26,702 7,305 9,474
Other operating expenses 88,716 71,050 15,317 27,226
--------- --------- --------- ---------
Total certain expenses 358,287 341,156 77,340 94,619
--------- --------- --------- ---------
REVENUES IN EXCESS
OF CERTAIN EXPENSES $ 48,957 $ 26,063 $ 20,246 $ 7,192
========= ========= ========= =========
</TABLE>
See Note to Statement of Revenues and Certain Expenses
<PAGE>
EAGLE LAKE APARTMENTS
NOTE TO STATEMENT OF REVENUES AND CERTAIN EXPENSES
FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997
AND FOR THE THREE MONTH PERIODS ENDED MARCH 31, 1999 AND 1998
1. Descriptions and Summary of Significant Accounting Policies
Description
Eagle Lake Apartments consist of 77 units located in Port Orange, Florida.
The property was acquired by purchase July 12, 1994 by Florida Capital
Income Fund, Ltd. The following percentage of units were occupied at the
various period ending dates:
December 31, 1997 94%
December 31, 1998 91%
Basis Of Presentation
Operating revenues and direct operating expenses are presented on the
accrual basis of accounting. The accompanying financial statement is not
representative of the actual operations for the period presented as certain
expenses, which may not be comparable to the expenses expected to be
incurred by Baron Capital Properties, L.P., a Delaware limited partnership
which will conduct the future real property operations of Baron Capital
Trust, have been excluded. Expenses excluded consist of depreciation due to
basis and method changes, professional fees, and other costs not directly
related to the future operations of the Eagle Lake Apartments.
Income Recognition
Rental income attributable to residential leases is recorded when due from
tenants.
Leases
Apartment units are rented under lease agreements with terms of one year or
less.
Property Management
In exchange for services performed during 1997 and 1998, a property manager
was paid a property management fee equal to 5% of collected rental income
from the property, a performance fee of $2.00 per residential apartment
unit for each month the property manager collected more than 96% of gross
potential rents and a monthly bookkeeping fee in the range of $275 to $325.
Effective June 30, 1998, this property management agreement was terminated.
Other Matters
In connection with a proposed Exchange Offering, Baron Capital Properties,
L.P. (the "Operating Partnership"), will offer to exchange Operating
Partnership Units to the limited partners of partnerships which directly or
indirectly own the equity interest in residential apartment properties,
including the subject property. These Units are exchangeable for an
equivalent number of Common Shares of beneficial interest in Baron Capital
Trust, a real estate investment trust for which Baron Capital Properties,
L.P. is the operating partnership. Subject to the completion of the
proposed Exchange Offering, the Trust and the Operating Partnership will
account for the acquisition of the limited partnership interests in the
offering on the purchase method and therefore record the assets acquired
and liabilities assumed at their fair value at the date of acquisition.
<PAGE>
EAGLE LAKE APARTMENTS
NOTE TO STATEMENT OF REVENUES AND CERTAIN EXPENSES
FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997
AND FOR THE THREE MONTH PERIODS ENDED MARCH 31, 1999 AND 1998
Unaudited Financial Information
The accompanying financial information for the quarters ended March 31,
1998 and 1999 is unaudited. However, in the opinion of management, all
adjustments, consisting of normal recurring accruals and adjustments for a
fair presentation of revenues and certain expenses have been made. The
results of operations for the quarters is not necessarily indicative of
results to be expected for a full year.
<PAGE>
INDEPENDENT AUDITOR'S REPORT
The Board of Baron Capital Trust:
I have audited the accompanying statement of revenues and certain expenses
(defined as being operating revenues less direct operating expenses) of the
Forest Glen Apartments, Phase I, for the years ended December 31, 1997 and 1998.
This financial statement is the responsibility of the Company's management. My
responsibility is to express an opinion on this financial statement based upon
my audit.
I conducted my audit in accordance with generally accepted auditing standards.
Those standards require that I plan and perform the audits to obtain reasonable
assurance about whether the statement of revenues and certain expenses is free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the statement of revenues and certain
expenses. An audit also includes assessing the accounting principles used and
significant estimates made by management as well as evaluating the overall
presentation of the statement of revenues and certain expenses. I believe that
my audit provides a reasonable basis for my opinion.
The accompanying statement of revenues and certain expenses was prepared for the
purpose of complying with the rules and regulations of the Securities and
Exchange Commission (for inclusion in the Registration Statement on Form SB-2 of
Baron Capital Trust, a Delaware business trust) and excludes material expenses
described in Note 1 to the statement of revenues and certain expenses, that
would not be comparable to those resulting from the proposed future operations
of the property.
In my opinion, the statement of revenues and certain expenses presents fairly,
in all material respects, the revenues and certain expenses, as defined above,
of the Forest Glen Apartments, Phase I, for the years ended December 31, 1997
and 1998 in conformity with generally accepted accounting principles.
Elroy D. Miedema
Certified Public Accountant
Ft. Lauderdale, Florida
April 15, 1999
<PAGE>
INDEPENDENT AUDITOR'S REPORT
The Board of Baron Capital Trust:
I have audited the accompanying statement of revenues and certain expenses
(defined as being operating revenues less direct operating expenses) of the
Forest Glen Apartments, Phase I, for the years ended December 31, 1997 and 1998.
This financial statement is the responsibility of the Company's management. My
responsibility is to express an opinion on this financial statement based upon
my audit.
I conducted my audit in accordance with generally accepted auditing standards.
Those standards require that I plan and perform the audit to obtain reasonable
assurance about whether the statement of revenues and certain expenses is free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the statement of revenues and certain
expenses. An audit also includes assessing the accounting principles used and
significant estimates made by management as well as evaluating the overall
presentation of the statement of revenues and certain expenses. I believe that
my audit provides a reasonable basis for my opinion.
The accompanying statement of revenues and certain expenses was prepared for the
purpose of complying with the rules and regulations of the Securities and
Exchange Commission (for inclusion in the Registration Statement on Form S-4 of
Baron Capital Properties, L.P., a Delaware limited partnership) and excludes
material expenses described in Note 1 to the combined statement of revenues and
certain expenses, that would not be comparable to those resulting from the
proposed future operations of the property.
In my opinion, the statement of revenues and certain expenses presents fairly,
in all material respects, the revenues and certain expenses, as defined above,
of the Forest Glen Apartments, Phase I, for the years ended December 31, 1997
and 1998 in conformity with generally accepted accounting principles.
Elroy D. Miedema
Certified Public Accountant
Ft. Lauderdale, Florida
April 15, 1999
<PAGE>
FOREST GLEN APARTMENTS, PHASE I
STATEMENT OF REVENUES AND CERTAIN EXPENSES
FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997
AND FOR THE THREE MONTH PERIODS ENDED MARCH 31, 1999 AND 1998
<TABLE>
<CAPTION>
December 31, December 31, March 31, March 31,
1998 1997 1999 1998
------------ ------------ ----------- -----------
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
REVENUES
Rental income $ 362,118 $ 319,763 $ 94,877 $ 90,530
Other income 16,098 7,968 1,321 4,025
--------- --------- --------- ---------
Total revenues 378,216 327,731 96,198 94,555
--------- --------- --------- ---------
CERTAIN EXPENSES
Personnel 54,733 35,958 6,506 13,683
Real estate taxes and insurance 46,578 45,223 11,517 11,645
Mortgage interest expense 116,664 149,908 30,966 29,166
Management fees and
reimbursable expenses 25,812 17,219 7,146 6,453
Other operating expenses 67,541 60,553 10,100 16,885
--------- --------- --------- ---------
Total certain expenses 311,328 308,861 66,235 77,832
--------- --------- --------- ---------
REVENUES IN EXCESS
OF CERTAIN EXPENSES $ 66,888 $ 18,870 $ 29,963 $ 16,723
========= ========= ========= =========
</TABLE>
See Note to Statement of Revenues and Certain Expenses
<PAGE>
FOREST GLEN APARTMENTS, PHASE I
NOTE TO STATEMENT OF REVENUES AND CERTAIN EXPENSES
FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997
AND FOR THE THREE MONTH PERIODS ENDED MARCH 31, 1999 AND 1998
1. Descriptions and Summary of Significant Accounting Policies
Description
Forest Glen Apartments, Phase I, consist of 52 units located in Daytona
Beach, Florida. All four phases of the Forest Glen Property are owned by a
trustee on behalf of four beneficiaries (including Florida Capital Income
Fund II, Ltd. and three other limited partnerships). Under a land trust
agreement, Florida Capital Income Fund II, Ltd. owns beneficial interest
in, and is obligated to pay operating expenses in respect of, the
residential units comprising Phase I of the Forest Glen Property.
The following percentage of units were occupied at year ending dates:
December 31, 1997 87%
December 31, 1998 96%
Basis Of Presentation
Operating revenues and direct operating expenses are presented on the
accrual basis of accounting. The accompanying financial statement is not
representative of the actual operations for the period presented as certain
expenses, which may not be comparable to the expenses expected to be
incurred by Baron Capital Properties, L.P., a Delaware limited partnership
which will conduct the future real property operations of Baron Capital
Trust, have been excluded. Expenses excluded consist of depreciation due to
basis and method changes, professional fees, and other costs not directly
related to the future operations of the Forest Glen Apartments, Phase I.
Income Recognition
Rental income attributable to residential leases is recorded when due from
tenants.
Leases
Apartment units are rented under lease agreements with terms of one year or
less.
Property Management
In exchange for services performed during 1997 and 1998, a property manager
was paid a property management fee equal to 5% of collected rental income
from the property, a performance fee of $2.00 per residential apartment
unit for each month the property manager collected more than 96% of gross
potential rents and a monthly bookkeeping fee in the range of $275 to $325.
Effective June 30, 1998, this property management agreement was terminated.
<PAGE>
FOREST GLEN APARTMENTS, PHASE I
NOTE TO STATEMENT OF REVENUES AND CERTAIN EXPENSES
FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997
AND FOR THE THREE MONTH PERIODS ENDED MARCH 31, 1999 AND 1998
Other Matters
In connection with a proposed Exchange Offering, Baron Capital Properties,
L.P. (the "Operating Partnership"), will offer to exchange Operating
Partnership Units to the limited partners of partnerships which directly or
indirectly own the equity interest in residential apartment properties,
including the subject property. These Units are exchangeable for an
equivalent number of Common Shares of beneficial interest in Baron Capital
Trust, a real estate investment trust for which Baron Capital Properties,
L.P. is the operating partnership. Subject to the completion of the
proposed Exchange Offering, the Trust and the Operating Partnership will
account for the acquisition of the limited partnership interests in the
offering on the purchase method and therefore record the assets acquired
and liabilities assumed at their fair value at the date of acquisition.
Unaudited Financial Information
The accompanying financial information for the quarters ended March 31,
1998 and 1999 is unaudited. However, in the opinion of management, all
adjustments, consisting of normal recurring accruals and adjustments for a
fair presentation of revenues and certain expenses have been made. The
results of operations for the quarters is not necessarily indicative of
results to be expected for a full year.
<PAGE>
INDEPENDENT AUDITOR'S REPORT
The Board of Baron Capital Trust:
I have audited the accompanying statement of revenues and certain expenses
(defined as being operating revenues less direct operating expenses) of the
Forest Glen Apartments, Phase II, for the years ended December 31, 1997 and
1998. This financial statement is the responsibility of the Company's
management. My responsibility is to express an opinion on this financial
statement based upon my audit.
I conducted my audit in accordance with generally accepted auditing standards.
Those standards require that I plan and perform the audits to obtain reasonable
assurance about whether the statement of revenues and certain expenses is free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the statement of revenues and certain
expenses. An audit also includes assessing the accounting principles used and
significant estimates made by management as well as evaluating the overall
presentation of the statement of revenues and certain expenses. I believe that
my audit provides a reasonable basis for my opinion.
The accompanying statement of revenues and certain expenses was prepared for the
purpose of complying with the rules and regulations of the Securities and
Exchange Commission (for inclusion in the Registration Statement on Form SB-2 of
Baron Capital Trust, a Delaware business trust) and excludes material expenses
described in Note 1 to the statement of revenues and certain expenses, that
would not be comparable to those resulting from the proposed future operations
of the property.
In my opinion, the statement of revenues and certain expenses presents fairly,
in all material respects, the revenues and certain expenses, as defined above,
of the Forest Glen Apartments, Phase II, for the years ended December 31, 1997
and 1998 in conformity with generally accepted accounting principles.
Elroy D. Miedema
Certified Public Accountant
Ft. Lauderdale, Florida
April 15, 1999
<PAGE>
INDEPENDENT AUDITOR'S REPORT
The Board of Baron Capital Trust:
I have audited the accompanying statement of revenues and certain expenses
(defined as being operating revenues less direct operating expenses) of the
Forest Glen Apartments, Phase II, for the years ended December 31, 1997 and
1998. This financial statement is the responsibility of the Company's
management. My responsibility is to express an opinion on this financial
statement based upon my audit.
I conducted my audit in accordance with generally accepted auditing standards.
Those standards require that I plan and perform the audit to obtain reasonable
assurance about whether the statement of revenues and certain expenses is free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the statement of revenues and certain
expenses. An audit also includes assessing the accounting principles used and
significant estimates made by management as well as evaluating the overall
presentation of the statement of revenues and certain expenses. I believe that
my audit provides a reasonable basis for my opinion.
The accompanying statement of revenues and certain expenses was prepared for the
purpose of complying with the rules and regulations of the Securities and
Exchange Commission (for inclusion in the Registration Statement on Form S-4 of
Baron Capital Properties, L.P., a Delaware limited partnership) and excludes
material expenses described in Note 1 to the combined statement of revenues and
certain expenses, that would not be comparable to those resulting from the
proposed future operations of the property.
In my opinion, the statement of revenues and certain expenses presents fairly,
in all material respects, the revenues and certain expenses, as defined above,
of the Forest Glen Apartments, Phase II, for the years ended December 31, 1997
and 1998 in conformity with generally accepted accounting principles.
Elroy D. Miedema
Certified Public Accountant
Ft. Lauderdale, Florida
April 15, 1999
<PAGE>
FOREST GLEN APARTMENTS, PHASE II
STATEMENT OF REVENUES AND CERTAIN EXPENSES
FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997
AND FOR THE THREE MONTH PERIODS ENDED MARCH 31, 1999 AND 1998
<TABLE>
<CAPTION>
December 31, December 31, March 31, March 31,
1998 1997 1999 1998
------------ ------------ ----------- -----------
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
REVENUES
Rental income $ 204,746 $ 159,093 $ 49,592 $ 51,187
Other income 6,773 6,252 5,466 1,693
--------- --------- --------- ---------
Total revenues 211,519 165,345 55,058 52,880
--------- --------- --------- ---------
CERTAIN EXPENSES
Personnel 20,454 20,767 3,769 5,114
Real estate taxes and insurance 27,095 25,939 6,654 6,774
Mortgage interest expense 66,542 60,222 18,584 16,636
Management fees and
reimbursable expenses 17,248 9,454 5,385 4,312
Other operating expenses 37,111 37,056 7,944 14,540
--------- --------- --------- ---------
Total certain expenses 168,450 153,438 42,336 47,376
--------- --------- --------- ---------
REVENUES IN EXCESS
OF CERTAIN EXPENSES $ 43,069 $ 11,907 $ 12,722 $ 5,504
========= ========= ========= =========
</TABLE>
See Note to Statement of Revenues and Certain Expenses
<PAGE>
FOREST GLEN APARTMENTS, PHASE II
NOTE TO STATEMENT OF REVENUES AND CERTAIN EXPENSES
FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997
AND FOR THE THREE MONTH PERIODS ENDED MARCH 31, 1999 AND 1998
1. Descriptions and Summary of Significant Accounting Policies
Description
Forest Glen Apartments, Phase II, consist of 30 units located in Daytona
Beach, Florida. All four phases of the Forest Glen Property are owned by a
trustee on behalf of four beneficiaries (including Realty Opportunity
Income Fund VIII, Ltd. and three other limited partnerships). Under a land
trust agreement, Realty Opportunity Income Fund VIII, Ltd. owns beneficial
interest in, and is obligated to pay operating expenses in respect of, the
residential units comprising Phase II of the Forest Glen Property.
The following percentage of units were occupied at year ending dates:
December 31, 1997 70%
December 31, 1998 93%
Basis Of Presentation
Operating revenues and direct operating expenses are presented on the
accrual basis of accounting. The accompanying financial statement is not
representative of the actual operations for the period presented as certain
expenses, which may not be comparable to the expenses expected to be
incurred by Baron Capital Properties, L.P., a Delaware limited partnership
which will conduct the future real property operations of Baron Capital
Trust, have been excluded. Expenses excluded consist of depreciation due to
basis and method changes, professional fees, and other costs not directly
related to the future operations of the Forest Glen Apartments, Phase II.
Income Recognition
Rental income attributable to residential leases is recorded when due from
tenants.
Leases
Apartment units are rented under lease agreements with terms of one year or
less.
Property Management
In exchange for services performed during 1997 and 1998, a property manager
was paid a property management fee equal to 5% of collected rental income
from the property, a performance fee of $2.00 per residential apartment
unit for each month the property manager collected more than 96% of gross
potential rents and a monthly bookkeeping fee in the range of $275 to $325.
Effective June 30, 1998, this property management agreement was terminated.
<PAGE>
FOREST GLEN APARTMENTS, PHASE II
NOTE TO STATEMENT OF REVENUES AND CERTAIN EXPENSES
FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997
AND FOR THE THREE MONTH PERIODS ENDED MARCH 31, 1999 AND 1998
Other Matters
In connection with a proposed Exchange Offering, Baron Capital Properties,
L.P. (the "Operating Partnership"), will offer to exchange Operating
Partnership Units to the limited partners of partnerships which directly or
indirectly own the equity interest in residential apartment properties,
including the subject property. These Units are exchangeable for an
equivalent number of Common Shares of beneficial interest in Baron Capital
Trust, a real estate investment trust for which Baron Capital Properties,
L.P. is the operating partnership. Subject to the completion of the
proposed Exchange Offering, the Trust and the Operating Partnership will
account for the acquisition of the limited partnership interests in the
offering on the purchase method and therefore record the assets acquired
and liabilities assumed at their fair value at the date of acquisition.
Unaudited Financial Information
The accompanying financial information for the quarters ended March 31,
1998 and 1999 is unaudited. However, in the opinion of management, all
adjustments, consisting of normal recurring accruals and adjustments for a
fair presentation of revenues and certain expenses have been made. The
results of operations for the quarters is not necessarily indicative of
results to be expected for a full year.
<PAGE>
INDEPENDENT AUDITOR'S REPORT
The Board of Baron Capital Trust:
I have audited the accompanying statement of revenues and certain expenses
(defined as being operating revenues less direct operating expenses) of the
Forest Glen Apartments, Phase III, for the years ended December 31, 1997 and
1998. This financial statement is the responsibility of the Company's
management. My responsibility is to express an opinion on this financial
statement based upon my audit.
I conducted my audit in accordance with generally accepted auditing standards.
Those standards require that I plan and perform the audits to obtain reasonable
assurance about whether the statement of revenues and certain expenses is free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the statement of revenues and certain
expenses. An audit also includes assessing the accounting principles used and
significant estimates made by management as well as evaluating the overall
presentation of the statement of revenues and certain expenses. I believe that
my audit provides a reasonable basis for my opinion.
The accompanying statement of revenues and certain expenses was prepared for the
purpose of complying with the rules and regulations of the Securities and
Exchange Commission (for inclusion in the Registration Statement on Form SB-2 of
Baron Capital Trust, a Delaware business trust) and excludes material expenses
described in Note 1 to the statement of revenues and certain expenses, that
would not be comparable to those resulting from the proposed future operations
of the property.
In my opinion, the statement of revenues and certain expenses presents fairly,
in all material respects, the revenues and certain expenses, as defined above,
of the Forest Glen Apartments, Phase III, for the years ended December 31, 1997
and 1998 in conformity with generally accepted accounting principles.
Elroy D. Miedema
Certified Public Accountant
Ft. Lauderdale, Florida
April 15, 1999
<PAGE>
INDEPENDENT AUDITOR'S REPORT
The Board of Baron Capital Trust:
I have audited the accompanying statement of revenues and certain expenses
(defined as being operating revenues less direct operating expenses) of the
Forest Glen Apartments, Phase III, for the years ended December 31, 1997 and
1998. This financial statement is the responsibility of the Company's
management. My responsibility is to express an opinion on this financial
statement based upon my audit.
I conducted my audit in accordance with generally accepted auditing standards.
Those standards require that I plan and perform the audit to obtain reasonable
assurance about whether the statement of revenues and certain expenses is free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the statement of revenues and certain
expenses. An audit also includes assessing the accounting principles used and
significant estimates made by management as well as evaluating the overall
presentation of the statement of revenues and certain expenses. I believe that
my audit provides a reasonable basis for my opinion.
The accompanying statement of revenues and certain expenses was prepared for the
purpose of complying with the rules and regulations of the Securities and
Exchange Commission (for inclusion in the Registration Statement on Form S-4 of
Baron Capital Properties, L.P., a Delaware limited partnership) and excludes
material expenses described in Note 1 to the combined statement of revenues and
certain expenses, that would not be comparable to those resulting from the
proposed future operations of the property.
In my opinion, the statement of revenues and certain expenses presents fairly,
in all material respects, the revenues and certain expenses, as defined above,
of the Forest Glen Apartments, Phase III, for the years ended December 31, 1997
and 1998 in conformity with generally accepted accounting principles.
Elroy D. Miedema
Certified Public Accountant
Ft. Lauderdale, Florida
April 15, 1999
<PAGE>
FOREST GLEN APARTMENTS, PHASE III
STATEMENT OF REVENUES AND CERTAIN EXPENSES
FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997
AND FOR THE THREE MONTH PERIODS ENDED MARCH 31, 1999 AND 1998
<TABLE>
<CAPTION>
December 31, December 31, March 31, March 31,
1998 1997 1999 1998
------------ ------------ ----------- -----------
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
REVENUES
Rental income $ 176,122 $ 170,175 $ 47,548 $ 44,031
Other income 11,808 7,031 1,197 2,952
--------- --------- --------- ---------
Total revenues 187,930 177,206 48,745 46,983
--------- --------- --------- ---------
CERTAIN EXPENSES
Personnel 17,651 17,461 3,191 4,413
Real estate taxes and insurance 25,738 21,947 7,507 6,435
Mortgage interest expense 56,304 49,070 15,725 14,076
Management fees and
reimbursable expenses 15,923 8,646 4,849 3,981
Other operating expenses 32,125 31,238 5,623 14,913
--------- --------- --------- ---------
Total certain expenses 147,741 128,362 36,895 43,818
--------- --------- --------- ---------
REVENUES IN EXCESS
OF CERTAIN EXPENSES $ 40,189 $ 48,844 $ 11,850 $ 3,165
========= ========= ========= =========
</TABLE>
See Note to Statement of Revenues and Certain Expenses
<PAGE>
FOREST GLEN APARTMENTS, PHASE III
NOTE TO STATEMENT OF REVENUES AND CERTAIN EXPENSES
FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997
AND FOR THE THREE MONTH PERIODS ENDED MARCH 31, 1999 AND 1998
1. Descriptions and Summary of Significant Accounting Policies
Description
Forest Glen Apartments, Phase III, consist of 26 units located in Daytona
Beach, Florida. All four phases of the Forest Glen Property are owned by a
trustee on behalf of four beneficiaries (including Florida Income Advantage
Fund I, Ltd. and three other limited partnerships). Under a land trust
agreement, Florida Income Advantage Fund I, Ltd. owns beneficial interest
in, and is obligated to pay operating expenses in respect of, the
residential units comprising Phase III of the Forest Glen Property.
The following percentage of units were occupied at the year ending dates:
December 31, 1997 96%
December 31, 1998 96%
Basis Of Presentation
Operating revenues and direct operating expenses are presented on the
accrual basis of accounting. The accompanying financial statement is not
representative of the actual operations for the period presented as certain
expenses, which may not be comparable to the expenses expected to be
incurred by Baron Capital Properties, L.P., a Delaware limited partnership
which will conduct the future real property operations of Baron Capital
Trust, have been excluded. Expenses excluded consist of depreciation due to
basis and method changes, professional fees, and other costs not directly
related to the future operations of the Forest Glen Apartments, Phase III.
Income Recognition
Rental income attributable to residential leases is recorded when due from
tenants.
Leases
Apartment units are rented under lease agreements with terms of one year or
less.
Property Management
In exchange for services performed during 1997 and 1998, a property manager
was paid a property management fee equal to 5% of collected rental income
from the property, a performance fee of $2.00 per residential apartment
unit for each month the property manager collected more than 96% of gross
potential rents and a monthly bookkeeping fee in the range of $275 to $325.
Effective June 30, 1998, this property management agreement was terminated.
<PAGE>
FOREST GLEN APARTMENTS, PHASE III
NOTE TO STATEMENT OF REVENUES AND CERTAIN EXPENSES
FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997
AND FOR THE THREE MONTH PERIODS ENDED MARCH 31, 1999 AND 1998
Other Matters
In connection with a proposed Exchange Offering, Baron Capital Properties,
L.P. (the "Operating Partnership"), will offer to exchange Operating
Partnership Units to the limited partners of partnerships which directly or
indirectly own the equity interest in residential apartment properties,
including the subject property. These Units are exchangeable for an
equivalent number of Common Shares of beneficial interest in Baron Capital
Trust, a real estate investment trust for which Baron Capital Properties,
L.P. is the operating partnership. Subject to the completion of the
proposed Exchange Offering, the Trust and the Operating Partnership will
account for the acquisition of the limited partnership interests in the
offering on the purchase method and therefore record the assets acquired
and liabilities assumed at their fair value at the date of acquisition.
Unaudited Financial Information
The accompanying financial information for the quarters ended March 31,
1998 and 1999 is unaudited. However, in the opinion of management, all
adjustments, consisting of normal recurring accruals and adjustments for a
fair presentation of revenues and certain expenses have been made. The
results of operations for the quarters is not necessarily indicative of
results to be expected for a full year.
<PAGE>
INDEPENDENT AUDITOR'S REPORT
The Board of Baron Capital Trust:
I have audited the accompanying statement of revenues and certain expenses
(defined as being operating revenues less direct operating expenses) of the
Forest Glen Apartments, Phase IV, for the years ended December 31, 1997 and
1998. This financial statement is the responsibility of the Company's
management. My responsibility is to express an opinion on this financial
statement based upon my audit.
I conducted my audit in accordance with generally accepted auditing standards.
Those standards require that I plan and perform the audits to obtain reasonable
assurance about whether the statement of revenues and certain expenses is free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the statement of revenues and certain
expenses. An audit also includes assessing the accounting principles used and
significant estimates made by management as well as evaluating the overall
presentation of the statement of revenues and certain expenses. I believe that
my audit provides a reasonable basis for my opinion.
The accompanying statement of revenues and certain expenses was prepared for the
purpose of complying with the rules and regulations of the Securities and
Exchange Commission (for inclusion in the Registration Statement on Form SB-2 of
Baron Capital Trust, a Delaware business trust) and excludes material expenses
described in Note 1 to the statement of revenues and certain expenses, that
would not be comparable to those resulting from the proposed future operations
of the property.
In my opinion, the statement of revenues and certain expenses presents fairly,
in all material respects, the revenues and certain expenses, as defined above,
of the Forest Glen Apartments, Phase IV, for the years ended December 31, 1997
and 1998 in conformity with generally accepted accounting principles.
Elroy D. Miedema
Certified Public Accountant
Ft. Lauderdale, Florida
April 15, 1999
<PAGE>
INDEPENDENT AUDITOR'S REPORT
The Board of Baron Capital Trust:
I have audited the accompanying statement of revenues and certain expenses
(defined as being operating revenues less direct operating expenses) of the
Forest Glen Apartments, Phase IV, for the years ended December 31, 1997 and
1998. This financial statement is the responsibility of the Company's
management. My responsibility is to express an opinion on this financial
statement based upon my audit.
I conducted my audit in accordance with generally accepted auditing standards.
Those standards require that I plan and perform the audit to obtain reasonable
assurance about whether the statement of revenues and certain expenses is free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the statement of revenues and certain
expenses. An audit also includes assessing the accounting principles used and
significant estimates made by management as well as evaluating the overall
presentation of the statement of revenues and certain expenses. I believe that
my audit provides a reasonable basis for my opinion.
The accompanying statement of revenues and certain expenses was prepared for the
purpose of complying with the rules and regulations of the Securities and
Exchange Commission (for inclusion in the Registration Statement on Form S-4 of
Baron Capital Properties, L.P., a Delaware limited partnership) and excludes
material expenses described in Note 1 to the combined statement of revenues and
certain expenses, that would not be comparable to those resulting from the
proposed future operations of the property.
In my opinion, the statement of revenues and certain expenses presents fairly,
in all material respects, the revenues and certain expenses, as defined above,
of the Forest Glen Apartments, Phase IV, for the years ended December 31, 1997
and 1998 in conformity with generally accepted accounting principles.
Elroy D. Miedema
Certified Public Accountant
Ft. Lauderdale, Florida
April 15, 1999
<PAGE>
FOREST GLEN APARTMENTS, PHASE IV
STATEMENT OF REVENUES AND CERTAIN EXPENSES
FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997
AND FOR THE THREE MONTH PERIODS ENDED MARCH 31, 1999 AND 1998
<TABLE>
<CAPTION>
December 31, December 31, March 31, March 31,
1998 1997 1999 1998
------------ ------------ ----------- -----------
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
REVENUES
Rental income $ 53,558 $ 56,139 $ 15,282 $ 13,390
Other income 3,081 2,437 80 770
--------- --------- --------- ---------
Total revenues 56,639 58,576 15,362 14,160
--------- --------- --------- ---------
CERTAIN EXPENSES
Personnel 6,091 5,132 1,014 1,523
Real estate taxes and insurance 7,364 6,985 1,792 1,841
Mortgage interest expense 17,915 17,843 5,003 4,479
Management fees and
reimbursable expenses 8,690 3,987 3,269 2,173
Other operating expenses 10,115 10,384 1,780 5,537
--------- --------- --------- ---------
Total certain expenses 50,175 44,331 12,858 15,553
--------- --------- --------- ---------
REVENUES IN EXCESS
OF CERTAIN EXPENSES $ 6,464 $ 14,245 $ 2,504 $ (1,393)
========= ========= ========= =========
</TABLE>
See Note to Statement of Revenues and Certain Expenses
<PAGE>
FOREST GLEN APARTMENTS, PHASE IV
NOTE TO STATEMENT OF REVENUES AND CERTAIN EXPENSES
FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997
AND FOR THE THREE MONTH PERIODS ENDED MARCH 31, 1999 AND 1998
1. Descriptions and Summary of Significant Accounting Policies
Description
Forest Glen Apartments, Phase IV, consist of 8 units located in Daytona
Beach, Florida. All four phases of the Forest Glen Property are owned by a
trustee on behalf of four beneficiaries (including Florida Income
Appreciation Fund I, Ltd. and three other limited partnerships). Under a
land trust agreement, Florida Income Appreciation Fund I, Ltd. owns
beneficial interest in, and is obligated to pay operating expenses in
respect of, the residential units comprising Phase IV of the Forest Glen
Property.
The following percentage of units were occupied at the year ending dates:
December 31, 1997 100%
December 31, 1998 100%
Basis Of Presentation
Operating revenues and direct operating expenses are presented on the
accrual basis of accounting. The accompanying financial statement is not
representative of the actual operations for the period presented as certain
expenses, which may not be comparable to the expenses expected to be
incurred by Baron Capital Properties, L.P., a Delaware limited partnership
which will conduct the future real property operations of Baron Capital
Trust, have been excluded. Expenses excluded consist of depreciation due to
basis and method changes, professional fees, and other costs not directly
related to the future operations of the Forest Glen Apartments, Phase IV.
Income Recognition
Rental income attributable to residential leases is recorded when due from
tenants.
Leases
Apartment units are rented under lease agreements with terms of one year or
less.
Property Management
In exchange for services performed during 1997 and 1998, a property manager
was paid a property management fee equal to 5% of collected rental income
from the property, a performance fee of $2.00 per residential apartment
unit for each month the property manager collected more than 96% of gross
potential rents and a monthly bookkeeping fee in the range of $275 to $325.
Effective June 30, 1998, this property management agreement was terminated.
<PAGE>
FOREST GLEN APARTMENTS, PHASE IV
NOTE TO STATEMENT OF REVENUES AND CERTAIN EXPENSES
FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997
AND FOR THE THREE MONTH PERIODS ENDED MARCH 31, 1999 AND 1998
Other Matters
In connection with a proposed Exchange Offering, Baron Capital Properties,
L.P. (the "Operating Partnership"), will offer to exchange Operating
Partnership Units to the limited partners of partnerships which directly or
indirectly own the equity interest in residential apartment properties,
including the subject property. These Units are exchangeable for an
equivalent number of Common Shares of beneficial interest in Baron Capital
Trust, a real estate investment trust for which Baron Capital Properties,
L.P. is the operating partnership. Subject to the completion of the
proposed Exchange Offering, the Trust and the Operating Partnership will
account for the acquisition of the limited partnership interests in the
offering on the purchase method and therefore record the assets acquired
and liabilities assumed at their fair value at the date of acquisition.
Unaudited Financial Information
The accompanying financial information for the quarters ended March 31,
1998 and 1999 is unaudited. However, in the opinion of management, all
adjustments, consisting of normal recurring accruals and adjustments for a
fair presentation of revenues and certain expenses have been made. The
results of operations for the quarters is not necessarily indicative of
results to be expected for a full year.
<PAGE>
INDEPENDENT AUDITOR'S REPORT
The Board of Baron Capital Trust:
I have audited the accompanying statement of revenues and certain expenses
(defined as being operating revenues less direct operating expenses) of the Glen
Lake Arms Apartments for the years ended December 31, 1997 and 1998. This
financial statement is the responsibility of the Company's management. My
responsibility is to express an opinion on this financial statement based upon
my audit.
I conducted my audit in accordance with generally accepted auditing standards.
Those standards require that I plan and perform the audits to obtain reasonable
assurance about whether the statement of revenues and certain expenses is free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the statement of revenues and certain
expenses. An audit also includes assessing the accounting principles used and
significant estimates made by management as well as evaluating the overall
presentation of the statement of revenues and certain expenses. I believe that
my audit provides a reasonable basis for my opinion.
The accompanying statement of revenues and certain expenses was prepared for the
purpose of complying with the rules and regulations of the Securities and
Exchange Commission (for inclusion in the Registration Statement on Form SB-2 of
Baron Capital Trust, a Delaware business trust) and excludes material expenses
described in Note 1 to the statement of revenues and certain expenses, that
would not be comparable to those resulting from the proposed future operations
of the property.
In my opinion, the statement of revenues and certain expenses presents fairly,
in all material respects, the revenues and certain expenses, as defined above,
of the Glen Lake Arms Apartments for the years ended December 31, 1997 and 1998
in conformity with generally accepted accounting principles.
Elroy D. Miedema
Certified Public Accountant
Ft. Lauderdale, Florida
April 15, 1999
<PAGE>
INDEPENDENT AUDITOR'S REPORT
The Board of Baron Capital Trust:
I have audited the accompanying statement of revenues and certain expenses
(defined as being operating revenues less direct operating expenses) of the Glen
Lake Arms Apartments for the years ended December 31, 1997 and 1998. This
financial statement is the responsibility of the Company's management. My
responsibility is to express an opinion on this financial statement based upon
my audit.
I conducted my audit in accordance with generally accepted auditing standards.
Those standards require that I plan and perform the audit to obtain reasonable
assurance about whether the statement of revenues and certain expenses is free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the statement of revenues and certain
expenses. An audit also includes assessing the accounting principles used and
significant estimates made by management as well as evaluating the overall
presentation of the statement of revenues and certain expenses. I believe that
my audit provides a reasonable basis for my opinion.
The accompanying statement of revenues and certain expenses was prepared for the
purpose of complying with the rules and regulations of the Securities and
Exchange Commission (for inclusion in the Registration Statement on Form S-4 of
Baron Capital Properties, L.P., a Delaware limited partnership) and excludes
material expenses described in Note 1 to the combined statement of revenues and
certain expenses, that would not be comparable to those resulting from the
proposed future operations of the property.
In my opinion, the statement of revenues and certain expenses presents fairly,
in all material respects, the revenues and certain expenses, as defined above,
of the Glen Lake Arms Apartments for the years ended December 31, 1997 and 1998
in conformity with generally accepted accounting principles.
Elroy D. Miedema
Certified Public Accountant
Ft. Lauderdale, Florida
April 15, 1999
<PAGE>
GLEN LAKE ARMS APARTMENTS
STATEMENT OF REVENUES AND CERTAIN EXPENSES
FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997
AND FOR THE THREE MONTH PERIODS ENDED MARCH 31, 1999 AND 1998
<TABLE>
<CAPTION>
December 31, December 31, March 31, March 31,
1998 1997 1999 1998
------------ ------------ ----------- -----------
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
REVENUES
Rental income $ 703,744 $ 745,649 $ 147,230 $ 175,936
Other income 26,875 22,536 79,526 6,719
---------- --------- --------- ---------
Total revenues 730,619 768,185 226,756 182,655
---------- --------- --------- ---------
CERTAIN EXPENSES
Personnel 172,502 85,191 30,934 43,126
Real estate taxes and insurance 111,857 118,041 31,731 27,964
Mortgage interest expense 318,032 310,603 53,001 79,508
Management fees and
reimbursable expenses 17,849 42,276 12,154 4,462
Other operating expenses 403,731 223,580 73,123 110,193
---------- --------- --------- ---------
Total certain expenses 1,023,971 779,691 200,943 265,253
---------- --------- --------- ---------
REVENUES IN EXCESS
OF CERTAIN EXPENSES $ (293,352) $ (11,506) $ 25,813 $ (82,598)
========== ========= ========= =========
</TABLE>
See Note to Statement of Revenues and Certain Expenses
<PAGE>
GLEN LAKE ARMS APARTMENTS
NOTE TO STATEMENT OF REVENUES AND CERTAIN EXPENSES
FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1996
AND FOR THE THREE MONTH PERIODS ENDED MARCH 31, 1999 AND 1998
1. Descriptions and Summary of Significant Accounting Policies
Description
Glen Lakes Arms Apartments consist of 144 units located in St. Petersburg,
Florida. The property was acquired by purchase May 18, 1995 by Glen Lake
Investors, Ltd. in which Florida Capital Income Fund IV, Ltd. owns a 99%
limited partnership interest. At December 31, 1997 81% of the units were
occupied.
Basis Of Presentation
Operating revenues and direct operating expenses are presented on the
accrual basis of accounting. The accompanying financial statement is not
representative of the actual operations for the period presented as certain
expenses, which may not be comparable to the expenses expected to be
incurred by Baron Capital Properties, L.P., a Delaware limited partnership
which will conduct the future real property operations of Baron Capital
Trust, have been excluded. Expenses excluded consist of depreciation due to
basis and method changes, professional fees, and other costs not directly
related to the future operations of the Glen Lake Arms Apartments.
Income Recognition
Rental income attributable to residential leases is recorded when due from
tenants.
Leases
Apartment units were rented under lease agreements with terms of one year
or less. Starting in April 1998, as annual leases expired, the available
units were rented on a short term basis as extended stay motel suites.
Property Management
In exchange for services performed during 1997 and 1998, a property manager
was paid a property management fee equal to 5% of collected rental income
from the annual leases, a performance fee of $2.00 per residential
apartment unit for each month the property manager collected more than 96%
of gross potential rents and a monthly bookkeeping fee in the range of $275
to $325. Effective June 30, 1998, this property management agreement was
terminated.
Other Matters
In connection with a proposed Exchange Offering, Baron Capital Properties,
L.P. (the "Operating Partnership"), will offer to exchange Operating
Partnership Units to the limited partners of partnerships which directly or
indirectly own the equity interest in residential apartment properties,
including the subject property. These Units are exchangeable for an
equivalent number of Common Shares of beneficial interest in Baron Capital
Trust, a real estate investment trust for which Baron Capital Properties,
L.P. is the operating partnership. Subject to the completion of the
proposed Exchange Offering, the Trust and the Operating Partnership will
account for the acquisition of the limited partnership interests in the
offering on the purchase method and therefore record the assets acquired
and liabilities assumed at their fair value at the date of acquisition.
<PAGE>
GLEN LAKE ARMS APARTMENTS
NOTE TO STATEMENT OF REVENUES AND CERTAIN EXPENSES
FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1996
AND FOR THE THREE MONTH PERIODS ENDED MARCH 31, 1999 AND 1998
Unaudited Financial Information
The accompanying financial information for the quarters ended March 31,
1998 and 1999 is unaudited. However, in the opinion of management, all
adjustments, consisting of normal recurring accruals and adjustments for a
fair presentation of revenues and certain expenses have been made. The
results of operations for the quarters is not necessarily indicative of
results to be expected for a full year.
<PAGE>
INDEPENDENT AUDITOR'S REPORT
The Board of Baron Capital Trust:
I have audited the accompanying statement of revenues and certain expenses
(defined as being operating revenues less direct operating expenses) of the
Grove Hamlet Apartments (Laurel Oaks) for the years ended December 31, 1997 and
1998. This financial statement is the responsibility of the Company's
management. My responsibility is to express an opinion on this financial
statement based upon my audit.
I conducted my audit in accordance with generally accepted auditing standards.
Those standards require that I plan and perform the audits to obtain reasonable
assurance about whether the statement of revenues and certain expenses is free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the statement of revenues and certain
expenses. An audit also includes assessing the accounting principles used and
significant estimates made by management as well as evaluating the overall
presentation of the statement of revenues and certain expenses. I believe that
my audit provides a reasonable basis for my opinion.
The accompanying statement of revenues and certain expenses was prepared for the
purpose of complying with the rules and regulations of the Securities and
Exchange Commission (for inclusion in the Registration Statement on Form SB-2 of
Baron Capital Trust, a Delaware business trust) and excludes material expenses
described in Note 1 to the statement of revenues and certain expenses, that
would not be comparable to those resulting from the proposed future operations
of the property.
In my opinion, the statement of revenues and certain expenses presents fairly,
in all material respects, the revenues and certain expenses, as defined above,
of the Grove Hamlet Apartments (Laurel Oaks) for the years ended December 31,
1997 and 1998 in conformity with generally accepted accounting principles.
Elroy D. Miedema
Certified Public Accountant
Ft. Lauderdale, Florida
April 15, 1999
<PAGE>
INDEPENDENT AUDITOR'S REPORT
The Board of Baron Capital Trust:
I have audited the accompanying statement of revenues and certain expenses
(defined as being operating revenues less direct operating expenses) of the
Grove Hamlet Apartments (Laurel Oaks) for the years ended December 31, 1997 and
1998. This financial statement is the responsibility of the Company's
management. My responsibility is to express an opinion on this financial
statement based upon my audit.
I conducted my audit in accordance with generally accepted auditing standards.
Those standards require that I plan and perform the audit to obtain reasonable
assurance about whether the statement of revenues and certain expenses is free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the statement of revenues and certain
expenses. An audit also includes assessing the accounting principles used and
significant estimates made by management as well as evaluating the overall
presentation of the statement of revenues and certain expenses. I believe that
my audit provides a reasonable basis for my opinion.
The accompanying statement of revenues and certain expenses was prepared for the
purpose of complying with the rules and regulations of the Securities and
Exchange Commission (for inclusion in the Registration Statement on Form S-4 of
Baron Capital Properties, L.P., a Delaware limited partnership) and excludes
material expenses described in Note 1 to the combined statement of revenues and
certain expenses, that would not be comparable to those resulting from the
proposed future operations of the property.
In my opinion, the statement of revenues and certain expenses presents fairly,
in all material respects, the revenues and certain expenses, as defined above,
of the Grove Hamlet Apartments (Laurel Oaks) for the years ended December 31,
1997 and 1998 in conformity with generally accepted accounting principles.
Elroy D. Miedema
Certified Public Accountant
Ft. Lauderdale, Florida
April 15, 1999
<PAGE>
GROVE HAMLET APARTMENTS (LAUREL OAKS)
STATEMENT OF REVENUES AND CERTAIN EXPENSES
FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997
AND FOR THE THREE MONTH PERIODS ENDED MARCH 31, 1999 AND 1998
<TABLE>
<CAPTION>
December 31, December 31, March 31, March 31,
1998 1997 1999 1998
------------ ------------ ----------- -----------
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
REVENUES
Rental income $ 282,024 $ 221,070 $ 76,469 $ 70,506
Other income 10,963 7,510 2,030 2,741
---------- ---------- ---------- ----------
Total revenues 292,987 228,580 78,499 73,247
---------- ---------- ---------- ----------
CERTAIN EXPENSES
Personnel 40,337 31,912 8,299 10,084
Real estate taxes and insurance 31,851 35,289 11,175 7,963
Mortgage interest expense 117,215 125,177 24,455 29,304
Management fees and
reimbursable expense 24,245 14,028 6,647 6,061
Other operating expenses 50,876 27,602 16,941 15,175
---------- ---------- ---------- ----------
Total certain expenses 264,524 234,008 67,517 68,587
---------- ---------- ---------- ----------
REVENUES IN EXCESS
OF CERTAIN EXPENSES $ 28,463 $ (5,428) $ 10,982 $ 4,660
========== ========== ========== ==========
</TABLE>
See Note to Statement of Revenues and Certain Expenses
<PAGE>
GROVE HAMLET APARTMENTS (LAUREL OAKS)
NOTE TO STATEMENT OF REVENUES AND CERTAIN EXPENSES
FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997
AND FOR THE THREE MONTH PERIODS ENDED MARCH 31, 1999 AND 1998
1. Descriptions and Summary of Significant Accounting Policies
Description
Grove Hamlet Apartments consist of 57 units located in Deland, Florida. The
property was acquired by purchase December 29, 1993 by Central Florida
Income Appreciation Fund, Ltd. The following percentage of units were
occupied at the various period ending dates:
December 31, 1997 82%
December 31, 1998 96%
Basis Of Presentation
Operating revenues and direct operating expenses are presented on the
accrual basis of accounting. The accompanying financial statement is not
representative of the actual operations for the period presented as certain
expenses, which may not be comparable to the expenses expected to be
incurred by Baron Capital Properties, L.P., a Delaware limited partnership
which will conduct the future real property operations of Baron Capital
Trust, have been excluded. Expenses excluded consist of depreciation due to
basis and method changes, professional fees, and other costs not directly
related to the future operations of the Grove Hamlet Apartments.
Income Recognition
Rental income attributable to residential leases is recorded when due from
tenants.
Leases
Apartment units are rented under lease agreements with terms of one year or
less.
Property Management
In exchange for services performed during 1997 and 1998, a property manager
was paid a property management fee equal to 5% of collected rental income
from the property, a performance fee of $2.00 per residential apartment
unit for each month the property manager collected more than 96% of gross
potential rents and a monthly bookkeeping fee in the range of $275 to $325.
Effective June 30, 1998, this property management agreement was terminated.
Other Matters
In connection with a proposed Exchange Offering, Baron Capital Properties,
L.P. (the "Operating Partnership"), will offer to exchange Operating
Partnership Units to the limited partners of partnerships which directly or
indirectly own the equity interest in residential apartment properties,
including the subject property. These Units are exchangeable for an
equivalent number of Common Shares of beneficial interest in Baron Capital
Trust, a real estate investment trust for which Baron Capital Properties,
L.P. is the operating partnership. Subject to the completion of the
proposed Exchange Offering, the Trust and the Operating Partnership will
account for the acquisition of the limited partnership interests in the
offering on the purchase method and therefore record the assets acquired
and liabilities assumed at their fair value at the date of acquisition.
<PAGE>
GROVE HAMLET APARTMENTS (LAUREL OAKS)
NOTE TO STATEMENT OF REVENUES AND CERTAIN EXPENSES
FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997
AND FOR THE THREE MONTH PERIODS ENDED MARCH 31, 1999 AND 1998
Unaudited Financial Information
The accompanying financial information for the quarters ended March 31,
1998 and 1999 is unaudited. However, in the opinion of management, all
adjustments, consisting of normal recurring accruals and adjustments for a
fair presentation of revenues and certain expenses have been made. The
results of operations for the quarters is not necessarily indicative of
results to be expected for a full year.
<PAGE>
INDEPENDENT AUDITOR'S REPORT
The Board of Baron Capital Trust:
I have audited the accompanying statement of revenues and certain expenses
(defined as being operating revenues less direct operating expenses) of the
Stadium Club Apartments for the years ended December 31, 1997 and 1998. This
financial statement is the responsibility of the Company's management. My
responsibility is to express an opinion on this financial statement based upon
my audit.
I conducted my audit in accordance with generally accepted auditing standards.
Those standards require that I plan and perform the audits to obtain reasonable
assurance about whether the statement of revenues and certain expenses is free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the statement of revenues and certain
expenses. An audit also includes assessing the accounting principles used and
significant estimates made by management as well as evaluating the overall
presentation of the statement of revenues and certain expenses. I believe that
my audit provides a reasonable basis for my opinion.
The accompanying statement of revenues and certain expenses was prepared for the
purpose of complying with the rules and regulations of the Securities and
Exchange Commission (for inclusion in the Registration Statement on Form SB-2 of
Baron Capital Trust, a Delaware business trust) and excludes material expenses
described in Note 1 to the statement of revenues and certain expenses, that
would not be comparable to those resulting from the proposed future operations
of the property.
In my opinion, the statement of revenues and certain expenses presents fairly,
in all material respects, the revenues and certain expenses, as defined above,
of the Stadium Club Apartments for the years ended December 31, 1997 and 1998 in
conformity with generally accepted accounting principles.
Elroy D. Miedema
Certified Public Accountant
Ft. Lauderdale, Florida
April 15, 1999
<PAGE>
INDEPENDENT AUDITOR'S REPORT
The Board of Baron Capital Trust:
I have audited the accompanying statement of revenues and certain expenses
(defined as being operating revenues less direct operating expenses) of the
Stadium Club Apartments for the years ended December 31, 1997 and 1998. This
financial statement is the responsibility of the Company's management. My
responsibility is to express an opinion on this financial statement based upon
my audit.
I conducted my audit in accordance with generally accepted auditing standards.
Those standards require that I plan and perform the audit to obtain reasonable
assurance about whether the statement of revenues and certain expenses is free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the statement of revenues and certain
expenses. An audit also includes assessing the accounting principles used and
significant estimates made by management as well as evaluating the overall
presentation of the statement of revenues and certain expenses. I believe that
my audit provides a reasonable basis for my opinion.
The accompanying statement of revenues and certain expenses was prepared for the
purpose of complying with the rules and regulations of the Securities and
Exchange Commission (for inclusion in the Registration Statement on Form S-4 of
Baron Capital Properties, L.P., a Delaware limited partnership) and excludes
material expenses described in Note 1 to the combined statement of revenues and
certain expenses, that would not be comparable to those resulting from the
proposed future operations of the property.
In my opinion, the statement of revenues and certain expenses presents fairly,
in all material respects, the revenues and certain expenses, as defined above,
of the Stadium Club Apartments for the years ended December 31, 1997 and 1998 in
conformity with generally accepted accounting principles.
Elroy D. Miedema
Certified Public Accountant
Ft. Lauderdale, Florida
April 15, 1999
<PAGE>
STADIUM CLUB APARTMENTS
STATEMENT OF REVENUES AND CERTAIN EXPENSES
FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997
AND FOR THE THREE MONTH PERIODS ENDED MARCH 31, 1999 AND 1998
<TABLE>
<CAPTION>
December 31, December 31, March 31, March 31,
1998 1997 1999 1998
------------ ------------ ----------- -----------
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
REVENUES
Rental income $ 397,831 $ 458,687 $ 104,712 $ 99,458
Other income 44,049 27,710 1,756 11,012
--------- --------- --------- ---------
Total revenues 441,880 486,397 106,468 110,470
--------- --------- --------- ---------
CERTAIN EXPENSES
Personnel 77,976 72,107 12,896 19,494
Real estate taxes and insurance 31,459 36,528 5,367 7,865
Mortgage interest expense 141,388 146,120 33,913 35,347
Management fees and
reimbursable expenses 44,449 25,469 8,264 11,112
Other operating expenses 129,209 108,499 12,239 40,469
--------- --------- --------- ---------
Total certain expenses 424,481 388,723 72,679 114,287
--------- --------- --------- ---------
REVENUES IN EXCESS
OF CERTAIN EXPENSES $ 17,399 $ 97,674 $ 33,789 $ (3,817)
========= ========= ========= =========
</TABLE>
See Note to Statement of Revenues and Certain Expenses
<PAGE>
STADIUM CLUB APARTMENTS
NOTE TO STATEMENT OF REVENUES AND CERTAIN EXPENSES
FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997
AND FOR THE THREE MONTH PERIODS ENDED MARCH 31, 1999 AND 1998
1. Descriptions and Summary of Significant Accounting Policies
Description
Stadium Club Apartments consist of 229 units located in Statesboro,
Georgia. The property was acquired by purchase June 30, 1995 by GSU Stadium
Student Apartments, Ltd. The following percentage of units were occupied at
the various period ending dates:
December 31, 1997 86%
December 31, 1998 59%
Basis Of Presentation
Operating revenues and direct operating expenses are presented on the
accrual basis of accounting. The accompanying financial statement is not
representative of the actual operations for the period presented as certain
expenses, which may not be comparable to the expenses expected to be
incurred by Baron Capital Properties, L.P., a Delaware limited partnership
which will conduct the future real property operations of Baron Capital
Trust, have been excluded. Expenses excluded consist of depreciation due to
basis and method changes, professional fees, and other costs not directly
related to the future operations of the Stadium Club Apartments.
Income Recognition
Rental income attributable to residential leases is recorded when due from
tenants.
Leases
Apartment units, which are student housing, are rented under lease
agreements that correspond to the school semesters.
Property Management
In exchange for services performed during 1997 and 1998, a property manager
was paid a property management fee equal to 5% of collected rental income
from the property, a performance fee of $2.00 per residential apartment
unit for each month the property manager collected more than 96% of gross
potential rents and a monthly bookkeeping fee in the range of $275 to $325.
Effective June 30, 1998, this property management agreement was terminated.
Other Matters
In connection with a proposed Exchange Offering, Baron Capital Properties,
L.P. (the "Operating Partnership"), will offer to exchange Operating
Partnership Units to the limited partners of partnerships which directly or
indirectly own the equity interest in residential apartment properties,
including the subject property. These Units are exchangeable for an
equivalent number of Common Shares of beneficial interest in Baron Capital
Trust, a real estate investment trust for which Baron Capital Properties,
L.P. is the operating partnership. Subject to the completion of the
proposed Exchange Offering, the Trust and the Operating Partnership will
account for the acquisition of the limited partnership interests in the
offering on the purchase method and therefore record the assets acquired
and liabilities assumed at their fair value at the date of acquisition.
<PAGE>
STADIUM CLUB APARTMENTS
NOTE TO STATEMENT OF REVENUES AND CERTAIN EXPENSES
FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997
AND FOR THE THREE MONTH PERIODS ENDED MARCH 31, 1999 AND 1998
Unaudited Financial Information
The accompanying financial information for the quarters ended March 31,
1998 and 1999 is unaudited. However, in the opinion of management, all
adjustments, consisting of normal recurring accruals and adjustments for a
fair presentation of revenues and certain expenses have been made. The
results of operations for the quarters is not necessarily indicative of
results to be expected for a full year.
<PAGE>
INDEPENDENT AUDITOR'S REPORT
The Board of Baron Capital Trust:
I have audited the accompanying statement of revenues and certain expenses
(defined as being operating revenues less direct operating expenses) of the
Steeplechase Apartments for the years ended December 31, 1997 and 1998. This
financial statement is the responsibility of the Company's management. My
responsibility is to express an opinion on this financial statement based upon
my audit.
I conducted my audit in accordance with generally accepted auditing standards.
Those standards require that I plan and perform the audits to obtain reasonable
assurance about whether the statement of revenues and certain expenses is free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the statement of revenues and certain
expenses. An audit also includes assessing the accounting principles used and
significant estimates made by management as well as evaluating the overall
presentation of the statement of revenues and certain expenses. I believe that
my audit provides a reasonable basis for my opinion.
The accompanying statement of revenues and certain expenses was prepared for the
purpose of complying with the rules and regulations of the Securities and
Exchange Commission (for inclusion in the Registration Statement on Form SB-2 of
Baron Capital Trust, a Delaware business trust) and excludes material expenses
described in Note 1 to the statement of revenues and certain expenses, that
would not be comparable to those resulting from the proposed future operations
of the property.
In my opinion, the statement of revenues and certain expenses presents fairly,
in all material respects, the revenues and certain expenses, as defined above,
of the Steeplechase Apartments for the years ended December 31, 1997 and 1998 in
conformity with generally accepted accounting principles.
Elroy D. Miedema
Certified Public Accountant
Ft. Lauderdale, Florida
April 15, 1999
<PAGE>
INDEPENDENT AUDITOR'S REPORT
The Board of Baron Capital Trust:
I have audited the accompanying statement of revenues and certain expenses
(defined as being operating revenues less direct operating expenses) of the
Steeplechase Apartments for the years ended December 31, 1997 and 1998. This
financial statement is the responsibility of the Company's management. My
responsibility is to express an opinion on this financial statement based upon
my audit.
I conducted my audit in accordance with generally accepted auditing standards.
Those standards require that I plan and perform the audit to obtain reasonable
assurance about whether the statement of revenues and certain expenses is free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the statement of revenues and certain
expenses. An audit also includes assessing the accounting principles used and
significant estimates made by management as well as evaluating the overall
presentation of the statement of revenues and certain expenses. I believe that
my audit provides a reasonable basis for my opinion.
The accompanying statement of revenues and certain expenses was prepared for the
purpose of complying with the rules and regulations of the Securities and
Exchange Commission (for inclusion in the Registration Statement on Form S-4 of
Baron Capital Properties, L.P., a Delaware limited partnership) and excludes
material expenses described in Note 1 to the combined statement of revenues and
certain expenses, that would not be comparable to those resulting from the
proposed future operations of the property.
In my opinion, the statement of revenues and certain expenses presents fairly,
in all material respects, the revenues and certain expenses, as defined above,
of the Steeplechase Apartments for the years ended December 31, 1997 and 1998 in
conformity with generally accepted accounting principles.
Elroy D. Miedema
Certified Public Accountant
Ft. Lauderdale, Florida
April 15, 1999
<PAGE>
STEEPLECHASE APARTMENTS
STATEMENT OF REVENUES AND CERTAIN EXPENSES
FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997
AND FOR THE THREE MONTH PERIODS ENDED MARCH 31, 1999 AND 1998
<TABLE>
<CAPTION>
December 31, December 31, March 31, March 31,
1998 1997 1999 1998
------------ ------------ ----------- -----------
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
REVENUES
Rental income $ 297,880 $ 234,305 $ 69,727 $ 74,470
Other income 23,059 10,733 19,056 5,765
--------- --------- --------- ---------
Total revenues 320,939 245,038 88,783 80,235
--------- --------- --------- ---------
CERTAIN EXPENSES
Personnel 60,173 50,624 11,970 15,043
Real estate taxes and insurance 37,339 33,112 9,005 9,335
Mortgage interest expense 91,982 93,448 24,593 22,996
Management fees and
reimbursable expenses 23,119 15,227 6,164 5,780
Other operating expenses 104,662 99,927 9,815 32,161
--------- --------- --------- ---------
Total certain expenses 317,275 292,338 61,547 85,315
--------- --------- --------- ---------
REVENUES IN EXCESS
OF CERTAIN EXPENSES $ 3,664 $ (47,300) $ 27,239 $ (5,080)
========= ========= ========= =========
</TABLE>
See Note to Statement of Revenues and Certain Expenses
<PAGE>
STEEPLECHASE APARTMENTS
NOTE TO STATEMENT OF REVENUES AND CERTAIN EXPENSES
FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997
AND FOR THE THREE MONTH PERIODS ENDED MARCH 31, 1999 AND 1998
1. Descriptions and Summary of Significant Accounting Policies
Description
Steeplechase Apartments consist of 72 units located in Anderson, Indiana.
The property was acquired on October 1, 1996 by Income Partners III, Ltd.
in which Baron Strategic Investment Fund II, Ltd. owns a 99% limited
partnership interest. The following percentage of units were occupied at
the various period ending dates:
December 31, 1997 65%
December 31, 1998 74%
Basis Of Presentation
Operating revenues and direct operating expenses are presented on the
accrual basis of accounting. The accompanying financial statement is not
representative of the actual operations for the period presented as certain
expenses, which may not be comparable to the expenses expected to be
incurred by Baron Capital Properties, L.P., a Delaware limited partnership
which will conduct the future real property operations of Baron Capital
Trust, have been excluded. Expenses excluded consist of depreciation due to
basis and method changes, professional fees, and other costs not directly
related to the future operations of the Steeplechase Apartments.
Income Recognition
Rental income attributable to residential leases is recorded when due from
tenants.
Leases
Apartment units are rented under lease agreements with terms of one year or
less.
Property Management
In exchange for services performed during 1997 and 1998, a property manager
was paid a property management fee equal to 5% of collected rental income
from the property, a performance fee of $2.00 per residential apartment
unit for each month the property manager collected more than 96% of gross
potential rents and a monthly bookkeeping fee in the range of $275 to $325.
Effective June 30, 1998, this property management agreement was terminated.
Other Matters
In connection with a proposed Exchange Offering, Baron Capital Properties,
L.P. (the "Operating Partnership"), will offer to exchange Operating
Partnership Units to the limited partners of partnerships which directly or
indirectly own the equity interest in residential apartment properties,
including the subject property. These Units are exchangeable for an
equivalent number of Common Shares of beneficial interest in Baron Capital
Trust, a real estate investment trust for which Baron Capital Properties,
L.P. is the operating partnership. Subject to the completion of the
proposed Exchange Offering, the Trust and the Operating Partnership will
account for the acquisition of the limited partnership interests in the
offering on the purchase method and therefore record the assets acquired
and liabilities assumed at their fair value at the date of acquisition.
<PAGE>
STEEPLECHASE APARTMENTS
NOTE TO STATEMENT OF REVENUES AND CERTAIN EXPENSES
FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997
AND FOR THE THREE MONTH PERIODS ENDED MARCH 31, 1999 AND 1998
Unaudited Financial Information
The accompanying financial information for the quarters ended March 31,
1998 and 1999 is unaudited. However, in the opinion of management, all
adjustments, consisting of normal recurring accruals and adjustments for a
fair presentation of revenues and certain expenses have been made. The
results of operations for the quarters is not necessarily indicative of
results to be expected for a full year.
<PAGE>
================================================================================
BARON STRATEGIC INVESTMENT FUND, LTD.
FINANCIAL STATEMENTS
MARCH 31, 1999 AND DECEMBER 31, 1998
================================================================================
<PAGE>
BARON STRATEGIC INVESTMENT FUND, LTD.
TABLE OF CONTENTS
PAGE
----
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS 1
FINANCIAL STATEMENTS
Balance Sheets 2
Statements of Operations 3
Statements of Partners' Capital 4
Statements of Cash Flows 5
Notes to Financial Statements 6-11
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Partners
Baron Strategic Investment Fund, Ltd.
Cincinnati, Ohio
We have audited the accompanying balance sheet of Baron Strategic Investment
Fund, Ltd. (the "Partnership") as of December 31, 1998, and the related
statements of operations, partners' capital and cash flows for each of the two
years in the period then ended. These financial statements are the
responsibility of the Partnership's management. Our responsibility is to express
an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Baron Strategic Investment
Fund, Ltd. at December 31, 1998, and the results of its operations and its cash
flows for each of the two years in the period then ended in conformity with
generally accepted accounting principles.
The Partnership is affiliated with certain other limited partnerships (the
"affiliates") in similar lines of business, all of whom are controlled by a
common person who is the sole stockholder and president of the Partnership's
general partner. As discussed in Note 3, the Partnership and its affiliates have
engaged in significant transactions with each other.
RACHLIN COHEN & HOLTZ LLP
Miami, Florida
April 2, 1999
<PAGE>
BARON STRATEGIC INVESTMENT FUND, LTD.
BALANCE SHEETS
<TABLE>
<CAPTION>
March 31, December 31,
1999 1998
---- ----
ASSETS (Unaudited)
<S> <C> <C>
Cash $ 7,234 $ 7,653
Notes receivable from affiliates 787,148 787,148
Accrued interest receivable from affiliates 91,427 90,089
--------- ---------
$ 885,809 $ 884,890
========= =========
LIABILITIES AND PARTNERS' CAPITAL
Liabilities:
Administrative fees payable to general partner 7,500 6,000
--------- ---------
Commitments and Other Matter - -
Partners' Capital:
General partner 90 90
Limited partners 878,219 878,800
--------- ---------
878,309 878,890
--------- ---------
$ 885,809 $ 884,890
========= =========
</TABLE>
<PAGE>
BARON STRATEGIC INVESTMENT FUND, LTD.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Three
Months
Ended Year Ended
March 31, December
1999 1998 1997
---- ---- ----
(Unaudited)
<S> <C> <C> <C>
Revenues:
Interest income from affiliate $ 21,338 $ 105,368 $ 76,981
Other 15 365 1,906
-------- -------- --------
21,353 105,733 78,887
-------- -------- --------
Costs and Expenses:
General and administrative 434 23,981 10,745
Administrative fees to general partner 1,500 6,000 6,000
-------- -------- --------
1,934 29,981 16,745
-------- -------- --------
Net Income $ 19,419 $ 75,752 $ 62,142
======== ======== ========
</TABLE>
<PAGE>
BARON STRATEGIC INVESTMENT FUND, LTD.
STATEMENTS OF PARTNERS' CAPITAL
<TABLE>
<CAPTION>
General Limited
Partner Partners Total
------- -------- -----
<S> <C> <C> <C> <C>
Partners' Capital, January 1, 1997 $ 90 $ 910,570 $ 910,660
Year Ended December 31, 1997:
Distributions - (112,664) (112,664)
Net income - 62,142 62,142
-------- --------- --------
Partners' Capital, December 31, 1997 90 860,048 860,138
Year Ended December 31, 1998:
Distributions - (57,000) (57,000)
Net income - 75,752 75,752
-------- --------- --------
Partners' Capital, December 31, 1998 90 878,800 878,890
Three Months Ended March 31, 1999 (Unaudited):
Distributions - (20,000) (20,000)
Net income - 19,419 19,419
-------- --------- --------
Partners' Capital, March 31, 1999 (Unaudited) $ 90 $ 878,219 $ 878,309
======== ========= ========
</TABLE>
<PAGE>
BARON STRATEGIC INVESTMENT FUND, LTD.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Three
Months Year Ended
Ended December
March 31, ------------------
1999 1998 1997
---- ---- ----
(Unaudited)
<S> <C> <C> <C>
Cash Flows from Operating Activities:
Net income $ 19,419 $ 75,752 $ 62,142
Adjustments to reconcile net income to
net cash provided by operating activities:
Changes in operating assets and liabilities:
Increase in accrued interest receivable from affiliate (1,338) (68,630) (15,981)
Increase (decrease) in administrative fees payable
to general partner 1,500 (3,500) 6,000
-------- -------- --------
Net cash provided by operating activities 19,581 3,622 52,161
-------- -------- --------
Cash Flows from Investing Activities:
Investment in notes receivables from affiliates - (133,670) (339,000)
Advances to affiliates - - (7,239)
Collection of notes receivables from affiliates - 155,261 -
-------- -------- --------
Net cash provided by (used in) investing activities - 21,591 (346,239)
-------- -------- --------
Cash Flows from Financing Activities:
Distributions to limited partners (20,000) (57,000) (112,664)
Syndication costs - - (6,800)
-- -- -------
Net cash used in financing activities (20,000) (57,000) (119,464)
-------- -------- --------
Net Decrease in Cash (419) (31,787) (413,542)
Cash, Beginning 7,653 39,440 452,982
-------- -------- --------
Cash, Ending $ 7,234 $ 7,653 $ 39,440
======== ======== ========
Supplemental Disclosures:
Non-cash transactions:
Reclassification of advance to note receivable $ - $ 249,739 $ -
======== ======== ========
</TABLE>
<PAGE>
BARON STRATEGIC INVESTMENT FUND, LTD.
Cash Flow Worksheet
December 31, 1998
<TABLE>
<CAPTION>
Line of Interest Notes
Cash Credit Receivable Receivable
---- ------ ---------- ----------
<S> <C> <C> <C> <C> <C>
Begining Balance, December 31, 1997 39,440 249,739 21,459 559,000
Ending Balance, December 31, 1998 7,653 - 90,089 787,148
------- -------- ------ -------
(31,787) (249,739) 68,630 228,148
Cash Flows from Operating Activities:
Net income 75,752
Adjustments to reconcile net income to
net cash provided by operating activities:
Changes in operating assets and liabilities:
Increase in accrued interest (68,630) (68,630)
Decrease in admin. fees payable to general partner (3,500)
Increase in loan payable due to affiliate -
Net cash provided by operating activities 3,622
Cash Flows from Investing Activities:
Purchase of investment in affiliates (133,670) (133,670)
Reclass of advance to note - 249,739 (249,739)
Line of credit to affiliate 155,261 155,261
--------
Net cash provided (required) by
investing activities 21,591
--------
Cash Flows from Financing Activities:
Distribution (57,000)
Limited partner contributions -
Limited partner distributions -
--------
Net cash used in financing activities (57,000)
Net Increase (Decrease) in Cash (31,787)
Cash, Beginning 39,440
Cash, Ending 7,653
========
</TABLE>
<TABLE>
<CAPTION>
Partners'
Due to G/P Capital
---------- -------
<S> <C> <C>
Begining Balance, December 31, 1997 (9,500) (860,138)
Ending Balance, December 31, 1998 (6,000) (878,890)
------ --------
3,500 (18,752)
Cash Flows from Operating Activities:
Net income 75,752
Adjustments to reconcile net income to
net cash provided by operating activities:
Changes in operating assets and liabilities:
Increase in accrued interest
Decrease in admin. fees payable to general partner (3,500)
Increase in loan payable due to affiliate
Net cash provided by operating activities
Cash Flows from Investing Activities:
Purchase of investment in affiliates
Reclass of advance to note
Line of credit to affiliate
Net cash provided (required) by
investing activities
Cash Flows from Financing Activities:
Distribution (57,000)
Limited partner contributions
Limited partner distributions
Net cash used in financing activities
Net Increase (Decrease) in Cash
Cash, Beginning
Cash, Ending
</TABLE>
<PAGE>
BARON STRATEGIC INVESTMENT FUND, LTD.
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 1999 AND DECEMBER 31, 1998
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization and Capitalization
Baron Strategic Investment Fund, Ltd. ("the Partnership") was
initially organized on April 24, 1996 under the laws of the State of
Florida.
The Agreement of Limited Partnership provides for capital
contributions of partners to be comprised of (a) the general partner
capital contribution of $90 in cash; and (b) the maximum capital
contributions of the limited partners of $1,200,000, to be divided
into 2,400 equal units of limited partnership interest.
See Note 2 for a summary of other provisions of the Agreement of
Limited Partnership.
Business
The Partnership provides debt and equity financing to existing
affiliated limited partnerships owning residential apartment
communities located in Florida.
Unaudited Financial Information
The accompanying financial information as of and for the three
months ended March 31, 1999 is unaudited. However, in the opinion of
management, all adjustments, consisting of normal recurring accruals
and adjustments, necessary for a fair presentation of financial
position, results of operations and cash flows have been made.
The results of operations for interim periods are not necessarily
indicative of results to be expected for a full year.
Revenue Recognition
Revenue, which consists primarily of interest on notes receivable,
is recognized as it becomes due.
Concentration of Credit Risk
At various times during the year the Partnership had deposits in
financial institutions in excess of the federally insured limits.
The Partnership maintains its cash with a high quality financial
institution which the Partnership believes limits these risks.
Notes Receivable from Affiliates
Notes receivable from affiliates are recorded at cost, less the
related allowance for impairment, if any, of such notes receivable.
The Partnership accounts for such notes under the provisions of
Statement of Financial Accounting Standard No. 114, Accounting by
<PAGE>
BARON STRATEGIC INVESTMENT FUND, LTD.
NOTES TO FINANCIAL STATEMENTS
(Continued)
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Notes Receivable from Affiliates (Continued)
Creditors for Impairment of a Loan, as amended by Statement of
Financial Accounting Standard No. 118, Accounting by Creditors for
Impairment of a Loan - Income Recognition and Disclosure.
Management, considering current information and events regarding the
borrowers' ability to repay their obligations, considers a note to
be impaired when it is probable that the Partnership will be unable
to collect all amounts due according to the contractual terms of the
note. When a loan is considered to be impaired, the amount of
impairment is measured based upon (a) the present value of expected
future cash flows discounted at the note's effective interest rate;
and (b) the liquidation value of the note's collateral reduced by
expected selling costs and other notes secured by the same
collateral. Cash receipts on impaired notes receivable are applied
to reduce the principal amount of such receivables until the
principal has been recovered, and are recognized as interest income
thereafter.
Use of Estimates
The accompanying financial statements have been prepared in
conformity with generally accepted accounting principles. In
preparing the financial statements, management is required to make
estimates and assumptions that affect the reported amount of assets
and liabilities as of the date of the balance sheet and operations
for the year then ended. Material estimates as to which it is
reasonably possible that a change in the estimate could occur in the
near term relates to the collectibility of the notes receivable due
from affiliates. Although these estimates are based on management's
knowledge of current events and actions it may undertake in the
future, they may ultimately differ from actual results.
Income Taxes
The Partnership is treated as a limited partnership for federal
income tax purposes and as such does not incur income taxes.
Instead, its earnings and losses are included in the personal
returns of the partners and taxed depending on their personal tax
situations. The financial statements do not reflect a provision for
income taxes.
NOTE 2. AGREEMENT OF LIMITED PARTNERSHIP
The following is a summary of the significant provisions of the Agreement
of Limited Partnership ("the Agreement") made and entered into as of May
20, 1996:
Capital Contributions of Partners
The Agreement provides for the general partner to contribute $90 in
cash, and maximum capital contributions of the limited partners of
$1,200,000, to be divided into 2,400 units of limited partnership
units. A capital account is maintained for each partner.
<PAGE>
BARON STRATEGIC INVESTMENT FUND, LTD.
NOTES TO FINANCIAL STATEMENTS
(Continued)
NOTE 2. AGREEMENT OF LIMITED PARTNERSHIP (Continued)
Term
The Partnership will continue through December 31, 2026, unless
sooner terminated by law or under certain provisions of the
Agreement.
Distributions
Cash Distributions
The Partnership's distributable cash, if any, in each fiscal
year will not be reinvested but will be distributed in order
of priority to the Partners, if available, quarterly, to (a)
the limited partners who will receive 100% of the
distributable cash until they have received a 12.5%
non-cumulative annual cash-on-cash return on the aggregate
amount of their capital contribution as calculated from each
limited partner's admission date; and (b) the excess, if any,
will be allocated 50% to the limited partners and 50% to the
general partner.
Distributions of Net Proceeds
Net proceeds from the sale or refinancing of the Partnership's
assets will not be reinvested but will be distributed to the
partners in order of priority after repayment of all
indebtedness secured by the assets to (a) the limited partners
who will receive 100% of the distributions until the total
amount distributed to them when added to all prior
distributions of distributable cash and net proceeds made to
them, is equal to the sum of their capital contributions plus
an annual 12.5% cash-on-cash return; and (b) next to the
general partner, until the total amount so distributed to it
when added to all prior distributions of distributable cash
and net proceeds made to it, is equal to the sum of its
capital contribution plus an annual 12.5% cash-on-cash return
and; (c) the balance, if any is distributed 50% to the limited
partners and 50% to the general partner.
Allocation of Income and Loss
Allocations of all items of income, gain, expense, loss, deduction
and credit recognized by the Partnership for federal income tax
purposes will be made as follows:
Income
The first 100% of income is allocated to the general partner
until the profits allocated plus the cumulative profits
allocated to the general partner for prior fiscal periods
during which a profit was earned by the Partnership equal the
cumulative amounts distributable to the general partner under
the terms of the distributions of cash and net proceeds. The
balance, if any, is allocated to the limited partners.
Losses
After giving effect to certain tax provisions, taxable losses
are allocated 99% to the limited partners and 1% to the
general partner.
<PAGE>
BARON STRATEGIC INVESTMENT FUND, LTD.
NOTES TO FINANCIAL STATEMENTS
(Continued)
NOTE 2. AGREEMENT OF LIMITED PARTNERSHIP (Continued)
Dissolution
The Partnership will be dissolved upon (a) the expiration of the
term of the Agreement; (b) the determination of the limited partners
exercising their voting rights to dissolve the Partnership; (c) the
death, resignation, retirement, dissolution, removal, bankruptcy,
adjudication of insolvency, or adjudication of insanity or
incompetence of the last remaining general partner then in office
and the refusal of any successor general partner to replace it,
unless the holders of a majority of the units then outstanding vote
to continue the Partnership and elect one or more successor general
partners willing to serve in such capacity to continue the business
of the Partnership; (d) the sale of all or substantially all of the
Partnership's property; (e) the repayment in full of all loans made
by the Partnership, unless the Partnership thereafter continues to
own non-loan assets; and (f) the occurrence of any other event
which, by law, would require the Partnership to be dissolved.
Winding Up
Upon the dissolution of the partnership, the general partner will
take full account of the Partnership's assets and liabilities, and
the assets will be liquidated as promptly as is consistent with
obtaining fair value of the assets, and the proceeds will be applied
and distributed (a) first to the Partnership creditors, other than
partners; (b) then, any loans owed by the Partnership to the
partners shall be paid in proportion thereto; and (c) finally, to
the limited partners and the general partner in proportion to their
respective positive capital accounts.
Fees to the General Partner
Pursuant to a Partnership Administration Contract (the "Contract")
between the Partnership and the general partner stipulated in the
Agreement, the Partnership retained the general partner to provide
administrative services for $500 per month through December 1, 2003.
NOTE 3. NOTES RECEIVABLE FROM AFFILIATES
The following are the balances of the notes receivable and accrued
interest from affiliates at March 31, 1999 and December 31, 1998:
<TABLE>
<CAPTION>
March 31, 1999 December 31, 1998
-------------- -----------------
Notes Accrued Notes Accrued
Receivable Interest Receivable Interest
---------- -------- ---------- --------
(Unaudited)
<S> <C> <C> <C> <C>
Blossom Corners Apartments II, Ltd.
("Blossom II") $557,148 $43,113 $557,148 $48,581 (a)
Sycamore Real Estate Development, LP
("Sycamore") 230,000 20,415 230,000 13,609 (b)
Falls Properties III, Ltd. ("Falls III") - 27,899 - 27,899 (c)
-------- ------- -------- -------
$787,148 $91,427 $787,148 $90,089
======== ======= ======== =======
</TABLE>
<PAGE>
BARON STRATEGIC INVESTMENT FUND, LTD.
NOTES TO FINANCIAL STATEMENTS
(Continued)
NOTE 3. NOTES RECEIVABLE FROM AFFILIATES (Continued)
(a) In November 1996, the Partnership acquired certain receivables from
an unrelated entity at a discount from the face amount thereof. The
receivables, which included notes receivable and accrued interest
due from Blossom II, were converted into promissory notes as more
fully described in the table below:
Blossom II Second Mortgage Note; matures on
April 1, 2002; accrues interest at an minimum
annual rate of 6% and provides for
participation interest at the rate of 3% per
annum based upon the amount of the unpaid
principal, which shall be due and payable to
the extent that it does not exceed the
available cash flow, as defined in the note;
secured by a lien upon certain real and
personal property of Blossom II; provides for
additional participation interest in an amount
equal to 30% of remaining available cash flow,
as defined, which will continue to be made
until such time as the collateral has been
sold, and which obligation will continue
notwithstanding total repayment of the
principal amount of the note; subordinated to
the first mortgage which had a balance of
approximately $1,100,000 and $1,104,000 as of
March 31, 1999 and December 31, 1998,
respectively. $622,103
Secured promissory note representing advances
made by the former general partner to Blossom
II. The note matures on April 1, 2002; accrues
interest, which is payable quarterly, at 1%
over prime (8.75% as of March 31, 1999 and
December 31, 1998). 68,861
Secured promissory note representing other
receivables related to advances made by the
former general partner to Blossom II for
refinancing fees and professional services. The
note matures on April 1, 2002; accrues
interest, which is payable quarterly, at 12%. 29,732
--------
720,696
Less discount 263,696
--------
Subtotal of notes receivable, net of discount 457,000
Secured promissory note representing other
advances made to Blossom II. The note matures
on April 1, 2002; accrues interest, which is
payable quarterly, at 12%. 100,148
--------
Total $557,148
========
On December 15, 1998, Blossom II amended and restated all the above
notes and mortgages and entered into a Second Amendment to Open-End
Second Mortgage and Security Agreement by which all of the above
notes will be secured by the Second Mortgage. The amendment also
provides for additional advances not to exceed a $1,250,000 maximum
to be evidenced by an Additional Advance Agreement or note.
<PAGE>
BARON STRATEGIC INVESTMENT FUND, LTD.
NOTES TO FINANCIAL STATEMENTS
(Continued)
NOTE 3. NOTES RECEIVABLE FROM AFFILIATES (Continued)
(b) Secured promissory note representing advances made to Sycamore Real
Estate Development, L.P. The note matures on December 14, 2003;
accrues interest at an annual rate of 12%; is secured by a lien upon
certain real and personal property of Villas at Lake Sycamore; and
is subordinated to the first mortgage which had a balance of
approximately $866,000 as of March 31, 1999 and December 31, 1998.
Two other affiliated partnerships also hold second mortgage notes in
the aggregate principal amount of $320,000 secured by the property.
The lending parties have agreed to share the benefits of the second
mortgage on a pari-passu basis.
Note receivable $230,000
--------
(c) In April 1997, the Partnership acquired, at a discount, from an
unrelated party certain receivables owned by Falls III. In December,
1998 the Partnership endorsed to Sycamore the note from Falls III in
exchange for Sycamore exchange for a promissory note from Sycamore
[see (b) above]. The accrued interest receivable represents interest
on the notes through December, 1998.
NOTE 4. LIMITED PARTNERS' CAPITAL CONTRIBUTIONS
In 1996, in accordance with the terms of a Private Placement Memorandum
dated May 20, 1996, the Partnership issued the 2,400 units of limited
partner interest being offered at $500 per unit for total gross proceeds
of $1,200,000. Costs of $284,000 incurred in connection with syndicating
the limited partnership units were recorded as a reduction of limited
partners' capital contributions. Of the $284,000 in syndication costs, the
Partnership paid $164,000 to its general partner for administrative, legal
and investment fees.
NOTE 5. OTHER MATTER
In connection with a proposed Exchange Offering, Baron Capital Properties,
L.P. ("the Operating Partnership"), a partnership under common control,
will offer to exchange Operating Partnership Units to the limited partners
of the Partnership in exchange for their limited partner interests. These
units are exchangeable for an equivalent number of common shares of
beneficial interest in Baron Capital Trust, a real estate investment trust
under common control, for whom Baron Capital Properties, L.P. is the
operating partnership. Subject to the completion of the proposed Exchange
Offering, the Trust and the Operating Partnership will account for the
acquisition of the limited partnership interests in the offering on the
purchase method and therefore record the assets acquired and the
liabilities assumed at their fair value at the date of acquisition.
<PAGE>
================================================================================
BARON STRATEGIC INVESTMENT FUND IV, LTD.
FINANCIAL STATEMENTS
MARCH 31, 1999 AND DECEMBER 31, 1998
================================================================================
<PAGE>
BARON STRATEGIC INVESTMENT FUND IV, LTD.
TABLE OF CONTENTS
PAGE
----
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS 1
FINANCIAL STATEMENTS
Balance Sheets 2
Statements of Operations 3
Statements of Partners' Capital 4
Statements of Cash Flows 5
Notes to Financial Statements 6-11
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Partners
Baron Strategic Investment Fund IV, Ltd.
Cincinnati, Ohio
We have audited the accompanying balance sheet of Baron Strategic Investment
Fund IV, Ltd. (the "Partnership") as of December 31, 1998, and the related
statements of operations, partners' capital and cash flows for each of the two
years in the period then ended. These financial statements are the
responsibility of the Partnership's management. Our responsibility is to express
an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Baron Strategic Investment Fund
IV, Ltd. at December 31, 1998, and the results of its operations and its cash
flows for each of the two years in the period then ended in conformity with
generally accepted accounting principles.
The Partnership is affiliated with certain other limited partnerships (the
"affiliates") in similar lines of business, all of whom are controlled by a
common person who is the sole stockholder and president of the Partnership's
general partner. As discussed in Notes 3, 4 and 5, the Partnership and its
affiliates have engaged in significant transactions with each other.
RACHLIN COHEN & HOLTZ LLP
Miami, Florida
April 2, 1999
<PAGE>
BARON STRATEGIC INVESTMENT FUND IV, LTD.
BALANCE SHEETS
<TABLE>
<CAPTION>
March 31, December 31,
1999 1998
---- ----
(Unaudited)
ASSETS
<S> <C> <C>
Cash $ 794 $ 853
Notes receivable from affiliate 976,439 976,439
Advances receivable from affiliates 19,500 19,500
Accrued interest receivable from affiliates 168,683 142,576
----------- -----------
$ 1,165,416 $ 1,139,368
=========== ===========
LIABILITIES AND PARTNERS' CAPITAL
Liabilities:
Note payable to affiliate $ 259,639 $ 259,639
Accrued syndication costs 400 400
Administrative fees payable to general partner 29,000 26,000
Accrued interest payable to affiliate 46,934 37,198
----------- -----------
335,973 323,237
----------- -----------
Commitments and Other Matter -- --
Partners' Capital:
General partner 1,824 1,541
Limited partners 827,619 814,590
----------- -----------
829,443 816,131
----------- -----------
$ 1,165,416 $ 1,139,368
=========== ===========
</TABLE>
See notes to financial statements
<PAGE>
BARON STRATEGIC INVESTMENT FUND IV, LTD.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Three
Months Year Ended
Ended December 31,
March 31, ------------
1999 1998 1997
---- ---- ----
(Unaudited)
<S> <C> <C> <C>
Revenues:
Interest income from affiliate $ 41,106 $ 166,018 $ 128,047
Other 3 342 1,573
-------- --------- --------
41,109 166,360 129,620
-------- --------- --------
Costs and Expenses:
Interest expense to affiliate 9,736 40,388 67,699
Administrative fees to general partner 3,000 12,000 12,000
General and administrative 61 10,925 5,181
-------- --------- --------
12,797 63,313 84,880
-------- --------- --------
Net Income $ 28,312 $ 103,047 $ 44,740
======== ========= ========
</TABLE>
See notes to financial statements
<PAGE>
BARON STRATEGIC INVESTMENT FUND IV, LTD.
STATEMENTS OF PARTNERS' CAPITAL
<TABLE>
<CAPTION>
General Limited
Partner Partners Total
------- -------- -----
<S> <C> <C> <C> <C>
Partners' Capital, January 1, 1997 $ 64 $ 70,023 $ 70,087
Year Ended December 31, 1997:
Capital contributions, net of syndication costs - 604,810 604,810
Distributions - (27,130) (27,130)
Net income 447 44,293 44,740
------- --------- ---------
Partners' Capital, December 31, 1997 511 691,996 692,507
Year Ended December 31, 1998:
Capital Contributions, Net of Syndication Costs - 112,590 112,590
Distributions - (92,013) (92,013)
Net Income 1,030 102,017 103,047
------- --------- ---------
Partners' Capital, December 31, 1998 $ 1,541 $ 814,590 $ 816,131
Three Months Ended March 31, 1999 (Unaudited):
Distributions - (15,000) (15,000)
Net Income 283 28,029 28,312
------- --------- ---------
Partners' Capital, March 31, 1999 (Unaudited) $ 1,824 $ 827,619 $ 829,443
======= ========= =========
</TABLE>
See notes to financial statements
<PAGE>
BARON STRATEGIC INVESTMENT FUND IV, LTD.
STATEMENTS OF CASH FLOWS
FOR THE QUARTER ENDED MARCH 31, 1999 AND YEARS ENDED DECEMBER 31, 1998 AND 1997
(SEE ACCOUNTANTS' REPORT)
<TABLE>
<CAPTION>
Three
Months Year Ended
Ended December 31,
March 31, ------------
1999 1998 1997
---- ---- ----
(Unaudited)
<S> <C> <C> <C>
Cash Flows from Operating Activities:
Net income $ 28,312 $ 103,047 $ 44,740
Adjustments to reconcile net income to net cash
provided by operating activities:
Changes in operating assets and liabilities:
Increase in interest receivable from affiliates (26,107) (121,718) (20,858)
Increase in administrative fees payable to general partner 3,000 12,000 12,000
Increase in interest due to affiliate 9,736 35,016 2,182
------- -------- --------
Net cash provided by operating activities 14,941 28,345 38,064
------- -------- --------
Cash Flows from Investing Activities:
Investment in notes receivable from affiliate - (7,688) (981,237)
Payment received on loan to affiliate - - 12,486
Advances to affiliates - - (19,500)
------- -------- --------
Net cash used in investing activities - (7,688) (988,251)
------- -------- --------
Cash Flows from Financing Activities:
Proceeds from notes payable to affiliate - - 690,000
Payments on note payable to affiliate - (119,628) (310,733)
Increase (decrease) in accrued syndication costs payable - (19,700) 20,100
Partners' capital contributions - 140,737 769,263
Syndication costs (28,147) (164,453)
Distributions to limited partners (15,000) (92,013) (27,130)
------- -------- --------
Net cash provided by (used in) financing activities (15,000) (118,751) 977,047
------- -------- --------
Net Increase (Decrease) in Cash (59) (98,094) 26,860
Cash, Beginning 853 98,947 72,087
------- -------- --------
Cash, Ending $ 794 $ 853 $ 98,947
======= ======== ========
Supplemental Disclosures:
Cash paid during the period for interest $ - $ 5,372 $ 65,517
======= ======== ========
</TABLE>
<PAGE>
BARON STRATEGIC INVESTMENT FUND IV, LTD.
Cash Flow Worksheet
December 31, 1998
<TABLE>
<CAPTION>
Notes Affiliate
Cash Receivable Interest
---- ---------- --------
<S> <C> <C> <C> <C>
Begining Balance, December 31, 1997 98,947 968,751 20,858
Ending Balance, December 31, 1998 853 976,439 142,576
------- ------- -------
(98,094) 7,688 121,718
Cash Flows from Operating Activities:
Net Income 103,047
Adjustments to reconcile net loss to net cash
provided by operating activities
Changes in operating assets and liabilities:
Increase in note receivable from affiliate -
Increase in accrued interest from affiliate (121,718) (121,718)
Decrease in administrative fees payable to general partner 12,000
Increase in interest due to affiliate 35,016
--------
Net cash used in /provided by operating activities 28,345
--------
Cash Flows from Investing Activities:
Advance to affiliates -
Payment received on loan to affiliate -
Purchase of notes receivable (7,688) (7,688)
--------
Net cash used in investing activities (7,688)
--------
Cash Flows from Financing Activities:
Loan from affiliate -
Payment made on loan from affiliate (119,628)
Decrease in accrued syndication costs (19,700)
Contributions 140,737
Limited partner distributions (92,013)
Syndication costs (28,147)
--------
Net cash provided by financing activities (118,751)
--------
Net increase (decrease) in cash (98,094)
Cash, Beginning 98,947
Cash, Ending 853
-------- ------- ------- -------
- -
Supplemental Disclosures of Cash Flow Information
- - -
-------- ------- ------- -------
- - -
======== ======= ======= =======
</TABLE>
<TABLE>
<CAPTION>
Affiliate Affiliate Amounts Accrued
Advances Note Pay Due GP Expenses
-------- -------- ------ --------
<S> <C> <C> <C> <C>
Begining Balance, December 31, 1997 19,500 (379,267) (14,000) (20,100)
Ending Balance, December 31, 1998 19,500 (259,639) (26,000) (400)
------ -------- ------- -------
- 119,628 (12,000) 19,700
Cash Flows from Operating Activities:
Net Income
Adjustments to reconcile net loss to net cash
provided by operating activities
Changes in operating assets and liabilities:
Increase in note receivable from affiliate
Increase in accrued interest from affiliate
Decrease in administrative fees payable to general partner 12,000
Increase in interest due to affiliate
Net cash used in /provided by operating activities
Cash Flows from Investing Activities:
Advance to affiliates
Payment received on loan to affiliate
Purchase of notes receivable -
Net cash used in investing activities
Cash Flows from Financing Activities:
Loan from affiliate
Payment made on loan from affiliate (119,628)
Decrease in accrued syndication costs (19,700)
Contributions
Limited partner distributions
Syndication costs
Net cash provided by financing activities
Net increase (decrease) in cash
Cash, Beginning
Cash, Ending
------ -------- ------- -------
- - - -
Supplemental Disclosures of Cash Flow Information
- - - -
------ -------- ------- -------
- - - -
====== ======== ======= =======
</TABLE>
<TABLE>
<CAPTION>
Other Partners'
Debt Capital
------- ---------
<S> <C> <C> <C>
Begining Balance, December 31, 1997 (2,182) (692,507) -
Ending Balance, December 31, 1998 (37,198) (816,131) $ -
------- -------- --------
(35,016) (123,624) -
Cash Flows from Operating Activities:
Net Income 103,047
Adjustments to reconcile net loss to net cash
provided by operating activities
Changes in operating assets and liabilities:
Increase in note receivable from affiliate
Increase in accrued interest from affiliate
Decrease in administrative fees payable to general partner
Increase in interest due to affiliate 35,016
Net cash used in /provided by operating activities
Cash Flows from Investing Activities:
Advance to affiliates
Payment received on loan to affiliate
Purchase of notes receivable
Net cash used in investing activities
Cash Flows from Financing Activities:
Loan from affiliate
Payment made on loan from affiliate
Decrease in accrued syndication costs
Contributions 140,737
Limited partner distributions (92,013)
Syndication costs (28,147)
Net cash provided by financing activities
Net increase (decrease) in cash
Cash, Beginning
Cash, Ending
------- -------- --------
- -
Supplemental Disclosures of Cash Flow Information
- - -
------- -------- --------
- - -
======= ======== ========
</TABLE>
<PAGE>
BARON STRATEGIC INVESTMENT FUND IV, LTD.
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 1999 AND DECEMBER 31, 1998
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization and Capitalization
Baron Strategic Investment Fund IV, Ltd. ("the Partnership") was
initially organized on October 1, 1996 under the laws of the State
of Florida.
The Agreement of Limited Partnership provides for capital
contributions of partners to be comprised of (a) the general partner
capital contribution of $90 in cash; and (b) the maximum capital
contributions of the limited partners of $1,000,000, to be divided
into 2,000 equal units of limited partnership interest.
See Note 2 for a summary of other provisions of the Agreement of
Limited Partnership.
Business
The Partnership provides debt financing to existing affiliated
limited partnerships owning residential apartment communities
located in Florida.
Unaudited Financial Information
The accompanying financial information as of and for the three
months ended March 31, 1999 is unaudited. However, in the opinion of
management, all adjustments, consisting of normal recurring accruals
and adjustments, necessary for a fair presentation of financial
position, results of operations and cash flows have been made.
The results of operations for interim periods are not necessarily
indicative of results to be expected for a full year.
Revenue Recognition
Revenue, which consists primarily of interest on notes receivable,
is recognized as it becomes due.
Concentration of Credit Risk
At various times during the year the Partnership had deposits in
financial institutions in excess of the federally insured limits.
The Partnership maintains its cash with a high quality financial
institution which the Partnership believes limits these risks.
Notes Receivable from Affiliate
Notes receivable from affiliate are recorded at cost, less the
related allowance for impairment, if any, of such notes receivable.
The Partnership accounts for such notes under the provisions of
Statement of Financial Accounting Standard No. 114, Accounting by
Creditors for Impairment of a Loan, as amended by Statement of
Financial Accounting Standard No. 118,
<PAGE>
BARON STRATEGIC INVESTMENT FUND IV, LTD.
NOTES TO FINANCIAL STATEMENTS
(Continued)
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Notes Receivable from Affiliate (Continued)
Accounting by Creditors for Impairment of a Loan - Income
Recognition and Disclosure. Management, considering current
information and events regarding the borrowers' ability to repay
their obligations, considers a note to be impaired when it is
probable that the Partnership will be unable to collect all amounts
due according to the contractual terms of the note. When a loan is
considered to be impaired, the amount of impairment is measured
based upon (a) the present value of expected future cash flows
discounted at the note's effective interest rate; and (b) the
liquidation value of the note's collateral reduced by expected
selling costs and other notes secured by the same collateral. Cash
receipts on impaired notes receivable are applied to reduce the
principal amount of such receivables until the principal has been
recovered, and are recognized as interest income thereafter.
Use of Estimates
The accompanying financial statements have been prepared in
conformity with generally accepted accounting principles. In
preparing the financial statements, management is required to make
estimates and assumptions that affect the reported amount of assets
and liabilities as of the date of the balance sheet and operations
for the year then ended. Material estimates as to which it is
reasonably possible that a change in the estimate could occur in the
near term relates to the collectibility of the notes receivable due
from affiliates. Although these estimates are based on management's
knowledge of current events and actions it may undertake in the
future, they may ultimately differ from actual results.
Income Taxes
The Partnership is treated as a limited partnership for federal
income tax purposes and as such does not incur income taxes.
Instead, its earnings and losses are included in the personal
returns of the partners and taxed depending on their personal tax
situations. The financial statements do not reflect a provision for
income taxes.
NOTE 2. AGREEMENT OF LIMITED PARTNERSHIP
The following is a summary of the significant provisions of the Agreement
of Limited Partnership ("the Agreement") made and entered into as of
October 22, 1996:
Capital Contributions of Partners
The Agreement provides for the general partner to contribute $90 in
cash, and maximum capital contributions of the limited partners of
$1,000,000, to be divided into 2,000 units of limited partnership
units. A capital account is maintained for each partner.
<PAGE>
BARON STRATEGIC INVESTMENT FUND IV, LTD.
NOTES TO FINANCIAL STATEMENTS
(Continued)
NOTE 2. AGREEMENT OF LIMITED PARTNERSHIP (Continued)
Term
The Partnership will continue through December 31, 2026, unless
sooner terminated by law or under certain provisions of the
Agreement.
Distributions
Cash Distributions
The Partnership's distributable cash, if any, in each fiscal
year will not be reinvested but will be distributed in order
of priority to the Partners, if available, quarterly, to (a)
the limited partners who will receive 100% of the
distributable cash until they have received a 12%
non-cumulative annual cash-on-cash return on the aggregate
amount of their capital contribution as calculated from each
limited partner's admission date; and (b) the excess, if any,
will be allocated to the general partner.
Distributions of Net Proceeds
Net proceeds from the sale or refinancing of the Partnership's
assets will not be reinvested but will be distributed to the
partners in order of priority after repayment of all
indebtedness secured by the assets to (a) the limited partners
who will receive 100% of the distributions until the total
amount distributed to them, when added to all prior
distributions of distributable cash and net proceeds made to
them, is equal to the sum of their capital contributions plus
an annual 18% cash-on-cash return; and (b) the balance, if
any, is distributed to the general partner.
Allocation of Income and Loss
Allocations of all items of income, gain, expense, loss, deduction
and credit recognized by the Partnership for federal income tax
purposes will be made as follows:
Income
The first 100% of income is allocated to the general partner
until the profits allocated plus the cumulative profits
allocated to the general partner for prior fiscal periods
during which a profit was earned by the Partnership equal the
cumulative amounts distributable to the general partner under
the terms of the distributions of cash and net proceeds. The
balance, if any, is allocated to the limited partners.
Losses
After giving effect to certain tax provisions, taxable losses
are allocated 99% to the limited partners and 1% to the
general partner.
<PAGE>
BARON STRATEGIC INVESTMENT FUND IV, LTD.
NOTES TO FINANCIAL STATEMENTS
(Continued)
NOTE 2. AGREEMENT OF LIMITED PARTNERSHIP (Continued)
Dissolution
The Partnership will be dissolved upon (a) the expiration of the
term of the Agreement; (b) the determination of the limited partners
exercising their voting rights to dissolve the Partnership; (c) the
death, resignation, retirement, dissolution, removal, bankruptcy,
adjudication of insolvency, or adjudication of insanity or
incompetence of the last remaining general partner then in office
and the refusal of any successor general partner to replace it,
unless the holders of a majority of the units then outstanding vote
to continue the Partnership and elect one or more successor general
partners willing to serve in such capacity to continue the business
of the Partnership; (d) the sale of all or substantially all of the
Partnership's property; (e) the repayment in full of all loans made
by the Partnership, unless the Partnership thereafter continues to
own non-loan assets; and (f) the occurrence of any other event
which, by law, would require the Partnership to be dissolved.
Winding Up
Upon the dissolution of the partnership, the general partner will
take full account of the Partnership's assets and liabilities, and
the assets will be liquidated as promptly as is consistent with
obtaining fair value of the assets, and the proceeds will be applied
and distributed (a) first to the Partnership creditors, other than
partners; (b) then, any loans owed by the Partnership to the
partners shall be paid in proportion thereto; and (c) finally, to
the limited partners and the general partner in proportion to their
respective positive capital accounts.
Fees to the General Partner
Pursuant to a Partnership Administration Contract (the "Contract")
between the Partnership and the general partner stipulated in the
Agreement, the Partnership retained the general partner to provide
administrative services for $1,000 per month through December 31,
2003.
NOTE 3. NOTES RECEIVABLE FROM AFFILIATE
The following are the balances of the notes receivable from affiliate and
a portion of the balance of accrued interest receivable from affiliates as
of March 31, 1999 and December 31, 1998:
<TABLE>
<CAPTION>
March 31, 1999 December 31, 1998
-------------- -----------------
Notes Accrued Notes Accrued
Receivable Interest Receivable Interest
---------- -------- ---------- --------
(Unaudited)
<S> <C> <C> <C> <C>
Country Square Apartments, Ltd.
("Country Square") $797,189 $127,110 $797,189 $102,780 (a)
Country Square 179,250 39,030 179,250 37,756 (b)
-------- -------- -------- --------
$976,439 $166,140 $976,439 $140,536
======== ======== ======== ========
</TABLE>
<PAGE>
BARON STRATEGIC INVESTMENT FUND IV, LTD.
NOTES TO FINANCIAL STATEMENTS
(Continued)
NOTE 3. NOTES RECEIVABLE FROM AFFILIATE (Continued)
(a) In March 1997, the Partnership acquired certain receivables from an
unrelated entity at a discount from the face amount thereof. The
receivables, which included notes receivable and accrued interest
due from Country Square, were converted into promissory notes as
more fully described in the table below:
Country Square Second Mortgage Note; matures on
April 30, 2008; accrues interest at an minimum
annual rate of 12%; secured by a lien upon
certain real and personal property of Country
Square; subordinated to the first mortgage
which had a balance of approximately $1,586,000
and $1,590,000 as of March 31, 1999 and
December 31, 1998, respectively. $1,192,987
Less discount 395,798
----------
Note receivable, net of discount $ 797,189
==========
(b) In July 1997, the Partnership made a loan to Country Square of
$171,562 pursuant to the terms of a promissory note. During 1998,
the loan was amended and restated at $179,250. The note matures on
April 30, 2008 and accrues interest, which is payable quarterly, at
12% per annum.
On December 15, 1998, Country Square amended and restated the above note
and mortgage and whereby the note and mortgage are secured by a
Consolidated Replacement Second Mortgage Deed executed on February 26,
1998.
NOTE 4. ADVANCES RECEIVABLE FROM AFFILIATES
The following comprise the advances and accrued interest receivable from
affiliates as of March 31, 1999 and December 31, 1998:
<TABLE>
<CAPTION>
March 31, 1999 December 31, 1998
-------------- -----------------
Accrued Accrued
Receivable Interest Receivable Interest
---------- -------- ---------- --------
(Unaudited)
<S> <C> <C> <C> <C>
Baron Strategic Vulture Fund I, Ltd. $17,000 $2,543 $17,000 $2,040 (a)
Country Square 2,500 - 2,500 - (b)
------- ------ ------- ------
$19,500 $2,543 $19,500 $2,040
======= ====== ======= ======
</TABLE>
(a) During 1997, the Partnership made advances aggregating $17,000 to
Baron Strategic Vulture Fund I, Ltd., an affiliate. These advances
are due on demand and bear interest at 12% commencing in 1998.
(b) During 1997, the Partnership made advances aggregating $2,500 to
Country Square Apartments, Ltd. ("Country Square"), an affiliate.
These advances are due on demand.
<PAGE>
BARON STRATEGIC INVESTMENT FUND IV, LTD.
NOTES TO FINANCIAL STATEMENTS
(Continued)
NOTE 5. NOTE PAYABLE TO AFFILIATE
In March 1997, the Partnership borrowed funds from Baron Strategic
Investment Fund VI, Ltd. ("Fund VI") pursuant to the terms of a promissory
note. The outstanding principal balance of $259,639 is due at maturity in
September 2002 with interest payable monthly at 15% per annum. As
collateral for the note payable, the Partnership has granted Fund VI a
security interest in the second mortgage notes and mortgages (see Note 3).
The note had an unpaid principal balance of $259,639 as of March 31, 1999
and December 31, 1998. Interest expense to the affiliate amounted to
$9,736 for the three months ended March 31, 1999 and $40,388 and $67,699
for 1998 and 1997, respectively. Accrued interest of $46,934 and $37,198
remained unpaid as of March 31, 1999 and December 31, 1998, respectively.
NOTE 6. LIMITED PARTNERS' CAPITAL CONTRIBUTIONS
In 1996, in accordance with the terms of a Private Placement Memorandum
dated October 22, 1996, the Partnership issued 180 units of limited
partnership interest of the 2,000 units being offered at $500 per unit for
total gross proceeds of $90,000. Costs of $17,400 incurred in connection
with syndicating the partnership units were recorded as a reduction of
limited partners' capital contributions. Of the syndication costs, $14,000
was paid to the General Partner for administrative, legal and investment
fees.
During 1997, the Partnership issued 1,538.5 units of limited partnership
interest at $500 per unit for total gross proceeds of $769,263. This
issuance increased the total units sold to 1,718.5 units of the 2,000
units being offered. Costs of $164,453 incurred in connection with
syndicating these partnership units have been recorded as a reduction of
limited partners' capital contributions. Of the syndication costs, $80,570
was incurred with regard to the General Partner for administrative, legal
and investment fees.
During 1998, the Partnership issued the remaining 281.5 units at $500 per
unit for a total of $140,737. Costs of $28,147 incurred in connection with
syndicating these partnership units were recorded as a reduction of
limited partner's capital contributions in 1998. Of the syndication costs,
$25,430 was paid to the General Partner for administrative, legal and
investment fees. Syndication costs of $400 were unpaid and accrued as of
March 31, 1999 and December 31, 1998.
NOTE 7. OTHER MATTER
In connection with a proposed Exchange Offering, Baron Capital Properties,
L.P. ("the Operating Partnership"), a partnership under common control,
will offer to exchange Operating Partnership Units to the limited partners
of the Partnership in exchange for their limited partner interests. These
units are exchangeable for an equivalent number of common shares of
beneficial interest in Baron Capital Trust, a real estate investment trust
under common control, for whom Baron Capital Properties, L.P. is the
operating partnership. Subject to the completion of the proposed Exchange
Offering, the Trust and the Operating Partnership will account for the
acquisition of the limited partnership interests in the offering on the
purchase method and therefore record the assets acquired and the
liabilities assumed at their fair value at the date of acquisition.
<PAGE>
================================================================================
BARON STRATEGIC INVESTMENT FUND V, LTD.
FINANCIAL STATEMENTS
MARCH 31, 1999 AND DECEMBER 31, 1998
================================================================================
<PAGE>
BARON STRATEGIC INVESTMENT FUND V, LTD.
TABLE OF CONTENTS
PAGE
----
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS 1
FINANCIAL STATEMENTS
Balance Sheets 2
Statements of Operations 3
Statements of Partners' Capital 4
Statements of Cash Flows 5
Notes to Financial Statements 6-12
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Partners
Baron Strategic Investment Fund V, Ltd.
Cincinnati, Ohio
We have audited the accompanying balance sheet of Baron Strategic Investment
Fund V, Ltd. (the "Partnership") as of December 31, 1998, and the related
statements of operations, partners' capital and cash flows for each of the two
years in the period then ended. These financial statements are the
responsibility of the Partnership's management. Our responsibility is to express
an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Baron Strategic Investment Fund
V, Ltd. at December 31, 1998, and the results of its operations and its cash
flows for each of the two years in the period then ended in conformity with
generally accepted accounting principles.
The Partnership is affiliated with certain other limited partnerships (the
"affiliates") in similar lines of business, all of whom are controlled by a
common person who is the stockholder and president of the Partnership's general
partner. As discussed in Notes 3 and 4, the Partnership and its affiliates have
engaged in significant transactions with each other.
RACHLIN COHEN & HOLTZ LLP
Miami, Florida
April 2, 1999
<PAGE>
BARON STRATEGIC INVESTMENT FUND V, LTD.
BALANCE SHEETS
<TABLE>
<CAPTION>
March 31, December 31,
1999 1998
---- ----
ASSETS (Unaudited)
<S> <C> <C>
Cash $ 1,017 $ 52
Notes receivable from affiliates 743,100 743,100
Advances receivable from affiliates 80,939 80,939
Accrued interest receivable from affiliates 46,930 52,802
--------- ---------
$ 871,986 $ 876,893
--------- ---------
LIABILITIES AND PARTNERS' CAPITAL
Liabilities:
Administrative fees payable to general partner $ 10,000 $ 7,000
--------- ---------
Commitments and Other Matter - -
Partners' Capital
General partners 69 69
Limited partners 861,917 869,824
--------- ---------
861,986 869,893
--------- ---------
$ 871,986 $ 876,893
========= =========
</TABLE>
See notes to financial statements
<PAGE>
BARON STRATEGIC INVESTMENT FUND V, LTD.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Three
Months Year Ended
Ended December 31,
March 31, ------------
1999 1998 1997
---- ---- ----
(Unaudited)
<S> <C> <C> <C>
Revenues:
Interest income from affiliates $ 25,128 $ 93,797 $ 55,694
Other 6 493 3,423
-------- -------- --------
25,134 94,290 59,117
-------- -------- --------
Cost and Expenses:
Administrative fees to general partner 3,000 12,000 12,000
General and administrative 41 7,512 5,117
-------- -------- --------
3,041 19,512 17,117
-------- -------- --------
Net Income $ 22,093 $ 74,778 $ 42,000
======== ======== ========
</TABLE>
<PAGE>
BARON STRATEGIC INVESTMENT FUND V, LTD.
STATEMENTS OF PARTNERS' CAPITAL
<TABLE>
<CAPTION>
General Limited
Partner Partners Total
------- -------- -----
<S> <C> <C> <C>
Partners' Capital, January 1, 1997 $ 69 $ 85,614 $ 85,683
Year Ended December 31, 1997
Capital contributions, net of syndication costs - 850,300 850,300
Distributions - (62,868) (62,868)
Net Income - 42,000 42,000
--------- --------- ---------
Partners' Capital, December 31, 1998 69 915,046 915,115
Year Ended December 31, 1998:
Distributions - (120,000) (120,000)
Net Income - 74,778 74,778
--------- --------- ---------
Partners' Capital, December 31, 1998 69 869,824 869,893
Three Months Ended March 31, 1999 (Unaudited):
Distributions - (30,000) (30,000)
Net income - 22,093 22,093
--------- --------- ---------
Partners' Capital, March 31, 1999 (Unaudited) $ 69 $ 861,917 $ 861,986
========= ========= =========
</TABLE>
See notes to financial statements
<PAGE>
BARON STRATEGIC INVESTMENT FUND V, LTD.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Three
Months Year Ended
Ended December 31,
March 31, ------------
1999 1998 1997
---- ---- ----
(Unaudited)
<S> <C> <C> <C>
Cash Flows from Operating Activities:
Net income $ 22,093 $ 74,778 $ 42,000
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Changes in operating assets and liabilities:
Increase (decrease) in accrued interest receivable from affiliates 5,872 2,892 (55,694)
Increase (decrease) in administrative fees payable to general partner 3,000 (7,000) 12,000
-------- -------- --------
Net cash provided by (used in) operating activities 30,965 70,670 (1,694)
-------- -------- --------
Cash Flows from Investing Activities:
Investment in notes receivable from affiliates - (29,500) (706,100)
Investment in advance receivable from affiliates - (77,339) (54,800)
Collection of advance receivable from affiliates - 43,700 -
-------- -------- --------
Net cash used in investing activities - (63,139) (760,900)
-------- -------- --------
Cash Flows from Financing Activities:
Partners' capital contributions - - 1,090,000
Syndication costs paid - - (239,700)
Distributions to limited partners (30,000) (120,000) (62,868)
-------- -------- --------
Net cash provided by (used in) financing activities (30,000) (120,000) 787,432
-------- -------- --------
Net Increase (Decrease) in Cash 965 (112,469) 24,838
Cash, Beginning 52 112,521 87,683
-------- -------- --------
Cash, Ending $ 1,017 $ 52 $112,521
-------- -------- --------
Supplemental Information:
Non-cash transactions:
Reclassification of advances receivable to notes
receivable from affiliates $ - $ 7,500 $ -
======== ======== ========
</TABLE>
<PAGE>
BARON STRATEGIC INVESTMENT FUND V, LTD.
Cash Flow Worksheet
MARCH 31, 1999
<TABLE>
<CAPTION>
Affiliate Accrued
Cash Notes Interest
---- ----- --------
<S> <C> <C> <C> <C>
Beginning Balance, December 31, 1998 52 743,100 52,802
Ending Balance, March 31, 1999 1,017 743,100 46,930
--------- --------- --------
965 - (5,872)
Cash Flows from Operating Activities:
Net Income 22,093
Adjustments to reconcile net loss to net cash
provided (used) by operating activities
Changes in operating assets and liabilities:
(Increase) decrease in:
Administrative fees 3,000
Interest received net 5,872 5,872
---------
Net cash provided (used in) by operating activities 30,965
---------
Cash Flows from Investing Activities:
Investment in advance receivable from affiliates -
Investment in notes receivable from affiliates -
Reclass of advance to loan -
Collection of advance receivable from affiliates -
Purchase of affiliate second mortgage and receivables net -
---------
Net cash provided by (used in) investing activities
---------
Cash Flows from Financing Activities:
Limited partner contributions
Limited partner distributions (30,000)
Syndication costs -
---------
Net cash provided by (used in) financing activities (30,000)
---------
Net increase (decrease) in cash 965
Cash, Beginning 52
---------
Cash, Ending 1,017
---------
------------------------------------------
- - -
</TABLE>
<TABLE>
<CAPTION>
Affiliate Amounts Partners'
Advances Due GP Capital
-------- ------ -------
<S> <C> <C> <C> <C>
Beginning Balance, December 31, 1998 80,939 (7,000) (869,893) -
Ending Balance, March 31, 1999 80,939 (10,000) (861,986) -
-------- -------- --------- ---------
- (3,000) 7,907 -
Cash Flows from Operating Activities:
Net Income 22,093
Adjustments to reconcile net loss to net cash
provided (used) by operating activities
Changes in operating assets and liabilities:
(Increase) decrease in:
Administrative fees 3,000
Interest received net
Net cash provided (used in) by operating activities
Cash Flows from Investing Activities:
Investment in advance receivable from affiliates
Investment in notes receivable from affiliates
Reclass of advance to loan
Collection of advance receivable from affiliates
Purchase of affiliate second mortgage and receivables net
Net cash provided by (used in) investing activities
Cash Flows from Financing Activities:
Limited partner contributions
Limited partner distributions (30,000)
Syndication costs
Net cash provided by (used in) financing activities
Net increase (decrease) in cash
Cash, Beginning
Cash, Ending
---------------------------------------------
- - -
</TABLE>
<PAGE>
BARON STRATEGIC INVESTMENT FUND V, LTD.
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 1999 AND DECEMBER 31, 1998
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization and Capitalization
Baron Strategic Investment Fund V, Ltd. ("the Partnership") was
initially organized on October 1, 1996 under the laws of the State
of Florida.
The Agreement of Limited Partnership provides for capital
contributions of partners to be comprised of (a) the general partner
capital contribution of $90 in cash; and (b) the maximum capital
contributions of the limited partners of $1,200,000, to be divided
into 2,400 equal units of limited partnership interest.
See Note 2 for a summary of other provisions of the Agreement of
Limited Partnership.
Business
The Partnership provides debt and equity financing to existing
affiliated limited partnerships owning residential apartment
communities located in Florida.
Unaudited Financial Information
The accompanying financial information as of and for the three
months ended March 31, 1999 is unaudited. However, in the opinion of
management, all adjustments, consisting of normal recurring accruals
and adjustments, necessary for a fair presentation of financial
position, results of operations and cash flows have been made.
The results of operations for interim periods are not necessarily
indicative of results to be expected for a full year.
Revenue Recognition
Revenue, which consists primarily of interest on notes receivable,
is recognized as it becomes due.
Concentration of Credit Risk
At various times during the year the Partnership had deposits in
financial institutions in excess of the federally insured limits.
The Partnership maintains its cash with a high quality financial
institution which the Partnership believes limits these risks.
Notes Receivable from Affiliates
Notes receivable from affiliates are recorded at cost, less the
related allowance for impairment, if any, of such notes receivable.
The Partnership accounts for such notes under the provisions of
Statement of Financial Accounting Standard No. 114, Accounting by
Creditors for Impairment of a Loan, as amended by Statement of
Financial Accounting
<PAGE>
BARON STRATEGIC INVESTMENT FUND V, LTD.
NOTES TO FINANCIAL STATEMENTS
(Continued)
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Notes Receivable from Affiliates (Continued)
Standard No. 118, Accounting by Creditors for Impairment of a Loan -
Income Recognition and Disclosure. Management, considering current
information and events regarding the borrowers' ability to repay
their obligations, considers a note to be impaired when it is
probable that the Partnership will be unable to collect all amounts
due according to the contractual terms of the note. When a loan is
considered to be impaired, the amount of impairment is measured
based upon (a) the present value of expected future cash flows
discounted at the note's effective interest rate; and (b) the
liquidation value of the note's collateral reduced by expected
selling costs and other notes secured by the same collateral. Cash
receipts on impaired notes receivable are applied to reduce the
principal amount of such receivables until the principal has been
recovered, and are recognized as interest income thereafter.
Use of Estimates
The accompanying financial statements have been prepared in
conformity with generally accepted accounting principles. In
preparing the financial statements, management is required to make
estimates and assumptions that affect the reported amount of assets
and liabilities as of the date of the balance sheet and operations
for the year then ended. Material estimates as to which it is
reasonably possible that a change in the estimate could occur in the
near term relates to the allowance for impairment and the
collectibility of the notes receivable due from affiliates. Although
these estimates are based on management's knowledge of current
events and actions it may undertake in the future, they may
ultimately differ from actual results.
Income Taxes
The Partnership is treated as a limited partnership for federal
income tax purposes and as such does not incur income taxes.
Instead, its earnings and losses are included in the personal
returns of the partners and taxed depending on their personal tax
situations. The financial statements do not reflect a provision for
income taxes.
NOTE 2. AGREEMENT OF LIMITED PARTNERSHIP
The following is a summary of the significant provisions of the Agreement
of Limited Partnership ("the Agreement") made and entered into as of
October 23, 1996:
Capital Contributions of Partners
The Agreement provides for the general partner to contribute $90 in
cash, and maximum capital contributions of the limited partners of
$1,200,000, to be divided into 2,400 units of limited partnership
units. A capital account is maintained for each partner.
Term
The Partnership will continue through December 31, 2026, unless
sooner terminated by law or under certain provisions of the
Agreement.
<PAGE>
BARON STRATEGIC INVESTMENT FUND V, LTD.
NOTES TO FINANCIAL STATEMENTS
(Continued)
NOTE 2. AGREEMENT OF LIMITED PARTNERSHIP (Continued)
Distributions
Cash Distributions
The Partnership's distributable cash, if any, in each fiscal
year will not be reinvested but will be distributed in order
of priority to the Partners, if available, quarterly, to (a)
the limited partners who will receive 100% of the
distributable cash until they have received a 15%
non-cumulative annual cash-on-cash return on the aggregate
amount of their capital contribution as calculated from each
limited partner's admission date; and (b) the excess, if any,
will be allocated to the general partner.
Distributions of Net Proceeds
Net proceeds from the sale or refinancing of the Partnership's
assets will not be reinvested but will be distributed to the
partners in order of priority after repayment of all
indebtedness secured by the assets to (a) the limited partners
who will receive 100% of the distributions until the total
amount distributed to them, when added to all prior
distributions of distributable cash and net proceeds made to
them, is equal to the sum of their capital contributions plus
an annual 15% cash-on-cash return; and (b) the balance, if
any, is distributed 50% to the limited partners and 50% to the
general partner.
Allocation of Income and Loss
Allocations of all items of income, gain, expense, loss, deduction
and credit recognized by the Partnership for federal income tax
purposes will be made as follows:
Income
The first 100% of income is allocated to the general partner
until the profits allocated plus the cumulative profits
allocated to the general partner for prior fiscal periods
during which a profit was earned by the Partnership equal the
cumulative amounts distributable to the general partner under
the terms of the distributions of cash and net proceeds. The
balance, if any, is allocated to the limited partners.
Losses
After giving effect to certain tax provisions, taxable losses
are allocated 99% to the limited partners and 1% to the
general partner.
Dissolution
The Partnership will be dissolved upon (a) the expiration of the
term of the Agreement; (b) the determination of the limited partners
exercising their voting rights to dissolve the Partnership; (c) the
death, resignation, retirement, dissolution, removal, bankruptcy,
adjudication of insolvency, or adjudication of insanity or
incompetence of the last remaining
<PAGE>
BARON STRATEGIC INVESTMENT FUND V, LTD.
NOTES TO FINANCIAL STATEMENTS
(Continued)
NOTE 2. AGREEMENT OF LIMITED PARTNERSHIP (Continued)
Dissolution (Continued)
general partner then in office and the refusal of any successor
general partner to replace it, unless the holders of a majority of
the units then outstanding vote to continue the Partnership and
elect one or more successor general partners willing to serve in
such capacity to continue the business of the Partnership; (d) the
sale of all or substantially all of the Partnership's property; (e)
the repayment in full of all loans made by the Partnership, unless
the Partnership thereafter continues to own non-loan assets; and (f)
the occurrence of any other event which, by law, would require the
Partnership to be dissolved.
Winding Up
Upon the dissolution of the partnership, the general partner will
take full account of the Partnership's assets and liabilities, and
the assets will be liquidated as promptly as is consistent with
obtaining fair value of the assets, and the proceeds will be applied
and distributed (a) first to the Partnership creditors, other than
partners; (b) then, any loans owed by the Partnership to the
partners shall be paid in proportion thereto; and (c) finally, to
the limited partners and the general partner in proportion to their
respective positive capital accounts.
Fees to the General Partner
Pursuant to a Partnership Administration Contract (the "Contract")
between the Partnership and the general partner stipulated in the
Agreement, the Partnership retained the general partner to provide
administrative services for $1,000 per month through December 31,
2003.
NOTE 3. NOTES RECEIVABLE FROM AFFILIATES
The following are the balances of the notes receivable and a portion of
the accrued interest due from affiliates as of March 31, 1999 and December
31, 1998:
<TABLE>
<CAPTION>
March 31, 1999 December 31, 1998
-------------- -----------------
(Unaudited)
Notes Accrued Notes Accrued
Receivable Interest Receivable Interest
---------- -------- ---------- --------
<S> <C> <C> <C> <C>
Sunrise Apartments, Ltd.("Sunrise") $504,000 $15,893 $504,000 $24,588 (a)
Curiosity Creek Apartments, Ltd.
("Curiosity Creek") 218,100 19,722 218,100 18,425 (b)
Baron Strategic Investment Fund III,
Ltd. ("Candlewood II") 21,000 2,472 21,000 1,850 (c)
-------- ------- -------- -------
$743,100 $38,087 $743,100 $44,863
======== ======= ======== =======
</TABLE>
<PAGE>
BARON STRATEGIC INVESTMENT FUND V, LTD.
NOTES TO FINANCIAL STATEMENTS
(Continued)
NOTE 3. NOTES RECEIVABLE FROM AFFILIATES (Continued)
(a) In June 1997, the Partnership acquired certain receivables from an
unrelated entity at a discount from the face amount thereof. The
receivables, which included notes receivable and accrued interest
due from Sunrise, were converted into promissory notes as more fully
described in the table below.
Sunrise Second Mortgage Note; matures on
October 1, 2007; accrues interest at an minimum
annual rate of 6% and provides for
participation interest at the rate of 3% per
annum based upon the amount of the unpaid
principal, which shall be due and payable to
the extent that it does not exceed the
available cash flow, as defined in the note;
provides for additional participation interest
in an amount equal to 20% of remaining
available cash flow, as defined, which will
continue to be made until such time as the
collateral has been sold, and which obligation
will continue notwithstanding total repayment
of the principal amount of the note; secured by
a lien upon certain real and personal property
of Sunrise; subordinated to the first mortgage
which had a balance of approximately $1,026,000
and $1,027,000 as of March 31, 1999 and
December 31, 1998, respectively. $ 335,000
Secured promissory note, representing advances
made by the former general partner to Sunrise.
The note matures on October 1, 2007; accrues
interest, which is payable quarterly, at 4% per
annum. 621,515
Secured promissory note, representing advances
made by the former general partner to Sunrise.
The note matures on October 1, 2007; accrues
interest, which is payable quarterly, at 1%
over prime (8.75% as of March 31, 1999 and
December 31, 1998). 1,467
Other receivables, related to advances for
refinancing fees and professional services; due
on demand; bears interest at 12% effective
December 15, 1998. 48,468
-----------
1,006,450
Less discount 518,450
-----------
Subtotal of notes receivable, net of discount 488,000
Secured promissory note representing other
advances made to Sunrise. The note matures on
October 1, 2007; accrues interest, which is
payable quarterly, at 12% per annum. 16,000
-----------
Total $ 504,000
===========
On December 15, 1998, Sunrise amended and restated all the above
notes and mortgages and entered into a Second Amendment to Open-End
Second Mortgage and Security Agreement by which all of the above
notes [except for the $49,468 receivables] will be secured by the
Second Mortgage. The amendment also provides for additional advances
not to exceed a $2,000,000 maximum to be evidenced by an Additional
Advance Agreement or note.
<PAGE>
BARON STRATEGIC INVESTMENT FUND V, LTD.
NOTES TO FINANCIAL STATEMENTS
(Continued)
NOTE 3. NOTES RECEIVABLE FROM AFFILIATES (Continued)
(b) In March 1997, the Partnership acquired certain receivables from an
unrelated entity at a discount from the face amount thereof. The
receivables, which included notes receivable and accrued interest
due from Curiosity Creek, were converted into promissory notes as
more fully described in the table below.
Curiosity Creek Second Mortgage Note; matures on
April 1, 2007; accrues interest at an minimum annual
rate of 6% and participation interest at the rate of
3% per annum based upon the amount of the unpaid
principal, which shall be due and payable to the
extent that it does not exceed the available cash
flow, as defined in the note; provides for additional
participation interest in an amount equal to 30% of
remaining available cash flow, as defined, which will
continue to be made until such time as the collateral
has been sold, and which obligation will continue
notwithstanding total repayment of the principal
amount of the note; secured by a lien upon certain
real and personal property of Curiosity Creek;
subordinated to the first mortgage which had a
balance of approximately $1,290,000 and $1,293,000 as
of March 31, 1999 and December 31, 1998,
respectively. $ 807,560
Unsecured promissory note, representing advances made
by the former general partner to Curiosity Creek. The
note is payable upon demand and bears an annual
interest at the rate of 12.5%, payable monthly. 416,000
Unsecured promissory note, representing advances made
by the former general partner to Curiosity Creek. The
note is payable on demand and bears interest at 1%
over prime (8.75% as of March 31, 1999 and December
31, 1998). 414,380
Other receivables, related to advances for refinancing
fees and professional fees 29,732
----------
1,667,672
Percentage purchased 26.27%
----------
438,097
Less discount 219,997
----------
Notes receivable, net of discount $ 218,100
==========
(c) In April, 1998 Candlewood made a promissory note in favor of the
Partnership in the original principal amount of $21,000 to cover
certain advances made to Candlewood. The note matures on March 1,
2003, and accrues interest, which is payable quarterly, at an annual
rate of 12%. The note is subordinated to the first mortgage which
had a balance of approximately $595,000 as of March 31, 1999 and
December 31, 1998 and is secured by an Open-End Second Mortgage and
Security Agreement on the Candlewood II apartment property. Two
other loans by affiliated partnerships in the aggregate principal
amount of $143,500 are also secured by separate second mortgages on
the property. Each of the lending parties has agreed to share the
benefits of the second mortgages on a pari-passu basis.
Notes receivable $ 21,000
==========
<PAGE>
BARON STRATEGIC INVESTMENT FUND V, LTD.
NOTES TO FINANCIAL STATEMENTS
(Continued)
NOTE 4. ADVANCES RECEIVABLE FROM AFFILIATES
In 1998, the Partnership provided funding to affiliates by means of
advances in an arrangement equivalent to an open ended line of credit. The
advances are due on demand and provide for interest at 12% per annum. The
balances as of March 31, 1999 and December 31, 1998 are as follows:
<TABLE>
<CAPTION>
March 31, 1999 December 31, 1998
-------------- -----------------
(Unaudited)
Advance Accrued Advance Accrued
Receivable Interest Receivable Interest
---------- -------- ---------- --------
<S> <C> <C> <C> <C>
Curiosity Creek $36,439 $3,115 $36,439 $3,528
Baron Strategic Vulture Fund I, Ltd. 44,500 5,728 44,500 4,411
------- ------ ------- ------
Total $80,939 $8,843 $80,939 $7,939
======= ====== ======= ======
</TABLE>
NOTE 5. LIMITED PARTNERS' CAPITAL CONTRIBUTIONS
In 1996, in accordance with the terms of a Private Placement Memorandum
dated October 23, 1996, the Partnership issued 220 units of limited
partnership interest units at $500 per unit for gross proceeds of
$110,000. Costs of $22,300 incurred in connection with syndicating the
limited partnership units were recorded as a reduction of limited
partners' capital contributions. Of the $22,300 in syndication costs
incurred in 1996, the Partnership paid $17,500 to its general partner for
administrative, legal and investment fees.
During 1997, the Partnership issued the remaining 2,180 units of the
limited partner interest units at $500 per unit for gross proceeds of
$1,090,000. Costs of $239,700 incurred in connection with syndicating the
limited partnership units were recorded as a reduction of limited
partners' capital contributions. Of the $239,700 in syndication costs
incurred in 1997, the Partnership paid $124,500 to its general partner for
administrative, legal and investment fees.
NOTE 6. OTHER MATTER
In connection with a proposed Exchange Offering, Baron Capital Properties,
L.P. ("the Operating Partnership"), a partnership under common control,
will offer to exchange Operating Partnership Units to the limited partners
of the Partnership in exchange for their limited partner interests. These
units are exchangeable for an equivalent number of common shares of
beneficial interest in Baron Capital Trust, a real estate investment trust
under common control, for whom Baron Capital Properties, L.P. is the
operating partnership. Subject to the completion of the proposed Exchange
Offering, the Trust and the Operating Partnership will account for the
acquisition of the limited partnership interests in the offering on the
purchase method and therefore record the assets acquired and the
liabilities assumed at their fair value at the date of acquisition.
<PAGE>
================================================================================
BARON STRATEGIC INVESTMENT FUND VI, LTD.
FINANCIAL STATEMENTS
MARCH 31, 1999 AND DECEMBER 31, 1998
================================================================================
<PAGE>
BARON STRATEGIC INVESTMENT FUND VI, LTD.
TABLE OF CONTENTS
PAGE
----
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS 1
FINANCIAL STATEMENTS
Balance Sheets 2
Statements of Operations 3
Statements of Partners' Capital 4
Statements of Cash Flows 5
Notes to Financial Statements 6-13
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Partners
Baron Strategic Investment Fund VI, Ltd.
Cincinnati, Ohio
We have audited the accompanying balance sheet of Baron Strategic Investment
Fund VI, Ltd. (the "Partnership") as of December 31, 1998, and the related
statements of operations, partners' capital and cash flows for each of the two
years in the period then ended. These financial statements are the
responsibility of the Partnership's management. Our responsibility is to express
an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Baron Strategic Investment Fund
VI, Ltd. at December 31, 1998, and the results of its operations and its cash
flows for each of the two years in the period then ended in conformity with
generally accepted accounting principles.
The Partnership is affiliated with certain other limited partnerships (the
"affiliates") in similar lines of business, all of whom are controlled by a
common person who is the sole stockholder and president of the Partnership's
general partner. As discussed in Notes 3 and 4, the Partnership and its
affiliates have engaged in significant transactions with each other.
RACHLIN COHEN & HOLTZ LLP
Miami, Florida
April 2, 1999
1
<PAGE>
BARON STRATEGIC INVESTMENT FUND VI, LTD.
BALANCE SHEETS
March 31, December 31,
1999 1998
---- ----
ASSETS (Unaudited)
Cash $ 393 $ 334
Investment in affiliate 323,709 325,409
Notes receivable from affiliates 327,639 327,639
Notes receivable from non-affiliate 160,000 160,000
Advance receivable from affiliates 135 135
Accrued interest receivable from affiliates 54,861 43,112
Accrued interest receivable from non-affiliate 5,607 4,382
-------- --------
$872,344 $861,011
======== ========
LIABILITIES AND PARTNERS' CAPITAL
Liabilities:
Advance payable to affiliates $ 48,756 $ 48,756
Administrative fees payable to general partner 28,000 25,000
-------- --------
76,756 73,756
-------- --------
Commitments and Other Matter -- --
Partners' Capital:
General partner 81 81
Limited partners 795,507 787,174
-------- --------
795,588 787,255
-------- --------
$872,344 $861,011
======== ========
See notes to financial statements.
2
<PAGE>
BARON STRATEGIC INVESTMENT FUND VI, LTD.
STATEMENTS OF OPERATIONS
Three
Months Year Ended
Ended December 31,
March 31, ------------
1999 1998 1997
---- ---- ----
(Unaudited)
Revenues:
Equity in net income of affiliate $ 7,100 $ 4,590 $ --
Interest income from affiliates 12,973 50,684 67,699
Other 2 644 4,638
------- ------- -------
20,075 55,918 72,337
------- ------- -------
Costs and Expenses:
Equity in net loss of affiliate -- -- 26,181
Administrative fees to general partner 3,000 12,000 12,000
General and administrative 39 5,023 5,974
------- ------- -------
3,039 17,023 44,155
------- ------- -------
Net Income $17,036 $38,895 $28,182
======= ======= =======
See notes to financial statements.
3
<PAGE>
BARON STRATEGIC INVESTMENT FUND VI, LTD.
STATEMENTS OF PARTNERS' CAPITAL
<TABLE>
<CAPTION>
General Limited
Partner Partners Total
------- -------- -----
<S> <C> <C> <C>
Partners' Capital, January 1, 1997 $ 81 $ 449,650 $ 449,731
Year Ended December 31, 1997:
Capital contributions, net of syndication costs -- 475,450 475,450
Distributions -- (85,003) (85,003)
Net income -- 28,182 28,182
--------- --------- ---------
Partners' Capital, December 31, 1997 81 868,279 868,360
Year Ended December 31, 1998:
Distributions -- (120,000) (120,000)
Net income -- 38,895 38,895
--------- --------- ---------
Partners' Capital, December 31, 1998 81 787,174 787,255
Nine Months Ended March 31, 1999 (Unaudited):
Distributions -- (8,703) (8,703)
Net income -- 17,036 17,036
--------- --------- ---------
Partners' Capital, March 31, 1999 (Unaudited) $ 81 $ 795,507 $ 795,588
========= ========= =========
</TABLE>
See notes to financial statements.
4
<PAGE>
BARON STRATEGIC INVESTMENT FUND VI, LTD.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Three
Months Year Ended
Ended December 31,
March 31, ------------
1999 1998 1997
---- ---- ----
(Unaudited)
<S> <C> <C> <C>
Cash Flows from Operating Activities:
Net income $ 17,036 $ 38,895 $ 28,182
Adjustments to reconcile net income to net
cash provided by operating activities:
Equity in net (income) loss of affiliate (7,100) (4,590) 26,181
Changes in operating assets and liabilities:
Increase in accrued interest receivable from non-affiliate (1,225) (4,382) --
Increase in accrued interest receivable from affiliates (11,749) (40,930) (2,182)
Increase in advance payable to affiliates -- 966 --
Increase in administrative fees payable to general partner 3,000 12,000 12,000
--------- --------- ---------
Net cash provided by (used in) operating activities (38) 1,959 64,181
--------- --------- ---------
Cash Flows from Investing Activities:
Investment in affiliate -- -- (347,000)
Investment in note receivable from affiliate -- (68,000) (690,000)
Collection of note receivable from affiliate -- 119,628 --
Investment in note receivable from non-affiliate -- (160,000) --
Repayments of note receivable from affiliate -- -- 310,733
Distribution from affiliates 8,800 -- --
Advances to affiliates -- -- (2,570)
--------- --------- ---------
Net cash provided by (used in) investing activities 8,800 (108,372) (728,837)
--------- --------- ---------
Cash Flows from Financing Activities:
Partners' capital contributions -- -- 668,000
Syndication costs -- -- (192,550)
Distributions to limited partners (8,703) (120,000) (85,003)
Advances from affiliates -- 42,175 8,050
--------- --------- ---------
Net cash provided by (used in) financing activities (8,703) (77,825) 398,497
--------- --------- ---------
Net Increase (Decrease) in Cash 59 (184,238) (266,159)
Cash, Beginning 334 184,572 450,731
--------- --------- ---------
Cash, Ending $ 393 $ 334 $ 184,572
========= ========= =========
</TABLE>
See notes to financial statements.
5
<PAGE>
BARON STRATEGIC INVESTMENT FUND VI, LTD.
Cash Flow Worksheet
December 31, 1998
<TABLE>
<CAPTION>
Affiliate Advances Advances
Cash Loans to Affiliate fm Affiliate
---- ----- ------------ ------------
<S> <C> <C> <C> <C> <C>
Beginning Balance, December 31, 1997 184,572 379,267 320,819 2,570
Ending Balance, December 31, 1998 334 327,639 325,409 135
-------- -------- -------- --------
(184,238) (51,628) 4,590 (2,435)
Cash Flows from Operating Activities:
Net Income 38,895
Adjustments to reconcile net income to net cash
provided (used) by operating activities
Equity net income from affiliate (4,590) (4,590)
Changes in operating assets and liabilities:
(Increase) decrease in:
Interest due from affiliates (40,930)
Interest due from non-affiliate (4,382)
Advances from affiliates 966
Amounts due GP 12,000
--------
Net cash provided (used in) by operating activities 1,959
--------
Cash Flows from Investing Activities:
Advances to affiliate (68,000) (68,000)
Repayments of note receivable from affiliate 119,628 119,628
Investment in affiliates --
Investment in non -affiliates (160,000)
--------
Net cash provided by (used in) investing activities (108,372)
--------
Cash Flows from Financing Activities:
Loans to affiliates 42,175 2,435
Partner contributions --
Limited partner distributions (120,000)
--------
Net cash provided by (used in) financing activities (77,825)
--------
Net increase (decrease) in cash (184,238)
Cash, Beginning 184,572
--------
Cash, Ending 334
----------------------------------------------------------------
-- -- -- --
Supplemental Disclosures of Cash Flow Information
-- -- --
-------- -------- --------
<CAPTION>
Accrued Interest
---------------- Receivable Amounts
non-affiliate affiliate fr. non-affiliate Due GP
------------- --------- ----------------- ------
<S> <C> <C> <C> <C>
Beginning Balance, December 31, 1997 -- 2,182 -- (13,000)
Ending Balance, December 31, 1998 4,382 43,112 160,000 (25,000)
-------- -------- -------- --------
4,382 40,930 160,000 (12,000)
Cash Flows from Operating Activities:
Net Income
Adjustments to reconcile net income to net cash
provided (used) by operating activities
Equity net income from affiliate
Changes in operating assets and liabilities:
(Increase) decrease in:
Interest due from affiliates (40,930)
Interest due from non-affiliate (4,382)
Advances from affiliates
Amounts due GP 12,000
Net cash provided (used in) by operating activities
Cash Flows from Investing Activities:
Advances to affiliate
Repayments of note receivable from affiliate
Investment in affiliates
Investment in non -affiliates (160,000)
Net cash provided by (used in) investing activities
Cash Flows from Financing Activities:
Loans to affiliates
Partner contributions
Limited partner distributions
Net cash provided by (used in) financing activities
Net increase (decrease) in cash
Cash, Beginning
Cash, Ending
-------------------------------------------------------
-- -- --
Supplemental Disclosures of Cash Flow Information
-- -- --
-------- -------- --------
<CAPTION>
Accrued Partners'
Expenses Capital
-------- -------
<S> <C> <C> <C>
Beginning Balance, December 31, 1997 (8,050) (868,360) --
Ending Balance, December 31, 1998 (48,756) (787,255) --
-------- --------
(40,706) 81,105 --
Cash Flows from Operating Activities:
Net Income 38,895
Adjustments to reconcile net income to net cash
provided (used) by operating activities
Equity net income from affiliate
Changes in operating assets and liabilities:
(Increase) decrease in:
Interest due from affiliates
Interest due from non-affiliate
Advances from affiliates 966
Amounts due GP
Net cash provided (used in) by operating activities
Cash Flows from Investing Activities:
Advances to affiliate
Repayments of note receivable from affiliate
Investment in affiliates
Investment in non -affiliates
Net cash provided by (used in) investing activities
Cash Flows from Financing Activities:
Loans to affiliates 39,740
Partner contributions
Limited partner distributions (120,000)
Net cash provided by (used in) financing activities
Net increase (decrease) in cash
Cash, Beginning
Cash, Ending
--------------------------------------
-- --
Supplemental Disclosures of Cash Flow Information
-- -- --
-------- -------- --------
</TABLE>
6
<PAGE>
BARON STRATEGIC INVESTMENT FUND VI, LTD.
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 1999 AND DECEMBER 31, 1998
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization and Capitalization
Baron Strategic Investment Fund VII, Ltd. ("the Partnership") was
initially organized on October 30, 1996 under the laws of the State of
Florida.
The Agreement of Limited Partnership provides for capital contributions
of partners to be comprised of (a) the general partner capital
contribution of $90 in cash; and (b) the maximum capital contributions
of the limited partners of $1,200,000, to be divided into 2,400 equal
units of limited partnership interest.
See Note 2 for a summary of other provisions of the Agreement of
Limited Partnership.
Business
The Partnership provides debt and equity financing to existing
affiliated limited partnerships owning residential apartment
communities located in Florida.
Unaudited Financial Information
The accompanying financial information as of and for the three months
ended March 31, 1999 is unaudited. However, in the opinion of
management, all adjustments, consisting of normal recurring accruals
and adjustments, necessary for a fair presentation of financial
position, results of operations and cash flows have been made.
The results of operations for interim periods are not necessarily
indicative of results to be expected for a full year.
Revenue Recognition
Revenue, which consists primarily of interest on notes receivable, is
recognized as it becomes due.
Concentration of Credit Risk
At various times during the year the Partnership had deposits in
financial institutions in excess of the federally insured limits. The
Partnership maintains its cash with a high quality financial
institution which the Partnership believes limits these risks.
Notes Receivable from Affiliates and Non-Affiliate
Notes receivable from affiliates and non-affiliate are recorded at
cost, less the related allowance for impairment, if any, of such notes
receivable. The Partnership accounts for such notes under the
provisions of Statement of Financial Accounting Standard No. 114,
7
<PAGE>
BARON STRATEGIC INVESTMENT FUND VI, LTD.
NOTES TO FINANCIAL STATEMENTS
(Continued)
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Notes Receivable from Affiliates and Non-Affiliate (Continued)
Accounting by Creditors for Impairment of a Loan, as amended by
Statement of Financial Accounting Standard No. 118, Accounting by
Creditors for Impairment of a Loan - Income Recognition and Disclosure.
Management, considering current information and events regarding the
borrowers' ability to repay their obligations, considers a note to be
impaired when it is probable that the Partnership will be unable to
collect all amounts due according to the contractual terms of the note.
When a loan is considered to be impaired, the amount of impairment is
measured based upon (a) the present value of expected future cash flows
discounted at the note's effective interest rate; and (b) the
liquidation value of the note's collateral reduced by expected selling
costs and other notes secured by the same collateral. Cash receipts on
impaired notes receivable are applied to reduce the principal amount of
such receivables until the principal has been recovered, and are
recognized as interest income thereafter.
Investment in Affiliate
The Partnership holds a 52.44% limited partner interest in Pineview
Apartments, Ltd. ("Pineview"), a limited partnership which owns a
residential apartment property in Orlando, Florida. The investment in
Pineview is accounted for using the equity method of accounting as a
result of the Partnership and Pineview having the same general partner
president and the general partner's ability to exercise significant
influence on Pineview. As such, the investment in Pineview is carried
at cost and adjusted for the Partnership's share of undistributed
earnings or losses using the equity method of accounting.
Use of Estimates
The accompanying financial statements have been prepared in conformity
with generally accepted accounting principles. In preparing the
financial statements, management is required to make estimates and
assumptions that affect the reported amount of assets and liabilities
as of the date of the balance sheet and operations for the year then
ended. Material estimates as to which it is reasonably possible that a
change in the estimate could occur in the near term relates to the
collectibility of the notes receivable due from affiliates. Although
these estimates are based on management's knowledge of current events
and actions it may undertake in the future, they may ultimately differ
from actual results.
Income Taxes
The Partnership is treated as a limited partnership for federal income
tax purposes and as such does not incur income taxes. Instead, its
earnings and losses are included in the personal returns of the
partners and taxed depending on their personal tax situations. The
financial statements do not reflect a provision for income taxes.
8
<PAGE>
BARON STRATEGIC INVESTMENT FUND VI, LTD.
NOTES TO FINANCIAL STATEMENTS
(Continued)
NOTE 2. AGREEMENT OF LIMITED PARTNERSHIP
The following is a summary of the significant provisions of the Agreement
of Limited Partnership ("the Agreement") made and entered into as of
November 12, 1996:
Capital Contributions of Partners
The Agreement provides for the general partner to contribute $90 in
cash, and maximum capital contributions of the limited partners of
$1,200,000, to be divided into 2,400 units of limited partnership
units. A capital account is maintained for each partner.
Term
The Partnership will continue through December 31, 2026, unless sooner
terminated by law or under certain provisions of the Agreement.
Distributions
Cash Distributions
The Partnership's distributable cash, if any, in each fiscal year
will not be reinvested but will be distributed in order of priority
to the Partners, if available, quarterly, to (a) the limited
partners who will receive 100% of the distributable cash until they
have received a 12.5% non-cumulative annual cash-on-cash return on
the aggregate amount of their capital contribution as calculated
from each limited partner's admission date; and (b) the excess, if
any, will be allocated 50% to the limited partners and 50% to the
general partner.
Distributions of Net Proceeds
Net proceeds from the sale or refinancing of the Partnership's
assets will not be reinvested but will be distributed to the
partners in order of priority after repayment of all indebtedness
secured by the assets to (a) the limited partners who will receive
100% of the distributions until the total amount distributed to
them, when added to all prior distributions of distributable cash
and net proceeds made to them, is equal to the sum of their capital
contributions plus an annual 12.5% cash-on-cash return; and (b) the
balance, if any, is distributed 50% to the limited partners and 50%
to the general partner.
Allocation of Income and Loss
Allocations of all items of income, gain, expense, loss, deduction and
credit recognized by the Partnership for federal income tax purposes
will be made as follows:
Income
The first 100% of income is allocated to the general partner until
the profits allocated plus the cumulative profits allocated to the
general partner for prior fiscal periods during which a profit was
earned by the Partnership equal the cumulative amounts distributable
to the general partner under the terms of the distributions of cash
and net proceeds. The balance, if any, is allocated to the limited
partners.
9
<PAGE>
BARON STRATEGIC INVESTMENT FUND VI, LTD.
NOTES TO FINANCIAL STATEMENTS
(Continued)
NOTE 2. AGREEMENT OF LIMITED PARTNERSHIP (Continued)
Allocation of Income and Loss (Continued)
Losses
After giving effect to certain tax provisions, taxable losses are
allocated 99% to the limited partners and 1% to the general partner.
Dissolution
The Partnership will be dissolved upon (a) the expiration of the term
of the Agreement; (b) the determination of the limited partners
exercising their voting rights to dissolve the Partnership; (c) the
death, resignation, retirement, dissolution, removal, bankruptcy,
adjudication of insolvency, or adjudication of insanity or incompetence
of the last remaining general partner then in office and the refusal of
any successor general partner to replace it, unless the holders of a
majority of the units then outstanding vote to continue the Partnership
and elect one or more successor general partners willing to serve in
such capacity to continue the business of the Partnership; (d) the sale
of all or substantially all of the Partnership's property; (e) the
repayment in full of all loans made by the Partnership, unless the
Partnership thereafter continues to own non-loan assets; and (f) the
occurrence of any other event which, by law, would require the
Partnership to be dissolved.
Winding Up
Upon the dissolution of the partnership, the general partner will take
full account of the Partnership's assets and liabilities, and the
assets will be liquidated as promptly as is consistent with obtaining
fair value of the assets, and the proceeds will be applied and
distributed (a) first to the Partnership creditors, other than
partners; (b) then, any loans owed by the Partnership to the partners
shall be paid in proportion thereto; and (c) finally, to the limited
partners and the general partner in proportion to their respective
positive capital accounts.
Fees to the General Partner
Pursuant to a Partnership Administration Contract (the "Contract")
between the Partnership and the general partner stipulated in the
Agreement, the Partnership retained the general partner to provide
administrative services for $1,000 per month through December 31, 2003.
10
<PAGE>
BARON STRATEGIC INVESTMENT FUND VI, LTD.
NOTES TO FINANCIAL STATEMENTS
(Continued)
NOTE 3. INVESTMENT IN AFFILIATE
The following is a summary of the financial position and results of
operations of Pineview as of March 31, 1999 and December 31, 1998 and for
the three months and year then ended, respectively.
Financial position: March 31, December 31,
1999 1998
---- ----
(Unaudited)
Rental apartments $2,026,402 $2,043,777
Other assets 254,064 177,459
---------- ----------
Total assets $2,280,466 $2,221,236
========== ==========
Mortgage payable $1,599,549 $1,603,303
Other liabilities 106,251 30,901
---------- ----------
Total liabilities 1,705,800 1,634,204
Partners' capital 574,666 587,032
---------- ----------
$2,280,466 $2,221,236
========== ==========
Revenues (including rental income of $117,444 and
$471,979, respectively) $ 125,151 $ 549,085
Costs and expenses 111,679 540,990
---------- ----------
Net income $ 13,472 $ 8,095
========== ==========
NOTE 4. NOTES RECEIVABLE FROM AFFILIATES
The following are the balances of the notes receivable and a portion of
accrued interest due from affiliates at March 31, 1999 and December 31,
1998:
<TABLE>
<CAPTION>
March 31, 1999 December 31, 1998
-------------- -----------------
(Unaudited)
Notes Accrued Notes Accrued
Receivable Interest Receivable Interest
---------- -------- ---------- --------
<S> <C> <C> <C> <C>
Baron Strategic Investment Fund IV,
Ltd. ("BSIF IV") $259,639 $ 46,934 $259,639 $ 37,198(a)
Baron Strategic Investment Fund III,
Ltd. ("Candlewood II") 68,000 7,927 68,000 5,914(b)
-------- -------- -------- --------
$327,630 $ 54,861 $327,630 $ 43,112
======== ======== ======== ========
</TABLE>
11
<PAGE>
BARON STRATEGIC INVESTMENT FUND VI, LTD.
NOTES TO FINANCIAL STATEMENTS
(Continued)
NOTE 4. NOTES RECEIVABLE FROM AFFILIATES (Continued)
(a) In March 1997, the Partnership advanced funds to, and
received a $690,000 note from, Baron Strategic
Investment Fund IV, Ltd. ("BSIF IV"), an affiliate, with
an annual interest rate of 15%. The note, which is
secured by real property of County Square Apartments,
Ltd., an affiliate, provides for monthly payments of
interest only on the unpaid principal balance, with
principal plus any accrued interest due in September
2002. Interest income recognized on the note for the
three months ended March 31, 1999 and for the year ended
December 31, 1998 was $9,736 and $40,388, respectively. $259,639
(b) Secured promissory note representing advances made to
Candlewood II. The note matures on March 1, 2003;
accrued interest at an annual rate of 12%, which is
payable quarterly, is secured by an Open-End Second
Mortgage and Security Agreement regarding certain real
and personal property at Candlewood II; and is
subordinated to the first mortgage which had a balance
of approximately $591,000 and $595,000 as of March 31,
1999 and December 31, 1998, respectively. The Open-End
Second Mortgage and Security Agreement provides for
additional advances not to exceed $500,000 maximum to be
secured under a future advance clause. 68,000
--------
Total notes receivable $327,639
========
NOTE 5. NOTES RECEIVABLE FROM NON-AFFILIATE
In January 1998, Baron Strategic Investment Fund X, Ltd.
("BSIF X"), an affiliate, purchased from an unrelated party an
undivided 75% interest in a second mortgage note in the
original principal amount of $735,000 (with accrued unpaid
interest thereon of $506,767) made by Garden Terrace
Apartments III, Ltd. ("Garden Terrace"), a non-affiliate. In
February 1998, the Partnership purchased from BSIF X an
undivided 20% interest of the Garden Terrace second mortgage
note and accrued interest for $160,000. In October 1998,
Garden Terrace restated and amended the $735,000 second
mortgage note and created a new second mortgage note in the
original principal amount of $506,767 to cover accrued
interest. The notes receivable are more fully described below:
Garden Terrace Second Mortgage Note; matures on January 1,
2007; accrues interest at an minimum annual rate of 2% and
provides for participation interest at the rate of 7% per
annum based upon the amount of the unpaid principal, which
shall be due and payable to the extent that it does not exceed
the available cash flow, as defined in the note; provides for
additional participation interest in an annual equal to 30% of
remaining available cash flow, as defined, which will continue
to be made until such time as the collateral has been sold,
and which obligation will continue notwithstanding total
repayment of the principal amount of the note; secured by a
lien upon certain real and personal property of Garden
Terrace; subordinated to the first mortgage which had $735,000
a balance of approximately $967,000 and $967,500 as of March
31, 1999 and December 31, 1998, respectively.
12
<PAGE>
BARON STRATEGIC INVESTMENT FUND VI, LTD.
NOTES TO FINANCIAL STATEMENTS
(Continued)
NOTE 5. NOTES RECEIVABLE FROM NON-AFFILIATE (Continued)
Garden Terrace Accrued Interest Second Mortgage Note;
matures on January 1, 2007; accrues interest at an annual
rate of 9% payable annually from excess cash flow after 2%
minimum interest and 7% participation interest has been
paid on the $735,000 second mortgage note; secured by a
lien upon certain real and personal property of Garden
Terrace; subordinated to the first mortgage which had a
balance of approximately $967,000 and $967,500 as of March
31, 1999 and December 31, 1998, respectively. 506,767
----------
1,241,767
Percentage purchased* 20%
----------
248,353
Less discount 88,353
----------
Notes receivable, net of discount $ 160,000
==========
* BSIF X and Baron Strategic Investment Fund IX, Ltd. ("BSIF IX"),
affiliates of the Partnership, own the remaining undivided 80% interest
on the notes.
NOTE 6. ADVANCES PAYABLE TO AFFILIATES
The following are the balances of the advances payable to affiliates as of
March 31, 1999 and December 31, 1998:
Advances
Payable
-------
Pineview Apartments, Ltd. ("Pineview") $39,740
Country Square Apartments, Ltd. ("Country Square") 9,016
-------
$48,756
=======
NOTE 7. LIMITED PARTNERS' CAPITAL CONTRIBUTIONS
In 1996, in accordance with the terms of a Private Placement Memorandum
dated November 12, 1996, the Partnership issued 1,064 units of limited
partnership interest at $500 per unit for gross proceeds of $532,000.
Costs of $81,450 incurred in connection with syndicating the limited
partnership units were recorded as a reduction of limited partners'
capital contributions. Of the $81,450 in syndication costs incurred in
1996, the Partnership paid $38,890 to its general partner for
administrative, legal and investment fees.
During 1997, the Partnership issued the remaining 1,336 units of limited
partner interest at $500 per unit for gross proceeds of $668,000. Costs of
$192,550 incurred in connection with syndicating the limited partnership
units were recorded as a reduction of limited partners' capital
contributions. Of the $192,550 in syndication costs incurred in 1997, the
Partnership paid $115,110 to its general partner for administrative, legal
and investment fees.
13
<PAGE>
BARON STRATEGIC INVESTMENT FUND VI, LTD.
NOTES TO FINANCIAL STATEMENTS
(Continued)
NOTE 8. OTHER MATTER
In connection with a proposed Exchange Offering, Baron Capital Properties,
L.P. ("the Operating Partnership"), a partnership under common control,
will offer to exchange Operating Partnership Units to the limited partners
of the Partnership in exchange for their limited partner interests. These
units are exchangeable for an equivalent number of common shares of
beneficial interest in Baron Capital Trust, a real estate investment trust
under common control, for whom Baron Capital Properties, L.P. is the
operating partnership. Subject to the completion of the proposed Exchange
Offering, the Trust and the Operating Partnership will account for the
acquisition of the limited partnership interests in the offering on the
purchase method and therefore record the assets acquired and the
liabilities assumed at their fair value at the date of acquisition.
14
<PAGE>
================================================================================
BARON STRATEGIC INVESTMENT FUND VIII, LTD.
FINANCIAL STATEMENTS
MARCH 31, 1999 AND DECEMBER 31, 1998
================================================================================
<PAGE>
BARON STRATEGIC INVESTMENT FUND VIII, LTD.
TABLE OF CONTENTS
PAGE
----
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS 1
FINANCIAL STATEMENTS
Balance Sheets 2
Statements of Operations 3
Statements of Partners' Capital 4
Statements of Cash Flows 5
Notes to Financial Statements 6-12
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Partners
Baron Strategic Investment Fund VIII, Ltd.
Cincinnati, Ohio
We have audited the accompanying balance sheet of Baron Strategic Investment
Fund VIII, Ltd. (the "Partnership") as of December 31, 1998, and the related
statements of operations, partners' capital and cash flows for each of the two
years in the period then ended. These financial statements are the
responsibility of the Partnership's management. Our responsibility is to express
an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Baron Strategic Investment Fund
VIII, Ltd. at December 31, 1998, and the results of its operations and its cash
flows for each of the two years in the period then ended in conformity with
generally accepted accounting principles.
The Partnership is affiliated with certain other limited partnerships (the
"affiliates") in similar lines of business, all of whom are controlled by a
common person who is the sole stockholder and president of the Partnership's
general partner. As discussed in Notes 3 and 4, the Partnership and its
affiliates have engaged in significant transactions with each other.
RACHLIN COHEN & HOLTZ LLP
Miami, Florida
April 2, 1999
1
<PAGE>
BARON STRATEGIC INVESTMENT FUND VIII, LTD.
BALANCE SHEETS
March 31, December 31,
1999 1998
---- ----
ASSETS (Unaudited)
Cash $ -- $ 50
Notes receivable from affiliates 807,155 807,155
Advances receivable from affiliates 10,000 10,159
Accrued interest receivable from affiliates 55,836 40,439
-------- --------
$872,991 $857,803
======== ========
LIABILITIES AND PARTNERS' CAPITAL
Liabilities:
Bank overdraft $ 84 $ --
Administrative fees payable to general partner 10,000 7,000
-------- --------
20,084 7,000
-------- --------
Commitments and Other Matter -- --
Partners' Capital:
General partner 90 90
Limited partners 862,817 850,713
-------- --------
862,907 850,803
-------- --------
$872,991 $857,803
======== ========
See notes to financial statements.
2
<PAGE>
BARON STRATEGIC INVESTMENT FUND VIII, LTD.
STATEMENTS OF OPERATIONS
Three
Months Year Ended
Ended December 31,
March 31, ---------------
1999 1998 1997
---- ---- ----
(Unaudited)
Revenues:
Interest income from affiliates $ 24,097 $100,741 $ 38,892
Other -- 762 1,708
-------- -------- --------
24,097 101,503 40,600
-------- -------- --------
Costs and Expenses:
Administrative fees to general partner 3,000 12,000 10,000
General and administrative -- 19,873 4,453
-------- -------- --------
3,000 31,873 14,453
-------- -------- --------
Net Income $ 21,097 $ 69,630 $ 26,147
======== ======== ========
See notes to financial statements.
3
<PAGE>
BARON STRATEGIC INVESTMENT FUND VIII, LTD.
STATEMENTS OF PARTNERS' CAPITAL
<TABLE>
<CAPTION>
General Limited
Partner Partners Total
------- -------- -----
<S> <C> <C> <C>
Partners' Capital, January 1, 1997 $ -- $ -- $ --
Year Ended December 31, 1997:
Capital contributions, net of syndication costs 90 865,611 865,701
Distributions -- (30,450) (30,450)
Net income -- 26,147 26,147
--------- --------- ---------
Partners' Capital, December 31, 1997 90 861,308 861,398
Year Ended December 31, 1998:
Capital contributions, net of syndication costs 38,299 38,299
Distributions -- (118,524) (118,524)
Net income -- 69,630 69,630
--------- --------- ---------
Partners' Capital, December 31, 1998 90 850,713 850,803
Three Months Ended March 31, 1999 (Unaudited):
Distributions -- (8,993) (8,993)
Net income -- 21,097 21,097
--------- --------- ---------
Partners' Capital, March 31, 1999 (Unaudited) $ 90 $ 862,817 $ 862,907
========= ========= =========
</TABLE>
See accountant report
4
<PAGE>
BARON STRATEGIC INVESTMENT FUND VIII, LTD.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Three
Months Year Ended
Ended December 31,
March 31, ------------
1999 1998 1997
---- ---- ----
(Unaudited)
<S> <C> <C> <C>
Cash Flows from Operating Activities:
Net income $ 21,097 $ 69,630 $ 26,147
Adjustments to reconcile net income to
net cash provided by operating activities:
Changes in operating assets and liabilities:
Increase in accrued interest receivable from affiliates (15,397) (1,547) (38,892)
Increase (decrease) in administrative fees payable
to general partner 3,000 (3,000) 10,000
----------- ----------- -----------
Net cash provided by operating activities 8,700 65,083 (2,745)
----------- ----------- -----------
Cash Flows from Investing Activities:
Investment in notes receivable from affiliates -- (104,159) (685,650)
Advances to affiliates 159 (159) (65,095)
Collection on notes receivables and advances -- 37,749 --
----------- ----------- -----------
Net cash provided by (used in) investing activities 159 (66,569) (750,745)
----------- ----------- -----------
Cash Flows from Financing Activities:
Partners' capital contributions -- 50,869 1,149,131
Syndication costs paid -- (12,570) (283,430)
(Decrease) increase in accrued syndication costs -- (2,854) 2,854
Distributions to limited partners (8,993) (118,524) (30,450)
Increase in bank overdraft 84 -- --
----------- ----------- -----------
Net cash provided by (used in) financing activities (8,909) (83,079) 838,105
----------- ----------- -----------
Net Increase (Decrease) in Cash (50) (84,565) 84,615
Cash, Beginning 50 84,615 --
----------- ----------- -----------
Cash, Ending $ -- $ 50 $ 84,615
=========== =========== ===========
Supplemental Information:
Non-cash transactions:
Reclassification of advances receivable to
notes receivable from affiliates $ -- $ 46,120 $ --
=========== =========== ===========
</TABLE>
See notes to financial statements.
5
<PAGE>
BARON STRATEGIC INVESTMENT FUND VIII, LTD.
Cash Flow Worksheet
December 31, 1998
<TABLE>
<CAPTION>
Advances Interest Purchased
Cash Affiliates Receivable Receivable
---- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Beginning Balance, December 31, 1997 84,615 65,095 38,892 685,650
Ending Balance, December 31, 1998 50 10,159 40,439 807,155
-------- -------- -------- --------
(84,565) (54,936) 1,547 121,505
Cash Flows from Operating Activities:
Net income 69,630
Adjustments to reconcile net income to
net cash provided by operating activities:
Changes in operating assets and liabilities:
(Increase) decrease in assets:
Accrued interest (1,547) (1,547)
Increase (decrease) in liabilities:
Increase in accrued syndication costs (2,854)
Accounts payable and accrued liabilities (3,000)
--------
Net cash provided by operating activities 62,229
--------
Cash Flows from Investing Activities:
Advances to affiliates (159) (159)
-- 46,120 (46,120)
(104,159) (104,159)
Collection on purchased receivables and advances 37,749 8,975 28,774
--------
Net cash provided (required) by investing activities (66,569)
--------
Cash Flows from Financing Activities:
Syndication costs paid (12,570)
Partners capital contributions 50,869
Limited partner distributions (118,524)
--------
Net cash used in financing activities (80,225)
--------
Net Increase (Decrease) in Cash (84,565)
--------
Cash, Beginning 84,615
Cash, Ending 50
========
-------------------------------------------------------
-- -- --
Supplemental Disclosures of Cash Flow Information
Adjustment to contributed capital
<CAPTION>
Accrued Accrued Partners'
Syndication Admin Fees Capital
----------- ---------- -------
<S> <C> <C> <C> <C>
Beginning Balance, December 31, 1997 (2,854) (10,000) (861,398) --
Ending Balance, December 31, 1998 -- (7,000) (850,803) (0)
-------- -------- -------- --------
2,854 3,000 10,595
--
Cash Flows from Operating Activities:
Net income 69,630
Adjustments to reconcile net income to
net cash provided by operating activities:
Changes in operating assets and liabilities:
(Increase) decrease in assets:
Accrued interest
Increase (decrease) in liabilities:
Increase in accrued syndication costs (2,854)
Accounts payable and accrued liabilities (3,000)
Net cash provided by operating activities
Cash Flows from Investing Activities:
Advances to affiliates
Collection on purchased receivables and advances
Net cash provided (required) by investing activities
Cash Flows from Financing Activities:
Syndication costs paid (12,570)
Partners capital contributions 50,869
Limited partner distributions (118,524)
Net cash used in financing activities
Net Increase (Decrease) in Cash
Cash, Beginning
Cash, Ending
----------------------------------------------
-- -- --
Supplemental Disclosures of Cash Flow Information
Adjustment to contributed capital
--
</TABLE>
6
<PAGE>
BARON STRATEGIC INVESTMENT FUND VIII, LTD.
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 1999 AND DECEMBER 31, 1998
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization and Capitalization
Baron Strategic Investment Fund VIII, Ltd. ("the Partnership") was
initially organized on February 25, 1997 under the laws of the State of
Florida.
The Agreement of Limited Partnership provides for capital contributions
of partners to be comprised of (a) the general partner capital
contribution of $90 in cash; and (b) the maximum capital contributions
of the limited partners of $1,200,000, to be divided into 2,400 equal
units of limited partnership interest.
See Note 2 for a summary of other provisions of the Agreement of
Limited Partnership.
Business
The Partnership provides debt financing to existing affiliated limited
partnerships owning residential apartment communities located in
Florida.
Unaudited Financial Information
The accompanying financial information as of and for the three months
ended March 31, 1999 is unaudited. However, in the opinion of
management, all adjustments, consisting of normal recurring accruals
and adjustments, necessary for a fair presentation of financial
position, results of operations and cash flows have been made.
The results of operations for interim periods are not necessarily
indicative of results to be expected for a full year.
Revenue Recognition
Revenue, which consists primarily of interest on notes receivable, is
recognized as it becomes due.
Concentration of Credit Risk
At various times during the year the Partnership had deposits in
financial institutions in excess of the federally insured limits. The
Partnership maintains its cash with a high quality financial
institution which the Partnership believes limits these risks.
Notes Receivable from Affiliates
Notes receivable from affiliates are recorded at cost, less the related
allowance for impairment, if any, of such notes receivable. The
Partnership accounts for such notes under the provisions of Statement
of Financial Accounting Standard No. 114, Accounting by Creditors for
Impairment of a Loan, as amended by Statement of Financial Accounting
7
<PAGE>
BARON STRATEGIC INVESTMENT FUND VIII, LTD.
NOTES TO FINANCIAL STATEMENTS
(Continued)
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Notes Receivable from Affiliates (Continued)
Standard No. 118, Accounting by Creditors for Impairment of a Loan
Income Recognition and Disclosure. Management, considering current
information and events regarding the borrowers' ability to repay their
obligations, considers a note to be impaired when it is probable that
the Partnership will be unable to collect all amounts due according to
the contractual terms of the note. When a loan is considered to be
impaired, the amount of impairment is measured based upon (a) the
present value of expected future cash flows discounted at the note's
effective interest rate; and (b) the liquidation value of the note's
collateral reduced by expected selling costs and other notes secured by
the same collateral. Cash receipts on impaired notes receivable are
applied to reduce the principal amount of such receivables until the
principal has been recovered, and are recognized as interest income
thereafter.
Use of Estimates
The accompanying financial statements have been prepared in conformity
with generally accepted accounting principles. In preparing the
financial statements, management is required to make estimates and
assumptions that affect the reported amount of assets and liabilities
as of the date of the balance sheet and operations for the year then
ended. Material estimates as to which it is reasonably possible that a
change in the estimate could occur in the near term relates to the
collectibility of the notes receivable from affiliates. Although these
estimates are based on management's knowledge of current events and
actions it may undertake in the future, they may ultimately differ from
actual results.
Income Taxes
The Partnership is treated as a limited partnership for federal income
tax purposes and as such does not incur income taxes. Instead, its
earnings and losses are included in the personal returns of the
partners and taxed depending on their personal tax situations. The
financial statements do not reflect a provision for income taxes.
NOTE 2. AGREEMENT OF LIMITED PARTNERSHIP
The following is a summary of the significant provisions of the Agreement
of Limited Partnership ("the Agreement") made and entered into as of
February 26, 1997.
Capital Contributions of Partners
The Agreement provides for the general partner to contribute $90 in
cash, and maximum capital contributions of the limited partners of
$1,200,000, to be divided into 2,400 units of limited partnership
units. A capital account is maintained for each partner.
8
<PAGE>
BARON STRATEGIC INVESTMENT FUND VIII, LTD.
NOTES TO FINANCIAL STATEMENTS
(Continued)
NOTE 2. AGREEMENT OF LIMITED PARTNERSHIP (Continued)
Term
The Partnership will continue through December 31, 2025, unless sooner
terminated by law or under certain provisions of the Agreement.
Distributions
Cash Distributions
The Partnership's distributable cash, if any, in each fiscal year
will not be reinvested but will be distributed in order of priority
to the Partners, if available, quarterly, to (a) the limited partners
who will receive 100% of the distributable cash until they have
received a 12.5% non-cumulative annual cash-on-cash return on the
aggregate amount of their capital contribution as calculated from
each limited partner's admission date; and (b) the excess, if any,
will be allocated 50% to the limited partners and 50% to the general
partner.
Distributions of Net Proceeds
Net proceeds from the sale or refinancing of the Partnership's assets
will not be reinvested but will be distributed to the partners in
order of priority after repayment of all indebtedness secured by the
assets to (a) the limited partners who will receive 100% of the
distributions until the total amount distributed to them, when added
to all prior distributions of distributable cash and net proceeds
made to them, is equal to the sum of their capital contributions plus
an annual 12.5% cash-on-cash return; and (b) the balance, if any, is
distributed 50% to the limited partners and 50% to the general
partner.
Allocation of Income and Loss
Allocations of all items of income, gain, expense, loss, deduction and
credit recognized by the Partnership for federal income tax purposes
will be made as follows:
Income
The first 100% of income is allocated to the general partner until
the profits allocated plus the cumulative profits allocated to the
general partner for prior fiscal periods during which a profit was
earned by the Partnership equal the cumulative amounts distributable
to the general partner under the terms of the distributions of cash
and net proceeds. The balance, if any, is allocated to the limited
partners.
Losses
After giving effect to certain tax provisions, taxable losses are
allocated 99% to the limited partners and 1% to the general partner.
9
<PAGE>
BARON STRATEGIC INVESTMENT FUND VIII, LTD.
NOTES TO FINANCIAL STATEMENTS
(Continued)
NOTE 2. AGREEMENT OF LIMITED PARTNERSHIP (Continued)
Dissolution
The Partnership will be dissolved upon (a) the expiration of the term
of the Agreement; (b) the determination of the limited partners
exercising their voting rights to dissolve the Partnership; (c) the
death, resignation, retirement, dissolution, removal, bankruptcy,
adjudication of insolvency, or adjudication of insanity or incompetence
of the last remaining general partner then in office and the refusal of
any successor general partner to replace it, unless the holders of a
majority of the units then outstanding vote to continue the Partnership
and elect one or more successor general partners willing to serve in
such capacity to continue the business of the Partnership; (d) the sale
of all or substantially all of the Partnership's property; (e) the
repayment in full of all loans made by the Partnership, unless the
Partnership thereafter continues to own non-loan assets; and (f) the
occurrence of any other event which, by law, would require the
Partnership to be dissolved.
Winding Up
Upon the dissolution of the partnership, the general partner will take
full account of the Partnership's assets and liabilities, and the
assets will be liquidated as promptly as is consistent with obtaining
fair value of the assets, and the proceeds will be applied and
distributed (a) first to the Partnership creditors, other than
partners; (b) then, any loans owed by the Partnership to the partners
shall be paid in proportion thereto; and (c) finally, to the limited
partners and the general partner in proportion to their respective
positive capital accounts.
Fees to the General Partner
Pursuant to a Partnership Administration Contract (the "Contract")
between the Partnership and the general partner stipulated in the
Agreement, the Partnership retained the general partner to provide
administrative services for $1,000 per month through December 31, 2004.
NOTE 3. NOTES RECEIVABLE FROM AFFILIATES
The following are the principal balances of the notes receivable, net of
unamortized discount, and a portion of accrued interest due from
affiliates at March 31, 1999 and December 31, 1998:
<TABLE>
<CAPTION>
March 31, 1999 December 31, 1998
-------------- -----------------
(Unaudited)
Notes Accrued Notes Accrued
Receivable Interest Receivable Interest
---------- -------- ---------- --------
<S> <C> <C> <C> <C>
Longwood Apartments I, Ltd.
("Longwood I") $577,429 $43,432 $577,429 $28,484 (a)
Heatherwood Apartments II, Ltd.
("Heatherwood II") 152,726 1,956 152,726 3,785 (b)
Burlington Development, L.P. ("Burlington") - 7,765 - 7,765 (c)
Sycamore Real Estate Development,
Ltd. ("Sycamore") 77,000 2,683 77,000 405 (d)
-------- -------- -------- --------
$807,155 $55,836 $807,155 $40,439
======== ======== ======== ========
</TABLE>
10
<PAGE>
BARON STRATEGIC INVESTMENT FUND VIII, LTD.
NOTES TO FINANCIAL STATEMENTS
(Continued)
NOTE 3. NOTES RECEIVABLE FROM AFFILIATES (Continued)
(a) In July 1997, the Partnership acquired certain receivables from an
unrelated entity at a discount from the face amount thereof. The
receivables, which included notes receivable and accrued interest
due from Longwood I, were converted into promissory notes as more
fully described in the table below:
Longwood I Second Mortgage Note; matures on October 1,
2007; accrues interest at an minimum annual rate of 6%
and provides for participation interest at the rate of
3% per annum based upon the amount of the unpaid
principal, which shall be due and payable to the extent
that it does not exceed the available cash flow, as
defined in the note; provides for additional
participation interest in an annual equal to 20% of
remaining available cash flow, as defined, which will
continue to be made until such time as the collateral
has been sold, and which obligation will continue
notwithstanding total repayment of the principal amount
of the note; secured by a lien upon certain real and
personal property of Longwood I; subordinated to the
first mortgage which had a balance of approximately
$1,025,000 and $1,027,000 as of March 31, 1999 and
December 31, 1998, respectively. $368,558
Secured promissory note, representing advances made by
the former general partner to Longwood I. The note
matures on October 1, 2007 and bears interest, which is
payable quarterly, at 1% over prime (8.75% as of March
31, 1999 and December 31, 1998). 526,465
Secured promissory note, representing other receivables,
related to advances for refinancing fees and
professional services. The note matures on October 1,
2007 and bears interest at 12%, which is payable
quarterly. 21,966
--------
916,989
Less discount 391,839
--------
Notes receivable, net of discount 525,150
Secured promissory note representing other advances made
to Longwood I by the Partnership. The note matures on
October 1, 2007; and bears interest, which is payable
quarterly, at 12% per annum. 52,279
--------
Net second mortgage notes receivable $577,429
========
On December 15, 1998, Longwood I amended and restated all the above
notes and mortgages and entered into a Second Amendment to Open-End
Second Mortgage and Security Agreement by which all of the above notes
are secured by lien of the Second Mortgage. The amendment also provides
for additional advances not to exceed a $1,300,000 maximum to be
evidenced by an Additional Advance Agreement or note.
11
<PAGE>
BARON STRATEGIC INVESTMENT FUND VIII, LTD.
NOTES TO FINANCIAL STATEMENTS
(Continued)
NOTE 3. NOTES RECEIVABLE FROM AFFILIATES (Continued)
(b) In August 1997, the Partnership acquired certain receivables from an
unrelated entity at a discount from the face amount thereof. The
receivables, which included notes receivable and accrued interest
due from Heatherwood II, were converted into promissory notes as
more fully described in the table below:
Heatherwood II Second Mortgage Note; matures on October
1, 2004; accrues interest at an minimum annual rate of
6% and participation interest at the rate of 3% per
annum based upon the amount of the unpaid principal,
which shall be due and payable to the extent that it
does not exceed the available cash flow, as defined in
the note; provides for additional participation interest
in an annual equal to 20% of remaining available cash
flow, as defined, which will continue to be made until
such time as the collateral has been sold, and which
obligation will continue notwithstanding total repayment
of the principal amount of the note; secured by a lien
upon certain real and personal property of Heatherwood
II; subordinated to the first mortgage which had a
balance of approximately $702,000 and $703,000 as of
March 31, 1999 and December 31, 1998, respectively. $325,000
Unsecured promissory note, representing advances made by
the former general partner to Heatherwood II. The note
is payable on demand and bears interest at 1% over prime
(8.75% as of March 31, 1999 and December 31, 1998). 1,742
--------
326,742
Percentage purchased 58%
--------
189,511
Less discount 36,785
--------
Notes receivable, net of discount $152,726
========
(c) During 1998, the Partnership made net advances aggregating $77,000
to Burlington, an affiliate. The advances bear interest at 12% and
are due on demand. In December 1998, the Partnership endorsed the
promissory note to Sycamore. Sycamore provided a new promissory note
to the Partnership as more fully described in (d) below.
(d) Secured promissory note representing advances made to Sycamore Real
Estate Development, L.P. The note matures on December 14, 2003;
accrues interest at an annual rate of 12%; is secured by a lien upon
certain real and personal property of Villas at Lake Sycamore; and
is subordinated to the first mortgage which had a balance of
approximately $866,000 as of March 31, 1999 and December 31, 1998.
Two other affiliated partnerships also hold second mortgage notes in
the aggregate principal amount of $473,000 secured by the property.
The lending parties have agreed to share the benefits of the second
mortgage on a pari-passu basis.
Note receivable $77,000
=======
12
<PAGE>
BARON STRATEGIC INVESTMENT FUND VIII, LTD.
NOTES TO FINANCIAL STATEMENTS
(Continued)
NOTE 4. ADVANCES RECEIVABLE FROM AFFILIATES
During 1997 and 1998, the Partnership provided funding to affiliates by
means of advances in an arrangement equivalent to an open ended line of
credit. The advances are due on demand and are non-interest bearing. The
balance as of March 31, 1999 and December 31, 1998 is comprised of the
following:
March 31, December 31,
1999 1998
---- ----
(Unaudited)
Pineview Apartments, Ltd. $10,000 $10,000
Heatherwood Apartments II, Ltd. -- 159
------- -------
$10,000 $10,159
======= =======
NOTE 5. LIMITED PARTNERS' CAPITAL CONTRIBUTIONS
During 1997, in accordance with the terms of a Private Placement
Memorandum dated February 26, 1997, the Partnership issued 2,298 units of
limited partner interest of the 2,400 units being offered at $500 per unit
for gross proceeds of $1,149,041. Costs of $283,430 incurred in connection
with syndicating the partnership units were recorded as a reduction of
limited partners' capital contributions. Of the syndication costs,
$168,525 was paid to the General Partner for administrative, legal and
investment fees.
During 1998, the Partnership issued the remaining 102 units at $500 per
unit for gross proceeds of $50,959. Costs of $12,570 incurred in
connection with syndicating the partnership units were recorded as a
reduction of limited partners' capital contributions in 1998. Of the
syndication costs, $7,475 was paid to the General Partner for
administrative, legal and investment fees.
NOTE 6. OTHER MATTER
In connection with a proposed Exchange Offering, Baron Capital Properties,
L.P. ("the Operating Partnership"), a partnership under common control,
will offer to exchange Operating Partnership Units to the limited partners
of the Partnership in exchange for their limited partner interests. These
units are exchangeable for an equivalent number of common shares of
beneficial interest in Baron Capital Trust, a real estate investment trust
under common control, for whom Baron Capital Properties, L.P. is the
operating partnership. Subject to the completion of the proposed Exchange
Offering, the Trust and the Operating Partnership will account for the
acquisition of the limited partnership interests in the offering on the
purchase method and therefore record the assets acquired and the
liabilities assumed at their fair value at the date of acquisition.
13
<PAGE>
================================================================================
BARON STRATEGIC INVESTMENT FUND IX, LTD.
FINANCIAL STATEMENTS
MARCH 31, 1999 AND DECEMBER 31, 1998
================================================================================
<PAGE>
BARON STRATEGIC INVESTMENT FUND IX, LTD.
TABLE OF CONTENTS
PAGE
----
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS 1
FINANCIAL STATEMENTS
Balance Sheets 2
Statements of Operations 3
Statements of Partners' Capital 4
Statements of Cash Flows 5
Notes to Financial Statements 6-13
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Partners
Baron Strategic Investment Fund IX, Ltd.
Cincinnati, Ohio
We have audited the accompanying balance sheet of Baron Strategic Investment
Fund IX, Ltd. (the "Partnership") as of December 31, 1998, and the related
statements of operations, partners' capital and cash flows for each of the two
years in the period then ended. These financial statements are the
responsibility of the Partnership's management. Our responsibility is to express
an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Baron Strategic Investment Fund
IX, Ltd. at December 31, 1998, and the results of its operations and its cash
flows for each of the two years in the period then ended in conformity with
generally accepted accounting principles.
The Partnership is affiliated with certain other limited partnerships (the
"affiliates") in similar lines of business, all of whom are controlled by a
common person who is the sole stockholder and president of the Partnership's
general partner. As discussed in Notes 3 and 4, the Partnership and its
affiliates have engaged in significant transactions with each other.
RACHLIN COHEN & HOLTZ LLP
Miami, Florida
April 2, 1999
1
<PAGE>
BARON STRATEGIC INVESTMENT FUND IX, LTD.
BALANCE SHEETS
March 31, December 31,
1999 1998
---- ----
ASSETS (Unaudited)
Cash $ 102 $ 140
Investment in affiliate 249,056 254,956
Notes receivable from affiliates 319,000 319,000
Notes receivable from non-affiliate 200,000 200,000
Advances receivable from affiliate 6,541 6,541
Accrued interest receivable from affiliates 39,265 29,631
Accrued interest receivable from non-affiliate 7,246 5,716
Other receivable 3,131 3,131
--------- ---------
$ 824,341 $ 819,115
========= =========
LIABILITIES AND PARTNERS' CAPITAL
Liabilities:
Administrative fees payable to general partner 10,500 7,500
--------- ---------
10,500 7,500
--------- ---------
Commitments and Other Matter -- --
Partners' Capital:
General partner (54) (161)
Limited partners 813,895 811,776
--------- ---------
813,841 811,615
--------- ---------
$ 824,341 $ 819,115
========= =========
See notes to financial statements.
2
<PAGE>
BARON STRATEGIC INVESTMENT FUND IX, LTD.
STATEMENTS OF OPERATIONS
Three
Months Year Ended
Ended December 31,
March 31, ------------
1999 1998 1997
---- ---- ----
(Unaudited)
Revenues:
Equity in net income of affiliate $ 2,600 $ -- $ 4,207
Interest income from affiliate 11,163 37,686 392
Other 3 3,654 676
-------- -------- --------
13,766 41,340 5,275
-------- -------- --------
Costs and Expenses:
Equity in net loss of affiliate -- 38,251 --
Administrative fees to general partner 3,000 12,000 7,000
General and administrative 40 9,856 4,533
-------- -------- --------
3,040 60,107 11,533
-------- -------- --------
Net Income (Loss) $ 10,726 $(18,767) $ (6,258)
======== ======== ========
See notes to financial statements.
3
<PAGE>
BARON STRATEGIC INVESTMENT FUND IX, LTD.
STATEMENTS OF PARTNERS' CAPITAL
<TABLE>
<CAPTION>
General Limited
Partner Partners Total
------- -------- -----
<S> <C> <C> <C>
Partners' Capital, January 1, 1997 $ -- $ -- $ --
Year Ended December 31, 1997:
Capital contributions, net of syndication costs 90 471,400 471,490
Distributions -- (3,589) (3,589)
Net loss (63) (6,195) (6,258)
--------- --------- ---------
Partners' Capital, December 31, 1997 27 461,616 461,643
Year Ended December 31, 1998:
Capital contributions, net of syndication costs -- 456,510 456,510
Distributions -- (87,771) (87,771)
Net loss (188) (18,579) (18,767)
--------- --------- ---------
Partners' Capital, December 31, 1998 (161) 811,776 811,615
Three Months Ended March 31, 1999 (Unaudited):
Distributions -- (8,500) (8,500)
Net income 107 10,619 10,726
--------- --------- ---------
Partners' Capital, March 31, 1999 (Unaudited) $ (54) $ 813,895 $ 813,841
========= ========= =========
</TABLE>
See notes to financial statements.
4
<PAGE>
BARON STRATEGIC INVESTMENT FUND IX, LTD.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Three
Months Year Ended
Ended December 31,
March 31, ------------
1999 1998 1997
---- ---- ----
(Unaudited)
<S> <C> <C> <C>
Cash Flows from Operating Activities:
Net Income (Loss) $ 10,726 $ (18,767) $ (6,258)
Adjustments to reconcile net income (loss) to
net cash used in operating activities:
Equity in net loss (income) of affiliate (2,600) 38,251 (4,207)
Changes in operating assets and liabilities:
Increase in accrued interest receivable from affiliates (8,735) (5,324) (392)
Increase in accrued interest receivable from non-affiliate (2,429) (29,631) --
Increase in other receivable -- (3,131) --
Decrease in accrued syndication costs -- (42,435) --
Increase in administrative fees payable to general partner 3,000 500 7,000
--------- --------- ---------
Net cash used in operating activities (38) (60,537) (3,857)
--------- --------- ---------
Cash Flows from Investing Activities:
Distribution from affiliates 8,500 -- --
Investment in loans receivable from non-affiliate -- (200,000) --
Investment in loans receivable from affiliates -- (319,000) (289,000)
Investment in advances receivable from affiliates -- 14,954 (21,495)
--------- --------- ---------
Net cash provided by (used in) investing activities 8,500 (504,046) (310,495)
--------- --------- ---------
Cash Flows from Financing Activities:
Partners' capital contributions -- 577,000 623,090
Syndication costs paid -- (120,490) (109,165)
Distributions to limited partners (8,500) (87,771) (3,589)
--------- --------- ---------
Net cash provided by (used in) financing activities (8,500) 368,739 510,336
--------- --------- ---------
Net Increase (Decrease) in Cash (38) (195,844) 195,984
Cash, Beginning 140 195,984 --
--------- --------- ---------
Cash, Ending $ 102 $ 140 $ 195,984
========= ========= =========
</TABLE>
See notes to financial statements.
5
<PAGE>
BARON STRATEGIC INVESTMENT FUND IX, LTD.
Cash Flow Worksheet
December 31, 1998
<TABLE>
<CAPTION>
Loans Rec.
Investment ----------
Cash Affiliates Affiliate Non-aff.
---- ---------- --------- --------
<S> <C> <C> <C> <C> <C>
Beginning Balance, December 31, 1997 195,984 293,207 -- --
Ending Balance, December 31, 1998 $ 140 254,956 319,000 200,000
--------- --------- --------- ---------
(195,844) (38,251) 319,000 200,000
Cash Flows from Operating Activities:
Net income (18,767)
Adjustments to reconcile net income to net cash
provided (used) by operating activities
Equity in net income of affiliate 38,251 38,251
Changes in operating assets and liabilities:
(Increase) decrease in: --
Accrued interest (5,324)
Accrued interest (29,631)
Other receivable (3,131)
Accrued liabls (42,435)
Due to general partner 500
---------
Net cash provided (used in) by operating activities (60,537)
---------
Cash Flows from Investing Activities:
Investment in loans from non affiliates (200,000) (200,000)
Investment in loans from affiliates (319,000) (319,000)
Loans under line of credit 14,954
---------
Net cash provided by (used in) investing activities (504,046)
---------
Cash Flows from Financing Activities:
Principal payments on mortgage payable --
Principal payment on note payable --
Capital Contribution 577,000
Distribution (87,771)
Syndication costs (120,490)
---------
Net cash provided by (used in) financing activities 368,739
---------
Net increase (decrease) in cash (195,844)
Cash, Beginning 195,984
Cash, Ending $ 140
========= --------------------------------------------------
-- -- --
Supplemental Disclosures of Cash Flow Information
Cash payments for interest $ --
=========
<CAPTION>
Advance Accrued Interest Other
Rec. Affiliate Non-aff. Rec.
---- --------- -------- ----
<S> <C> <C> <C> <C>
Beginning Balance, December 31, 1997 21,495 392 -- --
Ending Balance, December 31, 1998 6,541 5,716 29,631 3,131
--------- --------- --------- ---------
(14,954) 5,324 29,631 3,131
Cash Flows from Operating Activities:
Net income
Adjustments to reconcile net income to net cash
provided (used) by operating activities
Equity in net income of affiliate
Changes in operating assets and liabilities:
(Increase) decrease in:
Accrued interest (5,324)
Accrued interest (29,631)
Other receivable (3,131)
Accrued liabls
Due to general partner
Net cash provided (used in) by operating activities
Cash Flows from Investing Activities:
Investment in loans from non affiliates
Investment in loans from affiliates
Loans under line of credit 14,954
Net cash provided by (used in) investing activities
Cash Flows from Financing Activities:
Principal payments on mortgage payable
Principal payment on note payable
Capital Contribution
Distribution
Syndication costs
Net cash provided by (used in) financing activities
Net increase (decrease) in cash
Cash, Beginning
Cash, Ending
-------------------------------------------------
-- -- -- --
Supplemental Disclosures of Cash Flow Information
Cash payments for interest
<CAPTION>
Accr. Accr Partners'
Liability Liab Capital
--------- ---- -------
<S> <C> <C> <C>
Beginning Balance, December 31, 1997 (42,435) (7,000) (461,643)
Ending Balance, December 31, 1998 -- (7,500) (811,615)
--------- --------- ---------
42,435 (500) (349,972)
Cash Flows from Operating Activities:
Net income (18,767)
Adjustments to reconcile net income to net cash
provided (used) by operating activities
Equity in net income of affiliate
Changes in operating assets and liabilities:
(Increase) decrease in:
Accrued interest
Accrued interest
Other receivable
Accrued liabls (42,435)
Due to general partner 500
Net cash provided (used in) by operating activities
Cash Flows from Investing Activities:
Investment in loans from non affiliates
Investment in loans from affiliates
Loans under line of credit
Net cash provided by (used in) investing activities
Cash Flows from Financing Activities:
Principal payments on mortgage payable
Principal payment on note payable
Capital Contribution 577,000
Distribution (87,771)
Syndication costs (120,490)
Net cash provided by (used in) financing activities
Net increase (decrease) in cash
Cash, Beginning
Cash, Ending
------------------------------------
-- -- (0)
Supplemental Disclosures of Cash Flow Information
Cash payments for interest
</TABLE>
6
<PAGE>
BARON STRATEGIC INVESTMENT FUND IX, LTD.
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 1999 AND DECEMBER 31, 1998
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization and Capitalization
Baron Strategic Investment Fund IX, Ltd. ("the Partnership") was
initially organized on June 2, 1997 under the laws of the State of
Florida.
The Agreement of Limited Partnership provides for capital contributions
of partners to be comprised of (a) the general partner capital
contribution of $90 in cash; and (b) the maximum capital contributions
of the limited partners of $1,200,000, to be divided into 2,400 equal
units of limited partnership interest.
See Note 2 for a summary of other provisions of the Agreement of
Limited Partnership.
Business
The Partnership provides debt and equity financing to existing
affiliated limited partnerships owning residential apartment
communities located in Florida.
Unaudited Financial Information
The accompanying financial information as of and for the three months
ended March 31, 1999 is unaudited. However, in the opinion of
management, all adjustments, consisting of normal recurring accruals
and adjustments, necessary for a fair presentation of financial
position, results of operations and cash flows have been made.
The results of operations for interim periods are not necessarily
indicative of results to be expected for a full year.
Revenue Recognition
Revenue consisting of equivalent income of affiliate is recognized on
the equity method, as more fully described below.
Revenue consisting of interest on notes receivable is recognized as it
becomes due.
Concentration of Credit Risk
At various times during the year the Partnership had deposits in
financial institutions in excess of the federally insured limits. The
Partnership maintains its cash with a high quality financial
institution which the Partnership believes limits these risks.
Notes Receivable from Affiliates and Non-Affiliate
Notes receivable from affiliates and non-affiliate are recorded at
cost, less the related allowance for impairment, if any, of such notes
receivable. The Partnership accounts for such
7
<PAGE>
BARON STRATEGIC INVESTMENT FUND IX, LTD.
NOTES TO FINANCIAL STATEMENTS
(Continued)
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Notes Receivable from Affiliates and Non-Affiliate (Continued)
notes under the provisions of Statement of Financial Accounting
Standard No. 114, Accounting by Creditors for Impairment of a Loan, as
amended by Statement of Financial Accounting Standard No. 118,
Accounting by Creditors for Impairment of a Loan - Income Recognition
and Disclosure. Management, considering current information and events
regarding the borrowers' ability to repay their obligations, considers
a note to be impaired when it is probable that the Partnership will be
unable to collect all amounts due according to the contractual terms of
the note. When a loan is considered to be impaired, the amount of
impairment is measured based upon (a) the present value of expected
future cash flows discounted at the note's effective interest rate; and
(b) the liquidation value of the note's collateral reduced by expected
selling costs and other notes secured by the same collateral. Cash
receipts on impaired notes receivable are applied to reduce the
principal amount of such receivables until the principal has been
recovered, and are recognized as interest income thereafter.
Investment in Affiliate
The Partnership holds a 44.96% limited partner interest in Crystal
Court Properties, Ltd. ("Crystal Court"), a limited partnership which
owns a residential apartment property in Jacksonville, Florida. The
investment in Crystal Court is accounted for using the equity method of
accounting as a result of the Partnership and Crystal Court having the
same general partner president and the general partner's ability to
exercise significant influence on Crystal Court. As such, the
investment in Crystal Court is carried at cost and adjusted for the
Partnership's share of undistributed earnings or losses using the
equity method of accounting.
Use of Estimates
The accompanying financial statements have been prepared in conformity
with generally accepted accounting principles. In preparing the
financial statements, management is required to make estimates and
assumptions that affect the reported amount of assets and liabilities
as of the date of the balance sheet and operations for the year then
ended. Material estimates as to which it is reasonably possible that a
change in the estimate could occur in the near term relates to the
collectibility of the notes receivable due from affiliates. Although
these estimates are based on management's knowledge of current events
and actions it may undertake in the future, they may ultimately differ
from actual results.
Income Taxes
The Partnership is treated as a limited partnership for federal income
tax purposes and as such does not incur income taxes. Instead, its
earnings and losses are included in the personal returns of the
partners and taxed depending on their personal tax situations. The
financial statements do not reflect a provision for income taxes.
8
<PAGE>
BARON STRATEGIC INVESTMENT FUND IX, LTD.
NOTES TO FINANCIAL STATEMENTS
(Continued)
NOTE 2. AGREEMENT OF LIMITED PARTNERSHIP
The following is a summary of the significant provisions of the Agreement
of Limited Partnership ("the Agreement") made and entered into as of June
2, 1997:
Capital Contributions of Partners
The Agreement provides for the general partner to contribute $90 in
cash, and maximum capital contributions of the limited partners of
$1,200,000, to be divided into 2,400 units of limited partnership
units. A capital account is maintained for each partner.
Term
The Partnership will continue through December 31, 2026, unless sooner
terminated by law or under certain provisions of the Agreement.
Distributions
Cash Distributions
The Partnership's distributable cash, if any, in each fiscal year
will not be reinvested but will be distributed in order of priority
to the Partners, if available, quarterly, to (a) the limited partners
who will receive 100% of the distributable cash until they have
received a 15% non-cumulative annual cash-on-cash return on the
aggregate amount of their capital contribution as calculated from
each limited partner's admission date; and (b) the excess, if any,
will be allocated to the general partner.
Distributions of Net Proceeds
Net proceeds from the sale or refinancing of the Partnership's assets
will not be reinvested but will be distributed to the partners in
order of priority after repayment of all indebtedness secured by the
assets to (a) the limited partners who will receive 100% of the
distributions until the total amount distributed to them, when added
to all prior distributions of distributable cash and net proceeds
made to them, is equal to the sum of their capital contributions plus
an annual 15% cash-on-cash return; and (b) the balance, if any, is
distributed 50% to the limited partners and 50% to the general
partner.
Allocation of Income and Loss
Allocations of all items of income, gain, expense, loss, deduction and
credit recognized by the Partnership for federal income tax purposes
will be made as follows:
Income
The first 100% of income is allocated to the general partner until
the profits allocated plus the cumulative profits allocated to the
general partner for prior fiscal periods during which a profit was
earned by the Partnership equal the cumulative amounts distributable
to the general partner under the terms of the distributions of cash
and net proceeds. The balance, if any, is allocated to the limited
partners.
9
<PAGE>
BARON STRATEGIC INVESTMENT FUND IX, LTD.
NOTES TO FINANCIAL STATEMENTS
(Continued)
NOTE 2. AGREEMENT OF LIMITED PARTNERSHIP (Continued)
Allocation of Income and Loss (Continued)
Losses
After giving effect to certain tax provisions, taxable losses are
allocated 99% to the limited partners and 1% to the general partner.
Dissolution
The Partnership will be dissolved upon (a) the expiration of the term
of the Agreement; (b) the determination of the limited partners
exercising their voting rights to dissolve the Partnership; (c) the
death, resignation, retirement, dissolution, removal, bankruptcy,
adjudication of insolvency, or adjudication of insanity or incompetence
of the last remaining general partner then in office and the refusal of
any successor general partner to replace it, unless the holders of a
majority of the units then outstanding vote to continue the Partnership
and elect one or more successor general partners willing to serve in
such capacity to continue the business of the Partnership; (d) the sale
of all or substantially all of the Partnership's property; (e) the
repayment in full of all loans made by the Partnership, unless the
Partnership thereafter continues to own non-loan assets; and (f) the
occurrence of any other event which, by law, would require the
Partnership to be dissolved.
Winding Up
Upon the dissolution of the partnership, the general partner will take
full account of the Partnership's assets and liabilities, and the
assets will be liquidated as promptly as is consistent with obtaining
fair value of the assets, and the proceeds will be applied and
distributed (a) first to the Partnership creditors, other than
partners; (b) then, any loans owed by the Partnership to the partners
shall be paid in proportion thereto; and (c) finally, to the limited
partners and the general partner in proportion to their respective
positive capital accounts.
Fees to the General Partner
Pursuant to a Partnership Administration Contract (the "Contract")
between the Partnership and the general partner stipulated in the
Agreement, the Partnership retained the general partner to provide
administrative services for $1,000 per month through December 31, 2004.
10
<PAGE>
BARON STRATEGIC INVESTMENT FUND IX, LTD.
NOTES TO FINANCIAL STATEMENTS
(Continued)
NOTE 3. INVESTMENT IN AFFILIATE
The following is a summary of the financial position and results of
operations of Crystal Court as of March 31, 1999 and December 31, 1998 and
for the three months and year then ended, respectively.
March 31, December 31,
1999 1998
---- ----
(Unaudited)
Financial position:
Rental apartments $ 1,640,997 $ 1,758,032
Other assets 140,038 102,453
----------- -----------
Total assets $ 1,781,035 $ 1,860,485
=========== ===========
Mortgage payable $ 1,205,806 $ 1,208,774
Other liabilities 102,199 75,078
----------- -----------
Total liabilities 1,308,005 1,283,852
Partners' capital 473,030 576,633
----------- -----------
$ 1,781,035 $ 1,860,485
=========== ===========
Results of operations:
Revenues (including rental income of $76,212 and
$274,036, respectively) $ 78,514 $ 294,984
Costs and expenses (72,713) (390,849)
----------- -----------
Net income (loss) $ 5,801 $ (95,865)
=========== ===========
NOTE 4. NOTES RECEIVABLE FROM AFFILIATES
The following are the balances of the notes receivable and a portion of
accrued interest due from affiliates as of March 31, 1999 and December 31,
1998:
<TABLE>
<CAPTION>
March 31, 1999 December 31, 1998
-------------- -----------------
(Unaudited)
Notes Accrued Notes Accrued
Receivable Interest Receivable Interest
---------- -------- ---------- --------
<S> <C> <C> <C> <C>
Sycamore Real Estate Development, LP
("Sycamore") $243,500 $ 7,205 $243,500 $ 1,281 (a)
Apartment Development Holding, L.P.
("Apartment Development") - 13,747 - 12,968 (b)
Burlington Development, L.P.
("Burlington") - 9,639 - 9,137 (c)
Baron Strategic Investment Fund III, Ltd.
("Candlewood II") 75,500 8,357 75,500 6,123 (d)
-------- -------- -------- --------
$319,000 $38,948 $319,000 $29,509
======== ======== ======== ========
</TABLE>
11
<PAGE>
BARON STRATEGIC INVESTMENT FUND IX, LTD.
NOTES TO FINANCIAL STATEMENTS
(Continued)
NOTE 4. NOTES RECEIVABLE FROM AFFILIATES (Continued)
(a) Secured promissory note representing advances made to
Sycamore. The note matures on December 14, 2003; accrues
interest at an annual rate of 12%; is secured by a lien
upon certain real and personal property of Villas at
Lake Sycamore; and is subordinated to the first mortgage
which had a balance of approximately $866,000 as of
March 31, 1999 and December 31, 1998. Two other
affiliated partnerships also hold second mortgage notes
in the aggregate principal amount of $307,000 secured by
the property. The lending parties have agreed to share
the benefits of the second mortgage on a pari-passu
basis. $243,500
(b) Unsecured promissory note of $148,000 representing
advances made to Apartment Development; due on demand;
accrues interest at 12%; endorsed to Sycamore on
December 15, 1998. --
(c) Unsecured promissory note of $95,500 representing
advances made to Burlington; due on demand; accrues
interest at 12%; endorsed to Sycamore on December 15,
1998. --
(d) Secured promissory note representing advances made to
Candlewood II. The note matures on March 1, 2003;
accrued interest at an annual rate of 12%, which is
payable quarterly, is secured by an Open-End Second
Mortgage and Security Agreement regarding certain real
and personal property at Candlewood II; and is
subordinated to the first mortgage which had a balance
of approximately $595,000 as of March 31, 1999 and
December 31, 1998. The Open-End Second Mortgage and
Security Agreement provides for additional advances not
to exceed $500,000 maximum to be secured under a future
advance clause. 75,500
--------
Total notes receivable $319,000
========
NOTE 5. NOTES RECEIVABLE FROM NON-AFFILIATE
In January 1998, the Partnership purchased from an unrelated party an
undivided 25% interest in a second mortgage note in the original principal
amount of $735,000 (with accrued unpaid interest thereon of $506,767) made
by Garden Terrace Apartments III, Ltd. ("Garden Terrace"), a
non-affiliate. In October 1998, Garden Terrace restated and amended the
$735,000 second mortgage note and created a new second mortgage note in
the original principal amount of $506,767 to cover accrued interest. The
notes receivable are more fully described below:
Garden Terrace Second Mortgage Note; matures on January 1,
2007; accrues interest at an minimum annual rate of 2% and
provides for participation interest at the rate of 7% per
annum based upon the amount of the unpaid principal, which
shall be due and payable to the extent that it does not
exceed the available cash flow, as defined in the note;
provides for additional
12
<PAGE>
BARON STRATEGIC INVESTMENT FUND IX, LTD.
NOTES TO FINANCIAL STATEMENTS
(Continued)
NOTE 5. NOTES RECEIVABLE FROM NON-AFFILIATE (Continued)
participation interest in an annual equal to 30% of
remaining available cash flow, as defined, which will
continue to be made until such time as the collateral has
been sold, and which obligation will continue
notwithstanding total repayment of the principal amount of
the note; secured by a lien upon certain real and personal
property of Garden Terrace; subordinated to the first
mortgage which had a balance of approximately $967,000 and
$967,500 as of March 31, 1999 and December 31, 1998, $735,000
respectively.
Garden Terrace Accrued Interest Second Mortgage Note;
matures on January 1, 2007; accrues interest at an annual
rate of 9% payable annually from excess cash flow after 2%
minimum interest and 7% participation interest has been
paid on the $735,000 second mortgage note; secured by a
lien upon certain real and personal property of Garden
Terrace; subordinated to the first mortgage which had a
balance of approximately $967,000 and $967,500 as of March
31, 1999 and December 31, 1998, respectively. 506,767
----------
1,241,767
Percentage purchased* 25%
----------
310,442
Less discount 116,442
----------
Notes receivable, net of discount $ 200,000
==========
* Baron Strategic Investment Fund VI, Ltd. ("BSIF VI") and Baron
Strategic Investment Fund X, Ltd. ("BSIF X"), affiliates of the
Partnership, own the remaining undivided 75% interest on the notes.
NOTE 6. ADVANCES TO AFFILIATE
During 1997 and 1998, the Partnership provided funding to Crystal Court by
means of advances in an arrangement equivalent to an open ended line of
credit. The advances are due on demand and accrue interest at 12% per
annum. The principal balance as of March 31, 1999 and December 31, 1998 is
$6,541. Accrued interest of $317 and $122 was outstanding as of March 31,
1999 and December 31, 1998, respectively.
NOTE 7. LIMITED PARTNERS' CAPITAL CONTRIBUTIONS
During 1997, in accordance with the terms of a Private Placement
Memorandum dated June 3, 1997, the Partnership issued 1,246 units of
limited partner interest being offered at $500 per unit for total gross
proceeds of $623,000. Costs of $151,600 incurred in connection with
syndicating the partnership units were recorded as a reduction of limited
partners' capital contributions. Of the syndication costs, $88,530 was
paid or accrued to the General Partner for administrative, legal and
investment fees.
13
<PAGE>
BARON STRATEGIC INVESTMENT FUND IX, LTD.
NOTES TO FINANCIAL STATEMENTS
(Continued)
NOTE 7. LIMITED PARTNERS' CAPITAL CONTRIBUTIONS (Continued)
In 1998, the Partnership issued the remaining 1,154 units of limited
partner interest at $500 per unit for total gross proceeds of $577,000.
Costs of $120,400 incurred with syndicating the partnership have been
recorded as a reduction of limited partners' capital contributions. Of the
syndication costs, $63,400 was paid or accrued to the General Partner for
administrative, legal and investment fees.
NOTE 8. OTHER MATTER
In connection with a proposed Exchange Offering, Baron Capital Properties,
L.P. ("the Operating Partnership"), a partnership under common control,
will offer to exchange Operating Partnership Units to the limited partners
of the Partnership in exchange for their limited partner interests. These
units are exchangeable for an equivalent number of common shares of
beneficial interest in Baron Capital Trust, a real estate investment trust
under common control, for whom Baron Capital Properties, L.P. is the
operating partnership. Subject to the completion of the proposed Exchange
Offering, the Trust and the Operating Partnership will account for the
acquisition of the limited partnership interests in the offering on the
purchase method and therefore record the assets acquired and the
liabilities assumed at their fair value at the date of acquisition.
14
<PAGE>
================================================================================
BARON STRATEGIC INVESTMENT FUND X, LTD.
FINANCIAL STATEMENTS
MARCH 31, 1999 AND DECEMBER 31, 1998
================================================================================
<PAGE>
BARON STRATEGIC INVESTMENT FUND X, LTD.
TABLE OF CONTENTS
PAGE
----
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS 1
FINANCIAL STATEMENTS
Balance Sheets 2
Statements of Operations 3
Statements of Partners' Capital 4
Statements of Cash Flows 5
Notes to Financial Statements 6-13
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Partners
Baron Strategic Investment Fund X, Ltd.
Cincinnati, Ohio
We have audited the accompanying balance sheet of Baron Strategic Investment
Fund X, Ltd. (the "Partnership") as of December 31, 1998, and the related
statements of operations, partners' capital and cash flows for each of the two
years in the period then ended. These financial statements are the
responsibility of the Partnership's management. Our responsibility is to express
an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Baron Strategic Investment Fund
X, Ltd. at December 31, 1998, and the results of its operations and its cash
flows for each of the two years in the period then ended in conformity with
generally accepted accounting principles.
The Partnership is affiliated with certain other limited partnerships (the
"affiliates") in similar lines of business, all of whom are controlled by a
common person who is the sole stockholder and president of the Partnership's
general partner. As discussed in Notes 3, 4, 5 and 6, the Partnership and its
affiliates have engaged in significant transactions with each other.
RACHLIN COHEN & HOLTZ LLP
Miami, Florida
April 2, 1999
1
<PAGE>
BARON STRATEGIC INVESTMENT FUND X, LTD.
BALANCE SHEETS
March 31, December 31,
1999 1998
---- ----
ASSETS (Unaudited)
Cash $ 2,154 $ 4,584
Investments in affiliates 530,390 525,680
Notes receivable from affiliate 117,500 117,500
Notes receivable from non-affiliate 440,000 440,000
Advances receivable from affiliate 38,287 38,287
Accrued interest receivable from affiliate 5,645 5,670
Accrued interest receivable from non-affiliate 16,133 12,765
Other receivable 9,394 9,394
----------- -----------
$ 1,159,503 $ 1,153,880
=========== ===========
LIABILITIES AND PARTNERS' CAPITAL
Liabilities:
Accrued interest payable $ 47,299 $ 37,436
Note payable 400,000 400,000
Administrative fees payable to general partner 12,393 9,393
----------- -----------
459,692 446,829
----------- -----------
Commitments and Other Matter -- --
Partners' Capital:
General partner (720) (739)
Limited partners 700,531 707,790
----------- -----------
699,811 707,051
----------- -----------
$ 1,159,503 $ 1,153,880
=========== ===========
See notes to financial statements.
2
<PAGE>
BARON STRATEGIC INVESTMENT FUND X, LTD.
STATEMENTS OF OPERATIONS
Three
Months Year Ended
Ended December 31,
March 31, ------------
1999 1998 1997
---- ---- ----
(Unaudited)
Revenues:
Equity in net income of affiliates $ 8,100 -- --
Interest income from affiliates 6,703 $ 27,290 $ 7,622
Other 8 9,668 2,116
--------- --------- ---------
14,811 36,958 9,738
--------- --------- ---------
Costs and Expenses:
Equity in net losses of affiliates -- 36,990 15,330
Interest expense 9,863 37,436 --
Administrative fees to general partner 3,000 12,000 6,000
General and administrative 41 17,609 4,237
--------- --------- ---------
12,904 104,035 25,567
--------- --------- ---------
Net Income (Loss) $ 1,907 $ (67,077) $ (15,829)
========= ========= =========
See notes to financial statements.
3
<PAGE>
BARON STRATEGIC INVESTMENT FUND X, LTD.
STATEMENTS OF PARTNERS' CAPITAL
<TABLE>
<CAPTION>
General Limited
Partner Partners Total
------- -------- -----
<S> <C> <C> <C>
Partners' Capital, January 1, 1997 $ -- $ -- $ --
Year Ended December 31, 1997:
Capital contributions, net of syndication costs 90 859,740 859,830
Distributions -- (13,428) (13,428)
Net loss (158) (15,671) (15,829)
--------- --------- ---------
Partners' Capital, December 31, 1997 (68) 830,641 830,573
Year Ended December 31, 1998:
Capital contributions, net of syndication costs -- 56,170 56,170
Distributions -- (112,615) (112,615)
Net loss (671) (66,406) (67,077)
--------- --------- ---------
Partners' Capital, December 31, 1998 (739) 707,790 707,051
Three Months Ended March 31, 1999 (Unaudited):
Distributions -- (9,147) (9,147)
Net income 19 1,888 1,907
--------- --------- ---------
Partners' Capital, March 31, 1999 (Unaudited) $ (720) $ 700,531 $ 699,811
========= ========= =========
</TABLE>
See notes to financial statements.
4
<PAGE>
BARON STRATEGIC INVESTMENT FUND X, LTD.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Three
Months Year Ended
Ended December 31,
March 31, ------------
1999 1998 1997
---- ---- ----
(Unaudited)
<S> <C> <C> <C>
Cash Flows from Operating Activities:
Net income (loss) $ 1,907 $ (67,077) $ (15,829)
Adjustments to reconcile net income (loss) to
net cash used in operating activities:
Equity in net income (loss) of affiliates (8,100) 36,990 15,330
Changes in operating assets and liabilities:
(Increase) decrease in accrued interest receivable from affiliate 25 1,952 (7,622)
Increase in accrued interest receivable from non-affiliate (3,368) (12,765) --
Increase in other receivable -- (9,394) --
Increase in accrued interest payable 9,863 37,436 --
Increase in administrative fees payable to general partner 3,000 3,393 6,000
Decrease in accrued expenses -- (79,708) --
----------- ----------- -----------
Net cash provided by (used in) operating activities 3,327 (89,173) (2,121)
----------- ----------- -----------
Cash Flows from Investing Activities:
Investment in affiliates -- -- (578,000)
Partnership distributions received 3,390 -- --
Investment in notes receivable -- (600,000) (117,500)
Collection of notes receivable -- 160,000 --
Advances to affiliate -- 18,213 (56,500)
----------- ----------- -----------
Net cash provided by (used in) investing activities 3,390 (421,787) (752,000)
----------- ----------- -----------
Cash Flows from Financing Activities:
Proceeds from notes payable -- 560,000 --
Repayment of notes payable -- (160,000) --
Partner capital contributions -- 71,910 1,128,090
Syndication costs paid -- (15,740) (188,552)
Distributions to limited partners (9,147) (112,615) (13,428)
----------- ----------- -----------
Net cash provided by (used in) financing activities (9,147) 343,555 926,110
----------- ----------- -----------
Net Increase (Decrease) in Cash (2,430) (167,405) 171,989
Cash, Beginning 4,584 171,989 --
----------- ----------- -----------
Cash, Ending $ 2,154 $ 4,584 $ 171,989
=========== =========== ===========
Supplemental Disclosure:
Interest paid during the period $ -- $ -- $ --
=========== =========== ===========
</TABLE>
See notes to financial statements.
5
<PAGE>
BARON STRATEGIC INVESTMENT FUND X, LTD.
Cash Flow Worksheet
December 31, 1998
<TABLE>
<CAPTION>
Loans Advances
----- --------
Cash Affiliate non-aff. Affiliate
---- --------- -------- ---------
<S> <C> <C> <C> <C> <C>
Beginning Balance, December 31, 1997 171,989 117,500 -- 56,500
Ending Balance, December 31, 1998 4,584 117,500 440,000 38,287
-------- -------- -------- --------
(167,405) -- 440,000 (18,213)
Cash Flows from Operating Activities:
Net Income (67,077)
Adjustments to reconcile net loss to net cash
Equity in net income of affiliate 36,990
provided (used) by operating activities
Changes in operating assets and liabilities:
(Increase) decrease in:
Interest due from affiliates 1,952
Interest due from non affiliates (12,765)
Other receivables (9,394)
Accrued Interest Payable 37,436
Accrued pauables (79,708)
Amounts due GP 3,393
--------
Net cash provided (used in) by operating activities (89,173)
--------
Cash Flows from Investing Activities:
Investment in mortgages (600,000) (600,000)
Collection of mortgages 160,000 160,000
Repayment in Loan Receivable from affiliate 18,213 18,213
Net cash provided by (used in) investing activities (421,787)
--------
Cash Flows from Financing Activities:
Payment of loans payable (160,000)
Loans to non-affiliate 560,000
Partner contributions 71,910
Limited partner distributions (112,615)
Syndication costs (15,740)
Net cash provided by (used in) financing activities 343,555
--------
Net increase (decrease) in cash (167,405)
Cash, Beginning 171,989
Cash, Ending 4,584
----------------------------------------------
-- -- -- --
Supplemental Disclosures of Cash Flow Information
Accrual for syndication costs/contributed capital -- -- -- --
-------- -------- -------- --------
-- -- -- --
======== ======== ======== ========
<CAPTION>
Accrued Interest Other
---------------- ----- Investment Amounts
Affiliate non-aff. Rec. in Affiliate Due GP
--------- -------- ---- ------------ ------
<S> <C> <C> <C> <C> <C>
Beginning Balance, December 31, 1997 7,622 -- -- 562,670 (6,000)
Ending Balance, December 31, 1998 5,670 12,765 9,394 525,680 (9,393)
-------- -------- -------- -------- --------
(1,952) 12,765 9,394 (36,990) (3,393)
Cash Flows from Operating Activities:
Net Income
Adjustments to reconcile net loss to net cash
Equity in net income of affiliate 36,990
provided (used) by operating activities
Changes in operating assets and liabilities:
(Increase) decrease in:
Interest due from affiliates 1,952
Interest due from non affiliates (12,765)
Other receivables (9,394)
Accrued Interest Payable
Accrued pauables
Amounts due GP 3,393
Net cash provided (used in) by operating activities
Cash Flows from Investing Activities:
Investment in mortgages
Collection of mortgages
Repayment in Loan Receivable from affiliate
Net cash provided by (used in) investing activities
Cash Flows from Financing Activities:
Payment of loans payable
Loans to non-affiliate
Partner contributions
Limited partner distributions
Syndication costs
Net cash provided by (used in) financing activities
Net increase (decrease) in cash
Cash, Beginning
Cash, Ending
------------------------------------------------------------
-- -- -- -- --
Supplemental Disclosures of Cash Flow Information
Accrual for syndication costs/contributed capital -- -- -- -- --
-------- -------- -------- -------- --------
-- -- -- -- --
======== ======== ======== ======== ========
<CAPTION>
Accrued Accrued Note Partners'
Expenses Int. Pyble Payable Capital
-------- ---------- ------- -------
<S> <C> <C> <C> <C>
Beginning Balance, December 31, 1997 (79,708) -- -- (830,573)
Ending Balance, December 31, 1998 -- (37,436) (400,000) (707,051)
-------- -------- -------- --------
79,708 (37,436) (400,000) 123,522
Cash Flows from Operating Activities:
Net Income (67,077)
Adjustments to reconcile net loss to net cash
Equity in net income of affiliate
provided (used) by operating activities
Changes in operating assets and liabilities:
(Increase) decrease in:
Interest due from affiliates
Interest due from non affiliates
Other receivables
Accrued Interest Payable 37,436
Accrued pauables (79,708)
Amounts due GP
Net cash provided (used in) by operating activities
Cash Flows from Investing Activities:
Investment in mortgages
Collection of mortgages
Repayment in Loan Receivable from affiliate
Net cash provided by (used in) investing activities
Cash Flows from Financing Activities:
Payment of loans payable (160,000)
Loans to non-affiliate 560,000
Partner contributions 71,910
Limited partner distributions (112,615)
Syndication costs (15,740)
Net cash provided by (used in) financing activities
Net increase (decrease) in cash
Cash, Beginning
Cash, Ending
---------------------------------------------
-- -- -- --
Supplemental Disclosures of Cash Flow Information
Accrual for syndication costs/contributed capital -- -- -- --
-------- -------- -------- --------
-- -- -- --
======== ======== ======== ========
</TABLE>
6
<PAGE>
BARON STRATEGIC INVESTMENT FUND X, LTD.
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 1999 AND DECEMBER 31, 1998
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization and Capitalization
Baron Strategic Investment Fund X, Ltd. ("the Partnership") was
initially organized on June 26, 1997 under the laws of the State of
Florida.
The Agreement of Limited Partnership provides for capital contributions
of partners to be comprised of (a) the general partner capital
contribution of $90 in cash; and (b) the maximum capital contributions
of the limited partners of $1,200,000, to be divided into 2,400 equal
units of limited partnership interest.
See Note 2 for a summary of other provisions of the Agreement of
Limited Partnership.
Business
The Partnership provides debt and equity financing to existing
affiliated limited partnerships owning residential apartment
communities located in Florida.
Unaudited Financial Information
The accompanying financial information as of and for the three months
ended March 31, 1999 is unaudited. However, in the opinion of
management, all adjustments, consisting of normal recurring accruals
and adjustments, necessary for a fair presentation of financial
position, results of operations and cash flows have been made.
The results of operations for interim periods are not necessarily
indicative of results to be expected for a full year.
Revenue Recognition
Revenue, which consists primarily of interest on notes receivable, is
recognized as it becomes due.
Concentration of Credit Risk
At various times during the year the Partnership had deposits in
financial institutions in excess of the federally insured limits. The
Partnership maintains its cash with a high quality financial
institution which the Partnership believes limits these risks.
7
<PAGE>
BARON STRATEGIC INVESTMENT FUND X, LTD.
NOTES TO FINANCIAL STATEMENTS
(Continued)
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Notes Receivable from Affiliate and Non-Affiliate
Notes receivable from affiliate and non-affiliate are recorded at cost,
less the related allowance for impairment, if any, of such notes
receivable. The Partnership accounts for such notes under the
provisions of Statement of Financial Accounting Standard No. 114,
Accounting by Creditors for Impairment of a Loan, as amended by
Statement of Financial Accounting Standard No. 118, Accounting by
Creditors for Impairment of a Loan - Income Recognition and Disclosure.
Management, considering current information and events regarding the
borrowers' ability to repay their obligations, considers a note to be
impaired when it is probable that the Partnership will be unable to
collect all amounts due according to the contractual terms of the note.
When a loan is considered to be impaired, the amount of impairment is
measured based upon (a) the present value of expected future cash flows
discounted at the note's effective interest rate; and (b) the
liquidation value of the note's collateral reduced by expected selling
costs and other notes secured by the same collateral. Cash receipts on
impaired notes receivable are applied to reduce the principal amount of
such receivables until the principal has been recovered, and are
recognized as interest income thereafter.
Investments in Affiliates
The Partnership holds a 47.586% limited partner interest in Crystal
Court Properties, Ltd. ("Crystal Court"), a limited partnership which
owns a residential apartment property in Lakeland, Florida. The
investment in Crystal Court is accounted for using the equity method of
accounting as a result of the Partnership and Crystal Court having the
same general partner president and the general partner's ability to
exercise significant influence on Crystal Court. As such, the
investment in Crystal Court is carried at cost and adjusted for the
Partnership's share of undistributed earnings or losses using the
equity method of accounting.
The Partnership holds a 39.56% limited partner interest in Pineview
Apartments, Ltd. ("Pineview"), a limited partnership which owns a
residential apartment property in Orlando, Florida. The investment in
Pineview is accounted for using the equity method of accounting as a
result of the Partnership and Pineview having the same general partner
president and the general partner's ability to exercise significant
influence on Pineview. As such, the investment in Pineview is carried
at cost and adjusted for the Partnership's share of undistributed
earnings or losses using the equity method of accounting.
Use of Estimates
The accompanying financial statements have been prepared in conformity
with generally accepted accounting principles. In preparing the
financial statements, management is required to make estimates and
assumptions that affect the reported amount of assets and liabilities
as of the date of the balance sheet and operations for the year then
ended. Material estimates as to which it is reasonably possible that a
change in the estimate could occur in the near term relates to the
collectibility of the notes receivable due from affiliates. Although
these estimates are based on management's knowledge of current events
and actions it may undertake in the future, they may ultimately differ
from actual results.
8
<PAGE>
BARON STRATEGIC INVESTMENT FUND X, LTD.
NOTES TO FINANCIAL STATEMENTS
(Continued)
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Income Taxes
The Partnership is treated as a limited partnership for federal income
tax purposes and as such does not incur income taxes. Instead, its
earnings and losses are included in the personal returns of the
partners and taxed depending on their personal tax situations. The
financial statements do not reflect a provision for income taxes.
NOTE 2. AGREEMENT OF LIMITED PARTNERSHIP
The following is a summary of the significant provisions of the Agreement
of Limited Partnership ("the Agreement") made and entered into as of June
26, 1997:
Capital Contributions of Partners
The Agreement provides for the general partner to contribute $90 in
cash, and maximum capital contributions of the limited partners of
$1,200,000, to be divided into 2,400 units of limited partnership
units. A capital account is maintained for each partner.
Term
The Partnership will continue through December 31, 2026, unless sooner
terminated by law or under certain provisions of the Agreement.
Distributions
Cash Distributions
The Partnership's distributable cash, if any, in each fiscal year
will not be reinvested but will be distributed in order of priority
to the Partners, if available, quarterly, to (a) the limited partners
who will receive 100% of the distributable cash until they have
received a 12.5% non-cumulative annual cash-on-cash return on the
aggregate amount of their capital contribution as calculated from
each limited partner's admission date; and (b) the excess, if any,
will be allocated 50% to the limited partners and 50% to the general
partner.
Distributions of Net Proceeds
Net proceeds from the sale or refinancing of the Partnership's assets
will not be reinvested but will be distributed to the partners in
order of priority after repayment of all indebtedness secured by the
assets to (a) the limited partners who will receive 100% of the
distributions until the total amount distributed to them, when added
to all prior distributions of distributable cash and net proceeds
made to them, is equal to the sum of their capital contributions plus
an annual 12.5% cash-on-cash return; and (b) the balance, if any, is
distributed 50% to the limited partners and 50% to the general
partner.
9
<PAGE>
BARON STRATEGIC INVESTMENT FUND X, LTD.
NOTES TO FINANCIAL STATEMENTS
(Continued)
NOTE 2. AGREEMENT OF LIMITED PARTNERSHIP (Continued)
Allocation of Income and Loss
Allocations of all items of income, gain, expense, loss, deduction and
credit recognized by the Partnership for federal income tax purposes
will be made as follows:
Income
The first 100% of income is allocated to the general partner until
the profits allocated plus the cumulative profits allocated to the
general partner for prior fiscal periods during which a profit was
earned by the Partnership equal the cumulative amounts distributable
to the general partner under the terms of the distributions of cash
and net proceeds. The balance, if any, is allocated to the limited
partners.
Losses
After giving effect to certain tax provisions, taxable losses are
allocated 99% to the limited partners and 1% to the general partner.
Dissolution
The Partnership will be dissolved upon (a) the expiration of the term
of the Agreement; (b) the determination of the limited partners
exercising their voting rights to dissolve the Partnership; (c) the
death, resignation, retirement, dissolution, removal, bankruptcy,
adjudication of insolvency, or adjudication of insanity or incompetence
of the last remaining general partner then in office and the refusal of
any successor general partner to replace it, unless the holders of a
majority of the units then outstanding vote to continue the Partnership
and elect one or more successor general partners willing to serve in
such capacity to continue the business of the Partnership; (d) the sale
of all or substantially all of the Partnership's property; (e) the
repayment in full of all loans made by the Partnership, unless the
Partnership thereafter continues to own non-loan assets; and (f) the
occurrence of any other event which, by law, would require the
Partnership to be dissolved.
Winding Up
Upon the dissolution of the partnership, the general partner will take
full account of the Partnership's assets and liabilities, and the
assets will be liquidated as promptly as is consistent with obtaining
fair value of the assets, and the proceeds will be applied and
distributed (a) first to the Partnership creditors, other than
partners; (b) then, any loans owed by the Partnership to the partners
shall be paid in proportion thereto; and (c) finally, to the limited
partners and the general partner in proportion to their respective
positive capital accounts.
Fees to the General Partner
10
<PAGE>
BARON STRATEGIC INVESTMENT FUND X, LTD.
NOTES TO FINANCIAL STATEMENTS
(Continued)
Pursuant to a Partnership Administration Contract (the "Contract")
between the Partnership and the general partner stipulated in the
Agreement, the Partnership retained the general partner to provide
administrative services for $1,000 per month through December 31, 2003.
11
<PAGE>
BARON STRATEGIC INVESTMENT FUND X, LTD.
NOTES TO FINANCIAL STATEMENTS
(Continued)
NOTE 3. INVESTMENTS IN AFFILIATES
The following is a summary of the financial position and results of
operations of the Partnership's investments as of March 31, 1999 and
December 31, 1998 and for the three months and year then ended,
respectively.
Pineview Crystal Court
-------- -------------
March 31, December 31, March 31, December 31,
1999 1998 1999 1998
---- ---- ---- ----
(Unaudited) (Unaudited)
Financial position:
Rental apartments $ 2,026,402 $ 2,043,777 $ 1,640,997 $ 1,758,032
Other assets 254,064 177,459 140,038 102,453
----------- ----------- ----------- -----------
Total assets $ 2,280,466 $ 2,221,236 $ 1,781,035 $ 1,860,485
=========== =========== =========== ===========
Mortgage payable $ 1,599,549 $ 1,603,303 $ 1,205,806 $ 1,208,774
Other liabilities 106,251 30,901 102,199 75,078
----------- ----------- ----------- -----------
Total liabilities 1,705,800 1,634,204 1,308,005 1,283,852
Partners' capital 574,666 587,032 473,030 576,633
----------- ----------- ----------- -----------
$ 2,280,466 $ 2,221,236 $ 1,781,035 $ 1,860,485
=========== =========== =========== ===========
Results of operations:
Rental income $ 117,444 $ 471,979 $ 76,212 $ 274,036
Other income 7,707 77,106 2,302 20,948
Costs and expenses (111,679) (540,990) (72,713) (390,849)
----------- ----------- ----------- -----------
Net income (loss) $ 13,472 $ 8,095 $ 5,801 $ (95,865)
=========== =========== =========== ===========
NOTE 4. NOTES RECEIVABLE FROM AFFILIATE
In August 1997, the Partnership acquired certain receivables from an
unrelated entity at a discount from the face amount thereof. The
receivables, which included notes receivable and accrued interest due from
Heatherwood Apartments II, Ltd. ("Heatherwood II") were converted into
promissory notes as more fully described in the table below.
Heatherwood II Second Mortgage Note; matures on October 1,
2004; accrues interest at an minimum annual rate of 6% and
provides for participation interest at the rate of 3% per
annum based upon the amount of the unpaid principal, which
shall be due and payable to the extent that it does not
exceed the available cash flow, as defined in the note;
provides for additional participation interest in an amount
equal to 20% of remaining available cash flow, as defined,
which will continue to be made until such time as the
collateral has been sold, and which obligation will
continue notwithstanding total repayment of the principal
amount of the note; secured by a lien upon certain real and
personal property of Heatherwood II; subordinated to the
first mortgage which had a balance of approximately
$702,000 and $703,000 as of March 31, 1999 and December 31,
1998, respectively. $325,000
12
<PAGE>
BARON STRATEGIC INVESTMENT FUND X, LTD.
NOTES TO FINANCIAL STATEMENTS
(Continued)
NOTE 4. NOTES RECEIVABLE FROM AFFILIATE (Continued)
Unsecured promissory note, representing advances made by
the former general partner to Heatherwood II. The note is
payable upon demand and bears interest at 1% over prime
(8.75% as of March 31, 1999 and December 31, 1998). 1,742
Other receivables, related to advances for refinancing fees
and professional services 13,404
--------
340,146
Percentage purchased 42%
--------
142,861
Less discount 25,361
--------
Notes receivable, net of discount $117,500
========
NOTE 5. NOTES RECEIVABLE FROM NON-AFFILIATE
In January 1998, the Partnership purchased from an unrelated party for
$40,000 and a promissory note in the original principal amount of
$560,000, an undivided 75% interest in a second mortgage note in the
original principal amount of $735,000 (with accrued unpaid interest
thereon of $506,767) made by Garden Terrace Apartments III, Ltd. ("Garden
Terrace"), a non-affiliate. In February 1998, the Partnership sold to
Baron Strategic Investment Fund VI, Ltd. ("BSIF VI"), an affiliate, an
undivided 20% interest in the Garden Terrace second mortgage note and
accrued interest for $160,000. In October 1998, Garden Terrace restated
and amended the $735,000 second mortgage note and created a new second
mortgage note in the original principal amount of $506,767 to include
accrued interest. The notes receivable are more fully described below:
Garden Terrace Second Mortgage Note; matures on January 1,
2007; accrues interest at a minimum annual rate of 2% and
provides for participation interest at the rate of 7% per
annum based upon the amount of the unpaid principal, which
shall be due and payable to the extent that it does not
exceed the available cash flow, as defined in the note;
provides for additional participation interest in an amount
equal to 30% of remaining available cash flow, as defined,
which will continue to be made until such time as the
collateral has been sold, and which obligation will
continue notwithstanding total repayment of the principal
amount of the note; secured by a lien upon certain real and
personal property of Garden Terrace; subordinated to the
first mortgage which had a balance of approximately
$967,000 and $967,500 as of March 31, 1999 and December 31,
1998, respectively. $735,000
Garden Terrace Accrued Interest Second Mortgage Note;
matures on January 1, 2007; accrues interest at an annual
rate of 9% payable annually from excess cash flow after 2%
minimum interest and 7% participation interest has been
paid on the $735,000 second mortgage note; secured by a
lien upon certain real and personal property of Garden
Terrace; subordinated to the first mortgage which had a
balance of approximately $967,000 and $967,500 as of March
31, 1999 and December 31, 1998, respectively. 506,767
-----------
13
<PAGE>
BARON STRATEGIC INVESTMENT FUND X, LTD.
NOTES TO FINANCIAL STATEMENTS
(Continued)
NOTE 5. NOTES RECEIVABLE FROM NON-AFFILIATE (Continued)
1,241,767
Percentage purchased* 55%
----------
682,972
Less discount 242,972
----------
Notes receivable, net of discount $ 440,000
==========
* BSIF VI and Baron Strategic Investment Fund IX, Ltd. ("BSIF IX"),
affiliates of the Partnership, own the remaining undivided 45% interest
on the notes.
NOTE 6. ADVANCES RECEIVABLE FROM AFFILIATES
During 1997, the Partnership provided funding to Heatherwood, an
affiliate, by means of advances in an arrangement equivalent to an open
ended line of credit. The advances are due on demand and are bear interest
at 12%. The balance as of March 31, 1999 and December 31, 1998 is $38,287.
NOTE 7. NOTE PAYABLE
In connection with the January 1998 purchase of the second mortgages of
Garden Terrace (see Note 5), the Partnership borrowed funds from an
unrelated entity as more fully described below:
Promissory note payable to Investors Funding Resources
Trust; original principal amount of $560,000; matures on
June 30, 1998; accrues interest at an annual rate of 10%
payable upon maturity of the note; collateralized by
Partnership's undivided 75% interest in Second Mortgage of
$735,000 as more fully described in Note 4. $400,000
--------
NOTE 8. LIMITED PARTNERS' CAPITAL CONTRIBUTIONS
During 1997, in accordance with the terms of a Private Placement
Memorandum dated June 26, 1997, the Partnership issued 2,256 units of
limited partner interest at $500 per unit for gross proceeds of
$1,128,000. Costs of $268,260 incurred in connection with syndicating the
limited partnership units were recorded as a reduction of limited
partners' capital contributions. Of the $268,260 in syndication costs
incurred in 1997, the Partnership incurred a total of $164,000 to its
general partner for administrative, legal and investment fees.
During 1998, the Partnership issued the remaining 144 units at $500 per
unit for gross proceeds of $72,000. Costs of $15,740 incurred in
connection with syndicating the limited partners units were recorded as a
reduction of limited partners' capital contributions.
14
<PAGE>
BARON STRATEGIC INVESTMENT FUND X, LTD.
NOTES TO FINANCIAL STATEMENTS
(Continued)
NOTE 9. OTHER MATTER
In connection with a proposed Exchange Offering, Baron Capital Properties,
L.P. ("the Operating Partnership"), a partnership under common control,
will offer to exchange Operating Partnership Units to the limited partners
of the Partnership in exchange for their limited partner interests. These
units are exchangeable for an equivalent number of common shares of
beneficial interest in Baron Capital Trust, a real estate investment trust
under common control, for whom Baron Capital Properties, L.P. is the
operating partnership. Subject to the completion of the proposed Exchange
Offering, the Trust and the Operating Partnership will account for the
acquisition of the limited partnership interests in the offering on the
purchase method and therefore record the assets acquired and the
liabilities assumed at their fair value at the date of acquisition.
15
<PAGE>
================================================================================
BARON STRATEGIC VULTURE FUND I, LTD.
FINANCIAL STATEMENTS
MARCH 31, 1999 AND DECEMBER 31, 1998
================================================================================
<PAGE>
BARON STRATEGIC VULTURE FUND I, LTD.
TABLE OF CONTENTS
PAGE
----
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS 1
FINANCIAL STATEMENTS
Balance Sheets 2
Statements of Operations 3
Statements of Partners' Capital 4
Statements of Cash Flows 5
Notes to Financial Statements 6-11
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Partners
Baron Strategic Vulture Fund I, Ltd.
Cincinnati, Ohio
We have audited the accompanying balance sheet of Baron Strategic Vulture Fund
I, Ltd. (the "Partnership") as of December 31, 1998, and the related statements
of operations, partners' capital and cash flows for each of the two years in the
period then ended. These financial statements are the responsibility of the
Partnership's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Baron Strategic Vulture Fund I,
Ltd. at December 31, 1998, and the results of its operations and its cash flows
for each of the two years in the period then ended in conformity with generally
accepted accounting principles.
The Partnership is affiliated with certain other limited partnerships (the
"affiliates") in similar lines of business, all of whom are controlled by a
common person who is the sole stockholder and president of the Partnership's
general partner. As discussed in Notes 3, 4 and 5 the Partnership and its
affiliates have engaged in significant transactions with each other.
RACHLIN COHEN & HOLTZ LLP
Miami, Florida
April 2, 1999
1
<PAGE>
BARON STRATEGIC VULTURE FUND I, LTD.
BALANCE SHEETS
March 31, December 31,
1999 1998
---- ----
(Unaudited)
ASSETS
Cash $ 4,368 $ 6,039
Notes receivable from affiliate 612,000 612,000
Advances receivable from affiliate 14,513 14,513
Accrued interest receivable from affiliate 108,474 103,342
-------- --------
$739,355 $735,894
======== ========
LIABILITIES AND PARTNERS' CAPITAL
Liabilities:
Advances payable to affiliates $ 61,500 $ 61,500
Administrative fees payable to general partner 17,500 16,000
Accrued interest payable to affiliate 8,271 6,451
-------- --------
87,271 83,951
-------- --------
Commitments and Other Matter -- --
Partners' Capital:
General partner 81 81
Limited partners 652,003 651,862
-------- --------
652,084 651,943
-------- --------
$739,355 $735,894
======== ========
See notes to financial statements.
2
<PAGE>
BARON STRATEGIC VULTURE FUND I, LTD.
STATEMENTS OF OPERATIONS
Three
Months Year Ended
Ended December
March 31, ----------
1999 1998 1997
---- ---- ----
(Unaudited)
Revenues:
Interest income from affiliate $ 25,932 $108,204 $ 82,471
Other 48 447 1,581
-------- -------- --------
25,980 108,651 84,052
-------- -------- --------
Costs and Expenses:
General and administrative 19 10,445 8,246
Interest expense to affiliates 1,820 6,451 --
Administrative fees to general partner 1,500 6,000 6,000
-------- -------- --------
3,339 22,896 14,246
-------- -------- --------
Net Income $ 22,641 $ 85,755 $ 69,806
======== ======== ========
See notes to financial statements.
3
<PAGE>
BARON STRATEGIC VULTURE FUND I, LTD.
STATEMENTS OF PARTNERS' CAPITAL
<TABLE>
<CAPTION>
General Limited
Partner Partners Total
------- -------- -----
<S> <C> <C> <C>
Partners' Capital, January 1, 1997 $ 81 $ 676,196 $ 676,277
Year Ended December 31, 1997:
Distributions -- (89,895) (89,895)
Net income -- 69,806 69,806
--------- --------- ---------
Partners' Capital, December 31, 1997 81 656,107 656,188
Year Ended December 31, 1998:
Distributions -- (90,000) (90,000)
Net income -- 85,755 85,755
--------- --------- ---------
Partners' Capital, December 31, 1998 81 651,862 651,943
Three Months Ended March 31, 1999 (Unaudited):
Distribution -- (22,500) (22,500)
Net Income -- 22,641 22,641
--------- --------- ---------
Partners' Capital, March 31, 1999 (Unaudited) $ 81 $ 652,003 $ 652,084
========= ========= =========
</TABLE>
See notes to financial statements.
4
<PAGE>
BARON STRATEGIC VULTURE FUND I, LTD.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Three
Months Year Ended
Ended December
March 31, ----------
1999 1998 1997
---- ---- ----
(Unaudited)
<S> <C> <C> <C>
Cash Flows from Operating Activities:
Net income $ 22,641 $ 85,755 $ 69,806
Adjustments to reconcile net income to
net cash provided by operating activities:
Changes in operating assets and liabilities:
Increase in accrued interest receivable from affiliate (5,132) (47,871) (55,471)
Increase in accrued interest payable to affiliates 1,820 6,451 --
Increase in administrative fees payable to general partner 1,500 6,000 6,000
--------- --------- ---------
Net cash provided by operating activities 20,829 50,335 20,335
--------- --------- ---------
Cash Flows from Investing Activities:
Investment in notes receivable from affiliate -- -- (128,000)
Advances to affiliate -- -- (8,513)
--------- --------- ---------
Net cash used in investing activities -- -- (136,513)
--------- --------- ---------
Cash Flows from Financing Activities:
Distributions to limited partners (22,500) (90,000) (89,895)
Advance from or notes due to affiliates -- 44,500 17,000
--------- --------- ---------
Net cash used in financing activities (22,500) (45,500) (72,895)
--------- --------- ---------
Net Increase (Decrease) in Cash (1,671) 4,835 (189,073)
Cash, Beginning 6,039 1,204 190,277
--------- --------- ---------
Cash, Ending $ 4,368 $ 6,039 $ 1,204
========= ========= =========
Supplemental Disclosures:
Interest paid during the year $ -- $ -- $ --
========= ========= =========
</TABLE>
See notes to financial statements.
5
<PAGE>
BARON STRATEGIC VULTURE FUND I, LTD.
Cash Flow Worksheet
December 31, 1998
<TABLE>
<CAPTION>
Note Rec Advances
Cash fr. affiliate Receivable
---- ------------- ----------
<S> <C> <C> <C> <C>
Beginning Balance, December 31, 1997 1,204 612,000 14,513
Ending Balance, December 31, 1998 6,039 612,000 14,513
-------- -------- --------
4,835 -- --
Cash Flows from Operating Activities:
Net Income 85,755
Adjustments to reconcile net income to net cash
provided (used) by operating activities
Changes in operating assets and liabilities:
Increase in administrative fees payable to general partne 6,000
Increase in accrued interest payable to affiliate 6,451
Increase in accrued interest receivable from affiliate (47,871)
--------
Net cash provided (used in) by operating activities 50,335
--------
Cash Flows from Investing Activities:
Principal collected on affiliate advances --
Advances made to affiliate 44,500
Purchase of affiliate second mortgage and receivable --
--------
Net cash provided by (used in) investing activities 44,500
--------
Cash Flows from Financing Activities:
Proceeds from affiliate advance --
Principal payment on note payable --
Contribution --
Distribution (90,000)
Syndication Costs --
--------
Net cash provided by (used in) financing activities (90,000)
--------
Net increase (decrease) in cash 4,835
Cash, Beginning 1,204
Cash, Ending 6,039
---------------------------------------
-- --
Supplemental Disclosures of Cash Flow Information
Cash payments for interest
<CAPTION>
Accrued Advance
Int. Rec. Payable Admin Fee
fr. affiliate to affiliate Payable
------------- ------------ -------
<S> <C> <C> <C>
Beginning Balance, December 31, 1997 55,471 (17,000) (10,000)
Ending Balance, December 31, 1998 103,342 (61,500) (16,000)
-------- -------- --------
47,871 (44,500) 6,000
Cash Flows from Operating Activities:
Net Income
Adjustments to reconcile net income to net cash
provided (used) by operating activities
Changes in operating assets and liabilities:
Increase in administrative fees payable to general partne (6,000)
Increase in accrued interest payable to affiliate
Increase in accrued interest receivable from affiliate (47,871)
Net cash provided (used in) by operating activities
Cash Flows from Investing Activities:
Principal collected on affiliate advances
Advances made to affiliate 44,500
Purchase of affiliate second mortgage and receivable
Net cash provided by (used in) investing activities
Cash Flows from Financing Activities:
Proceeds from affiliate advance
Principal payment on note payable
Contribution
Distribution
Syndication Costs
Net cash provided by (used in) financing activities
Net increase (decrease) in cash
Cash, Beginning
Cash, Ending
------------------------------------------
-- -- --
Supplemental Disclosures of Cash Flow Information
Cash payments for interest
<CAPTION>
Accrued Partners'
Int. Pyble Capital
---------- -------
<S> <C> <C>
Beginning Balance, December 31, 1997 -- (656,188)
Ending Balance, December 31, 1998 (6,451) (651,943)
-------- --------
6,451 (4,245)
Cash Flows from Operating Activities:
Net Income (85,755)
Adjustments to reconcile net income to net cash
provided (used) by operating activities
Changes in operating assets and liabilities:
Increase in administrative fees payable to general partne
Increase in accrued interest payable to affiliate (6,451)
Increase in accrued interest receivable from affiliate
Net cash provided (used in) by operating activities
Cash Flows from Investing Activities:
Principal collected on affiliate advances
Advances made to affiliate
Purchase of affiliate second mortgage and receivable
Net cash provided by (used in) investing activities
Cash Flows from Financing Activities:
Proceeds from affiliate advance
Principal payment on note payable
Contribution
Distribution 90,000
Syndication Costs
Net cash provided by (used in) financing activities
Net increase (decrease) in cash
Cash, Beginning
Cash, Ending
-------------------------
-- --
Supplemental Disclosures of Cash Flow Information
Cash payments for interest
</TABLE>
6
<PAGE>
BARON STRATEGIC VULTURE FUND I, LTD.
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 1999 AND DECEMBER 31, 1998
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization and Capitalization
Baron Strategic Vulture Fund I, Ltd. ("the Partnership") was initially
organized on April 9, 1996 under the laws of the State of Florida.
The Agreement of Limited Partnership provides for capital contributions
of partners to be comprised of (a) the general partner capital
contribution of $90 in cash; and (b) the maximum capital contributions
of the limited partners of $900,000, to be divided into 1,800 equal
units of limited partnership interest.
See Note 2 for a summary of other provisions of the Agreement of
Limited Partnership.
Business
The Partnership provides debt and equity financing to existing
affiliated limited partnerships owning residential apartment
communities located in Florida.
Unaudited Financial Information
The accompanying financial information as of and for the three months
ended March 31, 1999 is unaudited. However, in the opinion of
management, all adjustments, consisting of normal recurring accruals
and adjustments, necessary for a fair presentation of financial
position, results of operations and cash flows have been made.
The results of operations for interim periods are not necessarily
indicative of results to be expected for a full year.
Revenue Recognition
Revenue, which consists primarily of interest on notes receivable, is
recognized as it becomes due.
Concentration of Credit Risk
At various times during the year the Partnership had deposits in
financial institutions in excess of the federally insured limits. The
Partnership maintains its cash with a high quality financial
institution which the Partnership believes limits these risks.
Notes Receivable from Affiliate
Notes receivable from affiliate are recorded at cost, less the related
allowance for impairment, if any, of such notes receivable. The
Partnership accounts for such notes under the provisions of Statement
of Financial Accounting Standard No. 114, Accounting by Creditors for
Impairment of a Loan, as amended by Statement of
Financial Accounting Standard No. 118,
7
<PAGE>
BARON STRATEGIC VULTURE FUND I, LTD.
NOTES TO FINANCIAL STATEMENTS
(Continued)
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Notes Receivable from Affiliate (Continued)
Accounting by Creditors for Impairment of a Loan - Income Recognition
and Disclosure. Management, considering current information and events
regarding the borrowers' ability to repay their obligations, considers
a note to be impaired when it is probable that the Partnership will be
unable to collect all amounts due according to the contractual terms of
the note. When a loan is considered to be impaired, the amount of
impairment is measured based upon (a) the present value of expected
future cash flows discounted at the note's effective interest rate; and
(b) the liquidation value of the note's collateral reduced by expected
selling costs and other notes secured by the same collateral. Cash
receipts on impaired notes receivable are applied to reduce the
principal amount of such receivables until the principal has been
recovered, and are recognized as interest income thereafter.
Use of Estimates
The accompanying financial statements have been prepared in conformity
with generally accepted accounting principles. In preparing the
financial statements, management is required to make estimates and
assumptions that affect the reported amount of assets and liabilities
as of the date of the balance sheet and operations for the year then
ended. Material estimates as to which it is reasonably possible that a
change in the estimate could occur in the near term relates to the
allowance for impairment and the collectibility of the notes receivable
due from affiliates. Although these estimates are based on management's
knowledge of current events and actions it may undertake in the future,
they may ultimately differ from actual results.
Income Taxes
The Partnership is treated as a limited partnership for federal income
tax purposes and as such does not incur income taxes. Instead, its
earnings and losses are included in the personal returns of the
partners and taxed depending on their personal tax situations. The
financial statements do not reflect a provision for income taxes.
NOTE 2. AGREEMENT OF LIMITED PARTNERSHIP
The following is a summary of the significant provisions of the Agreement
of Limited Partnership ("the Agreement") made and entered into as of April
24, 1996:
Capital Contributions of Partners
The Agreement provides for the general partner to contribute $90 in
cash, and maximum capital contributions of the limited partners of
$900,000, to be divided into 1,800 units of limited partnership units.
A capital account is maintained for each partner.
Term
The Partnership will continue through December 31, 2026, unless sooner
terminated by law or under certain provisions of the Agreement.
8
<PAGE>
BARON STRATEGIC VULTURE FUND I, LTD.
NOTES TO FINANCIAL STATEMENTS
(Continued)
NOTE 2. AGREEMENT OF LIMITED PARTNERSHIP (Continued)
Distributions
Cash Distributions
The Partnership's distributable cash, if any, in each fiscal year
will not be reinvested but will be distributed in order of priority
to the Partners, if available, quarterly, to (a) the limited partners
who will receive 100% of the distributable cash until they have
received a 15% non-cumulative annual cash-on-cash return on the
aggregate amount of their capital contribution as calculated from
each limited partner's admission date; and (b) the excess, if any,
will be allocated to the general partner.
Distributions of Net Proceeds
Net proceeds from the sale or refinancing of the Partnership's assets
will not be reinvested but will be distributed to the partners in
order of priority after repayment of all indebtedness secured by the
assets to (a) the limited partners who will receive 100% of the
distributions until the total amount distributed to them when added
to all prior distributions of distributable cash and net proceeds
made to them, is equal to the sum of their capital contributions plus
an annual 10% cash-on-cash return; (b) the general partner until the
total amount distributed to them when added to all prior
distributions of distributable cash and net proceeds made to it, is
equal to the sum of its capital contribution plus an annual 10%
cash-on-cash return and; (c) the balance, if any, is distributed 50%
to the limited partners and 50% to the general partner.
Allocation of Income and Loss
Allocations of all items of income, gain, expense, loss, deduction and
credit recognized by the Partnership for federal income tax purposes
will be made as follows:
Income
The first 100% of income is allocated to the general partner until
the profits allocated plus the cumulative profits allocated to the
general partner for prior fiscal periods during which a profit was
earned by the Partnership equal the cumulative amounts distributable
to the general partner under the terms of the distributions of cash
and net proceeds. The balance, if any, is allocated to the limited
partners.
Losses
After giving effect to certain tax provisions, taxable losses are
allocated 99% to the limited partners and 1% to the general partner.
Dissolution
The Partnership will be dissolved upon (a) the expiration of the term
of the Agreement; (b) the determination of the limited partners
exercising their voting rights to dissolve the Partnership;
NOTE 2. AGREEMENT OF LIMITED PARTNERSHIP (Continued)
9
<PAGE>
BARON STRATEGIC VULTURE FUND I, LTD.
NOTES TO FINANCIAL STATEMENTS
(Continued)
Dissolution (Continued)
(c) the death, resignation, retirement, dissolution, removal,
bankruptcy, adjudication of insolvency, or adjudication of insanity or
incompetence of the last remaining general partner then in office and
the refusal of any successor general partner to replace it, unless the
holders of a majority of the units then outstanding vote to continue
the Partnership and elect one or more successor general partners
willing to serve in such capacity to continue the business of the
Partnership; (d) the sale of all or substantially all of the
Partnership's property; (e) the repayment in full of all loans made by
the Partnership, unless the Partnership thereafter continues to own
non-loan assets; and (f) the occurrence of any other event which, by
law, would require the Partnership to be dissolved.
Winding Up
Upon the dissolution of the partnership, the general partner will take
full account of the Partnership's assets and liabilities, and the
assets will be liquidated as promptly as is consistent with obtaining
fair value of the assets, and the proceeds will be applied and
distributed (a) first to the Partnership creditors, other than
partners; (b) then, any loans owed by the Partnership to the partners
shall be paid in proportion thereto; and (c) finally, to the limited
partners and the general partner in proportion to their respective
positive capital accounts.
Fees to the General Partner
Pursuant to a Partnership Administration Contract (the "Contract")
between the Partnership and the general partner stipulated in the
Agreement, the Partnership retained the general partner to provide
administrative services for $500 per month through December 31, 2003.
NOTE 3. NOTES RECEIVABLE FROM AFFILIATE
In January 1997, the Partnership acquired certain receivables from an
unrelated entity at a discount from the face amount thereof. The
receivables, which included notes receivable and accrued interest due from
Curiosity Creek Apartments, Ltd. ("Curiosity Creek"), were converted into
promissory notes as more fully described in the table below:
Curiosity Creek Second Mortgage Note; matures on April 1,
2007; accrues interest at an minimum annual rate of 6% and
provides for participation interest at the rate of 3% per
annum based upon the amount of the unpaid principal, which
shall be due and payable to the extent that it does not
exceed the available cash flow, as defined in the note;
provides for additional participation interest in an amount
equal to 30% of remaining available cash flow, as defined,
which will continue to be made until such time as the
collateral has been sold, and which obligation will
continue notwithstanding total repayment of the principal
amount of the note; secured by a lien upon certain real and
personal property of Curiosity Creek; subordinated to the
first mortgage which had a balance of approximately
$1,290,000 and $1,293,000 as of March 31, 1999 and December
31, 1998, respectively. $807,560
10
<PAGE>
BARON STRATEGIC VULTURE FUND I, LTD.
NOTES TO FINANCIAL STATEMENTS
(Continued)
NOTE 3. NOTES RECEIVABLE FROM AFFILIATE (Continued)
Unsecured promissory note, representing advances made by
the former general partner to Curiosity Creek. The note is
payable upon demand and bears interest at 12.5%, payable
monthly. 416,000
Unsecured promissory note, representing advances made by
the former general partner to Curiosity Creek. The note is
payable upon demand and bears interest at 1% over prime
(8.75% as of March 31, 1999 and December 31, 1998). 414,380
Other receivables, related to advances for refinancing fees
and professional services. 29,732
----------
1,667,672
Percentage purchased 73.73%
----------
1,229,575
Less discount 617,575
----------
Notes receivable, net of discount $ 612,000
===========
Interest receivable of $105,731 and $100,445 is due on the note receivable
as of March 31, 1999 and December 31, 1998, respectively.
NOTE 4. ADVANCES RECEIVABLE FROM AFFILIATE
Prior to 1998, the Partnership provided funding to Curiosity Creek
Apartments, Ltd. ("Curiosity Creek"), an affiliate, by means of advances
in an arrangement equivalent to an open ended line of credit. The advances
are due on demand and provide for interest at 12% per annum. The balance
of $14,513 remained outstanding from Curiosity Creek as of March 31, 1999
and December 31, 1998.
NOTE 5. ADVANCES PAYABLE TO AFFILIATES
During 1997 and 1998, the Partnership received advances from affiliate
partnerships. The advances bear interest at 12% and are due on demand.
March 31, 1999 December 31, 1998
-------------- -----------------
(Unaudited)
Advance Accrued Advance Accrued
Payable Interest Payable Interest
------- -------- ------- --------
Baron Strategic Investment Fund V, Ltd., $44,500 $ 5,728 $44,500 $ 4,411
Baron Strategic Vulture Fund I, Ltd. 17,000 2,543 17,000 2,040
------- ------- ------- -------
$61,500 $ 8,271 $61,500 $ 6,451
======= ======= ======= =======
11
<PAGE>
BARON STRATEGIC VULTURE FUND I, LTD.
NOTES TO FINANCIAL STATEMENTS
(Continued)
NOTE 6. LIMITED PARTNERS' CAPITAL CONTRIBUTIONS
In 1996, in accordance with the terms of a Private Placement Memorandum
dated April 24, 1996, the Partnership issued the 1,800 units of limited
partner interest being offered at $500 per unit for total gross proceeds
of $900,000. Costs of $209,000 incurred in connection with syndicating the
limited partnership units were recorded as a reduction of limited
partners' capital contributions. Of the $209,000 in syndication costs, the
Partnership paid $119,000 to its general partner for administrative, legal
and investment fees.
NOTE 7. OTHER MATTER
In connection with a proposed Exchange Offering, Baron Capital Properties,
L.P. ("the Operating Partnership"), a partnership under common control,
will offer to exchange Operating Partnership Units to the limited partners
of the Partnership in exchange for their limited partner interests. These
units are exchangeable for an equivalent number of common shares of
beneficial interest in Baron Capital Trust, a real estate investment trust
under common control, for whom Baron Capital Properties, L.P. is the
operating partnership. Subject to the completion of the proposed Exchange
Offering, the Trust and the Operating Partnership will account for the
acquisition of the limited partnership interests in the offering on the
purchase method and therefore record the assets acquired and the
liabilities assumed at their fair value at the date of acquisition.
12
<PAGE>
================================================================================
BREVARD MORTGAGE PROGRAM, LTD.
FINANCIAL STATEMENTS
MARCH 31, 1999 AND DECEMBER 31, 1998
================================================================================
<PAGE>
BREVARD MORTGAGE PROGRAM, LTD.
TABLE OF CONTENTS
PAGE
----
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS 1
FINANCIAL STATEMENTS
Balance Sheets 2
Statements of Operations 3
Statements of Partners' Capital 4
Statements of Cash Flows 5
Notes to Financial Statements 6-11
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Partners
Brevard Mortgage Program, Ltd.
Cincinnati, Ohio
We have audited the accompanying balance sheet of Brevard Mortgage Program, Ltd.
(the "Partnership") as of December 31, 1998, and the related statements of
operations, partners' capital and cash flows for each of the two years in the
period then ended. These financial statements are the responsibility of the
Partnership's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Brevard Mortgage Program, Ltd.
at December 31, 1998, and the results of its operations and its cash flows for
each of the two years in the period then ended in conformity with generally
accepted accounting principles.
The Partnership is affiliated with certain other limited partnerships (the
"affiliates") in similar lines of business, all of whom are controlled by a
common person who is the sole stockholder and president of the Partnership's
general partner. As discussed in Note 3, the Partnership and its affiliates have
engaged in significant transactions with each other.
RACHLIN COHEN & HOLTZ LLP
Miami, Florida
April 2, 1999
1
<PAGE>
BREVARD MORTGAGE PROGRAM, LTD.
BALANCE SHEETS
March 31, December 31,
1999 1998
---- ----
(Unaudited)
ASSETS
Cash $ 951 $ 5,412
Notes receivable from affiliate 474,191 474,191
Accrued interest receivable from affiliate 107,152 99,433
-------- --------
$582,294 $579,036
======== ========
LIABILITIES AND PARTNERS' CAPITAL
Liabilities:
Advances due to affiliate $ 1,850 $ 1,850
Administrative fees payable to general partner 29,250 27,000
-------- --------
31,100 28,850
-------- --------
Commitments and Other Matter -- --
Partners' Capital:
General partner 1,596 1,442
Limited partners 549,598 548,744
-------- --------
551,194 550,186
-------- --------
$582,294 $579,036
======== ========
See notes to financial statements.
2
<PAGE>
BREVARD MORTGAGE PROGRAM, LTD.
STATEMENTS OF OPERATIONS
Three
Months Year Ended
Ended December 31,
March 31, ------------
1999 1998 1997
---- ---- ----
(Unaudited)
Revenues:
Interest income from affiliate $17,719 $73,533 $72,300
Other -- 35 909
------- ------- -------
17,719 73,568 73,209
------- ------- -------
Costs and Expenses:
Administrative fees to general partner 2,250 9,000 9,000
General and administrative 86 3,554 2,119
------- ------- -------
2,336 12,554 11,119
------- ------- -------
Net Income $15,383 $61,014 $62,090
======= ======= =======
See notes to financial statements.
3
<PAGE>
BREVARD MORTGAGE PROGRAM, LTD.
STATEMENTS OF PARTNERS' CAPITAL
<TABLE>
<CAPTION>
General Limited
Partner Partners Total
------- -------- -----
<S> <C> <C> <C>
Partners' Capital, January 1, 1997 $ 683 $ 541,399 $ 542,082
Year Ended December 31, 1997:
Distributions -- (57,500) (57,500)
Net income 149 61,941 62,090
--------- --------- ---------
Partners' Capital, December 31, 1997 832 545,840 546,672
Year Ended December 31, 1998:
Distributions -- (57,500) (57,500)
Net income 610 60,404 61,014
--------- --------- ---------
Partners' Capital, December 31, 1998 1,442 548,744 550,186
Three Months Ended March 31, 1999 (Unaudited):
Distributions -- (14,375) (14,375)
Net income 154 15,229 15,383
--------- --------- ---------
Partners' Capital, March 31, 1999 (Unaudited) $ 1,596 $ 549,598 $ 551,194
========= ========= =========
</TABLE>
See notes to financial statements.
4
<PAGE>
BREVARD MORTGAGE PROGRAM, LTD.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Three
Months Year Ended
Ended December 31,
March 31, ------------
1999 1998 1997
---- ---- ----
(Unaudited)
<S> <C> <C> <C>
Cash Flows from Operating Activities:
Net income $ 15,383 $ 61,014 $ 62,090
Adjustments to reconcile net income to
net cash provided by operating activities:
Changes in operating assets and liabilities:
Increase in accrued interest receivable from affiliate (7,719) (34,339) (56,200)
Increase in advances due to affiliate -- 1,850 --
Increase in administrative fees payable to general partner 2,250 9,000 9,000
-------- -------- --------
Net cash provided by operating activities 9,914 37,525 14,890
-------- -------- --------
Cash Flows from Investing Activities:
Advances to affiliate -- -- (25,000)
-------- -------- --------
Net cash used in investing activities -- -- (25,000)
-------- -------- --------
Cash Flows from Financing Activities:
Distributions to limited partners (14,375) (57,500) (57,500)
-------- -------- --------
Net cash used in financing activities (14,375) (57,500) (57,500)
-------- -------- --------
Net Decrease in Cash (4,461) (19,975) (67,610)
Cash, Beginning 5,412 25,387 92,997
-------- -------- --------
Cash, Ending $ 951 $ 5,412 $ 25,387
======== ======== ========
</TABLE>
See notes to financial statements.
5
<PAGE>
BREVARD MORTGAGE PROGRAM, LTD.
Cash Flow Worksheet
December 31, 1998
<TABLE>
<CAPTION>
Interset Mortgage
Cash Advances Receivable Receivable
---- -------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Begining Balance, December 31, 1997 25,387 474,191 65,094 --
Ending Balance, December 31, 1998 5,412 474,191 99,433 --
-------- -------- -------- --------
(19,975) -- 34,339 --
Cash Flows from Operating Activities:
Net income 61,014
Adjustments to reconcile net income to
net cash provided by operating activities:
Changes in operating assets and liabilities:
Increase in accrued interest (34,339) (34,339)
Increase in admin. fees payable to general partner 9,000
Increase in loan payable due to affiliate 1,850
--------
Net cash provided by operating activities 37,525
Cash Flows from Investing Activities:
Line of credit to affiliate --
Net cash provided (required) by investing activities --
--------
Cash Flows from Financing Activities:
Distribution (57,500)
Limited partner contributions --
Limited partner distributions --
--------
Net cash used in financing activities (57,500)
--------
Net Increase (Decrease) in Cash (19,975)
--------
Cash, Beginning 25,387
Cash, Ending 5,412
--------
---------------------------------------------------------
-- -- --
<CAPTION>
A/P & Accrued Partners'
Acc. Exp. Admin Fees Capital
--------- ---------- -------
<S> <C> <C> <C>
Begining Balance, December 31, 1997 -- (18,000) (546,672)
Ending Balance, December 31, 1998 (1,850) (27,000) (550,186)
-------- -------- --------
1,850 9,000 3,514
Cash Flows from Operating Activities:
Net income (61,014)
Adjustments to reconcile net income to
net cash provided by operating activities:
Changes in operating assets and liabilities:
Increase in accrued interest
Increase in admin. fees payable to general partner (9,000)
Increase in loan payable due to affiliate (1,850)
Net cash provided by operating activities
Cash Flows from Investing Activities:
Line of credit to affiliate
Net cash provided (required) by investing activities
Cash Flows from Financing Activities:
Distribution 57,500
Limited partner contributions
Limited partner distributions
Net cash used in financing activities
Net Increase (Decrease) in Cash
Cash, Beginning
Cash, Ending
---------------------------------
-- -- --
</TABLE>
6
<PAGE>
BREVARD MORTGAGE PROGRAM, LTD.
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 1999 AND DECEMBER 31, 1998
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization and Capitalization
Brevard Mortgage Program, Ltd. ("the Partnership") was initially
organized on November 14, 1995 under the laws of the State of Florida.
The Agreement of Limited Partnership provides for capital contributions
of partners to be comprised of (a) the general partner capital
contribution of $90 in cash; and (b) the maximum capital contributions
of the limited partners of $575,000, to be divided into 575 equal units
of limited partnership interest.
See Note 2 for a summary of other provisions of the Agreement of
Limited Partnership.
Business
The Partnership provides debt financing to existing affiliated limited
partnerships owning residential apartment communities located in
Florida.
Unaudited Financial Information
The accompanying financial information as of and for the three months
ended March 31, 1999 is unaudited. However, in the opinion of
management, all adjustments, consisting of normal recurring accruals
and adjustments, necessary for a fair presentation of financial
position, results of operations and cash flows have been made.
The results of operations for interim periods are not necessarily
indicative of results to be expected for a full year.
Revenue Recognition
Revenue, which consists primarily of interest on notes receivable, is
recognized as it becomes due.
Concentration of Credit Risk
At various times during the year the Partnership had deposits in
financial institutions in excess of the federally insured limits. The
Partnership maintains its cash with a high quality financial
institution which the Partnership believes limits these risks.
Notes Receivable from Affiliate
Notes receivable from affiliate are recorded at cost, less the related
allowance for impairment, if any, of such notes receivable. The
Partnership accounts for such notes under the provisions of Statement
of Financial Accounting Standard No. 114, Accounting by Creditors for
Impairment of a Loan, as amended by Statement of Financial Accounting
Standard No. 118,
7
<PAGE>
BREVARD MORTGAGE PROGRAM, LTD.
NOTES TO FINANCIAL STATEMENTS
(Continued)
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Notes Receivable from Affiliate (Continued)
Accounting by Creditors for Impairment of a Loan - Income Recognition
and Disclosure. Management, considering current information and events
regarding the borrowers' ability to repay their obligations, considers
a note to be impaired when it is probable that the Partnership will be
unable to collect all amounts due according to the contractual terms of
the note. When a loan is considered to be impaired, the amount of
impairment is measured based upon (a) the present value of expected
future cash flows discounted at the note's effective interest rate; and
(b) the liquidation value of the note's collateral reduced by expected
selling costs and other notes secured by the same collateral. Cash
receipts on impaired notes receivable are applied to reduce the
principal amount of such receivables until the principal has been
recovered, and are recognized as interest income thereafter.
Use of Estimates
The accompanying financial statements have been prepared in conformity
with generally accepted accounting principles. In preparing the
financial statements, management is required to make estimates and
assumptions that affect the reported amount of assets and liabilities
as of the date of the balance sheet and operations for the year then
ended. Material estimates as to which it is reasonably possible that a
change in the estimate could occur in the near term relates to the
collectibility of the notes receivable due from affiliates. Although
these estimates are based on management's knowledge of current events
and actions it may undertake in the future, they may ultimately differ
from actual results.
Income Taxes
The Partnership is treated as a limited partnership for federal income
tax purposes and as such does not incur income taxes. Instead, its
earnings and losses are included in the personal returns of the
partners and taxed depending on their personal tax situations. The
financial statements do not reflect a provision for income taxes.
NOTE 2. AGREEMENT OF LIMITED PARTNERSHIP
The following is a summary of the significant provisions of the Agreement
of Limited Partnership ("the Agreement") made and entered into as of
December 8, 1995.
Capital Contributions of Partners
The Agreement provides for the general partner to contribute $90 in
cash, and maximum capital contributions of the limited partners of
$575,000 to be divided into 575 units of limited partnership units. A
capital account is maintained for each partner.
8
<PAGE>
BREVARD MORTGAGE PROGRAM, LTD.
NOTES TO FINANCIAL STATEMENTS
(Continued)
NOTE 2. AGREEMENT OF LIMITED PARTNERSHIP (Continued)
Term
The Partnership will continue through December 31, 2025, unless sooner
terminated by law or under certain provisions of the Agreement.
Distributions
Cash Distributions
The Partnership's distributable cash, if any, in each fiscal year
will not be reinvested but will be distributed in order of priority
to the Partners, if available, quarterly, to (a) the limited partners
who will receive 99% of the distributable cash; and (b) to the
general partner who will receive 1% of the distributable cash.
Distributions of Net Proceeds
Net proceeds from the sale or refinancing of the Partnership's assets
will not be reinvested but will be distributed to the partners in
order of priority after repayment of all indebtedness secured by the
assets to (a) the limited partners who will receive 100% of the
distributions until the entire principal amount of the purchased
second mortgage loan has been repaid; and (b) the balance, if any, is
distributed to the general partner.
Allocation of Income and Loss
Allocations of all items of income, gain, expense, loss, deduction and
credit recognized by the Partnership for federal income tax purposes
will be made as follows:
Income
The first 100% of income is allocated to the general partner until
the profits allocated plus the cumulative profits allocated to the
general partner for prior fiscal periods during which a profit was
earned by the Partnership equal the cumulative amounts distributable
to the general partner under the terms of the distributions of cash
and net proceeds. The balance, if any, is allocated to the limited
partners.
Losses
After giving effect to certain tax provisions, taxable losses are
allocated 99% to the limited partners and 1% to the general partner.
9
<PAGE>
BREVARD MORTGAGE PROGRAM, LTD.
NOTES TO FINANCIAL STATEMENTS
(Continued)
NOTE 2. AGREEMENT OF LIMITED PARTNERSHIP (Continued)
Dissolution
The Partnership will be dissolved upon (a) the expiration of the term
of the Agreement; (b) the determination of the limited partners
exercising their voting rights to dissolve the Partnership; (c) the
death, resignation, retirement, dissolution, removal, bankruptcy,
adjudication of insolvency, or adjudication of insanity or incompetence
of the last remaining general partner then in office and the refusal of
any successor general partner to replace it, unless the holders of a
majority of the units then outstanding vote to continue the Partnership
and elect one or more successor general partners willing to serve in
such capacity to continue the business of the Partnership; (d) the sale
of all or substantially all of the Partnership's property; (e) the
repayment in full of all loans made by the Partnership, unless the
Partnership thereafter continues to own non-loan assets; and (f) the
occurrence of any other event which, by law, would require the
Partnership to be dissolved.
Winding Up
Upon the dissolution of the partnership, the general partner will take
full account of the Partnership's assets and liabilities, and the
assets will be liquidated as promptly as is consistent with obtaining
fair value of the assets, and the proceeds will be applied and
distributed (a) first to the Partnership creditors, other than
partners; (b) then, any loans owed by the Partnership to the partners
shall be paid in proportion thereto; and (c) finally, to the limited
partners and the general partner in proportion to their respective
positive capital accounts.
Fees to the General Partner
Pursuant to a Partnership Administration Contract (the "Contract")
between the Partnership and the general partner stipulated in the
Agreement, the Partnership retained the general partner to provide
administrative services for $750 per month through December 31, 2002.
NOTE 3. NOTES RECEIVABLE FROM AFFILIATE
The Partnership had the following receivables from Florida Opportunity
Income Partners II, Ltd. ("Meadowdale") as of March 31, 1999 and
December 31, 1998:
March 31, 1999 December 31, 1998
-------------- -----------------
(Unaudited)
Notes Accrued Notes Accrued
Receivable Interest Receivable Interest
---------- -------- ---------- --------
Notes receivable, net of discount $450,000 $102,231 $450,000 $ 95,228(a)
Advances 24,191 4,291 24,191 4,205(b)
-------- -------- -------- --------
$474,191 $107,152 $474,191 $ 99,433
======== ======== ======== ========
10
<PAGE>
BREVARD MORTGAGE PROGRAM, LTD.
NOTES TO FINANCIAL STATEMENTS
(Continued)
NOTE 3. NOTES RECEIVABLE FROM AFFILIATE (Continued)
(a) In December 1995, the Partnership acquired certain receivables from an
unrelated entity at a discount from the face amount thereof. These
receivables, which include notes receivable and accrued interest due
from Meadowdale, were converted into promissory notes as more fully
described in the table below:
Meadowdale Second Mortgage Note; matures on July 31,
2001; accrues interest at a minimum annual rate of 6%
and provides for participation interest at the rate of
3% per annum based upon the amount of the unpaid
principal, which shall be due and payable to the extent
that it does not exceed the available cash flows, as
defined in the note; provides for additional
participation interest in an amount equal to 20% of
remaining available cash flow, as defined, which will
continue to be made until such time as the collateral
has been sold, and which obligation will continue
notwithstanding total repayment of the principal amount
of the note; secured by a lien upon certain real and
personal property of Meadowdale and; subordinated to a
first mortgage, which had a balance of approximately
$949,000 and $954,000 as of March 31, 1999 and December
31, 1998, respectively. $752,747
Secured promissory note representing advances made by
the former general partner to Meadowdale. The note
matures on July 31, 2001 and bears interest, which is
payable quarterly, at an annual interest rate of 1% over
prime (8.75% as of March 31, 1999 and December 31, 1998) 271,923
----------
1,024,670
Less discount 574,670
----------
Notes receivable, net of discount $ 450,000
==========
(b) During 1997, the Partnership provided funds to Meadowdale by means of
advances as more fully described below:
Secured promissory note representing advances made by
the Partnership. The note matures on July 31, 2001 and
bears interest, which is payable quarterly, at 12% per
annum. $24,191
=======
On December 15, 1998, Meadowdale amended and restated all the above notes
and mortgages and entered into an Amendment to Open-End Second Mortgage
and Security Agreement by which all of the above notes will be secured by
the Second Mortgage. The amendment also provides for additional advances
not to exceed a $1,500,000 maximum to be evidenced by an Additional
Advance Agreement or note.
11
<PAGE>
BREVARD MORTGAGE PROGRAM, LTD.
NOTES TO FINANCIAL STATEMENTS
(Continued)
NOTE 4. LIMITED PARTNERS' CAPITAL CONTRIBUTIONS
During 1996, in accordance with the terms of a Private Placement
Memorandum dated December 8, 1995, the Partnership issued the 575 units of
limited partner interest being offered at $1,000 per unit for total gross
proceeds of $575,000. Costs of $67,500 incurred in connection with
syndicating the partnership units were recorded as a reduction of limited
partners' capital contributions. Of the syndication costs, $10,000 was
paid to the General Partner for administrative, legal and investment fees.
NOTE 5. OTHER MATTER
In connection with a proposed Exchange Offering, Baron Capital Properties,
L.P. ("the Operating Partnership"), a partnership under common control,
will offer to exchange Operating Partnership Units to the limited partners
of the Partnership in exchange for their limited partner interests. These
units are exchangeable for an equivalent number of common shares of
beneficial interest in Baron Capital Trust, a real estate investment trust
under common control, for whom Baron Capital Properties, L.P. is the
operating partnership. Subject to the completion of the proposed Exchange
Offering, the Trust and the Operating Partnership will account for the
acquisition of the limited partnership interests in the offering on the
purchase method and therefore record the assets acquired and the
liabilities assumed at their fair value at the date of acquisition.
12
<PAGE>
================================================================================
LAMPLIGHT COURT OF BELLEFONTAINE APARTMENTS, LTD.
FINANCIAL STATEMENTS
MARCH 31, 1999 AND DECEMBER 31, 1998
================================================================================
<PAGE>
LAMPLIGHT COURT OF BELLEFONTAINE APARTMENTS, LTD.
TABLE OF CONTENTS
PAGE
----
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS 1
FINANCIAL STATEMENTS
Balance Sheets 2
Statements of Operations 3
Statements of Partners' Capital 4
Statements of Cash Flows 5
Notes to Financial Statements 6-11
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Partners
Lamplight Court of Bellefontaine Apartments, Ltd.
Cincinnati, Ohio
We have audited the accompanying balance sheet of Lamplight Court of
Bellefontaine Apartments, Ltd. (the "Partnership") as of December 31, 1998, and
the related statements of operations, partners' capital and cash flows for each
of the two years in the period then ended. These financial statements are the
responsibility of the Partnership's management. Our responsibility is to express
an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Lamplight Court of
Bellefontaine, Ltd. at December 31, 1998, and the results of its operations and
its cash flows for each of the two years in the period then ended in conformity
with generally accepted accounting principles.
The Partnership is affiliated with certain other limited partnerships (the
"affiliates") in similar lines of business, all of whom are controlled by a
common person who is the stockholder and president of the Partnership's general
partner. As discussed in Notes 3, 4 and 5, the Partnership and its affiliates
have engaged in significant transactions with each other.
RACHLIN COHEN & HOLTZ LLP
Miami, Florida
April 2, 1999
1
<PAGE>
LAMPLIGHT COURT OF BELLEFONTAINE APARTMENTS, LTD.
BALANCE SHEETS
March 31, December 31,
1999 1998
---- ----
ASSETS (Unaudited)
Cash $ 7 $ 2
Note receivable from affiliate 365,000 365,000
Advances receivable from affiliate 93,302 93,302
Accrued interest receivable from affiliate 125,554 114,171
-------- --------
$583,863 $572,475
======== ========
LIABILITIES AND PARTNERS' CAPITAL
Liabilities:
Administrative fees payable to general partner $ 12,000 $ 10,500
-------- --------
Commitments and Other Matter -- --
Partners' Capital:
General partner 90 90
Limited partners 571,773 561,885
-------- --------
571,863 561,975
-------- --------
$583,863 $572,475
======== ========
See notes to financial statements.
2
<PAGE>
LAMPLIGHT COURT OF BELLEFONTAINE APARTMENTS, LTD.
STATEMENTS OF OPERATIONS
Three
Months Year Ended
Ended December 31,
March 31, ------------
1999 1998 1997
---- ---- ----
(Unaudited)
Revenues:
Interest income from affiliate $15,382 $66,772 $63,188
Other 31 158 1,973
------- ------- -------
15,413 66,930 65,161
------- ------- -------
Costs and Expenses:
Administrative fees to general partner 1,500 6,000 6,000
General and administrative 25 5,350 1,262
------- ------- -------
1,525 11,350 7,262
------- ------- -------
Net Income $13,888 $55,580 $57,899
======= ======= =======
See notes to financial statements.
3
<PAGE>
LAMPLIGHT COURT OF BELLEFONTAINE APARTMENTS, LTD.
STATEMENTS OF PARTNERS' CAPITAL
<TABLE>
<CAPTION>
General Limited
Partner Partners Total
------- -------- -----
<S> <C> <C> <C>
Partners' Capital, January 1, 1997 $ 90 $ 587,931 $ 588,021
Year Ended December 31, 1997:
Distributions -- (69,525) (69,525)
Net income -- 57,899 57,899
--------- --------- ---------
Partners' Capital, December 31, 1997 90 576,305 576,395
Year Ended December 31, 1998:
Distributions -- (70,000) (70,000)
Net income -- 55,580 55,580
--------- --------- ---------
Partners' Capital, December 31, 1998 90 561,885 561,975
Three Months Ended March 31, 1999 (Unaudited):
Distributions -- (4,000) (4,000)
Net income -- 13,888 13,888
--------- --------- ---------
Partners' Capital, March 31, 1999 (Unaudited) $ 90 $ 571,773 $ 571,863
========= ========= =========
</TABLE>
See notes to financial statements.
4
<PAGE>
LAMPLIGHT COURT OF BELLEFONTAINE APARTMENTS, LTD.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Three
Months Year Ended
Ended December 31,
March 31, ------------
1999 1998 1997
---- ---- ----
(Unaudited)
<S> <C> <C> <C>
Cash Flows from Operating Activities:
Net income $ 13,888 $ 55,580 $ 57,899
Adjustments to reconcile net income to
net cash provided by operating activities:
Changes in operating assets and liabilities:
Increase in interest receivable from affiliate (11,383) (36,371) (55,189)
Increase in administrative fees payable to the general partner 1,500 -- 6,000
--------- --------- ---------
Net cash provided by operating activities 4,005 19,209 8,710
--------- --------- ---------
Cash Flows from Investing Activities:
Advances to affiliate -- -- (17,366)
--------- --------- ---------
Net cash used in investing activities -- -- (17,366)
--------- --------- ---------
Cash Flows from Financing Activities:
Distributions to limited partners (4,000) (70,000) (69,525)
--------- --------- ---------
Net cash used in financing activities (4,000) (70,000) (69,525)
--------- --------- ---------
Net Increase (Decrease) in Cash 5 (50,791) (78,181)
Cash, Beginning 2 50,793 128,974
--------- --------- ---------
Cash, Ending $ 7 $ 2 $ 50,793
========= ========= =========
</TABLE>
See notes to financial statements.
5
<PAGE>
LAMPLIGHT COURT OF BELLFONTAINE, LTD.
Cash Flow Worksheet
December 31, 1998
<TABLE>
<CAPTION>
Loans Accrued Investment
Cash Receivable Interest R/P
---- ---------- -------- ---
<S> <C> <C> <C> <C> <C>
Beginning Balance, December 31, 1997 50,793 93,302 77,800 --
Ending Balance, December 31, 1998 2 93,302 114,171 --
-------- -------- -------- ------
(50,791) -- 36,371 --
Cash Flows from Operating Activities:
Net income 55,580
Adjustments to reconcile net income to net cash
provided (used) by operating activities
Changes in operating assets and liabilities:
(Increase) decrease in:
Loans receivable
Accrued interest (36,371) (36,371)
Security deposits and prepaid rents --
Payable to GP --
--------
Net cash provided (used in) by operating activities 19,209
--------
Cash Flows from Investing Activities:
Loans to affiliated limited partnership -- --
Repayments on notes receivable --
--------
Net cash provided by (used in) investing activities --
--------
Cash Flows from Financing Activities:
Principal payments on mortgage payable --
Principal payment on note payable --
General partner contributions --
General partner distributions (70,000)
Limited partner contributions --
Limited partner distributions --
Bank overdraft --
--------
Net cash provided by (used in) financing activities (70,000)
--------
Net increase (decrease) in cash (50,791)
Cash, Beginning 50,793
Cash, Ending 2
-------------------------------------------
0 -- -- -- --
Supplemental Disclosures of Cash Flow Information
<CAPTION>
Mtg. Partners'
Receivable Accr Liab Capital
---------- --------- -------
<S> <C> <C> <C> <C>
Beginning Balance, December 31, 1997 365,000 (10,500) (576,395) --
Ending Balance, December 31, 1998 365,000 (10,500) (561,975) (0)
-------- -------- --------
-- -- 14,420
--
Cash Flows from Operating Activities:
Net income 55,580
Adjustments to reconcile net income to net cash
provided (used) by operating activities
Changes in operating assets and liabilities:
(Increase) decrease in:
Loans receivable
Accrued interest
Security deposits and prepaid rents
Payable to GP --
Net cash provided (used in) by operating activities
Cash Flows from Investing Activities:
Loans to affiliated limited partnership
Repayments on notes receivable
Net cash provided by (used in) investing activities
Cash Flows from Financing Activities:
Principal payments on mortgage payable
Principal payment on note payable
General partner contributions
General partner distributions (70,000)
Limited partner contributions
Limited partner distributions
Bank overdraft
Net cash provided by (used in) financing activities
Net increase (decrease) in cash
Cash, Beginning
Cash, Ending
--------------------------------------------
-- (0)
Supplemental Disclosures of Cash Flow Information
</TABLE>
6
<PAGE>
LAMPLIGHT COURT OF BELLEFONTAINE APARTMENTS, LTD.
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 1999 AND DECEMBER 31, 1998
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization and Capitalization
Lamplight Court of Bellefontaine Apartments, Ltd. ("the Partnership")
was initially organized on February 16, 1996 under the laws of the
State of Florida.
The Agreement of Limited Partnership provides for capital contributions
of partners to be comprised of (a) the general partner capital
contribution of $90 in cash; and (b) the maximum capital contributions
of the limited partners of $700,000, to be divided into 700 equal units
of limited partnership interest.
See Note 2 for a summary of other provisions of the Agreement of
Limited Partnership.
Business
The Partnership provides debt and equity financing to existing
affiliated limited partnerships owning residential apartment
communities located in Ohio.
Unaudited Financial Information
The accompanying financial information as of and for the three months
ended March 31, 1999 is unaudited. However, in the opinion of
management, all adjustments, consisting of normal recurring accruals
and adjustments, necessary for a fair presentation of financial
position, results of operations and cash flows have been made.
The results of operations for interim periods are not necessarily
indicative of results to be expected for a full year.
Revenue Recognition
Revenue, which consists primarily of interest on notes receivable, is
recognized as it becomes due.
Concentration of Credit Risk
At various times during the year the Partnership had deposits in
financial institutions in excess of the federally insured limits. The
Partnership maintains its cash with a high quality financial
institution which the Partnership believes limits these risks.
Note Receivable from Affiliate
Note receivable from affiliate is recorded at cost, less the related
allowance for impairment, if any, of such note receivable. The
Partnership accounts for such notes under the provisions of Statement
of Financial Accounting Standard No. 114, Accounting by Creditors for
Impairment of a Loan, as amended by Statement of Financial Accounting
Standard No. 118,
7
<PAGE>
LAMPLIGHT COURT OF BELLEFONTAINE APARTMENTS, LTD.
NOTES TO FINANCIAL STATEMENTS
(Continued)
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Note Receivable from Affiliate (Continued)
Accounting by Creditors for Impairment of a Loan - Income Recognition
and Disclosure. Management, considering current information and events
regarding the borrowers' ability to repay their obligations, considers
a note to be impaired when it is probable that the Partnership will be
unable to collect all amounts due according to the contractual terms of
the note. When a loan is considered to be impaired, the amount of
impairment is measured based upon (a) the present value of expected
future cash flows discounted at the note's effective interest rate; and
(b) the liquidation value of the note's collateral reduced by expected
selling costs and other notes secured by the same collateral. Cash
receipts on impaired notes receivable are applied to reduce the
principal amount of such receivables until the principal has been
recovered, and are recognized as interest income thereafter.
Investment in Affiliate
In 1996, the Partnership acquired certain receivables and a limited
partner interest in Independence Village, Ltd. ("Independence Village")
from an unrelated entity at a discount from the face amount thereof
(see Note 3). As a result, the Partnership holds a 31.7% limited
partner interest in Independence Village, a limited partnership which
owns a residential apartment property in Bellefontaine, Ohio. The
investment in Independence Village is accounted for using the equity
method of accounting as a result of the Partnership and Independence
Village having the same general partner president and the general
partner's ability to exercise significant influence on Independence
Village. As such, the investment in Independence Village is carried at
cost and adjusted for the Partnership's share of undistributed earnings
or losses using the equity method of accounting. At the date of
purchase, management estimated the value of the limited partner
interest to be insignificant and did not allocate any of the purchase
price to the investment.
Use of Estimates
The accompanying financial statements have been prepared in conformity
with generally accepted accounting principles. In preparing the
financial statements, management is required to make estimates and
assumptions that affect the reported amount of assets and liabilities
as of the date of the balance sheet and operations for the year then
ended. Material estimates as to which it is reasonably possible that a
change in the estimate could occur in the near term relates to the
value of the limited partner interest and the collectibility of the
notes receivable due from affiliates. Although these estimates are
based on management's knowledge of current events and actions it may
undertake in the future, they may ultimately differ from actual
results.
Income Taxes
The Partnership is treated as a limited partnership for federal income
tax purposes and as such does not incur income taxes. Instead, its
earnings and losses are included in the personal returns of the
partners and taxed depending on their personal tax situations. The
financial statements do not reflect a provision for income taxes.
8
<PAGE>
LAMPLIGHT COURT OF BELLEFONTAINE APARTMENTS, LTD.
NOTES TO FINANCIAL STATEMENTS
(Continued)
NOTE 2. AGREEMENT OF LIMITED PARTNERSHIP
The following is a summary of the significant provisions of the Agreement
of Limited Partnership ("the Agreement") made and entered into as of March
7, 1996:
Capital Contributions of Partners
The Agreement provides for the general partner to contribute $90 in
cash, and maximum capital contributions of the limited partners of
$700,000, to be divided into 700 units of limited partnership units. A
capital account is maintained for each partner.
Term
The Partnership will continue through December 31, 2026, unless sooner
terminated by law or under certain provisions of the Agreement.
Distributions
Cash Distributions
The Partnership's distributable cash, if any, in each fiscal year
will not be reinvested but will be distributed in order of priority
to the Partners, if available, quarterly, to (a) the limited partners
who will receive 100% of the distributable cash until they have
received a 10% non-cumulative annual cash-on-cash return on the
aggregate amount of their capital contribution as calculated from
each limited partner's admission date; and (b) the general partner
will receive 100% of the remaining distributable cash.
Distributions of Net Proceeds
Net proceeds from the sale or refinancing of the Partnership's assets
will not be reinvested but will be distributed to the partners in
order of priority after repayment of all indebtedness secured by the
assets to (a) the limited partners who will receive 100% of the
distributions until the total amount distributed to them, when added
to all prior distributions of distributable cash and net proceeds
made to them, is equal to the sum of their capital contributions plus
an annual 10% cash-on-cash return; and (b) then 31.7% of up to
$350,000 of any remaining net proceeds to the limited partners; and
(c) the balance, if any, to the general partner.
Allocation of Income and Loss
Allocations of all items of income, gain, expense, loss, deduction and
credit recognized by the Partnership for federal income tax purposes
will be made as follows:
9
<PAGE>
LAMPLIGHT COURT OF BELLEFONTAINE APARTMENTS, LTD.
NOTES TO FINANCIAL STATEMENTS
(Continued)
NOTE 2. AGREEMENT OF LIMITED PARTNERSHIP (Continued)
Allocation of Income and Loss (Continued)
Income
The first 100% of income is allocated to the general partner until
the profits allocated plus the cumulative profits allocated to the
general partner for prior fiscal periods during which a profit was
earned by the Partnership equal the cumulative amounts distributable
to the general partner under the terms of the distributions of cash
and net proceeds. The balance, if any, is allocated to the limited
partners.
Losses
After giving effect to certain tax provisions, taxable losses are
allocated 99% to the limited partners and 1% to the general partner.
Dissolution
The Partnership will be dissolved upon (a) the expiration of the term
of the Agreement; (b) the determination of the limited partners
exercising their voting rights to dissolve the Partnership; (c) the
death, resignation, retirement, dissolution, removal, bankruptcy,
adjudication of insolvency, or adjudication of insanity or incompetence
of the last remaining general partner then in office and the refusal of
any successor general partner to replace it, unless the holders of a
majority of the units then outstanding vote to continue the Partnership
and elect one or more successor general partners willing to serve in
such capacity to continue the business of the Partnership; (d) the sale
of all or substantially all of the Partnership's property; and (e) the
occurrence of any other event which, by law, would require the
Partnership to be dissolved.
Winding Up
Upon the dissolution of the partnership, the general partner will take
full account of the Partnership's assets and liabilities, and the
assets will be liquidated as promptly as is consistent with obtaining
fair value of the assets, and the proceeds will be applied and
distributed (a) first to the Partnership creditors, other than
partners; (b) then, any loans owed by the Partnership to the partners
shall be paid in proportion thereto; and (c) finally, to the limited
partners and the general partner in proportion to their respective
positive capital accounts.
Fees to the General Partner
Pursuant to a Partnership Administration Contract (the "Contract")
between the Partnership and the general partner stipulated in the
Agreement, the Partnership retained the general partner to provide
administrative services for $500 per month through December 31, 2002.
10
<PAGE>
LAMPLIGHT COURT OF BELLEFONTAINE APARTMENTS, LTD.
NOTES TO FINANCIAL STATEMENTS
(Continued)
NOTE 3. NOTE RECEIVABLE FROM AFFILIATE
In 1996, the Partnership acquired certain receivables and a 31.7% interest
in Independence Village from an unrelated entity at a discount from the
face amount thereof. The receivables, which included notes receivable and
accrued interest due from Independence Village, were converted into
promissory notes as more fully described in the table below.
Independence Village Second Mortgage Note; matures in
December 2006; accrues interest at an annual rate of 9.5%;
secured by a lien upon certain real and personal property
of Independence Village; subordinated to the first mortgage
which had a balance of approximately $1,362,000 and
$1,366,000 as of March 31, 1999 and December 31, 1998,
respectively. $585,000
Less discount 220,000
--------
Note receivable, net of discount $365,000
========
Interest receivable on the note was $100,254 and $91,632 as of March 31,
1999 and December 31, 1998, respectively.
NOTE 4. ADVANCES RECEIVABLE FROM AFFILIATE
In 1996 and during 1997, the Partnership provided funding to Independence
Village by means of advances in an arrangement equivalent to an open ended
line of credit advances. The outstanding advances are due on demand and
accrue interest at 12% per annum. The balance of $93,302 remained
outstanding as of March 31, 1999 and December 31, 1998. Interest income of
$2,761 was recognized during the three months ended March 31, 1999 and
$11,196 was recognized during the year ended December 31, 1998. Accrued
interest of $25,300 and $22,539 remained outstanding as of March 31, 1999
and December 31, 1998, respectively.
NOTE 5. INVESTMENT IN AFFILIATE
The following is a summary of the financial position and results of
operations of Independence Village as of March 31, 1999 and December 31,
1998 and for the three months and year then ended, respectively.
March 31, December 31,
1999 1998
---- ----
(Unaudited)
Financial position:
Rental apartments $ 1,719,536 $ 1,719,536
Other assets 176,025 121,589
----------- -----------
Total assets $ 1,895,561 $ 1,841,125
=========== ===========
Mortgage payable $ 1,361,555 $ 1,366,078
Other liabilities 927,765 894,922
----------- -----------
Total liabilities 2,289,320 2,261,000
Partners' deficiency (393,755) (419,875)
----------- -----------
$ 1,895,561 $ 1,841,125
=========== ===========
11
<PAGE>
LAMPLIGHT COURT OF BELLEFONTAINE APARTMENTS, LTD.
NOTES TO FINANCIAL STATEMENTS
(Continued)
NOTE 5. INVESTMENT IN AFFILIATE (Continued)
Results of operations:
Revenues (including rental income of $81,251 and
$361,716, respectively) $ 86,509 $ 365,274
Costs and expenses (65,797) (565,309)
----------- -----------
Net income (loss) $ 20,713 $ (200,035)
=========== ===========
As discussed in Note 1, upon acquisition of certain receivables and the
limited partnership interest in Independence Village, the Partnership did
not allocate any of the purchase price to the investment in affiliate. The
Partnership has deferred recognition of its proportionate share of net
losses because there is no personal obligation to fund the resulting
negative limited partner's capital account balance. Future net income, if
any, will not be recognized until such time as the limited partner's
capital account becomes a positive balance.
NOTE 6. LIMITED PARTNERS' CAPITAL CONTRIBUTIONS
During 1996, in accordance with the terms of a Private Placement
Memorandum dated March 7, 1996, the Partnership issued 700 units of
limited partnership interest units at $1,000 per unit for total gross
proceeds of $700,000. Costs of $120,000 incurred in connection with
syndicating the partnership were recorded as a reduction of limited
partners' capital contributions. Of the syndication costs, $57,000 was
paid to the General Partner for administrative, legal and investment fees.
NOTE 7. OTHER MATTER
In connection with a proposed Exchange Offering, Baron Capital Properties,
L.P. ("the Operating Partnership"), a partnership under common control,
will offer to exchange Operating Partnership Units to the limited partners
of the Partnership in exchange for their limited partner interests. These
units are exchangeable for an equivalent number of common shares of
beneficial interest in Baron Capital Trust, a real estate investment trust
under common control, for whom Baron Capital Properties, L.P. is the
operating partnership. Subject to the completion of the proposed Exchange
Offering, the Trust and the Operating Partnership will account for the
acquisition of the limited partnership interests in the offering on the
purchase method and therefore record the assets acquired and the
liabilities assumed at their fair value at the date of acquisition.
12
<PAGE>
BARON CAPITAL TRUST
PRO FORMA CONDENSED CONSOLIDATED FINANCIAL INFORMATION
(UNAUDITED)
The following unaudited pro forma condensed consolidated financial information
of Baron Capital Trust (the "Company") has been prepared giving effect by the
Company to the acquisition of the Exchange Equity Partnerships, Exchange
Mortgage Partnerships and Exchange Hybrid Partnerships (collectively the
"Exchange Partnerships") as if the acquisition transaction had taken place at
December 31, 1998 for the unaudited pro forma condensed consolidated balance
sheet, and January 1, 1998 and 1997 for the unaudited pro forma condensed
consolidated statements of operations for the years ended December 31, 1998 and
1997, respectively.
The acquisitions have been accounted for under the purchase method of
accounting. Accordingly, pro forma adjustments to the assets have been made to
reflect the respective allocations of the estimated purchase prices. The
allocations were made based on valuations provided by the Company giving effect
to various economic and market factors.
The unaudited pro forma condensed consolidated financial information is not
necessarily indicative of the results of operations or the financial position
which would have been attained had the acquisitions actually been consummated at
either of the foregoing dates or which may be attained in the future. The
unaudited pro forma condensed consolidated financial information should be read
in conjunction with the historical individual financial statements of Baron
Capital Trust and the historical individual financial statements of each of the
Exchange Partnerships.
<PAGE>
SELECTED FINANCIAL INFORMATION
BARON CAPITAL TRUST
PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
DECEMBER 31, 1998
(UNAUDITED)
<TABLE>
<CAPTION>
Historical
-----------------------------------------------------------
Exchange
Mortgage
Partnerships
Baron Exchange and Exchange
Capital Equity Hybrid
Trust Partnerships Partnerships Sub-Total
----- ------------ ------------ ---------
<S> <C> <C> <C> <C>
ASSETS:
Real Estate $ 7,367,788 $ 25,979,187 $ -- $ 33,346,975
Less accumulated depreciation (1,246,627) (2,819,048) -- (4,065,675)
Investments in real estate limited partnerships 730,330 -- 1,266,929 1,997,259
Cash and cash equivalent 177,299 363,624 25,119 566,042
Restricted cash 66,199 66,199
Property management reimbursements receivable, affiliates 155,071 155,071
Notes receivable from affiliates -- -- 5,529,172 5,529,172
Notes receivable from non-affiliates -- -- 800,000 800,000
Advances receivable from affiliates 10,750 -- 263,376 274,126
Other receivables 80,112 -- 12,525 92,637
Other property and equipment 168,982 168,982
Accrued interest receivable from non-affiliates -- -- 22,863 22,863
Accrued interest receivable from affiliates -- -- 721,265 721,265
Accounts receivable -- 10,895 -- 10,895
Deferred expenses, net -- 454,488 -- 454,488
Other assets 221,611 2,932,055 -- 3,153,666
------------ ------------ ------------ ------------
TOTAL $ 7,731,515 $ 26,921,201 $ 8,641,249 $ 43,293,965
============ ============ ============ ============
LIABILITIES AND PARTNERS' CAPITAL
LIABILITIES:
Mortgages payable $ 4,039,718 $ 18,006,034 $ -- $ 22,045,752
Notes Payable 375,000 -- 659,639 1,034,639
Advances payable to affiliates -- 1,993,477 112,106 2,105,583
Accrued interest payable -- -- 81,085 81,085
Accrued real estate taxes payable -- -- -- --
Administrative fees payable to general partner -- -- 141,393 141,393
Security deposits and prepaid rent 38,336 147,722 -- 186,058
Other liabilities 444,369 838,511 400 1,283,280
PARTNERS' CAPITAL 2,834,092 5,935,457 7,646,626 16,416,175
------------ ------------ ------------ ------------
TOTAL $ 7,731,515 $ 26,921,201 $ 8,641,249 $ 43,293,965
============ ============ ============ ============
<CAPTION>
Pro Forma Pro Forma
Adjustments Consolidated
----------- ------------
<S> <C> <C>
ASSETS:
Real Estate $ 7,970,000(d) $ 41,316,975
Less accumulated depreciation -- (4,065,675)
Investments in real estate limited partnerships -- 1,997,259
Cash and cash equivalent -- 566,042
Restricted cash -- 66,199
Property management reimbursements receivable, affiliates -- 155,071
Notes receivable from affiliates 3,426,000(d) 8,679,172
(276,000)(f)
Notes receivable from non-affiliates -- 800,000
Advances receivable from affiliates -- 274,126
Other receivables -- 92,637
Other property and equipment -- 168,982
Accrued interest receivable from non-affiliates -- 22,863
Accrued interest receivable from affiliates -- 721,265
Accounts receivable -- 10,895
Deferred expenses, net -- 454,488
Other assets -- 3,153,666
------------ ------------
TOTAL $ 11,120,000 $ 54,413,965
============ ============
LIABILITIES AND PARTNERS' CAPITAL
LIABILITIES:
Mortgages payable $ -- $ 22,045,752
Notes Payable -- 1,034,639
Advances payable to affiliates (276,000)(f) 1,829,583
Accrued interest payable -- 81,085
Accrued real estate taxes payable -- --
Administrative fees payable to general partner -- 141,393
Security deposits and prepaid rent -- 186,058
Other liabilities -- 1,283,280
PARTNERS' CAPITAL 11,396,000(d) 27,812,175
------------ ------------
TOTAL $ 11,120,000 $ 54,413,965
============ ============
</TABLE>
See notes to unaudited pro forma condensed consolidated financial information.
<PAGE>
SELECTED FINANCIAL INFORMATION
BARON CAPITAL TRUST
HISTORICAL CONDENSED CONSOLIDATED BALANCE SHEET
EXCHANGE EQUITY PARTNERSHIPS
DECEMBER 31, 1998
(UNAUDITED)
<TABLE>
<CAPTION>
Historical
----------------------------------------------------------------------------
Laurel Oaks/
Eagle Brookwood Grove Bridge
Steeplechase Lake Way Hamlet Point
------------ ---- --- ------ -----
<S> <C> <C> <C> <C> <C>
ASSETS:
Real Estate $ 1,821,218 $ 2,256,332 $ 1,813,475 $ 2,331,486 $ 1,282,256
Less accumulated depreciation (112,072) (249,813) (127,632) (281,461) (128,548)
Investments in partnerships -- -- -- -- --
Cash and cash equivalent 25,266 29,844 31,922 22,669 9,560
Accounts receivable 4,503 1,531 65 501 1,008
Deferred expenses, net -- 46,379 31,592 -- 29,312
Other assets 9,645 144,120 140,846 122,628 142,750
------------ ------------ ------------ ------------ ------------
TOTAL $ 1,748,560 $ 2,228,393 $ 1,890,268 $ 2,195,823 $ 1,336,338
============ ============ ============ ============ ============
LIABILITIES AND PARTNERS' CAPITAL
LIABILITIES:
Mortgages payable $ 1,254,307 $ 1,712,310 $ 1,666,615 $ 1,593,447 $ 715,493
Loans payable 75,459 120,975 35,083 304,811 24,000
Accrued interest payable -- -- -- -- --
Accrued real estate taxes payable -- -- -- -- --
Security deposits and prepaid rent 16,370 16,660 12,562 11,424 9,341
Other liabilities 91,820 36,856 7,891 18,232 31,167
PARTNERS' CAPITAL 310,604 341,592 168,117 267,909 556,337
------------ ------------ ------------ ------------ ------------
TOTAL $ 1,748,560 $ 2,228,393 $ 1,890,268 $ 2,195,823 $ 1,336,338
============ ============ ============ ============ ============
<CAPTION>
Historical
----------------------------------------------------------------------------
Forest Camellia Stadium Forest
Glen I Court Glen Lake Club Glen IV
------ ----- --------- ---- -------
<S> <C> <C> <C> <C> <C>
ASSETS:
Real Estate $ 2,505,848 $ 1,545,336 $ 4,605,389 $ 2,272,947 $ 450,651
Less accumulated depreciation (352,962) (154,182) (428,198) (230,077) (70,821)
Investments in partnerships -- -- -- -- --
Cash and cash equivalent 46,567 11,704 25,626 78,823 14,160
Accounts receivable -- -- 3,287 -- --
Deferred expenses, net 69,629 55,390 69,704 70,970 --
Other assets 579,085 156,197 392,727 244,194 99,750
------------ ------------ ------------ ------------ ------------
TOTAL $ 2,848,167 $ 1,614,445 $ 4,668,535 $ 2,436,857 $ 493,740
============ ============ ============ ============ ============
LIABILITIES AND PARTNERS' CAPITAL
LIABILITIES:
Mortgages payable $ 1,787,976 $ 1,073,299 $ 3,238,310 $ 1,754,460 $ 278,130
Loans payable 529,000 75,400 597,871 24,082 14,726
Accrued interest payable -- -- -- -- --
Accrued real estate taxes payable -- -- -- -- --
Security deposits and prepaid rent 11,618 12,485 7,772 24,721 1,650
Other liabilities 49,750 35,585 250,894 155,235 71,925
PARTNERS' CAPITAL 469,823 417,676 573,688 478,359 127,309
------------ ------------ ------------ ------------ ------------
TOTAL $ 2,848,167 $ 1,614,445 $ 4,668,535 $ 2,436,857 $ 493,740
============ ============ ============ ============ ============
<CAPTION>
Historical
------------------------------------------------------------
Forest Forest Blossom
Glen II Glen III Corners I Total
------- -------- --------- -----
<S> <C> <C> <C> <C>
ASSETS:
Real Estate $ 1,737,708 $ 1,573,748 $ 1,782,793 $ 25,979,187
Less accumulated depreciation (263,807) (257,113) (162,362) (2,819,048)
Investments in partnerships -- -- -- --
Cash and cash equivalent 26,564 21,795 19,124 363,624
Accounts receivable -- -- -- 10,895
Deferred expenses, net 41,317 -- 40,195 454,488
Other assets 327,843 319,261 253,009 2,932,055
------------ ------------ ------------ ------------
TOTAL $ 1,869,625 $ 1,657,691 $ 1,932,759 $ 26,921,201
============ ============ ============ ============
LIABILITIES AND PARTNERS' CAPITAL
LIABILITIES:
Mortgages payable $ 1,033,053 $ 874,122 $ 1,024,512 $ 18,006,034
Loans payable 103,479 55,522 33,069 1,993,477
Accrued interest payable -- -- -- --
Accrued real estate taxes payable -- -- -- --
Security deposits and prepaid rent 6,000 5,000 12,119 147,722
Other liabilities 30,682 29,586 28,888 838,511
PARTNERS' CAPITAL 696,411 693,461 834,171 5,935,457
------------ ------------ ------------ ------------
TOTAL $ 1,869,625 $ 1,657,691 $ 1,932,759 $ 26,921,201
============ ============ ============ ============
</TABLE>
See notes to unaudited pro forma condensed consolidated financial information.
<PAGE>
SELECTED FINANCIAL INFORMATION
BARON CAPITAL TRUST
EXCHANGE MORTGAGE PARTNERSHIPS AND EXCHANGE HYBRID PARTNERSHIPS
HISTORICAL CONDENSED CONSOLIDATED BALANCE SHEET
DECEMBER 31, 1998
(UNAUDITED)
<TABLE>
<CAPTION>
Historical
--------------------------------------------------------------
BSIF V, BSIF VIII, BSIF X, BSIF IX, BMP,
Ltd. Ltd. Ltd. Ltd. Ltd.
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
ASSETS:
Investments in real estate limited partnerships $ -- $ -- $ 604,317 $ 300,504 $ --
Cash and cash equivalent 52 50 4,584 140 5,412
Notes receivable from affiliates 743,100 807,155 117,500 319,000 474,191
Notes receivable from non-affiliates -- -- 440,000 200,000 --
Advances receivable from affiliates 80,939 10,159 38,287 6,541 --
Other receivables -- -- 9,394 3,131 --
Accrued interest receivable from non-affiliates -- -- 12,765 5,716 --
Accrued interest receivable from affiliates 52,802 40,439 5,670 29,631 99,433
---------- ---------- ---------- ---------- ----------
TOTAL $ 876,893 $ 857,803 $1,232,517 $ 864,663 $ 579,036
========== ========== ========== ========== ==========
LIABILITIES AND PARTNERS' CAPITAL
LIABILITIES:
Advances payable to affiliates $ -- $ -- $ -- $ -- $ 1,850
Note Payable -- -- 400,000 -- --
Accrued interest payable -- -- 37,436 --
Administrative fees payable to general partner 7,000 7,000 9,393 7,500 27,000
Other liabilities -- -- -- -- --
PARTNERS' CAPITAL: 869,893 850,803 785,688 857,163 550,186
---------- ---------- ---------- ---------- ----------
TOTAL $ 876,893 $ 857,803 $1,232,517 $ 864,663 $ 579,036
========== ========== ========== ========== ==========
<CAPTION>
Historical
---------------------------------------------------------------------------
LCOB, BSIF IV, BSVF I, BSIF VI, BSIF,
Ltd. Ltd. Ltd. Ltd. Ltd. Total
---- ---- ---- ---- ---- -----
<S> <C> <C> <C> <C> <C> <C>
ASSETS:
Investments in real estate limited partnerships $ -- $ -- $ -- $ 362,108 $ -- $1,266,929
Cash and cash equivalent 2 853 6,039 334 7,653 25,119
Notes receivable from affiliates 365,000 976,439 612,000 327,639 787,148 5,529,172
Notes receivable from non-affiliates -- -- -- 160,000 -- 800,000
Advances receivable from affiliates 93,302 19,500 14,513 135 -- 263,376
Other receivables -- -- -- -- -- 12,525
Accrued interest receivable from non-affiliates -- -- -- 4,382 -- 22,863
Accrued interest receivable from affiliates 114,171 142,576 103,342 43,112 90,089 721,265
---------- ---------- ---------- ---------- ---------- ----------
TOTAL $ 572,475 $1,139,368 $ 735,894 $ 897,710 $ 884,890 $8,641,249
========== ========== ========== ========== ========== ==========
LIABILITIES AND PARTNERS' CAPITAL
LIABILITIES:
Advances payable to affiliates $ -- $ -- $ 61,500 $ 48,756 $ -- $ 112,106
Note Payable -- 259,639 -- -- -- 659,639
Accrued interest payable -- 37,198 6,451 -- -- 81,085
Administrative fees payable to general partner 10,500 26,000 16,000 25,000 6,000 141,393
Other liabilities -- 400 -- -- -- 400
PARTNERS' CAPITAL: 561,975 816,131 651,943 823,954 878,890 7,646,626
---------- ---------- ---------- ---------- ---------- ----------
TOTAL $ 572,475 $1,139,368 $ 735,894 $ 897,710 $ 884,890 $8,641,249
========== ========== ========== ========== ========== ==========
</TABLE>
See notes to unaudited pro forma condensed consolidated financial information.
<PAGE>
SELECTED FINANCIAL INFORMATION
BARON CAPITAL TRUST
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
YEAR DECEMBER 31, 1998
(UNAUDITED)
<TABLE>
<CAPTION>
Historical
----------------------------------------------------------
Exchange
Mortgage
Partnerships
Baron Exchange and Exchange
Capital Equity Hybrid
Trust (1) Partnerships Partnerships Sub-Total
--------- ------------ ------------ ---------
<S> <C> <C> <C> <C>
REVENUE:
Equity in net income of affiliates $ -- $ -- $ 90,233 $ 90,233
Interest income from affiliates -- -- 830,093 830,093
Other interest income 1,485 -- 16,568 18,053
Rental income 911,558 3,978,871 -- 4,890,429
Other income 26,760 227,439 -- 254,199
----------- ----------- ----------- -----------
Total Revenue 939,803 4,206,310 936,894 6,083,007
----------- ----------- ----------- -----------
COSTS AND EXPENSES:
Equity in net loss of affiliates -- -- -- --
Interest expense to affiliate -- -- 46,839 46,839
Administrative fees to general partner -- -- 93,554 93,554
Personnel 839,857 627,247 -- 1,467,104
Real estate taxes and insurance 128,305 494,880 -- 623,185
Management , investment and administrative fees,
managing shareholder and other operating expenses 804,784 -- -- 804,784
Property management fees 18,834 307,734 -- 326,568
Interest 381,649 1,417,039 -- 1,798,688
Depreciation 208,151 998,621 -- 1,206,772
Other operating expenses -- 1,434,499 157,010 1,591,509
Major maintenance 119,352 58,920 -- 178,272
----------- ----------- ----------- -----------
Total costs and expenses 2,500,932 5,338,940 297,403 8,137,275
----------- ----------- ----------- -----------
NET INCOME (LOSS) $(1,561,129) $(1,132,630) $ 639,491 $(2,054,268)
=========== =========== =========== ===========
Weighted average shares used to compute
net loss per share 262,631
===========
Basic net loss per share $ (5.94)
===========
<CAPTION>
Pro forma
Adjustments Pro Forma
----------- ---------
<S> <C> <C>
REVENUE:
Equity in net income of affiliates $ -- $ 90,233
Interest income from affiliates -- 830,093
Other interest income -- 18,053
Rental income -- 4,890,429
Other income -- 254,199
----------- -----------
Total Revenue -- 6,083,007
----------- -----------
COSTS AND EXPENSES:
Equity in net loss of affiliates -- --
Interest expense to affiliate -- 46,839
Administrative fees to general partner (93,554)(b) --
Personnel -- 1,467,104
Real estate taxes and insurance -- 623,185
Management , investment and administrative fees,
managing shareholder and other operating expenses -- 804,784
Property management fees (326,568)(a) --
Interest -- 1,798,688
Depreciation (929,000)(e) 1,379,772
1,102,000(e)
Other operating expenses -- 1,591,509
Major maintenance (178,272)(c) --
----------- -----------
Total costs and expenses (425,394) 7,711,881
----------- -----------
NET INCOME (LOSS) $ (425,394) $(1,628,874)
=========== ===========
Weighted average shares used to compute
net loss per share 2,934,766(g) 3,179,397
===========
Basic net loss per share $ (0.51)
===========
</TABLE>
(1) Results of operations presented as if Baron Capital Trust owned acquired
limited partnerships for entire year.
See notes to unaudited pro forma condensed consolidated financial information.
<PAGE>
SELECTED FINANCIAL INFORMATION
BARON CAPITAL TRUST
PRO FORMA CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
YEAR ENDED DECEMBER 31, 1998
(UNAUDITED)
<TABLE>
<CAPTION>
Historical Pro Forma (1)
------------------------- --------------------------------------
Baron
Baron Capital
Capital Properties, Heatherwood Crystal
Trust L.P. I Riverwalk Court II Total
----- ---- - --------- -------- -----
<S> <C> <C> <C> <C> <C> <C>
REVENUE:
Rental income $ -- $ -- $ 294,759 $ 332,862 $ 283,937 $ 911,558
Interest income 1,331 930 -- -- 1,485 1,485
Other income -- -- 11,258 12,038 3,464 26,760
----------- ----------- ----------- ----------- ----------- -----------
Total Revenue 1,331 930 306,017 344,900 288,886 939,803
----------- ----------- ----------- ----------- ----------- -----------
COSTS AND EXPENSES:
Personnel -- 721,715 56,414 33,716 28,012 839,857
Real estate taxes and insurance -- -- 38,468 49,840 39,997 128,305
Property management fees -- -- 9,200 -- 9,634 18,834
Interest -- 29,913 99,784 118,412 133,540 381,649
Depreciation and amortization -- 9,308 48,810 78,058 71,975 208,151
Major Maintenance -- -- 28,038 24,726 66,588 119,352
Other operating expenses, net of
reimbursements 569,521 26,801 81,823 97,688 28,951 804,784
----------- ----------- ----------- ----------- ----------- -----------
Total costs and expenses 569,521 787,737 362,537 402,440 378,697 2,500,932
----------- ----------- ----------- ----------- ----------- -----------
NET INCOME (LOSS) $ (568,190) $ (786,807) $ (56,520) $ (57,540) $ (89,811) $(1,561,129)
=========== =========== =========== =========== =========== ===========
</TABLE>
(1) Results of operations presented as if Baron Capital Trust owned each entity
for the entire twelve month period. (These entities were acquired at
different dates during 1998.)
See notes to unaudited pro forma condensed consolidated financial information.
<PAGE>
SELECTED FINANCIAL INFORMATION
BARON CAPITAL TRUST
EXCHANGE EQUITY PARTNERSHIPS
HISTORICAL CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
YEAR ENDED DECEMBER 31, 1998
(UNAUDITED)
<TABLE>
<CAPTION>
Historical
------------------------------------------------------------------------
Laurel Oaks/
Brookwood Grove Forest
Steeplechase Way Hamlet Bridgepoint Glen I
------------ --- ------ ----------- ------
<S> <C> <C> <C> <C> <C>
REVENUE:
Rental income $ 297,880 $ 275,189 $ 282,024 $ 237,872 $ 362,118
Other income 23,059 8,015 10,963 13,760 16,098
----------- ----------- ----------- ----------- -----------
Total Revenue 320,939 283,204 292,987 251,632 378,216
----------- ----------- ----------- ----------- -----------
COSTS AND EXPENSES:
Personnel 60,173 30,819 40,337 19,159 54,733
Real estate taxes and insurance 37,339 22,640 31,851 24,924 46,578
Property management fees 23,119 21,964 24,245 20,712 25,812
Interest 91,982 102,287 117,215 68,574 116,664
Depreciation and Amortization 54,183 59,987 79,918 39,386 203,290
Other operating expenses 128,645 46,539 60,699 92,266 67,541
Major Maintenance 27,552 901 -- -- --
----------- ----------- ----------- ----------- -----------
Total costs and expenses 422,993 285,137 354,265 265,021 514,618
----------- ----------- ----------- ----------- -----------
NET INCOME (LOSS) $ (102,054) $ (1,933) $ (61,278) $ (13,389) $ (136,402)
=========== =========== =========== =========== ===========
<CAPTION>
Historical
-----------------------------------------------------------------------
Camellia Glen Blossom Stadium Forest
Court Lake Corners I Court Glen IV
----- ---- --------- ----- -------
<S> <C> <C> <C> <C> <C>
REVENUE:
Rental income $ 266,911 $ 703,744 $ 338,755 $ 397,831 $ 53,558
Other income 23,575 26,875 14,260 44,049 3,081
----------- ----------- ----------- ----------- -----------
Total Revenue 290,486 730,619 353,015 441,880 56,639
----------- ----------- ----------- ----------- -----------
COSTS AND EXPENSES:
Personnel 35,205 172,502 43,980 77,976 6,091
Real estate taxes and insurance 39,651 111,857 32,696 31,459 7,364
Property management fees 22,465 17,849 27,362 44,449 8,690
Interest 98,620 318,032 93,696 141,388 17,915
Depreciation and Amortization 49,550 144,167 70,494 90,861 16,895
Other operating expenses 108,366 440,771 78,939 161,874 22,149
Major Maintenance -- -- 21,970 -- --
----------- ----------- ----------- ----------- -----------
Total costs and expenses 353,857 1,205,178 369,137 548,007 79,104
----------- ----------- ----------- ----------- -----------
NET INCOME (LOSS) $ (63,371) $ (474,559) $ (16,122) $ (106,127) $ (22,465)
=========== =========== =========== =========== ===========
<CAPTION>
Historical
--------------------------------------------------------
Forest Forest
Glen II Glen III Eagle Lake Total
------- -------- ---------- -----
<S> <C> <C> <C> <C>
REVENUE:
Rental income $ 204,746 $ 176,122 $ 382,121 $ 3,978,871
Other income 6,773 11,808 25,123 227,439
----------- ----------- ----------- -----------
Total Revenue 211,519 187,930 407,244 4,206,310
----------- ----------- ----------- -----------
COSTS AND EXPENSES:
Personnel 20,454 17,651 48,167 627,247
Real estate taxes and insurance 27,095 25,738 55,688 494,880
Property management fees 17,248 15,923 37,896 307,734
Interest 66,542 56,304 127,820 1,417,039
Depreciation and Amortization 58,800 53,353 77,737 998,621
Other operating expenses 58,158 59,650 108,902 1,434,499
Major Maintenance -- 8,497 -- 58,920
----------- ----------- ----------- -----------
Total costs and expenses 248,297 237,116 456,210 5,338,940
----------- ----------- ----------- -----------
NET INCOME (LOSS) $ (36,778) $ (49,186) $ (48,966) $(1,132,630)
=========== =========== =========== ===========
</TABLE>
See notes to unaudited pro forma condensed consolidated financial information.
<PAGE>
SELECTED FINANCIAL INFORMATION
BARON CAPITAL TRUST
EXCHANGE MORTGAGE PARTNERSHIP AND EXCHANGE HYBRID PARTNERSHIPS
HISTORICAL CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
YEAR ENDED DECEMBER 31, 1998
(UNAUDITED)
<TABLE>
<CAPTION>
Historical
---------------------------------------------------------------
BSIF V, BSIF VIII, BSIF X, BSIF IX, BMP, LCOB,
Ltd. Ltd. Ltd. Ltd. Ltd. Ltd.
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
REVENUE:
Equity in net income of affiliates $ -- $ -- $ 41,647 $ 7,297 $ -- $ --
Interest income from affiliates 93,797 100,741 27,290 37,686 73,533 66,772
Other 493 762 9,668 3,654 35 158
-------- -------- -------- -------- -------- --------
94,290 101,503 78,605 48,637 73,568 66,930
-------- -------- -------- -------- -------- --------
COSTS AND EXPENSES:
Equity in net loss of affiliates -- -- -- -- -- --
Interest expense to affiliate -- -- -- -- -- --
Administrative fees to general partner 12,000 12,000 12,000 12,000 3,554 6,000
General and administrative 7,512 19,873 55,045 9,856 9,000 5,350
-------- -------- -------- -------- -------- --------
19,512 31,873 67,045 21,856 12,554 11,350
-------- -------- -------- -------- -------- --------
Net income $ 74,778 $ 69,630 $ 11,560 $ 26,781 $ 61,014 $ 55,580
======== ======== ======== ======== ======== ========
<CAPTION>
Historical
----------------------------------------------------
BSIF IV, BSVF I, BSIF VI, BSIF,
Ltd. Ltd. Ltd. Ltd. Total
---- ---- ---- ---- -----
<S> <C> <C> <C> <C> <C>
REVENUE:
Equity in net income of affiliates $ -- $ -- $ 41,289 $ -- $ 90,233
Interest income from affiliates 166,018 108,204 50,684 105,368 830,093
Other 342 447 644 365 16,568
-------- -------- -------- -------- --------
166,360 108,651 92,617 105,733 936,894
-------- -------- -------- -------- --------
COSTS AND EXPENSES:
Equity in net loss of affiliates -- -- -- -- --
Interest expense to affiliate 40,388 6,451 -- -- 46,839
Administrative fees to general partner 12,000 6,000 12,000 6,000 93,554
General and administrative 10,925 10,445 5,023 23,981 157,010
-------- -------- -------- -------- --------
63,313 22,896 17,023 29,981 297,403
-------- -------- -------- -------- --------
Net income $103,047 $ 85,755 $ 75,594 $ 75,752 $639,491
======== ======== ======== ======== ========
</TABLE>
See notes to unaudited pro forma condensed consolidated financial information.
<PAGE>
SELECTED FINANCIAL INFORMATION
BARON CAPITAL TRUST
PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
MARCH 31, 1999
(UNAUDITED)
<TABLE>
<CAPTION>
Historical
-----------------------------------------------------------
Exchange
Mortgage
Partnerships
and
Baron Exchange Exchange
Capital Equity Hybrid
Trust Partnerships Partnerships Sub-Total
----- ------------ ------------ ---------
<S> <C> <C> <C> <C>
ASSETS:
Real Estate $ 7,367,788 $ 25,774,444 $ -- $ 33,142,232
Less accumulated depreciation (1,287,894) (2,807,800) -- (4,095,694)
Investments in real estate limited partnership 1,403,330 -- 1,103,155 2,506,485
Cash and cash equivalent 17,325 455,058 17,020 489,403
Restricted cash 68,540 -- -- 68,540
Property management reimbursements receivable, affiliates 155,071 -- -- 155,071
Notes receivable from affiliates -- -- 5,529,172 5,529,172
Notes receivable from non-affiliates -- -- 800,000 800,000
Advances receivable from affiliates 10,750 -- 263,217 273,967
Other receivables 129,152 -- 12,525 141,677
Other property and equipment 217,407 -- -- 217,407
Accrued interest receivable from non-affiliates -- -- 36,191 36,191
Accrued interest receivable from affiliates -- -- 796,622 796,622
Accounts receivable -- 260,288 -- 260,288
Deferred expenses, net -- 2,283,818 -- 2,283,818
Other assets 205,576 1,342,619 -- 1,548,195
------------ ------------ ------------ ------------
TOTAL $ 8,287,045 $ 27,308,427 $ 8,557,902 $ 44,153,374
============ ============ ============ ============
LIABILITIES AND PARTNERS' CAPITAL
LIABILITIES:
Mortgages payable $ 4,029,810 $ 17,273,545 $ -- $ 21,303,355
Notes Payable 375,000 -- 659,639 1,034,639
Advances payable to affiliates 214,929 2,850,522 112,106 3,177,557
Accrued interest and payable -- -- 102,504 102,504
Accrued real estate taxes payable -- 102,556 -- 102,556
Administrative fees payable to general partner -- -- 166,143 166,143
Security deposits and prepaid rent 48,682 206,360 -- 255,042
Other liabilities 55,984 874,050 484 930,518
PARTNERS' CAPITAL 3,562,640 6,001,394 7,517,026 17,081,060
------------ ------------ ------------ ------------
TOTAL $ 8,287,045 $ 27,308,427 $ 8,557,902 $ 44,153,374
============ ============ ============ ============
<CAPTION>
Pro Forma Pro Forma
Adjustments Consolidated
----------- ------------
<S> <C> <C>
ASSETS:
Real Estate $ 7,970,000(d) $ 41,112,232
Less accumulated depreciation -- (4,095,694)
Investments in real estate limited partnership -- 2,506,485
Cash and cash equivalent -- 489,403
Restricted cash -- 68,540
Property management reimbursements receivable, affiliates -- 155,071
Notes receivable from affiliates 3,426,000(d) 8,679,172
(276,000)(f)
Notes receivable from non-affiliates -- 800,000
Advances receivable from affiliates -- 273,967
Other receivables -- 141,677
Other property and equipment -- 217,407
Accrued interest receivable from non-affiliates -- 36,191
Accrued interest receivable from affiliates -- 796,622
Accounts receivable -- 260,288
Deferred expenses, net -- 2,283,818
Other assets -- 1,548,195
------------ ------------
TOTAL $ 11,120,000 $ 55,273,374
============ ============
LIABILITIES AND PARTNERS' CAPITAL
LIABILITIES:
Mortgages payable $ -- $ 21,303,355
Notes Payable -- 1,034,639
Advances payable to affiliates (276,000)(f) 2,901,557
Accrued interest and payable -- 102,504
Accrued real estate taxes payable -- 102,556
Administrative fees payable to general partner -- 166,143
Security deposits and prepaid rent -- 255,042
Other liabilities -- 930,518
PARTNERS' CAPITAL 11,396,000(d) 28,477,060
------------ ------------
TOTAL $ 11,120,000 $ 55,273,374
============ ============
</TABLE>
See notes to unaudited pro forma condensed consolidated financial information.
<PAGE>
SELECTED FINANCIAL INFORMATION
BARON CAPITAL TRUST
HISTORICAL CONDENSED CONSOLIDATED BALANCE SHEET
EXCHANGE EQUITY PARTNERSHIPS
MARCH 31, 1999
(UNAUDITED)
<TABLE>
<CAPTION>
Historical
----------------------------------------------------------------------------
Eagle Brookwood Grove Bridge
Steeplechase Lake Way Hamlet Point
------------ ---- --- ------ -----
<S> <C> <C> <C> <C> <C>
ASSETS:
Real Estate $ 1,821,218 $ 2,240,099 $ 1,813,475 $ 2,269,579 $ 1,274,766
Less accumulated depreciation (115,778) (249,164) (127,209) (377,722) (128,397)
Investments in partnership -- -- -- -- --
Cash and cash equivalent 24,881 39,271 25,984 28,003 26,392
Accounts receivable 22,756 5,754 3,186 17,678 4,023
Deferred expenses, net -- 187,079 134,912 189,763 149,937
Other assets 17,432 35,315 50,551 64,644 35,385
------------ ------------ ------------ ------------ ------------
TOTAL $ 1,770,509 $ 2,258,354 $ 1,900,899 $ 2,191,945 $ 1,362,106
============ ============ ============ ============ ============
LIABILITIES AND PARTNERS' CAPITAL
LIABILITIES:
Mortgages payable $ 1,254,307 $ 1,433,616 $ 1,286,599 $ 1,592,584 $ 713,208
Loans payable 75,459 392,427 394,069 300,080 32,000
Accrued interest and payable -- -- -- -- --
Accrued real estate taxes payable 7,753 11,129 4,889 7,516 4,652
Security deposits and prepaid rent 18,964 18,416 16,642 20,171 12,150
Other liabilities 77,643 52,122 30,172 10,997 36,473
PARTNERS' CAPITAL 336,383 350,644 168,528 260,597 563,623
------------ ------------ ------------ ------------ ------------
TOTAL $ 1,770,509 $ 2,258,354 $ 1,900,899 $ 2,191,945 $ 1,362,106
============ ============ ============ ============ ============
<CAPTION>
Historical
----------------------------------------------------------------------------
Forest Camellia Stadium Forest
Glen I Court Glen Lake Club Glen IV
------ ----- --------- ---- -------
<S> <C> <C> <C> <C> <C>
ASSETS:
Real Estate $ 2,463,306 $ 1,530,266 $ 4,546,682 $ 2,247,944 $ 497,651
Less accumulated depreciation (300,032) (153,045) (456,949) (225,796) (68,272)
Investments in partnership -- -- -- -- --
Cash and cash equivalent 57,038 34,671 128,565 11,735 7,467
Accounts receivable 16,715 13,778 72,783 60,130 63
Deferred expenses, net 242,775 176,139 371,378 308,172 29,703
Other assets 416,878 32,534 84,675 22,980 74,933
------------ ------------ ------------ ------------ ------------
TOTAL $ 2,896,680 $ 1,634,343 $ 4,747,134 $ 2,425,165 $ 541,545
============ ============ ============ ============ ============
LIABILITIES AND PARTNERS' CAPITAL
LIABILITIES:
Mortgages payable $ 1,783,321 $ 1,069,633 $ 3,223,287 $ 1,716,386 $ 277,405
Loans payable 528,862 92,500 650,200 170,603 43,862
Accrued interest and payable -- -- -- -- --
Accrued real estate taxes payable 9,873 7,500 25,041 3,662 1,536
Security deposits and prepaid rent 16,923 17,437 7,874 34,580 3,125
Other liabilities 57,991 48,245 341,884 2,729 87,476
PARTNERS' CAPITAL 499,710 399,028 498,848 497,205 128,141
------------ ------------ ------------ ------------ ------------
TOTAL $ 2,896,680 $ 1,634,343 $ 4,747,134 $ 2,425,165 $ 541,545
============ ============ ============ ============ ============
<CAPTION>
Historical
--------------------------------------------
Forest Forest Blossom
Glen II Glen III Corners I Total
------- -------- --------- -----
<S> <C> <C> <C> <C>
ASSETS:
Real Estate $ 1,713,858 $ 1,572,807 $ 1,782,793 $ 25,774,444
Less accumulated depreciation (223,182) (219,892) (162,362) (2,807,800)
Investments in partnership -- -- -- --
Cash and cash equivalent 30,568 21,450 19,033 455,058
Accounts receivable 5,345 4,572 33,505 260,288
Deferred expenses, net 134,892 134,635 224,433 2,283,818
Other assets 249,396 198,472 59,424 1,342,619
------------ ------------ ------------ ------------
TOTAL $ 1,910,877 $ 1,712,044 $ 1,956,826 $ 27,308,427
============ ============ ============ ============
LIABILITIES AND PARTNERS' CAPITAL
LIABILITIES:
Mortgages payable $ 1,030,363 $ 871,846 $ 1,020,990 $ 17,273,545
Loans payable 81,869 55,522 33,069 2,850,522
Accrued interest and payable -- -- --
Accrued real estate taxes payable 5,705 6,425 6,875 102,556
Security deposits and prepaid rent 18,047 5,166 16,865 206,360
Other liabilities 53,672 32,812 41,834 874,050
PARTNERS' CAPITAL 721,221 740,273 837,193 6,001,394
------------ ------------ ------------ ------------
TOTAL $ 1,910,877 $ 1,712,044 $ 1,956,826 $ 27,308,427
============ ============ ============ ============
</TABLE>
See notes to unaudited pro forma condensed consolidated financial information.
<PAGE>
SELECTED FINANCIAL INFORMATION
BARON CAPITAL TRUST
EXCHANGE MORTGAGE PARTNERSHIPS AND EXCHANGE HYBRID PARTNERSHIPS
HISTORICAL CONDENSED CONSOLIDATED BALANCE SHEET
MARCH 31, 1999
(UNAUDITED)
<TABLE>
<CAPTION>
Historical
---------------------------------------------------------------------------
BSIV V, BSIV VIII, BSIV X, BSIV IX, BMP, LCOB,
Ltd. Ltd. Ltd. Ltd. Ltd. Ltd.
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
ASSETS:
Investments in real estate limited partnership $ -- $ -- $ 530,390 $ 249,056 $ -- $ --
Cash and cash equivalent 1,017 -- 2,154 102 951 7
Notes receivable from affiliates 743,100 807,155 117,500 319,000 474,191 365,000
Notes receivable from non-affiliates -- -- 440,000 200,000 -- --
Advances receivable from affiliates 80,939 10,000 38,287 6,541 -- 93,302
Other receivables -- -- 9,394 3,131 -- --
Accrued interest receivable from non-affiliates -- -- 16,133 14,451 -- --
Accrued interest receivable from affiliates 46,930 55,836 5,645 32,060 107,152 125,554
---------- ---------- ---------- ---------- ---------- ----------
TOTAL $ 871,986 $ 872,991 $1,159,503 $ 824,341 $ 582,294 $ 583,863
========== ========== ========== ========== ========== ==========
LIABILITIES AND PARTNERS' CAPITAL
LIABILITIES:
Advances payable to affiliates $ -- $ -- $ -- $ -- $ 1,850 $ --
Note Payable -- -- 400,000 -- -- --
Accrued interest payable -- -- 47,299 -- -- --
Administrative fees payable to general partner 10,000 10,000 12,393 10,500 29,250 12,000
Other liabilities -- 84 -- -- -- --
PARTNERS' CAPITAL 861,986 862,907 699,811 813,841 551,194 571,863
---------- ---------- ---------- ---------- ---------- ----------
TOTAL $ 871,986 $ 872,991 $1,159,503 $ 824,341 $ 582,294 $ 583,863
========== ========== ========== ========== ========== ==========
<CAPTION>
Historical
-------------------------------------------------
BSIV IV, BSVF I, BSIV VI, BSIF,
Ltd. Ltd. Ltd. Ltd. Total
---- ---- ---- ---- -----
<S> <C> <C> <C> <C> <C>
ASSETS:
Investments in real estate limited partnership $ -- $ -- $ 323,709 $ -- $1,103,155
Cash and cash equivalent 794 4,368 393 7,234 17,020
Notes receivable from affiliates 976,439 612,000 327,639 787,148 5,529,172
Notes receivable from non-affiliates -- -- 160,000 -- 800,000
Advances receivable from affiliates 19,500 14,513 135 -- 263,217
Other receivables -- -- -- -- 12,525
Accrued interest receivable from non-affiliates -- -- 5,607 -- 36,191
Accrued interest receivable from affiliates 168,683 108,474 54,861 91,427 796,622
---------- ---------- ---------- ---------- ----------
TOTAL $1,165,416 $ 739,355 $ 872,344 $ 885,809 $8,557,902
========== ========== ========== ========== ==========
LIABILITIES AND PARTNERS' CAPITAL
LIABILITIES:
Advances payable to affiliates $ -- $ 61,500 $ 48,756 $ -- $ 112,106
Note Payable 259,639 -- -- -- 659,639
Accrued interest payable 46,934 8,271 -- -- 102,504
Administrative fees payable to general partner 29,000 17,500 28,000 7,500 166,143
Other liabilities 400 -- -- -- 484
PARTNERS' CAPITAL 829,443 652,084 795,588 878,309 7,517,026
---------- ---------- ---------- ---------- ----------
TOTAL $1,165,416 $ 739,355 $ 872,344 $ 885,809 $8,557,902
========== ========== ========== ========== ==========
</TABLE>
See notes to unaudited pro forma condensed consolidated financial information.
<PAGE>
SELECTED FINANCIAL INFORMATION
BARON CAPITAL TRUST
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 1999 AND 1998
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended March 31, 1999
-------------------------------------------------------------------------------------
Historical
---------------------------------------------------------
Exchange
Mortgage
Partnerships
and
Baron Exchange Exchange
Capital Equity Hybrid Pro Forma
Trust Partnerships Partnerships Sub-Total Adjustments Pro Forma
----- ------------ ------------ --------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C>
REVENUE:
Equity in net income of affiliates $ -- $ -- $ 17,800 $ 17,800 $ -- $ 17,800
Interest income from affiliates -- -- 201,541 201,541 -- 201,541
Other interest income 383 -- 116 499 -- 499
Rental income 257,350 977,692 -- 1,235,042 -- 1,235,042
Other income 4,845 129,643 -- 134,488 -- 134,488
----------- ----------- ----------- ----------- ----------- -----------
Total Revenue 262,578 1,107,335 219,457 1,589,370 -- 1,589,370
----------- ----------- ----------- ----------- ----------- -----------
COSTS AND EXPENSES:
Equity in net loss of affiliates -- -- -- -- -- --
Interest expense to affiliate -- -- 21,419 21,419 -- 21,419
Administrative fees to general partner -- -- 24,750 24,750 (24,750)(b) --
Personnel 301,701 116,405 -- 418,106 -- 418,106
Real estate taxes and insurance 27,802 128,631 -- 156,433 -- 156,433
Management, investment and administrative
fees, managing shareholder and other
operating expenses 75,671 -- 786 76,457 -- 76,457
Property management fees -- 83,039 -- 83,039 (83,039)(a) --
Interest 73,186 332,201 -- 405,387 -- 405,387
Depreciation and amortization 36,453 245,757 -- 282,210 (232,250)(e) 325,460
275,500(c)
Other operating expenses 224,845 197,833 -- 422,678 -- 422,678
Major maintenance -- 10,243 -- 10,243 (10,243)(c) --
----------- ----------- ----------- ----------- ----------- -----------
Total costs and expenses 739,658 1,114,109 46,955 1,900,722 (74,782) 1,825,940
----------- ----------- ----------- ----------- ----------- -----------
NET INCOME (LOSS) $ (477,080) $ (6,774) $ 172,502 $ (311,352) $ (74,782) $ (236,570)
=========== =========== =========== =========== =========== ===========
Weighted average shares used to compute
net loss per share 645,056 2,934,766(g) 3,579,822
=========== ===========
Basic net loss per share $ (0.74) $ (0.07)
=========== ===========
<CAPTION>
Three Months Ended March 31, 1998
------------------------------------------------------------------------------------
Historical
-----------------------------------------------------
Exchange
Mortgage
Partnerships
and
Baron Exchange Exchange
Capital Equity Hybrid Pro forma
Trust Partnerships Partnerships Sub-Total Adjustments Pro Forma
----- ------------ ------------ --------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C>
REVENUE:
Equity in net income of affiliates $ -- $ -- $ 22,558 $ 22,558 $ -- $ 22,558
Interest income from affiliates -- -- 207,523 207,523 -- 207,523
Other interest income -- -- 4,150 4,150 -- 4,150
Rental income -- 994,718 -- 994,718 -- 994,718
Other income -- 56,860 -- 56,860 -- 56,860
----------- ----------- ----------- ----------- ----------- -----------
Total Revenue -- 1,051,578 234,231 1,285,809 -- 1,285,809
----------- ----------- ----------- ----------- ----------- -----------
COSTS AND EXPENSES:
Equity in net loss of affiliates -- -- -- -- -- --
Interest expense to affiliate -- -- 11,710 11,710 -- 11,710
Administrative fees to general partner -- -- 23,389 23,389 (23,389)(b) (1)
Personnel -- 156,812 -- 156,812 -- 156,812
Real estate taxes and insurance -- 123,720 -- 123,720 -- 123,720
Management, investment and administrative
fees, managing shareholder and other
operating expenses -- -- -- -- -- --
Property management fees -- 76,934 -- 76,934 (76,950)(a) (17)
Interest -- 354,260 -- 354,260 -- 354,260
Depreciation and amortization -- 249,655 -- 249,655 (232,250)(e) 292,905
275,500(e)
Other operating expenses -- 358,625 39,253 397,877 -- 397,877
Major maintenance -- 14,730 -- 14,730 (14,730)(c) --
----------- ----------- ----------- ----------- ----------- -----------
Total costs and expenses -- 1,334,735 74,351 1,409,086 (71,819) 1,337,267
----------- ----------- ----------- ----------- ----------- -----------
NET INCOME (LOSS) $ -- $ (283,158) $ 159,880 $ (123,277) $ (71,819) $ (51,458)
=========== =========== =========== =========== =========== ===========
Weighted average shares used to compute
net loss per share 262,631 2,934,766(g) 3,179,397
=========== ===========
Basic net loss per share $ -- $ (0.02)
=========== ===========
</TABLE>
See notes to unaudited pro forma condensed consolidated financial information.
<PAGE>
SELECTED FINANCIAL INFORMATION
BARON CAPITAL TRUST
PRO FORMA CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 1999 AND 1998
(UNAUDITED)
<TABLE>
<CAPTION>
Historical - Three Months Ended March 31, 1999
-----------------------------------------------------------------------
Baron
Baron Capital
Capital Properties, Heatherwood Crystal
Trust L.P. I Riverwalk Court II Total
----- ---- - --------- -------- -----
<S> <C> <C> <C> <C> <C> <C>
REVENUE:
Rental income $ -- $ -- $ 83,749 $ 87,525 $ 86,076 $ 257,350
Interest income 269 114 -- -- -- 383
Other income -- -- 993 2,471 1,381 4,845
--------- --------- --------- --------- --------- ---------
Total Revenue 269 114 84,742 89,996 87,457 262,578
--------- --------- --------- --------- --------- ---------
COSTS AND EXPENSES:
Personnel -- 272,661 10,062 12,369 6,609 301,701
Real estate taxes and insurance -- -- 7,921 11,093 8,788 27,802
Property management fees -- -- -- -- -- --
Management, investment and
administrative 43,551 32,120 -- -- -- 75,671
Professional services 26,626 107,266 -- -- -- 133,892
Advisory fees 23,389 -- -- -- -- 23,389
Interest -- -- 25,389 29,331 18,466 73,186
Depreciation and amortization -- -- 10,460 11,916 14,077 36,453
Major maintenance -- -- -- -- -- --
Other operating expenses, net
of reimbursements -- 29,323 13,718 10,465 14,058 67,564
--------- --------- --------- --------- --------- ---------
Total costs and expenses 93,566 441,370 67,550 75,174 61,998 739,658
--------- --------- --------- --------- --------- ---------
NET INCOME (LOSS) $ (93,297) $(441,256) $ 17,192 $ 14,822 $ 25,459 $(477,080)
========= ========= ========= ========= ========= =========
<CAPTION>
Three Months Ended March 31, 1998
------------------------------------------------------------------------
Historical Pro Forma
--------------------- ------------------------------------
Baron
Baron Capital
Capital Properties, Heatherwood Crystal
Trust L.P. I Riverwalk Court II Total
----- ---- - --------- -------- -----
<S> <C> <C> <C> <C> <C> <C>
REVENUE:
Rental income $ -- $ -- $ 73,690 $ 83,216 $ 70,984 $ 227,890
Interest income -- -- -- -- 371 371
Other income -- -- 2,815 3,010 866 6,690
--------- --------- --------- --------- --------- ---------
Total Revenue -- -- 76,504 86,225 72,222 234,951
--------- --------- --------- --------- --------- ---------
COSTS AND EXPENSES:
Personnel -- -- 14,104 8,429 7,003 29,536
Real estate taxes and insurance -- -- 9,617 12,460 9,999 32,076
Property management fees -- -- 2,300 -- 2,409 4,709
Management, investment and
administrative -- -- -- -- -- --
Professional services -- -- -- -- -- --
Advisory fees -- -- -- -- -- --
Interest -- -- 24,946 29,603 33,385 87,934
Depreciation and amortization -- -- 12,203 19,515 17,994 49,711
Major maintenance -- -- 7,010 6,182 16,647 29,838
Other operating expenses, net
of reimbursements -- -- 20,456 24,422 7,238 52,116
--------- --------- --------- --------- --------- ---------
Total costs and expenses -- -- 90,634 100,610 94,674 285,919
--------- --------- --------- --------- --------- ---------
NET INCOME (LOSS) $ -- $ -- $ (14,130) $ (14,385) $ (22,453) $ (50,968)
========= ========= ========= ========= ========= =========
</TABLE>
See notes to unaudited pro forma condensed consolidated financial information.
<PAGE>
SELECTED FINANCIAL INFORMATION
BARON CAPITAL TRUST
EXCHANGE EQUITY PARTNERSHIPS
HISTORICAL AND PRO FORMA CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 1999 AND 1998
(UNAUDITED)
<TABLE>
<CAPTION>
Historical - Three Months Ended March 31, 1999
------------------------------------------------------------------------------------------------
Brookwood Grove Forest Camellia Glen
Steeplechase Way Hamlet Bridgepoint Glen I Court Lake
------------ --- ------ ----------- ------ ----- ----
<S> <C> <C> <C> <C> <C> <C> <C>
REVENUE:
Rental income $ 69,727 $ 68,386 $ 76,469 $ 58,461 $ 94,877 $ 72,811 $ 147,230
Other income 19,056 1,200 2,030 7,274 1,321 5,850 79,526
----------- ----------- ----------- ----------- ----------- ----------- -----------
Total Revenue 88,783 69,586 78,499 65,735 96,198 78,661 226,756
----------- ----------- ----------- ----------- ----------- ----------- -----------
COSTS AND EXPENSES:
Personnel 11,970 7,074 8,299 4,552 6,506 8,584 30,934
Real estate taxes and insurance 9,005 5,973 11,175 6,076 11,517 10,011 31,731
Property management fees 6,164 4,159 6,647 5,346 7,146 5,887 12,154
Interest 24,593 31,110 24,455 17,011 30,966 24,118 53,001
Depreciation and Amortization 13,546 14,997 19,980 9,847 50,823 12,388 32,141
Other operating expenses 9,815 916 16,941 14,752 10,100 14,544 73,123
Major Maintenance 560 -- 1,832 1,438 -- 130 1,664
----------- ----------- ----------- ----------- ----------- ----------- -----------
Total costs and expenses 75,653 64,229 89,329 59,022 117,058 75,662 234,748
----------- ----------- ----------- ----------- ----------- ----------- -----------
NET INCOME (LOSS) $ 13,130 5,357 (10,830) 6,713 (20,860) 2,999 (7,992)
=========== =========== =========== =========== =========== =========== ===========
<CAPTION>
Historical - Three Months Ended March 31, 1999
-----------------------------------------------------------------------------------
Blossom Stadium Forest Forest Forest Eagle
Corners I Court Glen IV Glen II Glen III Lake Total
--------- ----- ------- ------- -------- ---- -----
<S> <C> <C> <C> <C> <C> <C> <C>
REVENUE:
Rental income $ 78,458 $ 104,712 $ 15,282 $ 49,592 $ 47,548 $ 94,139 $ 977,692
Other income 1,440 1,756 80 5,466 1,197 3,447 129,643
----------- ----------- ----------- ----------- ----------- ----------- -----------
Total Revenue 79,898 106,468 15,362 55,058 48,745 97,586 1,107,335
----------- ----------- ----------- ----------- ----------- ----------- -----------
COSTS AND EXPENSES:
Personnel 7,078 12,896 1,014 3,769 3,191 10,538 116,405
Real estate taxes and insurance 8,366 5,367 1,792 6,654 7,507 13,457 128,631
Property management fees 6,464 8,264 3,269 5,385 4,849 7,305 83,039
Interest 22,999 33,913 5,003 18,584 15,725 30,723 332,201
Depreciation and Amortization 17,624 22,715 4,224 14,700 13,338 19,434 245,757
Other operating expenses 14,739 12,239 1,780 7,944 5,623 15,317 197,833
Major Maintenance 1,855 -- -- 1,213 965 586 10,243
----------- ----------- ----------- ----------- ----------- ----------- -----------
Total costs and expenses 79,125 95,394 17,082 58,249 51,198 97,360 1,114,109
----------- ----------- ----------- ----------- ----------- ----------- -----------
NET INCOME (LOSS) 773 11,074 (1,720) (3,191) (2,453) 226 (6,774)
=========== =========== =========== =========== =========== =========== ===========
</TABLE>
<TABLE>
<CAPTION>
Pro Forma Statements of Operations - Three Months Ended March 31, 1998
------------------------------------------------------------------------------------------------
Brookwood Grove Forest Camellia Glen
Steeplechase Way Hamlet Bridgepoint Glen I Court Lake
------------ --- ------ ----------- ------ ----- ----
<S> <C> <C> <C> <C> <C> <C> <C>
REVENUE:
Rental income $ 74,470 $ 68,797 $ 70,506 $ 59,468 $ 90,530 $ 66,728 $ 175,936
Other income 5,765 2,004 2,741 3,440 4,025 5,894 6,719
----------- ----------- ----------- ----------- ----------- ----------- -----------
Total Revenue 80,235 70,801 73,247 62,908 94,554 72,622 182,655
----------- ----------- ----------- ----------- ----------- ----------- -----------
COSTS AND EXPENSES:
Personnel 15,043 7,705 10,084 4,790 13,683 8,801 43,126
Real estate taxes and insurance 9,335 5,660 7,963 6,231 11,645 9,913 27,964
Property management fees 5,780 5,491 6,061 5,178 6,453 5,616 4,462
Interest 22,996 25,572 29,304 17,144 29,166 24,655 79,508
Depreciation and Amortization 13,546 14,997 19,980 9,847 50,823 12,388 36,042
Other operating expenses 32,161 11,635 15,175 23,067 16,885 27,092 110,193
Major Maintenance 6,888 225 -- -- -- -- --
----------- ----------- ----------- ----------- ----------- ----------- -----------
Total costs and expenses 105,748 71,284 88,566 66,255 128,655 88,464 301,295
----------- ----------- ----------- ----------- ----------- ----------- -----------
NET INCOME (LOSS) $ (25,514) (483) (15,320) (3,347) (34,101) (15,843) (118,640)
=========== =========== =========== =========== =========== =========== ===========
<CAPTION>
Pro Forma Statements of Operations - Three Months Ended March 31, 1998
---------------------------------------------------------------------------------
Blossom Stadium Forest Forest Forest
Corners I Court Glen IV Glen II Glen III Eagle Lake Total
--------- ----- ------- ------- -------- ---------- -----
<S> <C> <C> <C> <C> <C> <C> <C>
REVENUE:
Rental income $ 84,689 $ 99,458 $ 13,390 $ 51,187 $ 44,031 $ 95,530 $ 994,718
Other income 3,565 11,012 770 1,693 2,952 6,281 56,860
----------- ----------- ----------- ----------- ----------- ----------- -----------
Total Revenue 88,254 110,470 14,160 52,880 46,983 101,811 1,051,578
----------- ----------- ----------- ----------- ----------- ----------- -----------
COSTS AND EXPENSES:
Personnel 10,995 19,494 1,523 5,114 4,413 12,042 156,812
Real estate taxes and insurance 8,174 7,865 1,841 6,774 6,435 13,922 123,720
Property management fees 6,841 11,112 2,173 4,312 3,981 9,474 76,934
Interest 23,424 35,347 4,479 16,636 14,076 31,955 354,260
Depreciation and Amortization 17,624 22,715 4,224 14,700 13,338 19,434 249,655
Other operating expenses 19,735 40,469 5,537 14,540 14,913 27,226 358,625
Major Maintenance 5,493 -- -- -- 2,124 -- 14,730
----------- ----------- ----------- ----------- ----------- ----------- -----------
Total costs and expenses 92,284 137,002 19,776 62,074 59,279 114,053 1,334,735
----------- ----------- ----------- ----------- ----------- ----------- -----------
NET INCOME (LOSS) (4,031) (26,532) (5,616) (9,195) (12,297) (12,242) (283,158)
=========== =========== =========== =========== =========== =========== ===========
</TABLE>
See notes to unaudited pro forma condensed consolidated financial information.
<PAGE>
SELECTED FINANCIAL INFORMATION
BARON CAPITAL TRUST
EXCHANGE MORTGAGE PARTNERSHIPS AND EXCHANGE HYBRID PARTNERSHIPS
HISTORICAL AND PRO FORMA CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 1999 AND 1998
(UNAUDITED)
<TABLE>
<CAPTION>
Historical - Three Months Ended March 31, 1999
---------------------------------------------------------------
BSIV V, BSIV VIII, BSIV X, BSIV IX, BMP, LCOB,
Ltd. Ltd. Ltd. Ltd. Ltd. Ltd.
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
REVENUE:
Equity in net income of affiliates $ -- $ -- $ 8,100 $ 2,600 $ -- $ --
Interest income from affiliates 25,128 24,097 6,703 11,163 17,719 15,382
Other 6 -- 8 3 -- 31
-------- -------- -------- -------- -------- --------
25,134 24,097 14,811 13,766 17,719 15,413
-------- -------- -------- -------- -------- --------
COSTS AND EXPENSES:
Equity in net loss of affiliates -- -- -- -- -- --
Interest expense to affiliate -- -- 9,863 -- -- --
Administrative fees to general partner 3,000 3,000 3,000 3,000 2,250 1,500
General and administrative 41 -- 41 40 86 25
-------- -------- -------- -------- -------- --------
3,041 3,000 12,904 3,040 2,336 1,525
-------- -------- -------- -------- -------- --------
Net income $ 22,093 $ 21,097 $ 1,907 $ 10,726 $ 15,383 $ 13,888
======== ======== ======== ======== ======== ========
<CAPTION>
Historical - Three Months Ended March 31, 1999
----------------------------------------------------
BSIV IV, BSVF I, BSIV VI, BSIF,
Ltd. Ltd. Ltd. Ltd. Total
---- ---- ---- ---- -----
<S> <C> <C> <C> <C> <C>
REVENUE:
Equity in net income of affiliates $ -- $ -- $ 7,100 $ -- $ 17,800
Interest income from affiliates 41,106 25,932 12,973 21,338 201,541
Other 3 48 2 15 116
-------- -------- -------- -------- --------
41,109 25,980 20,075 21,353 219,457
-------- -------- -------- -------- --------
COSTS AND EXPENSES:
Equity in net loss of affiliates -- -- -- -- --
Interest expense to affiliate 9,736 1,820 -- -- 21,419
Administrative fees to general partner 3,000 1,500 3,000 1,500 24,750
General and administrative 61 19 39 434 786
-------- -------- -------- -------- --------
12,797 3,339 3,039 1,934 46,955
-------- -------- -------- -------- --------
Net income $ 28,312 $ 22,641 $ 17,036 $ 19,419 $172,502
======== ======== ======== ======== ========
</TABLE>
<TABLE>
<CAPTION>
Pro Forma Statement of Operations -
Three Months Ended March 31, 1998
---------------------------------------------------------------
BSIV V, BSIV VIII, BSIV X, BSIV IX, BMP, LCOB,
Ltd. Ltd. Ltd. Ltd. Ltd. Ltd.
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
REVENUE:
Equity in net income of affiliates $ -- $ -- $ 10,412 1824 1/4 $ -- $ --
Interest income from affiliates 23,449 25,185 6,823 9,422 18,383 16,693
Other 123 198 2,417 914 9 40
-------- -------- -------- -------- -------- --------
23,573 25,383 19,651 12,159 18,392 16,733
-------- -------- -------- -------- -------- --------
COSTS AND EXPENSES:
Equity in net loss of affiliates -- -- -- -- -- --
Interest expense to affiliate -- -- -- -- -- --
Administrative fees to general partner 3,000 3,000 3,000 3,000 889 1,500
General and administrative 1,878 4,968 13,761 2,464 2,250 1,338
-------- -------- -------- -------- -------- --------
4,878 7,968 16,761 5,464 3,139 2,838
-------- -------- -------- -------- -------- --------
Net income $ 18,695 $ 17,415 $ 2,890 $ 6,695 $ 15,254 $ 13,895
======== ======== ======== ======== ======== ========
<CAPTION>
Pro Forma Statement of Operations -
Three Months Ended March 31, 1998
-----------------------------------------
BSIV IV, BSVF I, BSIV VI, BSIF,
Ltd. Ltd. Ltd. Ltd. Total
---- ---- ---- ---- -----
<S> <C> <C> <C> <C> <C>
REVENUE:
Equity in net income of affiliates $ -- $ -- $ 10,322 $ -- $ 22,558
Interest income from affiliates 41,505 27,051 12,671 26,342 207,523
Other 86 112 161 91 4,150
-------- -------- -------- -------- --------
41,590 27,163 23,154 26,433 234,231
-------- -------- -------- -------- --------
COSTS AND EXPENSES:
Equity in net loss of affiliates -- -- -- -- --
Interest expense to affiliate 10,097 1,613 -- -- 11,710
Administrative fees to general partner 3,000 1,500 3,000 1,500 23,389
General and administrative 2,731 2,611 1,256 5,995 39,253
-------- -------- -------- -------- --------
15,828 5,724 4,256 7,495 74,351
-------- -------- -------- -------- --------
Net income $ 25,762 $ 21,439 $ 18,899 $ 18,938 $159,880
======== ======== ======== ======== ========
</TABLE>
See notes to unaudited pro forma condensed consolidated financial information.
<PAGE>
BARON CAPITAL TRUST
NOTES TO PRO FORMA CONDENSED CONSOLIDATED FINANCIAL INFORMATION
(UNAUDITED)
NOTE 1. BASIS OF PRESENTATION
Baron Capital Trust (the "Company") was organized in 1997 and commenced
operations in 1998. The Company and Baron Capital Properties, L.P. (the
"Operating Partnership") constitute an affiliated real estate company
which has been organized to acquire equity interests in residential
apartment properties located in the United States and to provide or
acquire mortgage loans secured by such types of property. The Operating
Partnership conducts all of the Company's real estate operations and holds
all direct or indirect property interests acquired. The Company, as its
sole general partner, will control the activities of the Operating
Partnership. During 1998, the Operating Partnership acquired three limited
partnerships. Each of the limited partnerships' results of operations has
been presented as if the partnerships were owned for the entire year ended
December 31, 1998. The unaudited pro forma condensed consolidated
financial information represents the acquisition of the Exchange
Partnerships which will be accounted for under the purchase method of
accounting. The Company has estimated the adjustments required to allocate
the aggregate purchase price over the recorded book value of these
partnerships. Such allocations are subject to final determinations based
on valuations provided by the Company and other evaluations of fair value
as if the acquisitions were effective on each balance sheet date (as of
December 31, 1998) for the unaudited pro forma condensed consolidated
balance sheet. Therefore, the allocations reflected in the unaudited pro
forma condensed consolidated financial information may differ from the
amounts ultimately determined. Differences between the amounts included
herein and the final allocations are not expected to have a material
effect on the unaudited pro forma financial statements.
NOTE 2. PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENT ADJUSTMENTS
(a) Eliminate expenses for property management fees to a management
company. The management contract was terminated in June 1998;
therefore, the partnerships will no longer incur any future property
management fees. For pro forma purposes, the management fees have
been eliminated for the year ended December 31, 1998.
(b) Eliminate administrative fees paid to a related party. Upon
completion of the Offering, the administrative fees will no longer
be paid. These fees have been eliminated for the year ended December
31, 1998.
(c) Eliminate non-recurring major maintenance. For purposes of the
Offering, the major maintenance has been eliminated for the years
ended December 31, 1998. Management does not believe these expenses
will be recurring.
(d) Allocation of purchase price over book value of recorded partnership
assets based upon estimates of fair value (valuations obtained by
the Company).
(e) Pro forma depreciation adjustment for the year ended December 31,
1998 based upon assets recorded at fair value at the beginning of
each year; primarily based upon 30 year asset lives.
<PAGE>
BARON CAPITAL TRUST
NOTES TO PRO FORMA CONDENSED CONSOLIDATED FINANCIAL INFORMATION
(UNAUDITED)
(Continued)
NOTE 2. PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENT ADJUSTMENTS
(Continued)
(f) Elimination of inter-company notes and advances. These amounts have
not been eliminated on the historical condensed balance sheet
schedule of individual Exchange Mortgage and Exchange Hybrid
Partnerships as they are considered to be immaterial; however these
balances have been eliminated on the unaudited pro forma condensed
consolidated balance sheet.
(g) Summary pro forma adjustment to present Comparative Per Share Data
assuming that the exchange transaction had been consummated as of
January 1, 1998 (assuming shares outstanding for entire year).
Investor shares 463,640
Shares related to Operating Partnership 108,757
Exchange offering 2,625,000
---------
Weighted average shares used to compute pro forma net
loss per share 3,197,397
Historical presentation 262,631
---------
Pro forma adjustment 2,934,766
=========
Escrowed performance shares are not included in the pro forma computation
of the basic loss per share because there is no assurance that shares will
be released from escrow, and their inclusion would be antidilutive.
<PAGE>
EXHIBIT E
Combined Statement of Estimated Taxable Operating Results
of Acquired Properties and Exchange Partnerships
and Funds Available from Operations
The following combined statement sets forth the estimated taxable
operating results and funds available from operations (unaudited) for the
Operating Partnership for the four Acquired Properties already beneficially
owned by the Operating Partnership and for the 23 Exchange Partnerships
involved in the Exchange Offering. The statement is based on the most recent
12-month period on the assumption that the Operating Partnership has acquired
all of the limited partnership interests in the Exchange Partnerships owning
interests in the Exchange Properties in connection with the Exchange
Offering. The statement also assumes the anticipated increase or reduction of
revenue, operating expenses and debt service requirements in certain cases,
where appropriate. The statement does not purport to forecast actual
operating results for any period in the future.
<TABLE>
<CAPTION>
Acquired Exchange All Properties
Properties Properties Combined
---------- ---------- --------------
<S> <C> <C> <C>
Revenue:
Rental Income: $1,263,578 $4,484,516 $5,748,094
Interest Income: -- 830,093 830,093
Equity in Net Income of
Affiliate: -- 90,233 90,233
Other Income: 40,726 76,470 117,196
---------- ---------- --------------
Total Revenue: 1,304,304 5,481,312 6,785,616
Costs and Expenses:
Personnel: 170,452 531,890 702,342
Real Estate Taxes and Insurance: 150,613 526,641 632,254
Interest Expense: 443,034 1,363,672 1,806,706
Depreciation and Amortization: 198,843 998,621 1,197,464
Other Operating Expenses: 218,482 924,536 1,143,018
Major Maintenance: 119,352 158,920 278,272
---------- ---------- --------------
Total Costs and Expenses: 1,255,776 4,504,280 5,760,056
Estimated Taxable Income: 48,528 977,032 1,025,560
---------- ---------- --------------
---------- ---------- --------------
Estimate of Funds Available
from Operations: $ 247,371 $1,975,653 $2,223,024
---------- ---------- --------------
---------- ---------- --------------
</TABLE>
<PAGE>
EXHIBIT F
EXCHANGE PROPERTY APPRAISAL VALUE TABLE
<PAGE>
EXHIBIT F
EXCHANGE PROPERTY APPRAISAL VALUES
<TABLE>
<CAPTION>
Replace-
EXCHANGE EQUITY PARTNERSHIPS Appraised Date of Cost Income Market ment Cost
(Equity Property Interest) Value Appraisal Approach Approach Approach New Appraiser
----- --------- -------- -------- -------- --- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Baron Strategic Investment
Fund II, Ltd.
Steeplechase Apts. $1,690,000 8/98 N/A $1,700,000 $1,675,000 N/A Strickland & Wright
Central Florida Income
Appreciation Fund, Ltd.
Laurel Oaks, formerly
Grove Hamlet, Apts. $2,881,000 9/98 N/A N/A $2,881,000 N/A Dennis J. Voyt
Florida Capital Income
Fund, Ltd.
Eagle Lake Apts. $2,530,000 1/98 $2,511,000 $2,421,000 $2,531,000 $3,960,803 Consortium Appraisal,
Inc.
Florida Capital Income
Fund II, Ltd.
Forest Glen
Apts. - Phase I $2,990,820 10/97 $3,122,813 $2,954,615 $3,016,915 Richards Appraisal
Service, Inc.
Florida Capital Income
Fund III, Ltd.
Bridge Point
Apts. - Phase II $1,610,000 2/98 $1,608,000 $1,672,000 $1,545,000 $2,219,035 Consortium Appraisal,
Inc.
Florida Capital Income
Fund IV, Ltd. $5,550,000 3/98 $5,544,000 $5,726,000 $5,364,000 $7,346,055 Consortium Appraisal,
Glen Lake Apts. 933,079 3/98 933,079 933,079 933,079 N/A Inc. (real property)
---------- ---------- ---------- ---------- Allied Appraisal
$6,483,079 $6,477,079 $6,659,079 $6,297,079 Services, Inc. (furniture
and equipment)
Florida Income Advantage
Fund I, Ltd.
Forest Glen Apts.
- Phase III $1,940,339 10/97 $2,081,892 $1,969,760 $2,011,294 Richards Appraisal
Service, Inc.
Florida Income Appreciation
Fund I, Ltd.
Forest Glen Apts.
- Phase IV $ 471,679 10/97 $ 480,437 $ 454,560 $ 464,145 Richards Appraisal
Service, Inc.
Florida Income Growth
Fund V, Ltd.
Blossom Corners Apts.
- Phase I $2,195,000 1/98 $2,195,000 $2,244,000 $2,144,000 $3,576,239 Consortium Appraisal,
Inc.
Florida Opportunity Income
Partners, Ltd.
Camellia Court Apts. $1,833,000 8/98 $1,828,000 $1,832,000 $1,827,000 $2,849,389 Consortium Appraisal,
Inc.
GSU Stadium Student
Apartments, Ltd.
</TABLE>
F-1
<PAGE>
<TABLE>
<CAPTION>
Replace-
EXCHANGE EQUITY PARTNERSHIPS Appraised Date of Cost Income Market ment Cost
(Equity Property Interest) Value Appraisal Approach Approach Approach New Appraiser
----- --------- -------- -------- -------- --- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Stadium Club Apts. $2,800,000 8/97 $2,762,000 $2,749,000 $2,907,000 $3,501,561 Consortium Appraisal and
Consulting Services, Inc.
Midwest Income Growth
Fund VI, Ltd.
Brookwood Way Apts. $1,780,000 9/98 $1,766,000 $1,829,000 $1,700,000 $2,913,496 Consortium Appraisal and
Consulting Services, Inc.
Realty Opportunity Income
Fund VIII, Ltd.
Forest Glen Apts.
- Phase II $2,173,162 11/97 $2,322,111 $2,197,040 $2,243,367 Richards Appraisal
Service, Inc.
</TABLE>
F-2
<PAGE>
<TABLE>
<CAPTION>
Replace-
EXCHANGE MORTGAGE PARTNERSHIPS Appraised Date of Cost Income Market ment Cost
(Property Securing Mortgages) Value Appraisal Approach Approach Approach New Appraiser
----- --------- -------- -------- -------- --- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Baron Strategic Investment
Fund, Ltd.
Blossom Corners Apts.
- Phase II $ 2,250,000 1/98 $2,239,000 $2,322,000 $ 2,160,000 $3,390,187 Consortium
Appraisal, Inc.
The Villas at
Lake Sycamore $14,312,000(1) 7/98 N/A N/A $14,312,000(1) $9,376,039(2) Strickland & Wright
Baron Strategic Investment
Fund IV, Ltd.
Country Square Apts.
- Phase I $ 2,185,000 1/98 $2,185,000 $2,281,000 $ 2,090,000 $3,554,776 Consortium
Appraisal, Inc.
Baron Strategic Investment
Fund V, Ltd.
Candlewood Apts.
- Phase II $ 925,000 1/98 $ 926,000 $ 922,000 $ 932,000 $1,590,447 Consortium
Appraisal, Inc.
Curiosity Creek Apts.
- Phase I $ 2,425,000 3/98 $2,426,000 $2,552,000 $ 2,297,000 $3,941,164 Consortium
Appraisal, Inc.
Sunrise Apts. - Phase I $ 1,510,000 7/97(3) $1,361,500 $1,424,000 $ 1,591,000 $2,700,611 Consortium
Appraisal, Inc.
Baron Strategic Investment
Fund VIII, Ltd.
Heatherwood Apts.
- Phase II $ 1,285,000 6/97(3) $1,188,000 $1,259,000 $ 1,312,000 $1,862,475 Consortium
Appraisal, Inc.
Longwood Apts. - Phase I $ 1,820,000 7/97(3) $1,664,000 $1,788,000 $ 1,844,000 $2,666,862 Consortium
Appraisal, Inc.
The Villas at
Lake Sycamore $14,312,000(1) 7/98 N/A N/A $14,312,000(1) $9,376,039(2) Strickland & Wright
Baron Strategic Vulture
Fund I, Ltd.
Curiosity Creek Apts. - Phase I $ 2,425,000 3/98 $2,426,000 $2,552,000 $ 2,297,000 $3,941,164 Consortium
Appraisal, Inc.
Brevard Mortgage Program, Ltd.
Meadowdale Apts. $ 1,717,000 8/98 $1,636,000 $1,629,000 $ 1,643,000 $3,094,043 Consortium
Appraisal, Inc.
</TABLE>
- -----------------
1 Upon completion; $1,080,000 as is.
2 Estimated construction cost.
3 Revised in March 1998.
F-3
<PAGE>
<TABLE>
<CAPTION>
EXCHANGE HYBRID PARTNERSHIPS Replace-
(Equity Property Interest/ Appraised Date of Cost Income Market ment Cost
Property Securing Mortgages) Value Appraisal Approach Approach Approach New Appraiser
----- --------- -------- -------- -------- --- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Baron Strategic Investment
Fund VI, Ltd.
Candlewood Apts. - Phase II $ 925,000 1/98 $ 926,000 $ 922,000 $ 932,000 $1,590,447 Consortium
Appraisal, Inc.
Country Square Apts. - Phase I $ 2,185,000 1/98 $2,185,000 $2,281,000 $ 2,090,000 $3,554,776 Consortium
Appraisal, Inc.
Garden Terrace Apts. - Phase III $ 1,850,000 5/98 $1,835,000 $1,782,000 $ 1,901,000 $4,297,897 Consortium
Appraisal, Inc.
Pineview Apts. $ 2,848,000 6/97(3) $2,533,000 $2,498,000 $ 2,572,000 $4,284,608 Consortium
Appraisal, Inc.
Baron Strategic Investment
Fund IX, Ltd.
Candlewood Apts. - Phase II $ 925,000 6/98 $ 926,000 $ 922,000 $ 932,000 $1,590,447 Consortium
Appraisal, Inc.
Crystal Court Apts. - Phase I $ 2,040,000 6/98 $2,040,000 $2,034,000 $ 2,046,000 $3,482,928 Consortium
Appraisal, Inc.
Garden Terrace Apts. - Phase III $ 1,850,000 5/98 $1,835,000 $1,782,000 $ 1,901,000 $4,297,897 Consortium
Appraisal, Inc.
The Villas at Lake Sycamore $14,312,000(1) 7/98 N/A N/A $14,312,000(1) $9,376,039(2) Strickland &
Wright
Baron Strategic Investment
Fund X, Ltd.
Crystal Court Apts. - Phase I $ 2,040,000 6/98 $2,040,000 $2,034,000 $2,046,000 $3,482,928 Consortium
Appraisal, Inc.
Garden Terrace Apts. - Phase III $ 1,850,000 5/98 $1,835,000 $1,782,000 $1,901,000 $4,297,897 Consortium
Appraisal, Inc.
Heatherwood Apts. - Phase II $ 1,285,000 3/98 $1,188,000 $1,259,000 $1,312,000 $1,862,475 Consortium
Appraisal, Inc.
Pineview Apts. $ 2,848,000 6/97(3) $2,533,000 $2,498,000 $2,572,000 $4,284,608 Consortium
Appraisal, Inc.
Lamplight Court of
Bellefontaine Apartments, Ltd.
Lamplight Court Apts. $ 2,183,000 9/98 $2,295,000 $2,214,000 $2,111,000 $3,727,599 Consortium
Appraisal and
Consulting
Services, Inc.
</TABLE>
- ---------------------------
1 Upon completion; $1,080,000 as is.
2 Estimated construction cost.
3 Revised in March 1998.
F-4
<PAGE>
Blossom Corners I
(Exchange Equity)
SUPPLEMENT DATED _____, 1999
TO PROSPECTUS OF
BARON CAPITAL PROPERTIES, L.P.
("Operating Partnership")
DATED _____, 1999
THIS PROSPECTUS SUPPLEMENT FORMS A PART OF AND
SHOULD BE READ TOGETHER WITH THE PROSPECTUS
Florida Income Growth Fund V, Ltd.,
a Florida limited partnership
(the "Exchange Partnership")
(General Partner: Baron Capital XI, Inc.)
This Supplement relates to the offer (the "Exchange Offering") of Baron
Capital Properties, L.P. (the "Operating Partnership") to all limited partners
(the "Limited Partners") in the Exchange Partnership (and limited partners of 22
other real estate limited partnerships) to issue its units of limited
partnership interest ("Units" or "Operating Partnership Units") in exchange for
limited partnership interests in the Exchange Partnership (and in such other
limited partnerships). Limited Partners who do not participate in the Exchange
Offering will be entitled to retain their limited partnership interest in the
Exchange Partnership on substantially the same terms and conditions as their
original investment.
Each Limited Partner should consider all factors discussed below under
"Certain Risks" and under the heading "Risk Factors" set forth in the Prospectus
(the "Prospectus") of the Operating Partnership in evaluating the Exchange
Offering, the Operating Partnership, Baron Capital Trust (the "Trust"), the
general partner and a limited partner of the Operating Partnership, and the
business of the Operating Partnership and the Trust, including the following
material risk factors:
o The valuation of $10.00 per Unit used in the Exchange Offering is an
arbitrary amount, and it is possible that Common Shares of beneficial
interest in the Trust ("Common Shares") (into which the Units are
exchangeable on a one-for-one basis), if listed on a national securities
exchange, will trade at a lower price.
o The terms of the Exchange Offering were determined by the founders of the
Trust and the Operating Partnership (the "Original Investors") (described
below under "Compensation") with no separate counsel or advisor for the
Limited Partners.
o Offerees may not have an opportunity prior to their decision to accept the
Exchange Offering to evaluate a significant number of properties in which
the Operating Partnership and the Trust may acquire an interest, and they
will not have the benefit of knowing the extent of the Operating
Partnership's investment in respect of properties involved in the Exchange
Offering until the offering is completed.
o The Original Investors and affiliates have significant influence over the
operation of the Trust, the Operating Partnership and the Exchange
Partnerships, and the Exchange Offering involves transactions among them
which involve conflicts of interest which may result in decisions that do
not fully represent the interests of all Shareholders of the Trust,
holders of Units in the Operating Partnership (individually, a
"Unitholder" and collectively, the "Unitholders") and limited partners of
the Exchange Partnerships.
o The purchase price to be paid by the Operating Partnership and the Trust
for property interests will be based upon appraisals prepared by qualified
and licensed independent appraisal firms in respect of individual
residential apartment properties and other considerations. Offerees should
note, however, that appraisals are only estimates of value and should not
be relied upon as precise measures of true worth or realizable value.
There can be no assurance that the value of property interests acquired
will reflect their fair market value.
o Offerees who accept the offering may not experience returns comparable to
or in excess of those experienced by Limited Partners in the Exchange
Partnership.
o The current returns of the Exchange Partnership may not be achieved by the
Operating Partnership after completion of the offering and may be higher
than the current returns of other partnerships which participate in the
offering, although such other partnerships may offer higher future growth
potential than the Exchange Partnership.
o If the Exchange Offering is completed in respect of the Exchange
Partnership, Offerees who accept the Exchange Offering will be tendering
their current investment in the particular Exchange Partnership with an
<PAGE>
expected limited duration in exchange for an investment in the Operating
Partnership, which has an unlimited duration.
o Real estate investment risks exist such as the effect of economic and
other conditions on cash flows from real estate interests acquired by the
Trust and the Operating Partnership.
o Financing risks exist, including debt service obligations, the ability of
the Trust and the Operating Partnership to incur additional debt, the need
to refinance current indebtedness at various maturities, and the effect of
any increase in interest rates.
o The Operating Partnership expects to acquire subordinated mortgage
interests which are not recorded because of restrictions in subordination
agreements executed in connection with First Mortgages issued to other
unrelated lenders. If a mortgage is not recorded, the security interest of
the Operating Partnership would not be perfected and the respective debt
would rank pari passu with all other unsecured creditors of the borrower.
o The successful operation of the Trust and the Operating Partnership is
dependent on key management.
o There can be no assurance of the successful completion of the Exchange
Offering and the Trust's Cash Offering (described below).
o In exchange for his capital contribution of $50,000, each of the Original
Investors will receive Units initially valued at $6,010,800 if all
2,500,000 Common Shares are sold in the Cash Offering by November 30, 1999
and all 2,500,000 Units being offered in the Exchange Offering are issued
by such date. In addition, each will serve as an officer of the Trust, the
Operating Partnership and the Managing Shareholder and will receive
compensation for such services.
o No public market for the sale of Units is expected to ever develop, and,
although Common Shares (into which Units are exchangeable) may eventually
be listed on a national securities exchange, it is possible that no public
market for the Common Shares will ever develop or be maintained.
o Limited Partners who acquire Units in the Exchange Offering will pay a
higher price per Unit than the consideration the Original Investors paid
for Units issued to them in connection with the formation of the Trust and
the Operating Partnership.
o The Trust will be taxed as a corporation if it fails to qualify as a REIT.
2
<PAGE>
BUSINESS OF THE EXCHANGE PARTNERSHIP
The Exchange Partnership was organized as a Florida limited partnership in
June 1995. In November 1995, Baron Capital XI, Inc., the partnership's General
Partner (wholly owned and controlled, along with the Managing Shareholder of the
Trust, by Mr. McGrath) and an affiliate of the Managing Shareholder, sponsored a
private offering of 2,300 units of limited partner interest in the Exchange
Partnership at a purchase price of $500 per unit (gross proceeds of $1,150,000).
The offering was fully subscribed and closed in February 1997.
The partnership invested the net proceeds of its offering to acquire all
of the limited partnership interests in a limited partnership which holds a fee
simple interest in a 70-unit residential apartment property referred too as the
Blossom Corners Apartment Property (Phase I) located in Orlando, Florida. The
property is subject to mortgage and other indebtedness having a principal
balance at March 31, 1999 of approximately $1,020,990.
For further information concerning the Exchange Partnership, its original
private offering, the property interest it holds, the mortgage to which the
underlying property may be subject, and the estimated deferred taxable gain of
each Limited Partner who elects to participate in the Exchange Offering, please
refer to the tables set forth in the Exhibit I attached hereto. Also see the
tables relating to all of the Exchange Partnerships set forth in the Prospectus
at "Initial Real Property Investments" and in Exhibit B to the Prospectus.
CASH DISTRIBUTIONS TO LIMITED PARTNERS
During each year since inception, the Exchange Partnership has made cash
distributions to the Limited Partners in the following amounts:
All LP's Per LP Unit
-------- -----------
1996: $18,111 $ 88.35
1997: $ 1,990 $ 9.71
1998 : $ 8,160 $ 39.80
3/31/99: $ 0 $ 0
------- -------
Total: $28,261 $137.86
3
<PAGE>
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------
TABLE OF EXCHANGE VALUES
- --------------------------------------------------------------------------------------------------------------
Valuation of Aggregate number of Units offered Number of Units offered Percentage of Units offered
Exchange to all Limited Partners in the to each Limited Partner to Limited Partners in the
Partnership(1) Exchange Partnership (assigned per $1,000 of original Exchange Partnership in
dollar value)(2) investment (assigned relation to Units offered
dollar value)(2) to limited partners in all
partnerships participating
in the initial transactions
of the Exchange Offering
<S> <C> <C> <C>
$1,310,347 131,035 Units ($1,310,350) 114 Units ($1,140) 5.25%
- --------------------------------------------------------------------------------------------------------------
</TABLE>
- ----------
(1) The valuation of this Exchange Equity Partnership to the extent of its
direct or indirect equity interest in a property is based upon the following
factors: (a) the estimated appraised market value of the underlying property
determined by qualified and licensed independent appraisal firms; (b) the
operating history of the property; (c) the current principal balance of first
mortgage and other indebtedness to which the property is subject; (d) the amount
of distributable cash flow currently being generated by the property; plus (e)
additional factors which the Managing Shareholder believes are appropriate to
consider including, among others, the property's overall current condition and
prospects for the property based upon improvements made or to be made to the
property and, in certain cases, the combination of two or more phases of the
property, which are expected to be owned upon completion of the Exchange
Offering, and the actual or potential benefits to be obtained by the
sub-metering of utilities in order to pass costs from the owner of the property
to individual tenants. The valuation of the Exchange Partnership to the extent
of its mortgage interest in properties and other debt interests is based upon
the following factors: (i) the current principal balance of the amount of debt
which is senior to the mortgage interest to be acquired and other indebtedness
to which property is subject; (ii) the estimated appraised market value of the
underlying property determined by qualified and licensed independent appraisal
firms; (iii) the operating history of the property; (iv) the amount of
distributable cash flow currently being generated by the property; plus (v)
additional factors which the Managing Shareholder believes are appropriate to
consider including, among others, the property's overall current condition and
prospects for the property based upon improvements made or to be made to the
property and, in certain cases, the combination of two or more phases of the
property, which are expected to be owned upon completion of the Exchange
Offering and the actual or potential benefits to be obtained by the sub-metering
of utilities in order to pass costs from the owner of the property to individual
tenants. (see "Valuation Method" below.)
(2) For purposes of the Exchange Offering, each Unit to be issued has been
assigned an initial value of $10.00, which is the price per share at which the
Trust is currently offering Common Shares in its Cash Offering. As described
below at "The Exchange Offering," Unitholders, including recipients of Units in
the Exchange Offering, may exchange all or a portion of their Units for an
equivalent number of Common Shares at any time following the completion of the
offering.
4
<PAGE>
INTRODUCTION
The Trust and the Operating Partnership constitute an affiliated real
estate company which has been organized to acquire equity interests in
residential apartment properties located in the United States and to provide or
acquire mortgage loans secured by such types of property. The Trust is the sole
general partner of the Operating Partnership and thereby controls its
activities. The Trust will also contribute the net proceeds from its ongoing
public offering of Common Shares (the "Cash Offering") to acquire a limited
partnership interest in the Operating Partnership.
The Operating Partnership will conduct all of the Trust's real estate
operations and hold all of the Trust's real estate assets, including property
interests acquired. The Operating Partnership will use net proceeds from the
Cash Offering, Units it will issue in the Exchange Offering and other
transactions and available cash flow from operations to make real estate
investments and fund its operations.
This Supplement describes the Exchange Offering, the Cash Offering and
certain aspects of the business of the Exchange Partnership, the Operating
Partnership and the Trust and is a part of, and should be read in conjunction
with, the Prospectus.
Capitalized terms used in this Supplement and not otherwise defined herein
have the meanings ascribed to such terms in the Prospectus, provided that the
term "Exchange Partnership" shall refer to the partnership indicated on the
cover page hereof, and the term "Exchange Partnerships" shall refer collectively
to such partnership and the 22 other partnerships whose limited partners will be
offered the opportunity to participate in the initial transactions of the
Exchange Offering.
Each Limited Partner should carefully review this Supplement together with
the Prospectus. The effects of the Exchange Offering may be different for
limited partners in various other Exchange Partnerships. A separate supplement
has been prepared for limited partners in each of the other Exchange
Partnerships who are being offered the opportunity to participate in the
Exchange Offering.
Each Limited Partner in the Exchange Partnership will receive a copy of
this Supplement but unless specifically requested will not receive a copy of the
various other supplements which contain information concerning other Exchange
Partnerships, the Operating Partnership and the Trust and which have been
distributed to their limited partners. Upon receipt of a written request by any
Limited Partner or his representative who has been so designated in writing, the
Operating Partnership will promptly deliver, without charge, copies of other
supplements to be delivered to limited partners in other Exchange Partnerships.
Limited Partners may make such request in writing to the Operating Partnership
at its principal executive office at the following address: Baron Capital
Properties, L.P., 7826 Cooper Road, Cincinnati, Ohio 45242, telephone
513-984-5001. Such request should be made to the attention of Sharon Studt.
5
<PAGE>
THE EXCHANGE OFFERING
In the initial transactions of the Exchange Offering, the Operating
Partnership is offering to issue registered Units of the Operating Partnership
to each Limited Partner of the Exchange Partnership and each limited partner
(individually, an "Exchange Limited Partner" and collectively, the "Exchange
Limited Partners") in 22 other Exchange Partnerships in exchange for the limited
partnership interests held by such limited partners in such partnerships. The
Operating Partnership is investigating other investment opportunities to acquire
property interests with cash and/or Units in the Exchange Offering and other
transactions. Each of the Exchange Partnerships directly or indirectly owns all
or a portion of the equity interest in residential apartment property and/or one
or more subordinated mortgage interests secured by such type of property. The
Operating Partnership will acquire interests in particular properties by
acquiring from Exchange Limited Partners their units of limited partnership
interest in the respective partnership (the "Exchange Partnership Units").
The commencement of the Exchange Offering in respect of the Exchange
Partnership and the 22 other Exchange Partnerships was approved by the
Independent Trustees of the Trust, who together with the Managing Shareholder,
serve as the members of the Board of the Trust. The Managing Shareholder
abstained from voting since Gregory K. McGrath, the sole stockholder, director
and executive officer of the corporate general partner of each of the Exchange
Partnerships, is also one of the founders of the Trust and the Operating
Partnership, the sole stockholder and director of the Managing Shareholder, and
Chief Executive Officer of the Trust, the Operating Partnership and the Managing
Shareholder. Affiliates of Mr. McGrath are also the corporate general partners
of limited partnerships which are debtors under substantially all second
mortgage loans and other debt interests owned by certain of the Exchange
Partnerships, and in such capacity, Mr. McGrath holds an indirect minority
economic interest in such partnerships which is subordinated to the preferred
returns of their limited partners.
The General Partner of the Exchange Partnership recommends that each of
the Limited Partners elect to accept the Exchange Offering based on an analysis
of the benefits and disadvantages of the offering to the Limited Partners and
the Exchange Partnership and an analysis of possible alternative transactions.
The Operating Partnership will not complete the Exchange Offering in
respect of any of the particular Exchange Partnerships unless limited partners
holding at least 90% of the limited partnership interests in the partnership
affirmatively elect to accept the offering. In addition, the Operating
Partnership will not complete any transaction in the offering whatsoever unless
a sufficient number of Offerees accept the offering such that the offering
involves the issuance of Units with an initial assigned value of at least
$6,000,000. For the purposes of this Supplement, the term "Participating
Exchange Partnership," which applies only if the Exchange Offering is completed,
refers to each Exchange Partnership with limited partners holding at least 90%
of the limited partnership interest therein who elect to accept the offering.
The initial transactions of the Exchange Offering involve 26 targeted
properties (individually, an "Exchange Property" and collectively, the "Exchange
Properties"). Certain of the Exchange Partnerships directly or indirectly own
equity interests in 16 Exchange Properties, which consist of an aggregate of
1,012 residential units (comprised of studio, one, two, three and four-bedroom
units). Certain of the Exchange Partnerships directly or indirectly own
subordinated mortgage interests in 10 Exchange Properties, which consist of an
aggregate of 650 existing residential units (studio and one and two bedroom) and
164 units (two and three bedroom) under development. Of the Exchange Properties,
21 properties are located in Florida, one property is located in Georgia, one
property in Indiana and three properties in Ohio. The Exchange Properties are
described in further detail in the Prospectus at "Initial Real Estate
Investments" and Exhibit B to the Prospectus.
The sole asset of each of 13 of the Exchange Partnerships (individually,
an "Exchange Equity Partnership" and collectively, the "Exchange Equity
Partnerships") is record title to a single residential apartment property or the
entire limited partnership or other equity interest in a limited partnership or
other entity which owns fee simple title to a property. The sole assets of each
of six of the Exchange Partnerships (individually, an "Exchange Mortgage
Partnership" and collectively, the "Exchange
6
<PAGE>
Mortgage Partnerships") are the entire or an undivided subordinated mortgage
interest in one or more properties (and, in one case, unsecured debt interests).
Each of the remaining four Exchange Partnerships (individually, an "Exchange
Hybrid Partnership" and collectively, the "Exchange Hybrid Partnerships") own a
combination of (i) all or a portion of the direct or indirect equity interest in
one or more properties and (ii) an undivided subordinated mortgage interest in
one or more properties (and, in one case, unsecured debt interests). Each of the
debtors of subordinated mortgage loans and other loans provided or acquired by
the Exchange Mortgage Partnerships and the Exchange Hybrid Partnerships is a
limited partnership which owns fee simple title to the property which secures
such mortgage loans. Affiliates of Mr. McGrath are the corporate general
partners of substantially all such debtor partnerships, and in such capacity Mr.
McGrath is entitled to share indirectly in cash distributions and net profits
(losses) in such partnerships in the range of 2% to 20% after the limited
partners therein have received a preferred return.
For purposes of the Exchange Offering, the 23 Exchange Partnerships have
been valued at $24,980,606. The value is based upon an appraisal performed by
qualified and licensed independent appraisal firms on each property in which a
respective partnership owns a direct or indirect equity or mortgage interest and
other considerations described below at "Valuation Methods." See also the
Prospectus at "The Exchange Offering - Exchange Property Appraisals." Each Unit
offered in the offering has been arbitrarily assigned an initial value of
$10.00, which is the price per share at which the Trust is currently offering
Common Shares in its Cash Offering. As described further herein, a Unitholder
may elect to exchange Units for an equivalent number of Common Shares, subject
to certain exceptions. If the Exchange Offering is fully completed in respect of
all 23 Exchange Partnerships (i.e.., all limited partners in the Exchange
Partnerships accept the offering), the partnership interests acquired will have
an aggregate purchase price of approximately $24,980,606, comprised of Units to
be issued. The partnership interests to be acquired with the balance of the
registered Units to be offered in the Exchange Offering have not yet been
finally determined.
In the Exchange Offering, each Limited Partner in the Exchange Partnership
has the option to acquire the number of Units per $1,000 of original investment
in the Exchange Partnership set forth on the inside cover of this Supplement in
exchange for all Exchange Partnership Units held by the Limited Partner. A
Limited Partner must exchange all of his or her Exchange Partnership Units if he
or she wishes to participate in the Exchange Offering; partial exchanges by a
Limited Partner will not be accepted. Limited Partners who accept the Exchange
Offering and thereby receive Units will be entitled to exchange all or a portion
of such units into an equivalent number of Common Shares of the Trust at any
time and from time to time, subject to certain restrictions described in the
Prospectus at "The Exchange Offering."
The Exchange Offering has been structured to permit each Limited Partner,
if desired, not to accept the offering and instead retain his or her existing
interest in the Exchange Partnership on terms substantially the same as those of
his or her original investment. The Exchange Partnership and each of the other
Exchange Partnerships will continue to own the same interest in the same
property it owned prior to completion of the offering. Upon the completion of
the offering and assuming the requisite number of Limited Partners accept the
offering, Limited Partners who elect not to accept the offering
("Non-participating Partners") and the Operating Partnership will constitute all
the limited partners of the Exchange Partnership. Non-participating Partners
will retain all of their existing economic and voting rights, rights to receive
reports and substantially all other rights as set forth under the partnership's
original agreement of limited partnership. As described in further detail in the
Prospectus at "Amendments to Partnership Agreements of Participating Exchange
Partnerships with Non-participating Limited Partners," assuming the Exchange
Partnership is a Participating Exchange Partnership (as defined above),
following the Exchange Offering, the original partnership agreement of the
partnership will be amended to require the prior approval (majority or
unanimous, as the case may be) of Non-participating Partners voting as a class
in respect of substantially all matters as to which Limited Partners are
entitled to vote under the partnership agreement prior to the completion of the
Exchange Offering. The partnership agreement, as amended, will continue in full
force and effect after the completion of the offering as long as any
Non-participating Partners remain limited partners of the Exchange Partnership.
See the Prospectus at "The Exchange Offering."
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THE CASH OFFERING
The Trust is currently offering on a best efforts basis a maximum of
2,500,000 Common Shares in the Cash Offering at a purchase price of $10.00 per
share. As of May 15, 1999, the Trust has sold 614,100 Common Shares in the Cash
Offering (representing gross proceeds of $6,141,000. The Trust will use all net
cash proceeds of the Cash Offering to acquire Units in the Operating
Partnership, which, in turn, will use such proceeds (i) to acquire real estate
investments, (ii) for capital improvements which may be required on properties
in which the Operating Partnership acquires an interest and (iii) for working
capital purposes. The Trust will apply for listing on a national stock exchange
of the Common Shares being offered in the Cash Offering and the Common Shares
into which Units issued in the Exchange Offering will be exchangeable. The Trust
will deliver at its own expense to each Limited Partner who requests in writing,
a copy of the Prospectus of the Trust relating to the Cash Offering and any
amendments and supplements thereto.
In June 1998, the Operating Partnership applied a portion of the net
proceeds from the Cash Offering to acquire the entire limited partnership
interest in Heatherwood Kissimmee, Ltd., a Florida limited partnership which
owns fee simple title to a 67-unit residential apartment property referred to as
Heatherwood Apartments - Phase I located in Kissimmee, Florida. The purchase
price paid was approximately $830,000. The property is subject to first mortgage
financing with a current principal balance of approximately $1,239,000.
In July 1998, the Operating Partnership applied a portion of the net
proceeds from the Cash Offering to acquire the entire limited partnership
interest in Crystal Court Apartments II, Ltd., a Florida limited partnership
which owns fee simple title to an 80-unit residential apartment property
referred to as Crystal Court Apartments - Phase II located in Lakeland, Florida.
The purchase price paid was approximately $704,000. The property is subject to
first mortgage financing with a current principal balance of approximately
$1,494,000.
In July 1998, the Operating Partnership also made capital contributions in
the range of $2,900 to $83,300 (aggregate amount approximately $341,000) to 13
real estate partnerships managed by affiliates of the Managing Shareholder,
including certain of the Exchange Partnerships. In exchange, the Operating
Partnership received a limited partnership interest in such partnerships which
is subordinated to the priority economic return of the limited partners of the
respective partnership and is not eligible to participate in the Exchange
Offering.
In September 1998, the Operating Partnership applied a portion of the net
proceeds from the Cash Offering to acquire the entire limited partnership
interests in Riverwalk Enterprises, Ltd., a Florida limited partnership which
owns fee simple title to a 50-unit residential apartment property referred to as
Riverwalk Villas located in New Smyrna Beach, Florida. The purchase price paid
was approximately $700,000. The property is subject to first mortgage financing
with a current principal balance of approximately $1,323,000.
In September 1998, the Operating Partnership entered into an agreement to
acquire two luxury residential apartment properties (total 652 units) in
Louisville and Burlington, Kentucky upon the completion of construction for an
aggregate purchase price in the range of approximately $41,000,000 to
$43,000,000. The Louisville property is expected to be completed prior to the
end of 2000, and the Burlington property is expected to be completed by the end
of 2001. In connection with the transaction, the Operating Partnership agreed to
co-guarantee (along with Mr. McGrath), for a period of 60 days (plus any
extensions which may be granted), up to $3,000,000 of the development portion of
long-term construction loans to be made by an institutional lender to three
development companies controlled by Mr. McGrath in connection with the
development and construction of the two residential apartment properties and a
shopping center in Burlington, Kentucky. The Trust also agreed that, if the
loans are not repaid prior to the expiration of the guarantee, it will either
buy out the bank's position on the entire amount of the construction loans or
arrange for a third party to do so. The construction loans are expected to be
replaced by a long-term credit facility within 180 days from the date of the
agreement.
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In October 1998, the Operating Partnership applied a portion of the net
proceeds to acquire an approximately 12.3% limited partnership interest in
Alexandria Development, L.P. (the "Alexandria Partnership"), a Delaware limited
partnership which is the owner and developer of a 168-unit residential apartment
property under construction in Alexandria, Kentucky. Ninety-eight of the 168
residential units (approximately 58%) have been completed and are in the rent-up
stage. The Operating Partnership paid $400,000 for the initial acquired
partnership interest. Subsequently, the Operating Partnership acquired
additional limited partnership units for $810,000 and as of May 14, 1999 it owns
an approximately 37.2% limited partnership interest. The Operating Partnership
retains an option to acquire the remaining limited partnership interests at the
same price per percentage interest (for a total price of approximately
$3,250,000 for the entire limited partnership interest). The option is
exercisable as additional apartment buildings are completed and rented. An
affiliate of Mr. McGrath sold the partnership interest in the Alexandria
Partnership to the Operating Partnership and also serves as its managing general
partner. During the construction stage of the apartment property, the Operating
Partnership's limited partnership interest in the Alexandria Partnership is
entitled to an annual 12% preferential return which is senior to the other
limited partnership interests and the general partner's nominal 1% interest.
Set forth in the Prospectus at "Initial Real Estate Investments" is
certain additional information, including a description of the foregoing
investments made by the Operating Partnership to date and first mortgage
financing to which property interests acquired are subject. Other than the
transactions described above, the Operating Partnership has not committed any of
the remaining net proceeds of the Cash Offering to any specific property
interests. The Operating Partnership continues to investigate other investment
opportunities to acquire property interests for cash and/or Units in the
Exchange Offering and other transactions, including but not limited to interests
held in additional properties by unaffiliated parties and by other limited
partnerships managed by affiliates of the Managing Shareholder (wholly owned and
controlled, along with the general partner of each of the Exchange Partnerships,
by Mr. McGrath).
Limited Partners will not have any vote in the selection of property
investments by the Operating Partnership after they accept the Exchange
Offering. Therefore, Limited Partners who elect to accept the Exchange Offering
may not have available any information on additional real estate investments to
be acquired with net proceeds of the Cash Offering, in the Exchange Offering or
other transactions, in which case they will be required to rely on management's
judgment regarding those acquisitions.
CERTAIN RISKS
Limited Partners considering whether to exchange their Exchange
Partnership Units for Operating Partnership Units in the Exchange Offering
should carefully consider all the various risks described in the Prospectus. See
the Prospectus at "Risk Factors." Such risk factors include, among others, the
risks described in the Prospectus under "Risk Factors - Arbitrary Offering
Price; No Separate Representation of Offerees; Terms of Exchange Offering May be
More Favorable to Original Investors than Offerees; Acceptance of Exchange
Offering Involves Exchange of Current Investment with Expected Limited Duration
for Investment in Operating Partnership with Unlimited Duration; Offerees May
Not Have Information Available to Evaluate Interests to be Acquired by the
Operating Partnership, Prior to Decision Whether to Accept the Exchange
Offering; Possible Adverse Influence of Original Investors; Conflicts of
Interest; Investors in Successful Exchange Properties Could Lose Advantage by
Combining with Less Successful Exchange Properties; Valuation of Mortgage
Interests to be Acquired May Exceed Actual Value; Several Factors Could Have
Possible Adverse Effects on Operation of Properties; Competition; Debt Service
Obligations Could Adversely Affect Cash Flow; Possible Adverse Effects as a
Result of Loss of Key Management; Uncertainty of Successful Completion of Cash
Offering and Exchange Offering; Limited Marketability of Units and Common
Shares; and Potential Adverse Tax Consequences."
The following is a summary of the material risk factors applicable to the
Exchange Offering and an investment in Units and Common Shares and the proposed
operations of the Trust and the Operating Partnership. For a more detailed
description of the risk factors relating to the Exchange Offering and the
proposed activities of the Trust and the Operating Partnership, including those
set forth below, see the Prospectus at "RISK FACTORS."
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o Arbitrary Valuation of Units - The valuation of $10.00 per Unit used in
the Exchange Offering is an arbitrary amount, and it is possible that
Common Shares of the Trust (into which the Units are exchangeable), if
listed on a national securities exchange, will trade at a lower price.
o Terms of Exchange Offering May be More Favorable to Original Investors
than Offerees - The terms and conditions of the Exchange Offering, which
were determined by the Original Investors with no separate counsel or
Advisor for the Offerees, may be more favorable for the Original Investors
who formed the Trust and the Operating Partnership and affiliates of the
Original Investors than for Offerees. Offerees who acquire Operating
Partnership Units in the Exchange Offering will pay a higher price per
unit than the subscription price Gregory K. McGrath and Robert S. Geiger,
the Original Investors, paid for Operating Partnership Units in connection
with the formation of the Trust and the Operating Partnership. The
Original Investors subscribed for their Units in exchange for a $100,000
initial capitalization of the Operating Partnership, and such Units have
been deposited into a security escrow account for a period of six to nine
years, subject to earlier release under certain conditions. If the Trust's
Cash Offering and the Exchange Offering are completed in full, each
Original Investor would own 601,080 Units. In that case, the value of the
Units held by each Original Investor, calculated at the $10.00 initial
value assigned to each Unit to be issued in the Exchange Offering, would
then be $6,010,800 less a significant discount attributable to the
long-term escrow arrangement.
Mr. McGrath has agreed to serve as Chief Executive Officer of the Trust
and the Operating Partnership for the initial year of operations in
exchange for no cash compensation. Instead, he has agreed to be
compensated in exchange for up to 25,000 Common Shares of the Trust and up
to 25,000 Units of the Operating Partnership in amounts to be determined
by the Executive Compensation Committee of the Trust based upon his
performance, plus benefits, including without limitation health,
disability and life insurance, and eligibility for participation in any
option plan and bonus incentive compensation plan which may be implemented
by the Trust. After the initial year, Mr. McGrath will be entitled to
receive compensation and benefits determined by the Executive Compensation
Committee in exchange for his services. Mr. Geiger has agreed to serve as
the Chief Operating Officer of the Trust and the Operating Partnership in
exchange for an initial annual salary of $100,000 plus benefits. See
"MANAGEMENT." Each Offeree is advised to seek independent advice and
counsel before deciding whether to accept the Exchange Offering.
o Offerees May Not Have Information Available On Other Properties Prior to
Decision - If the Operating Partnership consummates investments in respect
of all 23 Exchange Partnerships initially targeted for investment in the
Exchange Offering, the partnership interests acquired will have a deemed
purchase price totaling approximately $24,980,606, comprised of Operating
Partnership Units to be issued. The property interests to be acquired with
the balance of the Operating Partnership Units to be offered in the
Exchange Offering have not yet been finally determined. In addition, as
described in this Supplement and the Prospectus, the Operating Partnership
has acquired beneficial ownership of four properties for cash, entered
into an agreement to acquire two properties under development and invested
in other real estate limited partnerships (including certain of the
Exchange Partnerships) as of the date of this Prospectus, but has not
committed the available net cash proceeds raised to date or to be raised
in the future to any additional specific properties. Therefore, Offerees
who elect to accept the Exchange Offering may not have available any
information on additional properties to be acquired, in which case they
will be required to rely on management's judgment regarding those
purchases. In addition, Offerees will not have the benefit of knowing in
advance of deciding whether to accept the offering the extent of the
Operating Partnership's investment in respect of properties involved in
the offering until the offering is completed.
o Possible Adverse Influence of Original Investors - The Original Investors
in the Operating Partnership serve as executive officers of the Trust, the
Operating Partnership and the Managing Shareholder (wholly owned and
controlled, along with the general partner of each of the Exchange
Partnerships, by Mr. McGrath) and collectively will own an amount of
Operating Partnership Units (up to 1,202,160 Units) which are exchangeable
(subject to escrow restrictions described below) into 19% of the Trust
Common Shares outstanding as of the earlier to occur of the completion of
the Cash Offering and the Exchange Offering or November 30, 1999,
calculated on a fully diluted basis assuming that all then outstanding
Units (other than those owned by the Trust) have been exchanged
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into an equivalent number of Common Shares. (The Original Investors
received the Units in exchange for their initial capitalization of the
Operating Partnership and such Units have been deposited into a security
escrow account for a period of six to nine years, subject to earlier
release under certain conditions described in the Prospectus at "THE TRUST
AND THE OPERATING PARTNERSHIP - Formation Transactions.") Accordingly, the
Original Investors and affiliates have significant influence over the
affairs of the Trust and the Operating Partnership, and the Exchange
Offering involves transactions among them which may result in decisions
that do not fully represent the interests of all Shareholders of the
Trust, Unitholders in the Operating Partnership and Exchange Limited
Partners. In addition, Offerees who acquire Operating Partnership Units in
the Exchange Offering will pay a higher price per unit than the Original
Investors paid for their Operating Partnership Units. See below at
"Compensation" and the Prospectus at "MANAGEMENT" and "THE TRUST AND THE
OPERATING PARTNERSHIP - Formation Transactions" and " - Ownership of the
Trust and the Operating Partnership."
o No Assurance That Values of Properties Will Reflect Fair Market Value -
The Operating Partnership and the Trust will use Units, Common Shares, net
proceeds from the sale of securities, including the Trust's Cash Offering,
and available cash flow from operations to acquire direct or indirect
equity and debt interests in residential apartment properties. The
purchase price to be paid for equity interests in properties will be based
upon the following factors: (a) the estimated appraised market value of
the underlying property determined by qualified and licensed independent
appraisal firms; (b) the operating history of the property; (c) the
current principal balance of first mortgage and other indebtedness to
which the property is subject; (d) the amount of distributable cash flow
currently being generated by the property; plus (e) additional factors
which the Managing Shareholder believes are appropriate to consider
including, among others, the property's overall current condition and
prospects for the property based upon improvements made or to be made to
the property and, in certain cases, the combination of two or more phases
of the property, which are expected to be owned upon completion of the
Exchange Offering and the actual or potential benefits to be obtained by
the sub-metering of utilities in order to pass costs from the owner of the
property to individual tenants. The purchase price to be paid for mortgage
interests in properties or other debt interests will be based upon the
following factors: (i) the current principal balance of the amount of debt
which is senior to the mortgage interest to be acquired; (ii) (a) the
estimated appraised market value of the underlying property determined by
qualified and licensed independent appraisal firms; (b) the operating
history of the property; (c) the current balance of first mortgage and
other indebtedness to which property is subject; (d) the amount of
distributable cash flow currently being generated by the property; plus
(e) additional factors which the Managing Shareholder believes are
appropriate to consider including, among others, the property's overall
current condition and prospects for the property based upon improvements
made or to be made to the property and, in certain cases, the combination
of two or more phases of the property, which are expected to be owned upon
completion of the Exchange Offering and the actual or potential benefits
to be obtained by the sub-metering of utilities in order to pass costs
from the owner of the property to individual tenants. There can be no
assurance that the value of property interests acquired is fair and
reasonable and will reflect their fair market value.
o Conflicts of Interest - Although the Trust has adopted certain policies
designed to eliminate or minimize their effect, potential conflicts of
interest may arise among the Trust, the Operating Partnership, the
Managing Shareholder (wholly owned and controlled, along with the general
partner of each of the Exchange Partnerships, by Mr. McGrath), the
Original Investors and their respective Affiliates, including certain
Affiliates which have sponsored and/or managed, or may in the future
sponsor, real estate investment programs which may seek to acquire
interests in properties similar to those which the Trust and the Operating
Partnership will seek to acquire. The Trust and the Operating Partnership
may be restricted from investing in certain properties since Affiliates of
the Managing Shareholder may have other investment vehicles investing in
similar properties. In addition, there will be competing demands for
management resources of the Managing Shareholder, the Trust and the
Operating Partnership and transactions are expected to be completed by the
Trust and the Operating Partnership with affiliates of the Managing
Shareholder. See also above at "Possible Adverse Influence of Original
Investors" and the Prospectus at "CONFLICTS OF INTEREST" and "INVESTMENT
OBJECTIVES AND POLICIES - Conflict of Interest Policies."
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o Valuation of Mortgage Interests To Be Acquired May Exceed Actual Value -
Subject to certain exceptions, the Trust and the Operating Partnership are
authorized to provide or acquire mortgage loans as long as, among other
things, the aggregate amount of all mortgage loans outstanding on any
particular underlying property, including the loan of the Trust or the
Operating Partnership, as applicable, would not exceed an amount equal to
80% of the appraised replacement cost new of the property. Replacement
cost new refers to the estimated cost new of the improvements on a
property (estimated on the basis of current prices for the component parts
of a building) without taking into account the deficiencies of the
existing building compared to a new building, plus the estimated current
market value of the underlying land (generally determined using the direct
sales comparison approach).
o Future Returns May Not Be Comparable to Past Returns - Offerees who accept
the Exchange Offering may not experience returns comparable to or in
excess of those experienced by Limited Partners in the Exchange
Partnerships.
o Current Returns May Not Be Achieved - The current returns of the Exchange
Partnerships may not be achieved by the Trust and the Operating
Partnership after completion of the Exchange Offering and may be higher
than the current returns of other partnerships which participate in the
offering, although such other partnerships may offer higher future growth
potential than the Exchange Partnerships.
o Real Estate Investment Considerations May Negatively Impact Returns - Real
estate investment considerations, individually or in the aggregate, may
negatively impact the ability of the Trust and Operating Partnership to
make distributions to Shareholders and Unitholders, including without
limitation the effect of national and local economic and other conditions
on residential apartment property values, the general lack of liquidity of
investments in real estate, the risks associated with investments in
mortgages, the ability of tenants to pay rents, the possibility that
rental units may not be occupied or may be occupied on terms unfavorable
to the Trust and the Operating Partnership, the frequent need for capital
improvements, the possibility that (including the effects of depreciation
and interest) certain properties may have experienced recurring losses for
financial reporting purposes, the possibility of uninsured losses, the
ability of the property investments of the Trust and the Operating
Partnership to generate sufficient cash flow to meet expenses, including
debt service requirements, or to be sold on favorable terms, if at all,
the availability of capital for investment, and competition in seeking
properties for acquisition and in seeking tenants.
o Financing Risks Exist - Financing risks exist, including debt service
obligations, the ability of the Trust and the Operating Partnership to
incur additional debt, the potential inability to refinance any mortgage
indebtedness of the Trust and the Operating Partnership upon maturity,
risks associated with possible investments in loans secured by
Subordinated Mortgages on property which may or may not be recorded, and
the risk of higher interest rates on any adjustable interest rate debt or
debt incurred to refinance indebtedness.
o Subordinated Mortgages to be Acquired May Not Be Recorded - The Operating
Partnership expects to acquire mortgage interests which are not recorded
because of restrictions in subordination agreements executed in connection
with First Mortgages issued to other unrelated lenders. If a Mortgage is
not recorded, the security interest of the Operating Partnership would not
be perfected and the respective debt would rank pari passu with all other
unsecured creditors of the borrower.
o Risks of High Leverage - The Trust and the Operating Partnership will each
be permitted to incur indebtedness in an aggregate amount up to 300% of
their respective net assets (subject to certain exceptions described in
the Prospectus at "INVESTMENT OBJECTIVES AND POLICIES - Trust Policies
with respect to Certain Activities - Financing Policies"), which could
result in the Trust and the Operating Partnership becoming highly
leveraged, which in turn could adversely affect the ability of the Trust
and the Operating Partnership to make distributions to Shareholders and
Unitholders and increase the risk of default under their respective
indebtedness.
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o Impact of Distribution Requirements - The distribution requirements for
REITs under federal income tax laws may limit the Trust's ability to
finance acquisitions and improvements of property without additional debt
or equity financing; financing such acquisitions and improvements in turn
may limit cash available for distribution to Shareholders and Unitholders.
See below at "Tax Consequences" and the Prospectus at "TAX STATUS" and
"FEDERAL INCOME TAX CONSIDERATIONS."
o Dependence on Management - The successful operation of the Trust and the
Operating Partnership is dependent on key management. In addition, each of
the Original Investors, Mr. McGrath and Mr. Geiger, have other business
interests and neither will devote full business time to the Trust, the
Operating Partnership or the Managing Shareholder. See the Prospectus at
"MANAGEMENT."
o No Assurance of Completion of Cash Offering and Exchange Offering - There
can be no assurance of the successful completion of the Exchange Offering
and the Cash Offering and it is unlikely that the cash proceeds from the
sale in the Cash Offering of only a minimum number of Common Shares will
be sufficient to meet the investment objectives of the Trust and the
Operating Partnership.
o No Public Market For Sale of Units or Common Shares - No public market for
the sale of Units is expected to ever develop, and, although Common Shares
(into which Units are exchangeable) may eventually be listed on a national
stock exchange, it is possible that no public market for the Common Shares
will ever develop or be maintained, resulting in lack of liquidity of the
Common Shares.
o Acceptance of Exchange Offering May Mean Unlimited Duration of Investment
- If the Exchange Offering is completed in respect of their Exchange
Partnership, Offerees who accept the Exchange Offering will be tendering
their current investment in a particular Exchange Partnership with an
expected limited duration in exchange for an investment in the Operating
Partnership, which has an unlimited duration. See "COMPARISON OF RIGHTS OF
HOLDERS OF EXCHANGE PARTNERSHIP UNITS, OPERATING PARTNERSHIP UNITS AND
TRUST COMMON SHARES."
o Failure To Qualify As A REIT - The Trust will be taxed as a corporation if
it fails to qualify as a REIT for federal income tax purposes. In that
event, the Trust will be liable for certain federal, state and local
income taxes and cash available for distribution to Shareholders and
Unitholders will decrease. Even if the Trust qualifies for taxation as a
REIT, the Trust may be subject to certain Federal, state and local taxes
on its income and property. See below at "Tax Consequences" and the
Prospectus at "FEDERAL INCOME TAX CONSIDERATIONS."
o Potential Adverse Tax Consequences - Under certain circumstances described
below at "Tax Consequences" and the Prospectus at "FEDERAL INCOME TAX
CONSIDERATIONS - Exchange of Exchange Partnership Units for Operating
Partnership Units," an Exchange Limited Partner may recognize tax upon the
exchange of Exchange Partnership Units for Operating Partnership Units.
o Possible Dilution From Issuance of Additional Shares and Units - The
possible issuance by the Trust and the Operating Partnership of additional
Shares and Units subsequent to the completion of the Exchange Offering and
the Cash Offering may result in the dilution of Offerees who elect to
accept this Exchange Offering and Shareholders of the Trust and affect the
then prevailing market price of Common Shares.
o Possible Adverse Effect of Antitakeover Provisions of Trust - Certain
provisions in the Declaration of Trust for the Trust and other statutory
provisions have the potential to delay or prevent a takeover of the Trust
or other transaction in which the holders of some, or a majority, of the
outstanding Common Shares might receive a premium on their Common Shares
over the then prevailing market price or which such holders might believe
to be otherwise in their best interest. Such provisions generally limit
the actual or constructive ownership by any one person or entity (other
than the Original Investors) of equity securities in the Trust to 5% of
the outstanding Shares.
o Possible Adverse Impact of Non-Participating Limited Partners - As a
result of certain amendments which will be made to the partnership
agreement of each Participating Exchange Partnership with
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one or more Offerees who elect not to accept the Exchange Offering (the
"Non-participating Limited Partners") following the Exchange Offering,
such Non-participating Limited Partners, voting as a class, will have the
ability to veto certain actions of the partnership, such as the sale of
the partnership's property, which might be in the best interest of the
partnership, the Operating Partnership, the Trust or the holders of
securities of the Trust and the Operating Partnership. There can be no
assurance that Non-participating Limited Partners will not use such voting
power in a manner which may have an adverse effect on the operations of
the Trust or the Operating Partnership.
o Illiquidity of Non-Participating Limited Partners - Following the Exchange
Offering, the limited partnership interests of Non-participating Limited
Partners in Participating Exchange Partnerships are likely to remain
extremely illiquid because they will represent a small minority interest
in the partnership and because of the uncertainty whether the property
interests held by the partnership would be sold in the near future due to
the REIT and other provisions of the Code which would penalize the Trust
and possibly limited partners in the partnership who accept the offering
if the Operating Partnership sells the property interest in the short
term.
o Regulatory Non-Compliance Could Result in Fines or Judgment - The
potential liability of the Trust and the Operating Partnership for unknown
or future environmental liabilities and the costs of compliance with the
Americans with Disabilities Act and other governmental regulations, which
may negatively impact the financial condition and results of operations of
the Trust and the Operating Partnership and cash available to them for
distribution to Shareholders and Unitholders.
o Return on Investment Based on Exchange Value Will Be Less than Book Value
- The $8,113,659 aggregate book value of the 23 Exchange Partnerships
initially targeted for investment in the Exchange Offering is less than
the $24,980,606 total of the initial value assigned to the Operating
Partnership Units being offered for limited partnership interests in the
Exchange Partnerships. This discrepancy is due to depreciation taken
against the original price paid by Exchange Equity Partnerships and the
Exchange Hybrid Partnerships for direct or indirect equity interests in
properties, and the appreciation of the properties since such purchase. As
a result, the return on investment of the Exchange Partnerships based on
the initial assigned value of the Units offered for limited partnership
interests in such partnerships will be less than the return on investment
of the partnerships based on their respective book value.
o Non-Participating Limited Partners Have No Appraisal Rights - Any Offeree
who is a limited partner of an Exchange Partnership and does not desire to
participate in the Exchange Offering will be entitled to retain his or her
limited partnership interest in his or her respective Exchange Partnership
on substantially the same terms and conditions as his or her original
investment. Neither applicable law nor the limited partnership agreement
relating to any Exchange Partnership provides any rights of dissent or
appraisal to Offerees who do not elect to accept the Exchange Offering.
o Possible Adverse Effect of Changes in Interest Rates and Real Estate
Market - The use of Units being offered in the Exchange Offering and the
net proceeds of the Cash Offering to acquire interests in one or more
existing residential apartment properties may occur over an extended
period during which the Trust and the Operating Partnership will face
risks of changes in interest rates and adverse changes in the real estate
market. Similarly, during periods in which proceeds are invested in
interim investments prior to such application, the Trust and the Operating
Partnership may be affected by changes in prevailing interest rate levels.
Such interim investments would be expected to earn rates of return which
are lower than those earned on the real estate investments of the Trust
and the Operating Partnership.
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TAX CONSEQUENCES
The Operating Partnership
No ruling has been or will be sought from the Internal Revenue Service
("IRS") as to the status of the Operating Partnership as a partnership for
federal income tax purposes. Instead, the Operating Partnership has relied on
the opinion of special tax counsel that, based upon the Internal Revenue Code of
1986, as amended (the "Code"), the regulations thereunder, published revenue
rulings and court decisions, the Operating Partnership will be classified as a
partnership for federal income tax purposes. In rendering its opinion, tax
counsel has relied on certain factual representations discussed in the
Prospectus made by the Operating Partnership and the Trust, as its general
partner. See the Prospectus at "Tax Status" and "Federal Income Tax
Considerations."
If the Operating Partnership were taxed as a corporation in any taxable
year, its items of income, gain, loss and deduction would be reflected only on
its tax return rather than being passed through to Unitholders, and its net
income would be taxed to the Operating Partnership at corporate rates currently
ranging to a maximum federal rate of 35%. In addition, any distribution made to
a Unitholder would be treated as either taxable dividend income at a rate
currently ranging to a maximum federal rate of 39.6% (to the extent of the
Operating Partnership's current or accumulated earnings and profits) or (in the
absence of earnings and profits) a non-taxable return of capital (to the extent
of the Unitholder's tax basis in his or her Units) or taxable capital gain
(after the Unitholder's tax basis in the Units has been reduced to zero).
Accordingly, treatment of the Operating Partnership as an association taxable as
a corporation would result in a material reduction in a Unitholder's cash flow
and after-tax return and thus would likely result in a substantial reduction of
the value of the Units.
Exchange of Exchange Partnership Units for Operating Partnership Units
In general, a contribution by a Limited Partner of Exchange Partnership
Units to the Operating Partnership in exchange for Units of the Operating
Partnership (the "Exchange") will not result in the recognition of taxable gain
at the time of the Exchange. There is an exception to this general rule if the
Limited Partner receives in connection with the Exchange a cash distribution (or
a deemed cash distribution resulting from relief from liabilities) that exceeds
such Limited Partner's aggregate adjusted basis in his or her Exchange
Partnership Units at the time of the Exchange and other exceptions to
nonrecognition of gain described in the Prospectus. See the Prospectus at
"Federal Income Tax Considerations - Exchange of Exchange Partnership Units for
Operating Partnership Units" for a more detailed discussion of other factors
that could result in the recognition of gain upon the Exchange.
The Limited Partners will not receive any cash distributions in connection
with the Exchange Offering. Whether any Limited Partner will receive a deemed
cash distribution attributable to relief from liabilities in connection with the
Exchange that exceeds his or her adjusted basis in his or her Exchange
Partnership Units at the time of the Exchange will depend on a number of
variables, including such Limited Partner's adjusted tax basis in his or her
partnership interest at such time; the assets that the Limited Partner
originally contributed to the Exchange Partnership in exchange for such Exchange
Partnership Units; the indebtedness, if any, of the Exchange Partnership at the
time of the Exchange; the tax basis of any such contributed assets in the hands
of the Exchange Partnership at the time of the Exchange; the Limited Partner's
share of the "unrealized gain" with respect to the Exchange Partnership's assets
at the time of the Exchange; and the extent to which the Limited Partner
includes in his or her basis for his or her Exchange Partnership Units a share
of the Exchange Partnership's recourse liabilities by reason of indemnification
or "deficit restoration" obligations that will be eliminated by reason of the
Exchange. See "Federal Income Tax Considerations - Exchange of Exchange
Partnership Units for Operating Partnership Units."
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<PAGE>
The Trust
The Trust will elect to be taxed as a real estate investment trust
("REIT") under Sections 856 through 860 of the Code commencing with its taxable
year ending December 31, 1998. To maintain REIT status, an entity must meet a
number of organizational and operational requirements, including a requirement
that it currently distribute to its Shareholders at least 95% of its REIT
taxable income (determined without regard to the dividends paid deduction and by
excluding net capital gains). Certain noncash items are excluded from the
distribution requirement.
As a REIT, the Trust generally will not be subject to federal income tax
on net income it distributes currently to its Shareholders. If the Trust fails
to qualify as a REIT in any taxable year, it will be subject to federal income
tax at regular corporate rates and may not be able to qualify as a REIT for the
four subsequent taxable years. See the Prospectus at "Risk Factors - Potential
Adverse Tax Consequences - Taxation of the Trust as a Corporation if it Fails to
Qualify as a REIT" and "Federal Income Tax Considerations - Taxation of the
Trust." Even if the Trust qualifies for taxation as a REIT, the Trust may be
subject to certain federal, state and local taxes on its income and property.
EFFECTS OF THE FORMATION TRANSACTIONS,
CASH OFFERING AND EXCHANGE OFFERING
The transactions relating to the formation of the Trust and the Operating
Partnership and to the Cash Offering and Exchange Offering will have various
beneficial effects on the operations of the Trust, the Operating Partnership and
the Exchange Partnerships, including the operation of the Exchange Properties
and other properties to be acquired, but may have certain disadvantages for
Limited Partners who accept the Exchange Offering. See the Prospectus at "The
Exchange Offering - Effects of the Formation Transactions, Cash Offering and
Exchange Offering."
The principal benefits to Limited Partners who accept the Exchange
Offering include the following:
o The Limited Partners will be able to participate in a more
diversified investment in a more advantageous form of ownership with
a greater potential for marketability of the security.
o The Trust and the Operating Partnership have been able to attract
highly experienced management and financial personnel capable of
managing a substantially larger real estate portfolio.
o The Trust and the Operating Partnership, on the one hand, and each
of the Exchange Partnerships, on the other hand, will benefit from a
highly qualified management team which has been assembled and the
economy of scale attendant to operation of the Exchange Properties
as part of a single business entity. The General Partner (wholly
owned and controlled, along with the Managing Shareholder of the
Trust, by Mr. McGrath) believes that a single self-managed structure
of ownership by the Exchange Partnerships and administration of the
property interests which are controlled by them and which were
projected to be acquired by future affiliated programs would be far
more efficient, cost effective and advantageous for operations and
for the various program investors.
o The Trust and the Operating Partnership will be able to acquire
interests in residential apartment properties with cash and Units.
o The Trust and the Operating Partnership will have enhanced ability
to obtain more favorable terms for the financing of their assets
including, where appropriate, the Exchange Properties.
o The Exchange Offering has been designed to afford Limited Partners
who accept the offering the benefit of a deferral of any recognition
of taxable gain until they exercise their right to exchange all or a
portion of their Units for an equivalent number of Common Shares of
the Trust. The exchange to Common Shares may be made at any time at
the sole discretion of each Limited Partner.
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<PAGE>
o The General Partner considered various alternatives to the Exchange
Offering, including continuation of the Exchange Partnership in
accordance with its existing business plan and sale or liquidation
of the partnership assets held, and has determined that the Exchange
Offering provides equal or greater value to the Limited Partners
compared with any other considered alternative. Continuation of the
existing business plan and liquidation have been determined to be
impractical and disadvantageous for the Limited Partners. The
General Partner has either explored the sale of the partnership
assets or determined that such a sale would be premature as it would
not maximize investor value.
The principal disadvantages to Limited Partners who accept the Exchange
Offering include the following (see the Prospectus at "Risk Factors"):
o Conflicts of interests exist among the Trust, the Operating
Partnership, the Managing Shareholder (wholly owned and controlled,
along with the general partner of each of the Exchange Partnerships,
by Mr. McGrath), the Original Investors and their affiliates with
respect to the formation and future operations of the Trust and the
Operating Partnership.
o The Original Investors have significant influence over the affairs
of the Trust and the Operating Partnership by virtue of their
collective ownership of Operating Partnership Units.
o Limited Partners who accept the Exchange Offering will pay greater
consideration per Unit than the Original Investors paid for their
Units.
17
<PAGE>
VALUATION METHOD
The value of the Exchange Partnership is set forth in the following
table. The value is based on an appraisal performed on the partnership's direct
or indirect property interests by a qualified and licensed independent appraisal
firm and other considerations with respect to property interests, or where
applicable is based upon the current principal balance of mortgage interests in
properties held by the partnership, independent appraisals on the property
securing such indebtedness and other considerations with respect to mortgage or
debt interests. See the Prospectus at "The Exchange Offering - Exchange Property
Appraisals." The number of Units being offered in respect of the Exchange
Partnership, each of the other Exchange Equity Partnerships and each of the
Exchange Hybrid Partnerships (to the extent of their direct or indirect equity
interests in properties) differs based upon the following: (a) the estimated
appraised market value of the underlying property determined by qualified and
licensed independent appraisal firms; (b) the operating history of the property;
(c) the current principal balance of first mortgage and other indebtedness to
which the property is subject; (d) the amount of distributable cash flow
currently being generated by the property; plus (e) additional factors which the
Managing Shareholder believes are appropriate to consider including, among
others, the property's overall current condition and prospects for the property
based upon improvements made or to be made to the property and, in certain
cases, the combination of two or more phases of the property, which are expected
to be owned upon completion of the Exchange Offering, and the actual or
potential benefits to be obtained by the sub-metering of utilities in order to
pass costs from the owner of the property to individual tenants. The number of
Units being offered in respect to each of the Exchange Mortgage Partnerships and
each of the Exchange Hybrid Partnerships (to the extent of their mortgage
interests in properties and other debt interests) differs based upon the
following factors: (i) the current principal balance of the amount of debt which
is senior to the mortgage interest to be acquired and other indebtedness to
which property is subject; (ii) the estimated appraised market value of the
underlying property determined by qualified and licensed independent appraisal
firms; (iii) the operating history of the property; (iv) the amount of
distributable cash flow currently being generated by the property; plus (v)
additional factors which the Managing Shareholder believes are appropriate to
consider including, among others, the property's overall current condition and
prospects for the property based upon improvements made or to be made to the
property and, in certain cases, the combination of two or more phases of the
property, which are expected to be owned upon completion of the Exchange
Offering, and the actual or potential benefits to be obtained by the
sub-metering of utilities in order to pass costs from the owner of the property
to individual tenants.
The General Partner (wholly owned and controlled, along with the Managing
Shareholder of the Trust, by Mr. McGrath) believes that the Exchange Offering is
fair to the Limited Partners and recommends that they accept the Exchange
Offering for the following reasons:
o The Units to be issued in the Exchange Offering have been valued
based upon a qualified independent third party appraisal of the
Exchange Partnership's property interests and other considerations
and reflect a value greater than the Limited Partners' original
investments.
o The Exchange Offering has been structured to permit each Limited
Partner, if desired, to decide not to accept the offering and
instead retain his or her existing interest in the partnership on
terms substantially the same as those of his or her original
investment.
o The Operating Partnership will not complete the offering in respect
of any Exchange Partnership unless limited partners holding at least
90% of the limited partnership interests therein affirmatively elect
to accept the offering. In addition, the Operating Partnership will
not complete any transaction in the offering whatsoever unless a
sufficient number of Offerees accept the offering such that the
offering involves the issuance of Operating Partnership Units with
an initial assigned value of at least $6,000,000.
o The Exchange Offering will provide each Limited Partner with a
significantly more diverse interest in income producing real
property and debt interests with a possible opportunity that the
Operating Partnership Units received will be marketable in the
future.
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<PAGE>
o The Trust and the Operating Partnership have been able to attract
highly experienced management and financial personnel capable of
managing a substantially larger real estate portfolio.
o Upon completion of the Exchange Offering it is anticipated (but not
assured) that the large number of residential units to be owned by
the Operating Partnership will provide the Exchange Partnership with
a lower operating cost per residential unit and as a consequence
increase operating performance.
o The General Partner believes that a single integrated structure of
ownership by the Exchange Partnerships and administration of the
property interests which are controlled by them and which were
projected to be acquired by future affiliated programs would be far
more efficient, cost effective and advantageous for operations and
for the various program investors.
o The Exchange Offering has been designed to afford Limited Partners
who accept the offering the benefit of a deferral of any recognition
of taxable gain until they exercise their right to exchange their
Units for an equivalent number of Common Shares of the Trust. The
exchange to Common Shares may be made at any time at the sole
discretion of each Limited Partner.
o The General Partner considered various alternatives to the Exchange
Offering, including continuation of the Exchange Partnership's
existing business plan and sale or liquidation of the partnership
assets held, and has determined that the Exchange Offering provides
equal or greater value to the Limited Partners compared with any
other considered alternative.
Set forth below is certain information relating to (i) the appraised value
of the property interests held by the Exchange Partnership, (ii) the principal
balance as of March 31, 1999 of mortgage financing secured by the underlying
property, (iii) other assets and liabilities of the partnership and (iv) the
valuation of Units to be offered to the Limited Partners in the Exchange
Offering:
19
<PAGE>
<TABLE>
<CAPTION>
Valuation of Partnership Florida Income Growth Fund V, Ltd.
Blossom Corners I
<S> <C>
Appraised value of underlying property interests: $ 2,195,000
Cash and cash equivalent assets: $ 78,457
Other assets (1): $ 123,453
3/31/99 principal balance of mortgage financing
secured by the property: $(1,020,990)
Other liabilities(2): $ (65,573)
Adjustment (3):
Valuation of the partnership $ 1,310,347
Aggregate number of Units offered to all Limited
Partners in the Partnership (dollar value) 131,035
Number of Units offered to each Limited Partner
in the Partnership per $1,000 of original
investment (dollar value) 114
Percentage of all Units offered to the Limited
Partners in the Partnership in relation to the
maximum number of Units offered to Limited
Partners in all Exchange Partnerships: 5.25%
Total Number of Partnership Units
Original Price Per Unit
</TABLE>
(1) Comprised of mortgage escrow account balance held by first mortgage
lender to cover taxes, insurance, maintenance and repair reserves
and other items, and miscellaneous assets.
(2) Comprised of security deposits payable, accounts payable to vendors,
notes or advances to third parties (including affiliates) and
accrued expenses ( such as real estate taxes).
(3) Comprised of subjective judgements made by the managing shareholder
to adjust for improvements, combination of phases of operation and
the installation of utility submeters.
20
<PAGE>
COMPENSATION
The Exchange Partnership currently compensates the general partner
and its affiliates by paying management and accounting fees. No other payments
are made to the general partner and its affiliates by the Exchange Partnership.
Mr. McGrath, an affiliate of the General Partner, is the sole shareholder and
director of the Managing Shareholder of the Trust. As described in greater
detail below, Mr. McGrath has agreed to serve as Chief Executive Officer of the
Operating Partnership and the Trust in exchange for up to 25,000 Common Shares
of the Trust or up to 25,000 Operating Partnership Units (amount to be
determined by the Executive Compensation Committee of the Trust) and health
benefits for the first year of operations and thereafter in exchange for
compensation and benefits determined annually by that committee. Additionally,
Mr. McGrath would have received 9.5% of all distributions on Units subscribed
for by him in connection with the formation of the Operating Partnership.
Compensation Paid
To General Partner and Affiliates
1996 1997 1998 March 31, 1999
---- ---- ---- --------------
Management Fee $13,930 $13,680 $17,459 $ 5,489
Accounting Fee $ 3,900 3,900 3,900 975
------- ------- ------- -------
$17,830 $17,680 $21,369 $ 6,484
Compensation
Which Would Have
Been Paid to General Partner
And Affiliates If Exchange Offer
Had Been Concluded(1)
1996 1997 1998 March 31, 1999
---- ---- ---- --------------
9.5% Distribution $ 7,025 $10,829 $ 4,618 $ 1,140
In connection with the formation of the Trust and the Operating Partnership, the
Original Investors (comprised of Mr. McGrath and Robert S. Geiger, who had no
prior affiliation with the Trust, the Operating Partnership, the Managing
Shareholder or any of the Exchange Partnerships) each subscribed for 601,080
Units. In consideration for the Units subscribed for by them, the Original
Investors made a $100,000 capital contribution to the Operating Partnership. If
the Cash Offering and the Exchange Offering are fully subscribed, the Units
received by each of the Original Investors would represent 9.5% of the total
Common Shares outstanding after completion of the Cash Offering and exchange by
the Operating Partnership of 2,500,000 of its Units for units of limited
partnership interest in real estate limited partnerships (including any exchange
completed pursuant to the Exchange Offering), calculated on a fully diluted
basis assuming all then outstanding Units (other than those acquired by the
Trust) have been exchanged into an equivalent number of Common Shares. If,
however, as of November 30, 1999, the Cash Offering and/or the Exchange Offering
has been completed and the number of Units subscribed for by each Original
Investor represents a percentage greater than 9.5% of the then outstanding
Common Shares, calculated on a fully diluted basis assuming that all then
outstanding Units (other than those acquired by the Trust) have been exchanged
into an equivalent number of Common Shares, each Original Investor has agreed to
return any excess Units to the Operating Partnership for cancellation. As
described further below, Mr. McGrath and Mr. Geiger have deposited Units
subscribed for by them into a security escrow account for six to nine years,
subject to earlier release under certain conditions.
21
<PAGE>
Under the subscription agreement, the Original Investors agreed to waive
future administrative fees for managing Participating Exchange Partnerships;
agreed to assign to the Operating Partnership the right to receive all residual
economic rights attributable to the general partner interests in Participating
Exchange Partnerships; and, in order to permit management of the Exchange
Properties by the Operating Partnership, caused the Exchange Partnerships to
cancel the partnerships' prior property management agreements and agreed to
forego the right to have a property management firm controlled by the Original
Investors assume the property management role in respect of properties in which
the Trust or the Operating Partnership invest.
As noted above, under a security escrow agreement with American Stock
Transfer & Trust Company ("ASTTC") (the transfer agent and registrar for the
Common Shares being offered in the Cash Offering and the Units being offered in
the Exchange Offering), the Original Investors have deposited into an escrow
account with ASTTC the Units issued to them in connection with the formation of
the Trust and the Operating Partnership. Under the agreement, 25% of the
escrowed Units may be released from the escrow account on the sixth, seventh,
eighth and ninth anniversary dates of the commencement of the Cash Offering,
provided that the escrowed Units may be released in their entirety earlier if
either (i) the Trust achieves annual net earnings per Common Share of at least
$.50 (i.e.., 5% of the public offering price per share), after taxes and
excluding extraordinary items, for any consecutive two-year period following the
commencement of the Cash Offering, or (ii) the Trust achieves average annual net
earnings per share of at least $.50 (after taxes and excluding extraordinary
items) for any consecutive five-year period following the commencement of the
Cash Offering, or (iii) the Common Shares have traded on a national stock market
at a price per share of at least $17.50 (i.e.., 175% of the public offering
price per share) for at least 90 consecutive trading days following the first
anniversary of the commencement of the Cash Offering. In addition, the Original
Investors' Units will be subject to the trading restrictions under Rule 144
issued under the Securities Act of 1933, as amended.
The effect of the escrow arrangement described above is that as long as
their Units are held in the escrow account, the Original Investors will not be
able to cash out their investment in the Operating Partnership by exchanging
their Units into Common Shares and then selling the Common Shares. The Original
Investors will retain any voting rights to which the escrowed Units (and/or
Common Shares into which escrowed Units have been exchanged) are entitled, as
long as the Units (and/or such Common Shares) are escrowed, provided that, until
November 30, 1999, each Original Investor may vote Units (and/or Common Shares)
owned by him and held in escrow which represent 9.5% of the then outstanding
Common Shares, calculated on a fully diluted basis assuming all then outstanding
Units (other than those acquired by the Trust) have been exchanged into an
equivalent number of Common Shares. While Units (and/or Common Shares) owned by
them are held in escrow, the Original Investors are entitled to receive
dividends and distributions based on the amount of such securities they may vote
at the time of such payments. Any dividends paid on the escrowed securities will
be held in the escrow account and available for distribution of the assets of
the Operating Partnership (such as its dissolution, liquidation, merger or sale
of substantially all of its assets) to the extent that the other Shareholders
and Unitholders otherwise would not receive in connection with such transaction,
distributions in an amount equal to at least the initial public offering price
of the Common Shares.
22
<PAGE>
COMPARISON OF RIGHTS OF HOLDERS OF EXCHANGE PARTNERSHIP UNITS,
OPERATING PARTNERSHIP UNITS AND TRUST COMMON SHARES
The rights and obligations of the general partner (wholly owned and
controlled, along with the Managing Shareholder of the Trust, by Mr. McGrath)
and Exchange Limited Partners in respect of each Exchange Partnership are
governed by the agreement of limited partnership of the partnership
(collectively, the "Exchange Partnership Agreements" and individually, an
"Exchange Partnership Agreement"). The rights and obligations under the various
Exchange Partnership Agreements described below are identical except as stated.
Exchange Limited Partners are urged to review the Exchange Partnership Agreement
pertaining to their investment which was attached as Exhibit A to the Private
Placement Memorandum they received in connection with their original purchase of
Exchange Partnership Units in such partnership's private offering.
Upon their acceptance of the Exchange Offering, Exchange Limited Partners
of Participating Exchange Partnerships (i.e.., Exchange Partnerships whose
limited partners holding at least 90% of the limited partnership interests
therein elect to accept the Exchange Offering, assuming the offering is
completed) will become limited partners in the Operating Partnership and have
rights set forth under the Operating Partnership Agreement as described below.
See also the Prospectus at "THE TRUST AND THE OPERATING PARTNERSHIP- The
Operating Partnership." Exchange Limited Partners of Participating Exchange
Partnerships who accept the Exchange Offer and thereby receive Operating
Partnership Units will entitled to exchange all or a portion of such units for
an equivalent number of Common Shares of the Trust at any time and from time to
time, subject to the Trust's right to cash out any holder of Units who requests
an exchange (at a price equal to the average of the daily market price for the
10 consecutive trading days immediately preceding the date the Trust receives
the exchange notice, or, in the absence of a public trading market, at a price
determined in good faith by the Trust) and subject to certain other restrictions
described in the Prospectus at "THE EXCHANGE OFFERING." Holders of Trust Common
Shares will have the rights set forth under the Declaration of Trust for the
Trust which are summarized in the Prospectus at "SUMMARY OF DECLARATION OF
TRUST" and below. The Declaration of Trust also contains certain additional
limitations on the Trust's activities which will affect the operation of the
Trust and the Operating Partnership. See the Prospectus at "SUMMARY OF THE
DECLARATION OF TRUST - Control of Operations" and Section 1.9 of the Declaration
of Trust.
The rights of limited partners in the Participating Exchange Partnerships
differ in many respects from the rights they will have as limited partners in
the Operating Partnership if they accept the Exchange Offering and the rights
they will have if they exercise their right to exchange Operating Partnership
Units for an equivalent number of Trust Common Shares. The following discussion
compares the material provisions of each type of security but does not purport
to be a complete statement of such provisions under Florida and Delaware limited
partnership law, as applicable, Delaware business trust law, the Exchange
Partnership Agreements, the Operating Partnership Agreement and the Declaration
of Trust of the Trust or a comprehensive comparison of the rights of holders of
Exchange Partnership Units, the holders of Operating Partnership Units and
holders of Trust Common Shares under such agreements or laws. This summary is
qualified in its entirety by reference to such agreements and laws.
Following the Exchange Offering, each Non-participating Limited Partner
(i.e., each limited partner in a Participating Exchange Partnership who elects
not to accept the Exchange Offering) will retain his existing interest in his
Exchange Partnership. The Non-participating Limited Partners will retain all of
their economic and voting rights, rights to receive reports and substantially
all other rights as set forth in the Exchange Partnership Agreement pertaining
to their Exchange Partnership. As described in further detail in this Prospectus
at "AMENDMENTS TO PARTNERSHIP AGREEMENTS OF PARTICIPATING EXCHANGE PARTNERSHIPS
WITH NON-PARTICIPATING LIMITED PARTNERS," the partnership agreement of each
Participating Exchange Partnership which has one or more Non-participating
Limited Partners following the Exchange Offering will be amended so that such
partners will be entitled to vote as a class in respect of all matters as to
which limited partners are entitled to vote under the partnership agreement
prior to the completion of the Exchange Offering, with certain exceptions. In
addition, the Trust and the Operating Partnership have agreed that in respect of
certain proposed actions, the Participating Exchange Partnership must obtain the
prior approval of Non-participating Limited Partners holding a majority of the
limited partnership interests held by all Non-
23
<PAGE>
participating Limited Partners in the partnership. For example, the partnership
may not sell its existing property interest, acquire any additional property
interests or cease to exist without such approval. The partnership agreement, as
amended, will continue in full force and effect after the completion of the
offering as long as any Non-participating Limited Partners remain limited
partners of the Exchange Partnership. See the Prospectus at "THE EXCHANGE
OFFERING."
Set forth below under the applicable category is a summary of the specific
Exchange Partnership Agreement amendments that will be effected in respect of
each Participating Exchange Partnership which has one or more Non-participating
Limited Partners immediately following the completion of the Exchange Offering
as to such partnership.
Issuance of Additional Securities
Exchange Partnerships: Under the Exchange Partnership Agreements, the interests
of the partners are comprised of general partner interests and limited partner
interests only. Except as described in the next paragraph, all of the Exchange
Partnerships may issue securities in addition to those issued in connection with
their respective private offering of limited partnership interests, as described
below in this paragraph. Additional partnership interests may be sold by each
such Exchange Partnership in the future if the general partner thereof (wholly
owned and controlled, along with the Managing Shareholder of the Trust, by Mr.
McGrath) determines it to be in the best interest of the partnership to commit
additional funds to its property and that such funds should not be financed from
the partnership's earnings or through additional indebtedness.
The partnership agreement provisions of three of the Exchange Partnerships
(Florida Income Advantage Fund I, Ltd., Florida Income Appreciation Fund I,
Ltd., and Realty Opportunity Income Fund VIII, Ltd.) permit the issuance of
additional securities only if such issuance is approved by the general partner
of, and the limited partners holding at least a majority of the limited
partnership interests in, the respective partnership.
As a result of certain amendments to be made to the partnership agreement
of each Participating Exchange Partnership with one or more Non-participating
Limited Partners following the Exchange Offering, without the majority approval
of the Non-participating Limited Partners of the partnership voting as a class,
the partnership will not be authorized to admit any additional persons as
limited partners other than pursuant to provisions of the agreement, including
those described above, which set forth procedures for admission or pertain to
transfers of limited partnership interests. In addition, as a result of such
amendments, the general partner of each Participating Exchange Partnership
(other than the three partnerships excepted above) will continue to have
discretion to issue additional units of limited partnership interest of the same
class as units held by the limited partners of the partnership and to determine
the terms of such issuance, provided, however, that the majority approval of
Non-participating Limited Partners voting as a class is required to approve such
issuance in advance where the selling price for such shares is not less than the
approximate market value of the units. See the Prospectus at "AMENDMENTS TO
PARTNERSHIP AGREEMENTS OF PARTICIPATING EXCHANGE PARTNERSHIPS WITH
NON-PARTICIPATING LIMITED PARTNERS."
Operating Partnership: Under the Operating Partnership Agreement, the initial
interests of the partners are comprised of the general partner interest held by
the Trust and Operating Partnership Units of limited partnership interest to be
held by the Trust, the Original Investors and the recipients of Operating
Partnership Units in connection with the Exchange Offering. The Trust, as
general partner of the Operating Partnership, is authorized to cause the
Operating Partnership to issue additional partnership interests in the Operating
Partnership for any purpose of the Operating Partnership at any time to the
partners in the Operating Partnership or to other persons for such consideration
and on such terms and conditions as may be established by the Trust in its sole
and absolute discretion, provided, however, the Operating Partnership may not
issue redeemable equity securities (other than Units which by their terms are
exchangeable into Common Shares). The Trust may cause the Operating Partnership
to issue additional interests in the Operating Partnership in one or more
classes, or one or more series of any such classes, with such designations,
preferences and relative rights, powers and duties senior to interests of
Operating Partnership limited partners, subject to Delaware business trust law.
Since Units are exchangeable by Unitholders (other than the Trust) into an
equivalent number of Common Shares of the
24
<PAGE>
Trust, the maximum number of Units that may be issued by the Operating
Partnership is limited to the number of authorized Shares of the Trust, which is
25,000,000.
The Trust: The Trust has authority to issue an aggregate of 25,000,000 Shares.
The Managing Shareholder of the Trust is authorized to issue from the authorized
but unissued Shares of the Trust, additional Common Shares as well as Preferred
Shares in one or more series and to establish from time to time the number of
Preferred Shares to be included in each such series and to fix the designations
and any preferences, conversion and other rights, voting powers, restrictions,
limitations as to dividends, qualifications, and terms and conditions of
redemption of the shares of each series, provided, however, (i) the Managing
Shareholder will be authorized to issue Preferred Shares only upon approval of
either Shareholders of the Trust holding a majority of the then outstanding
Shares entitled to vote upon such matter or a majority of the disinterested
Independent Trustees, (ii) the voting rights for each Preferred Share that is
issued may not exceed one vote per share, and (iii) the Trust may not issue
redeemable equity securities. If the Trust issues additional securities in the
future, (x) the Trust must cause the Operating Partnership to issue to the
Trust, interests in the Operating Partnership which represent economic interests
in the Operating Partnership which are substantially similar to such additional
securities and (y) the Trust must contribute to the Operating Partnership the
net proceeds from, or the property received in consideration for, the issuance
of any such additional securities and from the exercise of rights contained in
such additional securities.
In addition, upon the exercise of an option granted by the Trust for Trust
Common Shares pursuant to an employee stock option plan, the Trust must cause
the Operating Partnership to issue to the Trust one Operating Partnership Unit
for each Trust Common Share acquired upon such exercise and the Trust must
contribute to the Operating Partnership the net proceeds received from such
exercise. The Operating Partnership will also issue Operating Partnership Units
to employees of the Operating Partnership or any subsidiary of the Operating
Partnership upon the exercise by any such employees of an option to acquire
Operating Partnership Units granted by the Operating Partnership pursuant to an
employee stock option plan.
The Trust will also issue Trust Common Shares on a one-for-one basis to
holders of Operating Partnership Units who exercise their rights to exchange
their Operating Partnership Units for an identical number of Trust Common
Shares, subject to certain exceptions described in the Prospectus at "THE
EXCHANGE OFFERING."
Term of Existence
Exchange Partnerships: The term of each Exchange Partnership terminates on
December 31 of the year of the twenty-ninth to thirty-second anniversary of its
formation, as the case may be, unless terminated earlier by law or under the
provisions of the respective Exchange Partnership Agreement, including (i) the
determination of a majority in interest of limited partners to dissolve the
partnership, (ii) actions affecting the activities of the general partner
(including, among other things, resignation or dissolution) unless a majority in
interest of the limited partners vote to continue the partnership and appoint a
successor general partner, and (iii) the sale of all or substantially all of the
property of the partnership.
As a result of certain amendments to be made to the partnership agreement
of each Participating Exchange Partnership with one or more Non-participating
Limited Partners following the Exchange Offering, without the majority approval
of the Non-participating Limited Partners of the partnership voting as a class,
the partnership will not be permitted to cease to exist.
In addition, as a result of such amendments, following the Exchange
Offering, the partnership may be dissolved by the vote of at least a majority of
the outstanding limited partnership interests in the partnership, but only with
the approval of Non-participating Limited Partners holding a majority of the
then outstanding units of the partnership held by all Non-participating Limited
Partners. Furthermore, the partnership will be dissolved if the last remaining
general partner of the partnership (each of the Exchange Partnerships currently
has only one general partner) ceases to act as general partner, unless the
limited partners of the partnership (including the Operating Partnership and
Non-participating Limited Partners) holding at least a majority of the then
outstanding units of the partnership elect to continue the partnership and elect
a new general partner and such continuation, election of such general partner(s)
and
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the amount, type and purchase price of any interest in the partnership such
successor general partner(s) may acquire in connection therewith have been
approved in advance by Non-participating Limited Partners of the partnership
holding a majority of the then outstanding units of the partnership held by all
Non-participating Limited Partners. See the Prospectus at "AMENDMENTS TO
PARTNERSHIP AGREEMENTS OF PARTICIPATING EXCHANGE PARTNERSHIPS WITH
NON-PARTICIPATING LIMITED PARTNERS."
Operating Partnership: The term of the Operating Partnership terminates on
December 31, 2098 unless terminated earlier by law or under the provisions of
the Operating Partnership Agreement, including (i) the withdrawal of the Trust
as general partner, unless a majority in interest vote to continue the Operating
Partnership and appoint a successor general partner, (ii) the general partner's
election to dissolve the Operating Partnership with the approval of limited
partners holding a majority in interest of the Operating Partnership Units, (ii)
the sale of all or substantially all of the properties of the Operating
Partnership, (iv) the merger of the Operating Partnership with or into another
entity, (v) the bankruptcy or insolvency of the Trust, and (vi) the commencement
of any proceedings against the Trust seeking its reorganization, liquidation,
dissolution or similar relief or the involuntary appointment of a trustee to
receive or liquidate the Trust or any substantial portion of its properties and
such proceeding or appointment has not been dismissed, vacated or stayed within
a specified period of time.
The Trust: The term of the Trust terminates on December 31, 2098 unless
terminated earlier (i) by law, (ii) the determination of the holders of at least
a majority of the Trust Shares then outstanding to dissolve the Trust, (iii) the
sale of all or substantially all of the Trust's property or (iv) the withdrawal
of the Cash Offering by the Managing Shareholder of the Trust prior to the
termination date of the Cash Offering.
Management Control
Exchange Partnerships: Subject to the rights of limited partners in the Exchange
Partnerships set forth in the Exchange Partnership Agreements which are
described below at "Meetings and Voting Rights," the general partner of each
partnership has full exclusive and complete discretion in management and control
of the partnership.
As a result of certain amendments to be made to the partnership agreement
of each Participating Exchange Partnership with one or more Non-participating
Limited Partners following the Exchange Offering, any amendment of any agreement
entered into between any Participating Exchange Partnership and any affiliates
of the general partner following the Exchange Offering (other than any agreement
described in the offering documents relating to the original private offering of
the partnership) will require the approval of Non-participating Limited Partners
of the partnership holding a majority of the then outstanding units of the
partnership held by all Non-participating Limited Partners. See the Prospectus
at "AMENDMENTS TO PARTNERSHIP AGREEMENTS OF PARTICIPATING EXCHANGE PARTNERSHIPS
WITH NON-PARTICIPATING LIMITED PARTNERS."
Operating Partnership: Subject to the rights of Operating Partnership limited
partners set forth in the Operating Partnership Agreement which are set forth
below at "Meetings and Voting Rights," the Trust, as general partner of the
Operating Partnership, has all management powers over the business and affairs
of the Operating Partnership. As described immediately below, the Managing
Shareholder of the Trust has day to day management control over the Operating
Partnership and the Trust.
The Trust: Subject to the rights of Shareholders set forth in the Declaration of
Trust, the Managing Shareholder of the Trust has full exclusive and complete
discretion in the day to day management and control of the Trust and the
Operating Partnership, subject to the general supervision and review by the
Independent Trustees and the Managing Shareholder of the Trust acting together
as the Board of the Trust and subject to the prior approval of the Board and the
Independent Trustees in respect of certain activities of the Trust and the
Operating Partnership. See the Prospectus at "SUMMARY OF DECLARATION OF TRUST -
Control of Operations" and Section 1.9 of the Declaration of Trust.
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Economic Interest
Exchange Partnerships: In private offerings commenced between 1994 and 1997,
Exchange Limited Partners acquired Exchange Partnership Units in one or more
Exchange Partnerships in return for capital contributions. Each Exchange
Partnership maintains a capital account for each of its partners to which it
allocates the partner's share of all items of partnership income, gain, expense,
loss, deduction and credit determined in accordance with the Internal Revenue
Code of 1986, as amended, and regulations issued thereunder. Except as described
in the next paragraph below, the partnership agreement provisions of all of the
Exchange Partnerships relating to the allocation of taxable income and loss
among the general partner and the limited partners are substantially the same.
Such provisions are described below in this paragraph. Under the respective
Exchange Partnership Agreement, after giving effect to certain technical special
allocation provisions, (i) taxable income is allocable 100% to the general
partner until the profit allocated plus the cumulative profit allocable to the
general partner for prior fiscal periods during which a profit was earned by the
partnership equal the cumulative amounts distributable to the general partner
and the balance, if any, is allocated to the Exchange Limited Partners and (ii)
taxable losses are allocable 99% to the Exchange Limited Partners and 1% to the
general partner, provided, however, that losses are not allocable to any
Exchange Limited Partner to the extent that such allocation would cause such
Exchange Limited Partner to have an adjusted capital account deficit at the end
of the taxable year (which excess losses are allocable to the general partner).
Each limited partner in an Exchange Partnership owns an interest in the entire
limited partnership interests in the partnership in proportion to his respective
ownership of units.
Described below are the partnership agreement provisions of three of the
Exchange Partnerships (Florida Income Advantage Fund I, Ltd.; Florida Income
Appreciation Fund I, Ltd.; and Realty Opportunity Income Fund VIII, Ltd.)
relating to the allocation of taxable income and loss. Assuming that all
distributions (including distributions required under the special distribution
provisions of the Code) required to be made have been made, taxable income
attributable to operations is allocable first to those partners who have deficit
balances in their capital accounts, in proportion to such deficit balances,
until the capital accounts have been restored to zero; and then 90% to the
limited partners and 10% to the general partner. Taxable losses attributable to
operations are allocable 90% to the limited partners and 10% to the general
partner. Taxable gain attributable to the sale of partnership property is
allocable first to those partners who have deficit balances in their capital
accounts, in proportion to those deficit balances, until the capital accounts
are restored to zero, and then in accordance with the partners' capital
accounts. Taxable losses attributable to the sale of partnership property are
allocable among the partners in proportion to the positive or negative balances
of their respective capital accounts; provided, however that, in the event that
some partners have positive capital account balances and other partners have
negative capital account balances, then such losses will be allocated first to
those partners who have positive capital account balances in proportion to such
positive balances until the capital account balances of such partners have been
reduced to zero, and then 90% to the limited partners and 10% to the general
partner.
Each Exchange Partnership is required to distribute at least quarterly
distributable cash flow (defined as all cash received by the partnership from
any source, other than capital contributions, loan proceeds and proceeds from
the sale or refinancing of property, less operating expenses, principal and
interest payments on indebtedness, capital expenditures, general partner fees
and reasonable cash reserves). Each Exchange Limited Partner has a preferential
interest over the general partner in respect of his partnership's distributable
cash flow and net proceeds from the sale or refinancing of property owned by the
partnership. The interests of the Exchange Limited Partners and the general
partner in a particular Exchange Partnership in such distributable cash flow and
net sale or refinancing proceeds are set forth in Exhibit I to the Prospectus
Supplement delivered to each Exchange Limited Partner in the partnership.
Schedule B to the Prospectus contains a table for each Exchange Partnership
which summarizes on a partnership by partnership basis such allocations.
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The general partner of each Participating Exchange Partnership has agreed
to waive all fees that may be earned by it, including without limitation
administrative fees, investments fees and real estate commissions. The general
partner of each Participating Exchange Partnership has also agreed to assign to
the Operating Partnership all of its back-end economic interests in each such
partnership.
Upon the liquidation and dissolution of an Exchange Partnership, and after
payment of or the creation of reserves for the payment of partnership
liabilities, the proceeds of the sale or other disposition of the partnership's
remaining property will be distributed to the limited partners and the general
partner in proportion to their respective capital accounts in the partnership.
As a result of certain amendments to be made to the partnership agreement
of each Participating Exchange Partnership with one or more Non-participating
Limited Partners following the Exchange Offering, without the majority approval
of the Non-participating Limited Partners of the partnership voting as a class,
the partnership will not be permitted to sell its existing property interest,
acquire any additional property interests, cease to exist, or modify the rights
of limited partners to receive 100% of the quarterly cash distributions and net
proceeds from the sale or refinancing of the partnership's property until they
have received the preferred amount specified in the respective Exchange
Partnership Agreement. See the Prospectus at "AMENDMENTS TO PARTNERSHIP
AGREEMENTS OF PARTICIPATING EXCHANGE PARTNERSHIPS WITH NON-PARTICIPATING LIMITED
PARTNERS."
Operating Partnership: Each limited partner in a real estate limited partnership
who agrees to sell his limited partnership interest to the Operating Partnership
in an exchange transaction, including each Exchange Limited Partner in a
Participating Exchange Partnership who accepts the Exchange Offering, will
exchange such limited partnership interests for a number of Operating
Partnership Units based upon, among other considerations, the seller's
proportionate share of the valuation determined for the Participating Exchange
Partnership or such other limited partnership.
The Operating Partnership will maintain for each partner in the Operating
Partnership a capital account to which will be allocated the partner's share of
all items of partnership income, gain, expense, loss, deduction and credit
determined in accordance with the Internal Revenue Code of 1986, as amended, and
regulations issued thereunder. After giving effect to certain technical special
allocation provisions, (i) taxable income is allocable 100% to the general
partner to the extent that, on a cumulative basis, net losses previously
allocated to the general partner exceed net income previously allocated to the
general partner, and the balance is allocable to limited partners and the
general partner in proportion to their respective (ii) net losses are allocable
to the limited partners and the general partner in proportion to their
respective ownership of Operating Partnership Units, provided, however, that net
losses are not allocable to any limited partner to the extent that such
allocation would cause such limited partner to have an adjusted capital account
deficit at the end of such taxable year (which excess losses are allocable to
the general partner).
The Operating Partnership is required to distribute at least quarterly all
available cash flow of the Operating Partnership (defined as (i) all cash
revenues received by the Operating Partnership from any source, other than
capital contributions to the Operating Partnership, and cash flow treated as net
capital gains under the Code, plus (ii) the amount of any reduction in reserves
of the Operating Partnership). Such distributions are to be made in the
following priority: (x) first to holders of any class of partnership interest
having a preference over Operating Partnership Units (no such preferred class
exists as of the date of this Prospectus or is currently anticipated to be
issued by the management of the Operating Partnership) and (y) thereafter, to
holders of Operating Partnership Units. Each holder of Operating Partnership
Units, including the Trust and each recipient of Operating Partnership Units in
the Exchange Offering, will receive a share of such distributions in proportion
to his respective ownership of Operating Partnership Units.
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Upon liquidation of the Operating Partnership, the limited partners and
the general partner are entitled to receive a share of the net liquidation
proceeds of the Operating Partnership (remaining after payment of, or the
creation of a reasonable reserve for, all of the partnership's liabilities and
obligations) in proportion to their respective capital account balances.
The Trust: Holders of Trust Common Shares will acquire such shares (i) in
connection with the Cash Offering or any subsequent public or private offering
of Trust Common Shares that may be made by the Trust, (ii) upon the exercise of
their right to exchange Operating Partnership Units for an equivalent number of
Trust Common Shares, or (iii) upon their exercise of options or their receipt of
Trust Common Shares under any stock option plan or employee bonus plan that may
be adopted by the Board of the Trust.
As discussed above under "Issuance of Additional Securities," the Trust is
authorized to issue Shares in addition to the Trust Common Shares offered in the
Cash Offering and Trust Common Shares to be issued in connection with the
exchange of Operating Partnership Units.
The Managing Shareholder has full discretion as to the timing and amount
of distributions to be made by the Trust, provided, however, the Managing
Shareholder is required to endeavor to declare and make distributions as
required for the Trust to quality as a REIT under the Code so long as the
Managing Shareholder believes it is in the best interest of the Trust to
continue to so qualify. As of the date of this Prospectus Supplement, the Trust
intends to make quarterly distributions of available funds, if any to its
Shareholders. Shareholders will be entitled to receive any such distributions on
a pro rata basis for each outstanding class of Shares taking into account the
relative rights of priority of each class entitled to receive distributions. No
preferred class which has a priority over Common Shares exists as of the date of
this Prospectus Supplement or is currently anticipated by the management of the
Trust to be issued.
Upon liquidation of the Trust, the Shareholders are entitled to receive
the net liquidation proceeds (remaining after payment of, or the creation of a
reasonable reserve for, all of the Trust's liabilities and obligations) on a pro
rata basis for each class of Shares taking into account the relative rights of
priority of each class
Property Investments and Anticipated Holding Period
Exchange Partnerships: Each of the Exchange Partnerships was formed to acquire
and now owns an interest in one or more residential apartment properties
described in the Prospectus at "DESCRIPTION OF EXCHANGE PARTNERSHIPS" and "PRIOR
PERFORMANCE OF AFFILIATES OF MANAGING SHAREHOLDER," in Exhibits A and B to the
Prospectus and in the Prospectus Supplement accompanying the Prospectus prepared
for each particular Exchange Partnership and delivered to each Exchange Limited
Partner in such partnership. The anticipated holding periods of the respective
properties in which the Exchange Partnerships own a direct or indirect interest
were not stated in the original private placement offering materials, although
the offering materials in respect of certain of the Exchange Partnerships
indicated that the general partner intended to list the property interests on
the market for sale within two to five years following the private offering.
As a result of certain amendments to be made to the partnership agreement
of each Participating Exchange Partnership with one or more Non-participating
Limited Partners following the Exchange Offering, without the majority approval
of the Non-participating Limited Partners of the partnership voting as a class,
the partnership will not be permitted to sell all or substantially all of its
existing property interest, acquire any additional property interests or cease
to exist. See the Prospectus at "AMENDMENTS TO PARTNERSHIP AGREEMENTS OF
PARTICIPATING EXCHANGE PARTNERSHIPS WITH NON-PARTICIPATING LIMITED PARTNERS."
Operating Partnership and the Trust: The Operating Partnership and the Trust
have been formed to acquire a diversified portfolio of equity and debt interests
in residential apartment properties, including without limitation property
interests owned by the Exchange Partnerships and other real estate limited
partnerships which are managed by affiliates of the Managing Shareholder of the
Trust. The Operating Partnership will use net cash proceeds from the Trust's
Cash Offering and from any future public or private offering of securities that
may be made by the Trust or the Operating Partnership, together with
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unissued securities of the Trust or the Operating Partnership and available cash
flow and other financing sources, to acquire property interests. The Operating
Partnership intends to issue up to $25,000,000 of registered Operating
Partnership Units in connection with the Exchange Offering. The first candidates
targeted for acquisition in the Exchange Offering are property interests in 26
Exchange Properties described in the Prospectus at "INITIAL REAL ESTATE
INVESTMENTS" and at Exhibit B to the Prospectus. The Trust and the Operating
Partnership contemplate acquiring assets for long-term ownership, and in any
given case, for a minimum of four years.
Restrictions on Transfers of Securities
Exchange Partnerships: Under each Exchange Partnership Agreement, no limited
partner of the respective Exchange Partnership may sell or transfer his interest
in the partnership unless the general partner of the partnership consents to
such sale or transfer and certain other conditions are fulfilled.
Operating Partnership: Each Operating Partnership limited partner may sell or
transfer his Operating Partnership Units without the prior written consent of
the Trust (acting as general partner of the Operating Partnership) except where,
in the opinion of legal counsel to the Operating Partnership, such transfer
would require the filing of a registration statement under the Act or would
otherwise violate applicable federal or state securities laws.
The Trust: The Trust Common Shares are freely transferable by Shareholders
subject to certain restrictions on transfer which the Managing Shareholder deems
necessary to comply with the REIT provisions of the Code. Such restrictions are
described in the Prospectus at "CAPITAL STOCK OF THE TRUST Restrictions on
Ownership and Transfers." The restrictions may have the effect of making an
attempted takeover of the Trust more difficult for an acquiror. See the
Prospectus at "RISK FACTORS - Anti-Takeover Provisions."
Tax Status
Exchange Partnerships: The Exchange Partnerships were designed to be classified
and treated as partnerships for federal income tax purposes. As partnerships,
the Exchange Partnerships are not be subject to federal income tax. Instead,
each limited partner in an Exchange Partnership is required to report annually
on his personal income tax return his allocable share of the partnership's
income, gain, loss, deductions, credits and items of tax preference regardless
of whether any distribution of cash or property is made by the partnership to
limited partners during any given year. A distribution from an Exchange
Partnership, including a distribution in final liquidation, results in the
recognition of income by each limited partner to the extent that any cash
distributed exceeds his adjusted tax basis in his Existing Partnership Units at
that time.
Each Offeree should review the "TAX ASPECTS" section of the original
private placement memorandum pertaining to his investment in his Exchange
Partnership. Generally, a limited partner who sells or transfers his Exchange
Partnership Units will realize gain or loss equal to the difference between the
amount realized on the sale or transfer and the adjusted basis of the units
disposed of. However, the Exchange Offering has been designed to afford Exchange
Limited Partners who accept the offering the benefit of a deferral of any
recognition of taxable gain until they exercise their right to exchange the
Units received in the offering for an equivalent number of Common Shares of the
Trust. The exchange into Common Shares may be made at any time at the sole
discretion of each Exchange Limited Partner, subject to certain limitations
described in the Prospectus at "THE EXCHANGE OFFERING." The estimated deferred
taxable gain of each Exchange Limited Partner who elects to participate in the
Exchange Offering is set forth in Exhibit A to the Prospectus Supplement of the
Exchange Partnership of which he is a limited partner.
Operating Partnership: The Operating Partnership has been designed to be
classified and treated as a partnership for federal income tax purposes. The tax
consequences of an investment in the Operating Partnership are identical to
those described immediately above under " - Exchange Partnerships."
The Trust: In any year in which the Trust qualifies as a real estate investment
trust ("REIT"), in general it will not be subject to federal income tax on that
portion of its REIT taxable income or gain which is
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distributed to Shareholders. The Trust may, however, be subject to tax at normal
corporate rates upon any taxable income or capital gain not distributed in any
given year. As long as the Trust qualifies as a REIT, distributions made to the
Trust's taxable domestic non-tax-exempt Shareholders out of current or
accumulated earnings and profits (and not designated as capital gain dividends)
will be taken by them as ordinary income and will not be eligible for the
dividends received deduction for corporations. Distributions that are designated
as capital gain dividends will be taxed as long-term capital gains (to the
extent they do not exceed the Trust's actual net capital gain for the taxable
year) without regard to the period for which the Shareholder has held his Trust
Common Shares.
In general, any loss upon a sale or exchange of Trust Common Shares by a
Shareholder who has held such shares for six months or less will be treated as a
long-term capital loss, to the extent of distributions from the Trust required
to be treated by such Shareholder as long-term capital gains. A more detailed
description of the foregoing tax considerations and those applying to tax-exempt
and foreign Shareholders is set forth in the Prospectus at "FEDERAL INCOME TAX
CONSIDERATIONS." The federal income tax treatment of REITs and shareholders of a
REIT are complex and should be reviewed with each Offeree's tax advisor.
Pre-emptive Rights
Exchange Partnerships, Operating Partnership and the Trust: Holders of Exchange
Partnership Units, holders of Operating Partnership Units and holders of Trust
Common Shares have no conversion, redemption, preemptive or exchange rights to
subscribe to any securities issued by the Exchange Partnership, the Operating
Partnership or the Trust in the future, except in two instances as follows.
First, if the general partner of an Exchange Partnership determines that it is
necessary or in the best interest of the partnership to commit additional funds
to its property and that such funds should not be financed from the
partnership's earnings or through additional indebtedness, the general partner
intends whenever possible to give limited partners the first opportunity for a
limited time to purchase any additional units that may be offered by the
partnership. Second, holders of Operating Partnership Units are entitled to
exchange such units into an equivalent number of Trust Common Shares at any time
and from time to time, subject to certain conditions described in the Prospectus
at "THE EXCHANGE OFFERING."
Managing Entity Removal and Resignation Rights
Exchange Partnerships: Except as described in the next paragraph, the
partnership agreement provisions of all of the Exchange Partnerships relating to
the removal or resignation of the general partner are substantially the same.
These provisions are described below in this paragraph. Limited partners holding
at least a majority of the outstanding Exchange Partnership Units of such
Exchange Partnerships have the right to remove the general partner of the
partnership if they determine that it is not performing its powers, duties and
obligations in the best interests of the partnership (unless any officer or
affiliate of the general partner would continue to have personal liability for
any debts of the partnership). The general partner may resign by delivering
written notice to the limited partners, provided, however, such resignation will
be effective not less than 90 days after notice thereof is delivered to the
limited partners only if the limited partners owning at least a majority of the
Exchange Partnership Units then outstanding have consented to such resignation.
Described below are the partnership agreement provisions of three of the
Exchange Partnerships (Florida Income Advantage Fund I, Ltd., Florida Income
Appreciation Fund I, Ltd., and Realty Opportunity Income Fund VIII, Ltd.)
relating to the removal of their respective general partner. The general partner
of each of these partnerships may be removed on the condition that (i) the
limited partners holding at least a majority of the limited partnership
interests in the respective partnership vote to remove the general partner and
provide notice thereof to the general partner and (ii) the removed general
partner receives a written release from the partnership and all of the limited
partners which releases the general partner from any claims by them in respect
of the partnership. In addition, following removal, a removed general partner is
entitled to retain its economic interest in the partnership unless the
partnership acquires such interest at a price determined by applying an 8%
capitalization rate to the projected net operating income of the partnership
during the year of removal minus major maintenance expenditures.
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As a result of certain amendments to be made to the partnership agreement
of each Participating Exchange Partnership with one or more Non-participating
Limited Partners following the Exchange Offering, (except where any officer or
affiliate of the general partner would continue to have personal liability for
any debts of the partnership), the general partner of the partnership may be
removed only if a court of competent jurisdiction finds that the general partner
is not performing its duties in the best interest of the partnership, the
Non-participating Limited Partners voting as a class consent to such removal and
the general partner is given the requisite notice. The effect of this amendment
is that following the Exchange Offering, the general partner of a Participating
Exchange Partnership with one or more Non-participating Limited Partners may be
removed only if the Non-participating Limited Partners initiate an action in
court to have the general partner removed and the court makes the requisite
finding.
In addition, as a result of such amendments, if the last remaining general
partner of the partnership (each of the Exchange Partnerships currently has only
one general partner) ceases to act as general partner, the limited partners of
the partnership (including the Operating Partnership and Non-participating
Limited Partners) holding at least a majority of the then outstanding units of
the partnership may elect to continue the partnership and elect one or more new
general partners as long as the same has been approved in advance by
Non-participating Limited Partners of the partnership holding a majority of the
then outstanding units of the partnership held by all Non-participating Limited
Partners. Moreover, if the partnership is continued under the circumstances
described above, the new general partner(s) will be permitted to purchase an
interest in the partnership only on terms and conditions approved by a majority
vote of the Non-participating Limited Partners voting as a class. In addition,
as a result of such amendments, the general partner of the partnership would be
entitled to retire or resign only with the approval of Non-participating Limited
Partners of the partnership holding a majority of the then outstanding units of
the partnership held by all Non-participating Limited Partners. See the
Prospectus at "AMENDMENTS TO PARTNERSHIP AGREEMENTS OF PARTICIPATING EXCHANGE
PARTNERSHIPS WITH NON-PARTICIPATING LIMITED PARTNERS."
Operating Partnership: The Trust may not be removed as general partner of the
Operating Partnership by the limited partners with or without cause. The Trust
may not transfer any of its general partnership interest or withdraw as general
partner except in certain limited circumstances.
The Trust: The holders of at least 10% of the outstanding Trust Common Shares
may propose the removal of the Managing Shareholder, an Independent Trustee or
any other member of the Board of the Trust either by calling a meeting or
soliciting consents in accordance with the terms of the Declaration. Removal of
any of the foregoing requires either the affirmative vote of a majority of the
outstanding Trust Common Shares (excluding Trust Common Shares held by the
Managing Shareholder, Independent Trustee or other member of the Board which is
the subject of the vote or by its affiliates) or the affirmative vote of a
majority of the disinterested Independent Trustees.
The Managing Shareholder or a majority of the Independent Trustees may
terminate the Trust Management Agreement and the Managing Shareholder may resign
as Managing Shareholder without cause or penalty by giving the Trust at least 60
days prior written notice. The holders of at least a majority of the outstanding
Trust Common Shares, at a meeting called for such purpose in accordance with the
terms and conditions of the Declaration, may also terminate the Trust Management
Agreement.
Any member of the Board may resign by giving notice to the Trust, and may
be removed (i) for cause by the action of at least two-thirds of the remaining
members of the Board or (ii) with or without cause by action of the holders of
at least a majority of the then outstanding Shares entitled to vote thereon.
Reporting Rights
Exchange Partnerships: Each limited partner of an Exchange Partnership is
entitled to receive annual financial statements relating to the partnership,
including a balance sheet and related statements of income and retained earnings
and changes in financial position. On the written request of limited partners
holding at least 20% of the outstanding limited partnership interests in an
Exchange Partnership, the statements must be audited by an independent public
accountant and presented in accordance with generally accepted accounting
principles ("GAAP"). Exchange Limited Partners also have the right to obtain
other information about their respective partnerships and receive a list of
names and addresses of
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the partners of the partnership for proper partnership purposes. Within 90 days
after the close of each year, each Exchange Partnership is required to provide
each limited partner therein with data necessary to report his distributive
share of partnership income, deductions and credits for federal income tax
purposes.
As a result of certain amendments to be made to the partnership agreement
of each Participating Exchange Partnership with one or more Non-participating
Limited Partners following the Exchange Offering, Non-participating Limited
Partners of a Participating Exchange Partnership holding a majority of the then
outstanding units of the partnership held by all Non-participating Limited
Partners may require that the annual financial statements required to be
delivered by the partnership to limited partners be audited. See the Prospectus
at "AMENDMENTS TO PARTNERSHIP AGREEMENTS OF PARTICIPATING EXCHANGE PARTNERSHIPS
WITH NON-PARTICIPATING LIMITED PARTNERS."
Operating Partnership: Within 120 days after the close of each partnership year,
the Operating Partnership is required to mail to each limited partner, an annual
report containing financial statements of the Operating Partnership presented in
accordance with GAAP and audited by a nationally recognized firm of qualified
independent public accountants. Within 60 days after the close of each quarter
(except the last quarter), the Operating Partnership is required to mail to each
limited partner a report containing unaudited financial statements of the
Operating Partnership. The Operating Partnership is required to use all
reasonable efforts to furnish to limited partners, within 90 days after the
close of each taxable year, the tax information reasonably required by the
limited partners for federal and state income tax reporting purposes.
Each limited partner is entitled, upon written request and at his expense,
to obtain for proper partnership purposes a copy of the following from the
Operating Partnership: (i) most recent annual and quarterly reports filed with
the Commission by the Trust under the 1934 Act, (ii) the Operating Partnership's
federal, state and local income tax returns for each year, (iii) a current list
of the name and address of each Unitholder, (iv) the Operating Partnership
Agreement, the Certificate of Limited Partnership of the Operating Partnership
filed in the State of Delaware and all amendments thereto, and (v) information
relating to the amount of cash and other consideration contributed by each
limited partner and the date each limited partner became a partner of the
Operating Partnership.
Additionally, within 60 days after the end of each fiscal quarter for
which the Trust or the Operating Partnership incurs total operating expenses
(less certain items, including capital raising expenses, interest payments,
taxes, non-cash expenditures such as depreciation, and acquisition fees and
expenses) for the 12 months then ended in excess of the greater of (i) 2% of the
aggregate book value of their respective investments, or (ii) 25% of their
respective net income for such year, the Trust is required to send to Trust
Shareholders and holders of Operating Partnership Units written disclosure of
such fact, together with an explanation of the factors the Independent Trustees
considered in arriving at their finding that such higher operating expenses were
justified. If the Independent Trustees of the Trust do not determine such excess
expenses are justified, the Managing Shareholder is required to reimburse the
Trust or the Operating Partnership, as the case may be, at the end of such
12-month period the amount of such excess.
The Trust: The Trust is required to keep each Shareholder currently advised as
to activities of the Trust by reports furnished at least quarterly. Each
quarterly report is required to contain a condensed statement of "cash flow from
operations" for the year to date as determined by the Managing Shareholder.
Within 120 days after the close of each fiscal year, the Trust is required to
prepare and mail to each Shareholder an annual report which includes the
following: (i) audited financial statements prepared in accordance with GAAP by
the Trust's independent certified public accountants; (ii) the ratio of the
costs of raising capital during the period to the capital raised; (iii) the
aggregate amount of advisory fees and other fees paid to the Managing
Shareholder and its affiliates; (iv) the total operating expenses stated as a
percentage of the book amount of the Trust's investments and as a percentage of
its net income; (v) a report from the Independent Trustees that the policies
being followed by the Trust are in the best interests of its Shareholders and
the basis for such determination and; (vi) full disclosure of all material
terms, factors, and circumstances surrounding any and all transactions involving
the Trust, the Managing Shareholder, the Trustees, any other members of the
Board and any of their respective affiliates occurring during the year.
33
<PAGE>
Additionally, within 60 days after the end of each fiscal quarter for
which the Trust or the Operating Partnership incurs total operating expenses
(less certain items, including capital raising expenses, interest payments,
taxes, non-cash expenditures such as depreciation, and acquisition fees and
expenses) for the 12 months then ended in excess of the greater of (i) 2% of the
aggregate book value of their respective investments, or (ii) 25% of their
respective net income for such year, the Trust is required to send to Trust
Shareholders and holders of Operating Partnership Units written disclosure of
such fact, together with an explanation of the factors the Independent Trustees
considered in arriving at their finding that such higher operating expenses were
justified. If the Independent Trustees of the Trust do not determine such excess
expenses are justified, the Managing Shareholder is required to reimburse the
Trust or the Operating Partnership, as the case may be, at the end of such
12-month period the amount of such excess.
In addition, the Trust is also required to deliver to its Shareholders
periodic reports required to be delivered under the 1934 Act (i.e., Form 10-KSB
or Form 10-K annual reports, Form 10-QSB or Form 10-Q quarterly reports, and
Form 8-KSB or Form 8-K current reports) for the fiscal year in which the Trust's
Securities Act registration statement becomes effective and thereafter if either
(i) the Trust registers the Trust Common Shares under the 1934 Act and qualifies
for the listing of such shares on a stock exchange, (ii) the Trust has more than
300 Shareholders, or (iii) the Trust is otherwise required to do so by the
applicable exchange or applicable law.
The Trust is required to use its reasonable best efforts to obtain tax and
accounting information required for federal income tax returns as soon as
possible after the conclusion of each year and to cause the resulting
information to be delivered to the Shareholders as soon as possible after
receipt from the accounting firm responsible for preparing such reports.
Shareholders have the right under the terms of the Declaration to obtain other
information about the Trust and may, at their expense, obtain a list of the
names and addresses of the Shareholders. See the Prospectus at "SUMMARY OF
DECLARATION OF TRUST - Quarterly and Annual Reports" and " - Books and Records;
Tax Information."
Assessments
Exchange Partnerships, Operating Partnership and the Trust: No future
assessments may be required of holders of limited partnership interests in an
Exchange Partnership, holders of Operating Partnership Units or holders of Trust
Common Shares.
Amendments of Governing Agreements
Exchange Partnerships: The amendment of the partnership agreement pertaining to
each Exchange Partnership requires the consent of the holders of at least a
majority of the outstanding limited partnership interests in the partnership
except that (i) the general partner may amend the agreement in respect of
certain specified matters which will not adversely affect limited partners, and
(ii) any amendment may not without a limited partner's consent increase his
liability or change the capital contribution required from him, his economic
interest, rights on dissolution or any voting rights.
As a result of certain amendments to be made to the partnership agreement
of each Participating Exchange Partnership with one or more Non-participating
Limited Partners following the Exchange Offering, except in certain
circumstances, the partnership agreement of the partnership may be amended only
with the approval of both (i) limited partners holding at least a majority of
the outstanding limited partnership interests in the partnership and (ii)
Non-participating Limited Partners of the partnership holding a majority of the
then outstanding units of the partnership held by all Non-participating Limited
Partners. See the Prospectus at "AMENDMENTS TO PARTNERSHIP AGREEMENTS OF
PARTICIPATING EXCHANGE PARTNERSHIPS WITH NON-PARTICIPATING LIMITED PARTNERS."
Operating Partnership: Amendments to the Operating Partnership Agreement may be
proposed by the Trust (as general partner) or by holders of at least 25% of the
outstanding Operating Partnership Units. Except in the cases described below,
the consent of holders of at least a majority of the outstanding Operating
Partnership Units is required for amendments to the Operating Partnership
Agreement. The
34
<PAGE>
Trust may amend the Operating Partnership Agreement without the consent of any
limited partners for the following purposes: (i) to add to the obligations of
the Trust in its capacity as general partner of the Trust or to surrender for
the benefit of limited partners any right or power granted to the Trust or any
of its affiliates, (ii) to set forth the rights, powers, duties and preferences
of the holders of any additional interests in the Operating Partnership which
may be issued in the future, (iii) to satisfy any requirements contained in an
order, ruling or regulation of any federal or state agency or contained in any
federal or state law and (iv) for certain other specified matters of an
inconsequential nature and not materially adversely affecting the limited
partners.
The Operating Partnership Agreement may not be amended, without a limited
partner's consent, to convert his partnership interest into a general partner's
interest; modify his limited liability; alter his rights to receive
distributions or allocations of partnership income, gains, loss and deductions;
cause the dissolution of the Operating Partnership prior to the time provided
for in the Operating Partnership Agreement; amend the amendment provision of the
Operating Partnership Agreement described in this paragraph; or amend Article VI
of the Operating Partnership Agreement or any definition used therein which
would have the effect of causing the allocations in Article VI to fail to comply
with the requirements of Section 514(c)(9)(E) of the Code.
The consent of all limited partners of the Operating Partnership is also
required to alter the restrictions on the Trust's authority set forth in Section
7.3 of the Operating Partnership Agreement. In addition, the consent of the
holders of at least two-thirds of the outstanding Operating Partnership Units is
required to amend any of the following sections of the Operating Partnership
Agreement: (i) Section 4.2(a) (pertaining to the Trust's authority, without the
approval of any limited partner, to cause the Operating Partnership to issue
additional partnership interests in the Operating Partnership in the future);
(ii) the second sentence of Section 7.1(a) (which provides that the Trust may
not be removed as general partner of the Operating Partnership by the limited
partners); (iii) Section 7.5 (pertaining to limitations on the outside
activities of the Trust); (iv) Section 7.6 (pertaining to contracts among the
Operating Partnership, the Trust and any of their respective affiliates or
subsidiaries); (v) Section 7.8 (pertaining to limitations on the liability of
the Trust as general partner of the Operating Partnership); (vi) Section 11.2
(pertaining to limitations on the Trust's right to transfer its interest in the
Operating Partnership): (vii) Section 13.1(c) (which provides that the Operating
Partnership may be terminated prior to December 31, 2098 with the consent of the
holders of at least a majority of the outstanding Operating Partnership Units);
(viii) Section 14.1(d) (which provides for super-majority voting requirements
described herein; or (ix) Section 14.2 (pertaining to meetings of limited
partners).
The Trust: The Managing Shareholder of the Trust may amend the Declaration
without approval of the Shareholders to maintain the federal income tax status
of the Trust as a REIT (unless the Managing Shareholder determines that it is in
the best interests of the Shareholders to discontinue the Trust's REIT status
and holders of at least a majority of the Trust Common Shares approve such
determination), and to comply with law.
Other amendments to the Declaration may be proposed either by the Managing
Shareholder or holders of at least 10% of the outstanding Trust Common Shares,
either by calling a meeting of the Shareholders or by soliciting written
consents. Such proposed amendments require the approval of a majority in
interest of the Shareholders entitled to vote given at a meeting of Shareholders
or by written consents.
35
<PAGE>
Liability and Indemnification
Exchange Partnerships: Except as described in the paragraph following the next
paragraph, the partnership agreement provisions of all of the Exchange
Partnerships relating to liability and indemnification of the general partners
and limited partners are substantially the same. These provisions are described
below in this paragraph and the next paragraph. The general partner of each
Exchange Partnership is generally liable for all liabilities and obligations of
the partnership to the extent such obligations are not paid by the partnership
and are not by their terms limited to recourse against specific property. Each
limited partner of an Exchange Partnership is generally not liable for the
liabilities and obligations of the partnership.
Each Exchange Partnership is required to indemnify its general partner,
each of the general partner's affiliates, and each of their respective officers,
directors, shareholders, partners, agents and employees (provided such
indemnified persons have acted within the scope of the applicable partnership
agreement) against any loss, liability or damage incurred by such indemnified
person arising out of the partnership's private offering of limited partnership
interests and the management of the partnership's affairs within the scope of
the partnership agreement, unless such indemnified person's negligence or
intentional or criminal wrongdoing is involved; provided, however, such
indemnification will not be made with respect to any liability imposed by
judgment arising out of any violation of federal or state securities laws
associated with such offering. No indemnified person is liable to his Exchange
Partnership or to any partner thereof for any loss suffered by the Exchange
Partnership which arises out of any action or inaction of such person if such
person, in good faith, determined that such course of conduct was in the best
interests of the Exchange Partnership and within the scope of the applicable
partnership agreement and did not constitute the negligence or intentional or
criminal wrongdoing of such person.
The liability and indemnification provisions relating to three of the
Exchange Partnerships (Florida Income Advantage Fund I, Ltd., Florida Income
Appreciation Fund I, Ltd., and Realty Opportunity Income Fund VIII, Ltd.) are
substantially similar to the provisions described in the two immediately
preceding paragraphs except that only the general partner (and not its
affiliates) are covered by such provisions.
Operating Partnership: The Trust, as general partner of the Operating
Partnership, is generally liable for all obligations of the Operating
Partnership to the extent such obligations are not paid by the Operating
Partnership and are not by their terms limited to recourse against specific
property. The limited partners (other than the Trust in its capacity as general
partner thereof) have no responsibility for the liabilities or obligations of
the Operating Partnership.
The Trust has no liability for monetary damages to the Operating
Partnership or any partners or assignees for losses sustained or liabilities
incurred as a result of errors in judgment for any act or omission, unless (i)
the Trust actually received an improper benefit in money, property or services
(in which case, such liability shall be for the amount of the benefit actually
received), or (ii) the Trust's action or inaction was the result of active and
deliberate dishonesty and was material to the cause of action being adjudicated.
The Operating Partnership is required to indemnify the Trust, officers of
the Operating Partnership and trustees, officers and members of the Board of the
Trust and any other persons the Trust may designate, against any and all losses,
claims, damages, liabilities, expenses, judgments, fines, settlements, and other
amounts arising from any claims, demands, actions, suits or proceedings that
relate to the operations of the Operating Partnership in which any such
indemnified person may be involved, or threatened to be involved, as a party or
otherwise, unless it is established that: (i) the act or omission of the
indemnified person was material to the matter giving rise to the proceeding and
either was committed in bad faith, or was the result of active and deliberate
dishonesty; (ii) the indemnified person actually received an improper personal
benefit; or (iii) in the case of any criminal proceeding, the indemnified person
had reasonable cause to believe that the act or omission was unlawful.
36
<PAGE>
The Trust: Neither the Managing Shareholder, the Trustees, any other members of
the Board or any of their respective affiliates nor any Shareholders of the
Trust are liable for the liabilities and obligations of the Trust to third
parties. In addition, such persons are not liable to the Trust or to any
Shareholder for any loss suffered by the Trust which arises out of any action or
inaction of such person, if such person, in good faith, determined that such
course of conduct was in the Trust's best interest and within the scope of the
Declaration and did not constitute negligence or misconduct, in the case of any
such person who is not an Independent Trustee, or gross negligence or wrongful
misconduct, in the case of any such person who is an Independent Trustee.
The Trust is required to indemnify the Managing Shareholder, the Trustees,
other members of the Board and their respective affiliates, and each of their
respective officers, directors, shareholders, partners, agents and employees
(provided such persons have acted within the scope of the Declaration) against
any loss, liability or damage incurred by such person arising out of the Cash
Offering and the management of the Trust's affairs within the scope of the
Declaration, unless such person's negligence or intentional or criminal
wrongdoing is involved. However, such persons will not be indemnified for
liabilities arising under the Securities Act, except under certain limited
circumstances. See the Prospectus at "SUMMARY OF DECLARATION OF TRUST -
Liability and Indemnification."
Compensation of Managing Persons and Affiliates
Exchange Partnerships: The allocation between the limited partners and general
partner of each particular Exchange Partnership of distributable cash flow and
net proceeds from the sale or refinancing of property is described in Exhibit I
to the Prospectus Supplement pertaining to that partnership. Exhibit B to the
Prospectus contains such information as to each of the Exchange Partnerships.
The allocation of net liquidation proceeds among the partners is described above
at " - Economic Interest." The general partner or an affiliate of each of the
Exchange Partnerships (except Baron Strategic Investment Fund II, Ltd.) is also
entitled to earn a real estate commission for its efforts leading to a sale of
any partnership property or any property securing a subordinated mortgage loan
provided or acquired by the partnership. The commission in respect of all such
Exchange Partnerships (except Florida Income Advantage Fund I, Ltd., Florida
Income Appreciation Fund I, Ltd., and Realty Opportunity Income Fund VIII, Ltd.)
may be in an amount equal to 50% of any commissions paid to an outside broker on
the sale, but in no event greater than 3% of the sales proceeds. The general
partners of such three Exchange Partnerships and their affiliates may earn a
real estate commission of up to 6% of the sale price, if permitted under
applicable law. The payment of any real estate commission earned as described
above is subordinated to the preferred return of the limited partners of such
partnerships.
Each of the Exchange Partnerships pays their general partner a monthly
administrative fee of $500, except Central Florida Income Appreciation Fund,
Ltd. and Brevard Mortgage Program, Ltd., which pay a monthly administrative fee
of $750, and Baron Strategic Investment Fund IV, Ltd., Baron Strategic
Investment Fund V, Ltd., Baron Strategic Investment Fund VI, Ltd., Baron
Strategic Investment Fund VIII, Ltd., Baron Strategic Investment Fund IX, Ltd.,
Baron Strategic Investment Fund X, Ltd., Florida Capital Income Fund IV, Ltd.,
and GSU Stadium Student Apartments, Ltd., which pay a monthly administrative fee
of $1,000.
The general partner of each Participating Exchange Partnership has agreed
to waive all fees payable to it by the partnership following the Exchange
Offering, including without limitation annual administrative fees, acquisition
fees and real estate commissions, and to assign to the Operating Partnership all
back-end economic interests attributable to the general partner's interest in
the partnership. Accordingly, the Exchange Partnership Agreement of each
Participating Exchange Partnership will be amended following the Exchange
Offering to delete the payment of the foregoing fees.
Operating Partnership: The Trust is not entitled to receive any compensation for
services performed in its capacity as general partner of the Operating
Partnership. The Trust, however, is entitled to be reimbursed on a monthly basis
for expenses incurred on behalf of the Operating Partnership. The Trust will use
net proceeds of the Cash Offering to acquire Operating Partnership Units, and as
the owner of such units will have the same economic rights as other holders of
Operating Partnership Units on a per unit basis, except that the Trust may not
elect to exchange Units held for an equivalent number of Trust
37
<PAGE>
Common Shares. The allocation of net liquidation proceeds among the partners of
the Operating Partnership is described above at " Economic Interest."
The Trust: The table included in the Prospectus at "COMPENSATION OF MANAGING
PERSONS AND AFFILIATES - The Trust" describes all reimbursement payments that
may be received by the Managing Shareholder and its affiliates for expenses
incurred in connection with the preparation of the prospectus for the Cash
Offering, the Cash Offering, the operation of the Trust and the acquisition and
disposition of the Trust's property. No compensation for consulting services may
be paid to the Independent Trustees or other members of the Board without prior
approval of the Compensation Committee of the Board.
Meetings and Voting Rights
Exchange Partnerships: Meetings of the partners of each Exchange Partnership may
be called at any time, either by the general partner or by limited partners
holding at least 25% of the outstanding Exchange Partnership Units, for any
matter on which limited partners may vote. The following actions require the
affirmative vote of limited partners holding at least a majority of the
outstanding Exchange Partnership Units in respect of an Exchange Partnership:
(a) reforming the partnership to replace the general partner; (b) acceptance of
the resignation of the general partner; (c) revising any contract between the
Exchange Partnership and any affiliate of the general partner; (d) removal of
the general partner; (e) dissolution of the Exchange Partnership prior to the
expiration of its term except as otherwise provided in the applicable
partnership agreement or as required by law; (f) removal and replacement of the
party appointed to supervise a liquidation of the partnership's assets upon its
dissolution; (g) the sale of all or substantially all of the partnership's
property; and (h) amending the partnership agreement as described above at " -
Amendments of Governing Agreements."
The consent of all limited partners is required for the following actions
by each Exchange Partnership: (a) contravening the respective partnership
agreement or certificate of limited partnership; (b) actions making it
impossible to carry on the ordinary course of business of the partnership; (c)
confession of a judgment in excess of 20% of the partnership's assets; and (d)
allowing the general partner to possess partnership assets for other than a
partnership purpose.
As a result of certain amendments to be made to the partnership agreement
of each Participating Exchange Partnership with one or more Non-participating
Limited Partners following the Exchange Offering, the general partner of the
partnership or Non-participating Limited Partners holding a majority of the then
outstanding units held by all Non-participating Limited Partners in the
partnership, may call a meeting of the partnership to act on any matter upon
which the limited partners of the partnership are permitted to act. In addition,
the approval of Non-participating Limited Partners of the partnership holding a
majority of the then outstanding units of the partnership held by all
Non-participating Limited Partners will be required to replace the general
partner in its capacity as liquidating trustee or receiver or the receiver or
trustee appointed by the general partner in connection with the liquidation of
the partnership. See the Prospectus at "AMENDMENTS TO PARTNERSHIP AGREEMENTS OF
PARTICIPATING EXCHANGE PARTNERSHIPS WITH NON-PARTICIPATING LIMITED PARTNERS."
Operating Partnership: Meetings of the partners of the Operating Partnership may
be called by the Trust (as general partner) and by limited partners holding at
least 25% of the outstanding Operating Partnership Units. The consent of limited
partners holding at least a majority of the outstanding Operating Partnership
Units is required for action by the limited partners, except where otherwise
provided in the Operating Partnership Agreement as described below. Voting by
the limited partners may be conducted at a meeting of the partners or without a
meeting by written consent. Limited partners are entitled to vote on proposed
amendments to the Operating Partnership Agreement as described above at " -
Amendments of Governing Agreements."
The following actions of the Operating Partnership require the consent of
all limited partners of the Operating Partnership: (a) any action that would
make it impossible to carry on the ordinary business of the Operating
Partnership; (b) the possession of partnership property, or the assignment of
any right in specific partnership property, for other than a partnership
purpose, except as otherwise provided in the
38
<PAGE>
Operating Partnership Agreement; (c) the admission of any new partner to the
Operating Partnership, except as otherwise provided in the Operating Partnership
Agreement; or (d) any action that would subject a limited partner to liability
as a general partner in any jurisdiction or any other liability, except as
provided in the Operating Partnership Agreement or under the Delaware Act.
In addition, the consent of the limited partners holding at least a
majority of the outstanding Operating Partnership Units is required to approve
the Trust's election to dissolve the Operating Partnership prior to the
termination of its term as specified in the Operating Partnership Agreement.
Limited partners holding a majority of the outstanding Operating Partnership
Units are also entitled, in the absence of any general partner of the Operating
Partnership, to elect a liquidator to oversee the winding up and dissolution of
the Operating Partnership and to perform a full accounting of the Operating
Partnership's liabilities and properties.
The Trust: The Trust is required to conduct an annual meeting of Shareholders at
which all members of the Board (including all Independent Trustees) (except
where the Managing Shareholder and Shareholders holding at least a majority of
the outstanding Trust Shares entitled to vote on such matter approve staggered
elections for such positions, in which case only the class of the Board up for
election) will be elected or reelected and any other proper business may be
conducted. Each Trust Common Share entitles the holder to one vote on all
matters requiring a vote of Shareholders, including the election of members of
the Board. Special meetings of the Shareholders may be called at any time,
either by the Managing Shareholder, a majority of the Independent Trustees, any
officer of the Trust, or Shareholders holding at least 10% of the outstanding
Trust Common Shares, for any matter on which such Shareholders may vote. The
Trust may not take any of the following actions without approval of Shareholders
holding at least a majority of the Shares entitled to vote: (a) amendment of the
Declaration (except as otherwise specified in the Declaration and except for
amendments which do not adversely affect the rights, preferences and privileges
of Shareholders, including amendments to provisions relating to qualifications
of the Trustees and members of the Board, fiduciary duty, liability and
indemnification, conflicts of interest, investment policies or investment
restrictions); (b) the sale, exchange, lease, mortgage, pledge or transfer of
all or substantially all of the Trust's assets if not in the ordinary course of
operation of the Trust or in connection with liquidation and dissolution; (c)
the merger or reorganization of the Trust; and (d) the dissolution or
liquidation of the Trust following its initial property investments.
In addition, Shareholders holding at least a majority of Shares entitled
to vote present in person or by proxy at an annual meeting at which a quorum is
present, may, without the necessity for concurrence by the Board, vote to amend
the Declaration of Trust, terminate the Trust, and elect and/or remove one or
more members of the Board.
Accounting Method and Period
Exchange Partnerships, Operating Partnership and the Trust: The accounting
period of the Exchange Partnerships, the Operating Partnership and the Trust
will end on December 31 of each year. Each of them utilize the accrual method of
accounting for their operations.
39
<PAGE>
Camellia Court
(Exchange Equity)
SUPPLEMENT DATED _____, 1999
TO PROSPECTUS OF
BARON CAPITAL PROPERTIES, L.P.
("Operating Partnership")
DATED _____, 1999
THIS PROSPECTUS SUPPLEMENT FORMS A PART OF AND
SHOULD BE READ TOGETHER WITH THE PROSPECTUS
Florida Opportunity Income Partners, Ltd.,
a Florida limited partnership
(the "Exchange Partnership")
(General Partner: Baron Capital XI, Inc.)
This Supplement relates to the offer (the "Exchange Offering") of Baron
Capital Properties, L.P. (the "Operating Partnership") to all limited partners
(the "Limited Partners") in the Exchange Partnership (and limited partners of 22
other real estate limited partnerships) to issue its units of limited
partnership interest ("Units" or "Operating Partnership Units") in exchange for
limited partnership interests in the Exchange Partnership (and in such other
limited partnerships). Limited Partners who do not participate in the Exchange
Offering will be entitled to retain their limited partnership interest in the
Exchange Partnership on substantially the same terms and conditions as their
original investment.
Each Limited Partner should consider all factors discussed below under
"Certain Risks" and under the heading "Risk Factors" set forth in the Prospectus
(the "Prospectus") of the Operating Partnership in evaluating the Exchange
Offering, the Operating Partnership, Baron Capital Trust (the "Trust"), the
general partner and a limited partner of the Operating Partnership, and the
business of the Operating Partnership and the Trust, including the following
material risk factors:
o The valuation of $10.00 per Unit used in the Exchange Offering is an
arbitrary amount, and it is possible that Common Shares of beneficial
interest in the Trust ("Common Shares") (into which the Units are
exchangeable on a one-for-one basis), if listed on a national securities
exchange, will trade at a lower price.
o The terms of the Exchange Offering were determined by the founders of the
Trust and the Operating Partnership (the "Original Investors") (described
below under "Compensation") with no separate counsel or advisor for the
Limited Partners.
o Offerees may not have an opportunity prior to their decision to accept the
Exchange Offering to evaluate a significant number of properties in which
the Operating Partnership and the Trust may acquire an interest, and they
will not have the benefit of knowing the extent of the Operating
Partnership's investment in respect of properties involved in the Exchange
Offering until the offering is completed.
o The Original Investors and affiliates have significant influence over the
operation of the Trust, the Operating Partnership and the Exchange
Partnerships, and the Exchange Offering involves transactions among them
which involve conflicts of interest which may result in decisions that do
not fully represent the interests of all Shareholders of the Trust,
holders of Units in the Operating Partnership (individually, a
"Unitholder" and collectively, the "Unitholders") and limited partners of
the Exchange Partnerships.
o The purchase price to be paid by the Operating Partnership and the Trust
for property interests will be based upon appraisals prepared by qualified
and licensed independent appraisal firms in respect of individual
residential apartment properties and other considerations. Offerees should
note, however, that appraisals are only estimates of value and should not
be relied upon as precise measures of true worth or realizable value.
There can be no assurance that the value of property interests acquired
will reflect their fair market value.
o Offerees who accept the offering may not experience returns comparable to
or in excess of those experienced by Limited Partners in the Exchange
Partnership.
o The current returns of the Exchange Partnership may not be achieved by the
Operating Partnership after completion of the offering and may be higher
than the current returns of other partnerships which participate in the
offering, although such other partnerships may offer higher future growth
potential than the Exchange Partnership.
o If the Exchange Offering is completed in respect of the Exchange
Partnership, Offerees who accept the Exchange Offering will be tendering
their current investment in the particular Exchange Partnership with an
<PAGE>
expected limited duration in exchange for an investment in the Operating
Partnership, which has an unlimited duration.
o Real estate investment risks exist such as the effect of economic and
other conditions on cash flows from real estate interests acquired by the
Trust and the Operating Partnership.
o Financing risks exist, including debt service obligations, the ability of
the Trust and the Operating Partnership to incur additional debt, the need
to refinance current indebtedness at various maturities, and the effect of
any increase in interest rates.
o The Operating Partnership expects to acquire subordinated mortgage
interests which are not recorded because of restrictions in subordination
agreements executed in connection with First Mortgages issued to other
unrelated lenders. If a mortgage is not recorded, the security interest of
the Operating Partnership would not be perfected and the respective debt
would rank pari passu with all other unsecured creditors of the borrower.
o The successful operation of the Trust and the Operating Partnership is
dependent on key management.
o There can be no assurance of the successful completion of the Exchange
Offering and the Trust's Cash Offering (described below).
o In exchange for his capital contribution of $50,000, each of the Original
Investors will receive Units initially valued at $6,010,800 if all
2,500,000 Common Shares are sold in the Cash Offering by November 30, 1999
and all 2,500,000 Units being offered in the Exchange Offering are issued
by such date. In addition, each will serve as an officer of the Trust, the
Operating Partnership and the Managing Shareholder and will receive
compensation for such services.
o No public market for the sale of Units is expected to ever develop, and,
although Common Shares (into which Units are exchangeable) may eventually
be listed on a national securities exchange, it is possible that no public
market for the Common Shares will ever develop or be maintained.
o Limited Partners who acquire Units in the Exchange Offering will pay a
higher price per Unit than the consideration the Original Investors paid
for Units issued to them in connection with the formation of the Trust and
the Operating Partnership.
o The Trust will be taxed as a corporation if it fails to qualify as a REIT.
2
<PAGE>
BUSINESS OF THE EXCHANGE PARTNERSHIP
The Exchange Partnership was organized as a Florida limited partnership in
December 1994. In May 1995, Baron Capital III, Inc., the General Partner of the
Exchange Partnership and an affiliate of the Managing Shareholder, sponsored a
private offering of 800 units of limited partner interest in the Exchange
Partnership at a purchase price of $1,000 per unit (gross proceeds of $800,000).
The offering was fully subscribed and closed in December 1995. The
partnership invested the net proceeds of its offering to acquire all of the
limited partnership interests in a limited partnership which holds a fee simple
interest in a 70-unit residential apartment property referred to as the Camellia
Court Apartment Property located in Daytona Beach, Florida. The property is
subject to a first mortgage and other indebtedness having a principal balance at
March 31, 1999 of approximately $1,069,633.
For further information concerning the Exchange Partnership, its original
private offering, the property interest it holds, the mortgage to which the
underlying property may be subject, and the estimated deferred taxable gain of
each Limited Partner who elects to participate in the Exchange Offering, please
refer to the tables set forth in the Exhibit I attached hereto. Also see the
tables relating to all of the Exchange Partnerships set forth in the Prospectus
at "Initial Real Property Investments" and in Exhibit B to the Prospectus.
CASH DISTRIBUTIONS TO LIMITED PARTNERS
During each year since inception, the Exchange Partnership has made cash
distributions to the Limited Partners in the following amounts:
All LP's Per LP Unit
-------- -----------
1996: $ 77,440 $ 96.80
1997: $ 80,000 $100.00
1998 : $ 80,000 $100.00
3/31/99: $ 20,000 $ 25.00
-------- -------
Total: $257,440 $321.80
3
<PAGE>
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------
TABLE OF EXCHANGE VALUES
- --------------------------------------------------------------------------------------------------------------
Valuation of Aggregate number of Units offered Number of Units offered Percentage of Units offered
Exchange to all Limited Partners in the to each Limited Partner to Limited Partners in the
Partnership(1) Exchange Partnership (assigned per $1,000 of original Exchange Partnership in
dollar value)(2) investment (assigned relation to Units offered
dollar value)(2) to limited partners in all
partnerships participating
in the initial transactions
of the Exchange Offering
<S> <C> <C> <C>
$840,996 84,100 Units ($841,000) 105 Units ($1,050) 3.37%
- --------------------------------------------------------------------------------------------------------------
</TABLE>
(1) The valuation of this Exchange Equity Partnership to the extent of its
direct or indirect equity interest in a property is based upon the following
factors: (a) the estimated appraised market value of the underlying property
determined by qualified and licensed independent appraisal firms; (b) the
operating history of the property; (c) the current principal balance of first
mortgage and other indebtedness to which the property is subject; (d) the amount
of distributable cash flow currently being generated by the property; plus (e)
additional factors which the Managing Shareholder believes are appropriate to
consider including, among others, the property's overall current condition and
prospects for the property based upon improvements made or to be made to the
property and, in certain cases, the combination of two or more phases of the
property, which are expected to be owned upon completion of the Exchange
Offering, and the actual or potential benefits to be obtained by the
sub-metering of utilities in order to pass costs from the owner of the property
to individual tenants. The valuation of the Exchange Partnership to the extent
of its mortgage interest in properties and other debt interests is based upon
the following factors: (i) the current principal balance of the amount of debt
which is senior to the mortgage interest to be acquired and other indebtedness
to which property is subject; (ii) the estimated appraised market value of the
underlying property determined by qualified and licensed independent appraisal
firms; (iii) the operating history of the property; (iv) the amount of
distributable cash flow currently being generated by the property; plus (v)
additional factors which the Managing Shareholder believes are appropriate to
consider including, among others, the property's overall current condition and
prospects for the property based upon improvements made or to be made to the
property and, in certain cases, the combination of two or more phases of the
property, which are expected to be owned upon completion of the Exchange
Offering and the actual or potential benefits to be obtained by the sub-metering
of utilities in order to pass costs from the owner of the property to individual
tenants. (see "Valuation Method" below.)
(2) For purposes of the Exchange Offering, each Unit to be issued has been
assigned an initial value of $10.00, which is the price per share at which the
Trust is currently offering Common Shares in its Cash Offering. As described
below at "The Exchange Offering," Unitholders, including recipients of Units in
the Exchange Offering, may exchange all or a portion of their Units for an
equivalent number of Common Shares at any time following the completion of the
offering.
4
<PAGE>
<TABLE>
<CAPTION>
Valuation of Partnership Florida Opportunity Income Partners
Camellia Court
<S> <C>
Appraised value of underlying property interests: $ 1,830,000
Cash and cash equivalent assets: $ 52,999
Other assets (1): $ 88,147
3/31/99 principal balance of mortgage financing
secured by the property: $(1,069,633)
Other liabilities(2): $ (60,517)
Adjustment (3):
Valuation of the partnership $ 840,996
Aggregate number of Units offered to all Limited
Partners in the Partnership (dollar value) 84,100
Number of Units offered to each Limited Partner
in the Partnership per $1,000 of original
investment (dollar value) 105
Percentage of all Units offered to the Limited Partners
in the Partnership in relation to the maximum number
of Units offered to Limited Partners in all
Exchange Partnerships: 3.37%
Total Number of Partnership Units 800
Original Price Per Unit $ 1,000
</TABLE>
(1) Comprised of mortgage escrow account balance held by first mortgage
lender to cover taxes, insurance, maintenance and repair reserves
and other items, and miscellaneous assets.
(2) Comprised of security deposits payable, accounts payable to vendors,
notes or advances to third parties (including affiliates) and
accrued expenses ( such as real estate taxes).
(3) Comprised of subjective judgements made by the managing shareholder
to adjust for improvements, combination of phases of operation and
the installation of utility submeters.
20
<PAGE>
COMPENSATION
The Exchange Partnership currently compensates the general partner and its
affiliates by paying management and accounting fees. No other payments are made
to the general partner and its affiliates by the Exchange Partnership. Mr.
McGrath, an affiliate of the General Partner, is the sole shareholder and
director of the Managing Shareholder of the Trust. As described in greater
detail below, Mr. McGrath has agreed to serve as Chief Executive Officer of the
Operating Partnership and the Trust in exchange for up to 25,000 Common Shares
of the Trust or up to 25,000 Operating Partnership Units (amount to be
determined by the Executive Compensation Committee of the Trust) and health
benefits for the first year of operations and thereafter in exchange for
compensation and benefits determined annually by that committee. Additionally,
Mr. McGrath would have received 9.5% of all distributions on Units subscribed
for by him in connection with the formation of the Operating Partnership.
Compensation Paid
To General Partner and Affiliates
1996 1997 1998 March 31, 1999
---- ---- ---- --------------
Management Fee $13,736 $11,512 $14,524 $ 4,912
Accounting Fee $ 3,900 $ 3,900 $ 3,900 $ 975
------- ------- ------- -------
$17,836 $15,412 $18,424 $ 5,887
Compensation
Which Would Have
Been Paid to General Partner
And Affiliates if Exchange Offer
Had Been Concluded(1)
1996 1997 1998 March 31, 1999
---- ---- ---- --------------
9.5% Distribution $ 7,357 $ 7,600 $ 7,600 $ 0
In connection with the formation of the Trust and the Operating Partnership, the
Original Investors (comprised of Mr. McGrath and Robert S. Geiger, who had no
prior affiliation with the Trust, the Operating Partnership, the Managing
Shareholder or any of the Exchange Partnerships) each subscribed for 601,080
Units. In consideration for the Units subscribed for by them, the Original
Investors made a $100,000 capital contribution to the Operating Partnership. If
the Cash Offering and the Exchange Offering are fully subscribed, the Units
received by each of the Original Investors would represent 9.5% of the total
Common Shares outstanding after completion of the Cash Offering and exchange by
the Operating Partnership of 2,500,000 of its Units for units of limited
partnership interest in real estate limited partnerships (including any exchange
completed pursuant to the Exchange Offering), calculated on a fully diluted
basis assuming all then outstanding Units (other than those acquired by the
Trust) have been exchanged into an equivalent number of Common Shares. If,
however, as of November 30, 1999, the Cash Offering and/or the Exchange Offering
has been completed and the number of Units subscribed for by each Original
Investor represents a percentage greater than 9.5% of the then outstanding
Common Shares, calculated on a fully diluted basis assuming that all then
outstanding Units (other than those acquired by the Trust) have been exchanged
into an equivalent number of Common Shares, each Original Investor has agreed to
return any excess Units to the Operating Partnership for cancellation. As
described further below, Mr. McGrath and Mr. Geiger have deposited Units
subscribed for by them into a security escrow account for six to nine years,
subject to earlier release under certain conditions.
21
<PAGE>
Strategic X
(Exchange Hybrid)
SUPPLEMENT DATED _____, 1999
TO PROSPECTUS OF
BARON CAPITAL PROPERTIES, L.P.
("Operating Partnership")
DATED _____, 1999
THIS PROSPECTUS SUPPLEMENT FORMS A PART OF AND
SHOULD BE READ TOGETHER WITH THE PROSPECTUS
Baron Strategic Investment Fund X, Ltd.,
a Florida limited partnership
(the "Exchange Partnership")
(General Partner: Baron Capital XI, Inc.)
This Supplement relates to the offer (the "Exchange Offering") of Baron
Capital Properties, L.P. (the "Operating Partnership") to all limited partners
(the "Limited Partners") in the Exchange Partnership (and limited partners of 22
other real estate limited partnerships) to issue its units of limited
partnership interest ("Units" or "Operating Partnership Units") in exchange for
limited partnership interests in the Exchange Partnership (and in such other
limited partnerships). Limited Partners who do not participate in the Exchange
Offering will be entitled to retain their limited partnership interest in the
Exchange Partnership on substantially the same terms and conditions as their
original investment.
Each Limited Partner should consider all factors discussed below under
"Certain Risks" and under the heading "Risk Factors" set forth in the Prospectus
(the "Prospectus") of the Operating Partnership in evaluating the Exchange
Offering, the Operating Partnership, Baron Capital Trust (the "Trust"), the
general partner and a limited partner of the Operating Partnership, and the
business of the Operating Partnership and the Trust, including the following
material risk factors:
o The valuation of $10.00 per Unit used in the Exchange Offering is an
arbitrary amount, and it is possible that Common Shares of beneficial
interest in the Trust ("Common Shares") (into which the Units are
exchangeable on a one-for-one basis), if listed on a national securities
exchange, will trade at a lower price.
o The terms of the Exchange Offering were determined by the founders of the
Trust and the Operating Partnership (the "Original Investors") (described
below under "Compensation") with no separate counsel or advisor for the
Limited Partners.
o Offerees may not have an opportunity prior to their decision to accept the
Exchange Offering to evaluate a significant number of properties in which
the Operating Partnership and the Trust may acquire an interest, and they
will not have the benefit of knowing the extent of the Operating
Partnership's investment in respect of properties involved in the Exchange
Offering until the offering is completed.
o The Original Investors and affiliates have significant influence over the
operation of the Trust, the Operating Partnership and the Exchange
Partnerships, and the Exchange Offering involves transactions among them
which involve conflicts of interest which may result in decisions that do
not fully represent the interests of all Shareholders of the Trust,
holders of Units in the Operating Partnership (individually, a
"Unitholder" and collectively, the "Unitholders") and limited partners of
the Exchange Partnerships.
o The purchase price to be paid by the Operating Partnership and the Trust
for property interests will be based upon appraisals prepared by qualified
and licensed independent appraisal firms in respect of individual
residential apartment properties and other considerations. Offerees should
note, however, that appraisals are only estimates of value and should not
be relied upon as precise measures of true worth or realizable value.
There can be no assurance that the value of property interests acquired
will reflect their fair market value.
o Offerees who accept the offering may not experience returns comparable to
or in excess of those experienced by Limited Partners in the Exchange
Partnership.
o The current returns of the Exchange Partnership may not be achieved by the
Operating Partnership after completion of the offering and may be higher
than the current returns of other partnerships which participate in the
offering, although such other partnerships may offer higher future growth
potential than the Exchange Partnership.
o If the Exchange Offering is completed in respect of the Exchange
Partnership, Offerees who accept the Exchange Offering will be tendering
their current investment in the particular Exchange Partnership with an
<PAGE>
expected limited duration in exchange for an investment in the Operating
Partnership, which has an unlimited duration.
o Real estate investment risks exist such as the effect of economic and
other conditions on cash flows from real estate interests acquired by the
Trust and the Operating Partnership.
o Financing risks exist, including debt service obligations, the ability of
the Trust and the Operating Partnership to incur additional debt, the need
to refinance current indebtedness at various maturities, and the effect of
any increase in interest rates.
o The Operating Partnership expects to acquire subordinated mortgage
interests which are not recorded because of restrictions in subordination
agreements executed in connection with First Mortgages issued to other
unrelated lenders. If a mortgage is not recorded, the security interest of
the Operating Partnership would not be perfected and the respective debt
would rank pari passu with all other unsecured creditors of the borrower.
o The successful operation of the Trust and the Operating Partnership is
dependent on key management.
o There can be no assurance of the successful completion of the Exchange
Offering and the Trust's Cash Offering (described below).
o In exchange for his capital contribution of $50,000, each of the Original
Investors will receive Units initially valued at $6,010,800 if all
2,500,000 Common Shares are sold in the Cash Offering by November 30, 1999
and all 2,500,000 Units being offered in the Exchange Offering are issued
by such date. In addition, each will serve as an officer of the Trust, the
Operating Partnership and the Managing Shareholder and will receive
compensation for such services.
o No public market for the sale of Units is expected to ever develop, and,
although Common Shares (into which Units are exchangeable) may eventually
be listed on a national securities exchange, it is possible that no public
market for the Common Shares will ever develop or be maintained.
o Limited Partners who acquire Units in the Exchange Offering will pay a
higher price per Unit than the consideration the Original Investors paid
for Units issued to them in connection with the formation of the Trust and
the Operating Partnership.
o The Trust will be taxed as a corporation if it fails to qualify as a REIT.
2
<PAGE>
BUSINESS OF THE EXCHANGE PARTNERSHIP
The Exchange Partnership was organized as a Florida limited partnership in
June 1995. In November 1995, Baron Capital XI, Inc., the partnership's General
Partner (wholly owned and controlled, along with the Managing Shareholder of the
Trust, by Mr. McGrath) and an affiliate of the Managing Shareholder, sponsored a
private offering of 2,400 units of limited partner interest in the Exchange
Partnership at a purchase price of $500 per unit (gross proceeds of $1,200,000).
The offering was fully subscribed and closed in February 1997.
The Exchange Partnership invested the net proceeds of its offering (i) to
acquire a 31.7% limited partnership interest in a limited partnership which
holds fee simple title to a residential apartment property located in
Bellefontaine, Ohio (Lamplight Property), and (ii) to provide or acquire an
undivided interest in two unrecorded second mortgage loans secured by the
Lamplight Property. The second mortgage loans are subordinated to large-scale
first mortgage financing and are non-recourse beyond the underlying property
and/or the assets of the debtor.
For further information concerning the Exchange Partnership, its original
private offering, the property interest it holds, the mortgage to which the
underlying property may be subject, and the estimated deferred taxable gain of
each Limited Partner who elects to participate in the Exchange Offering, please
refer to the tables set forth in the Exhibit I attached hereto. Also see the
tables relating to all of the Exchange Partnerships set forth in the Prospectus
at "Initial Real Property Investments" and in Exhibit B to the Prospectus.
CASH DISTRIBUTIONS TO LIMITED PARTNERS
During each year since inception, the Exchange Partnership has made cash
distributions to the Limited Partners in the following amounts:
All LP's Per LP Unit
-------- -----------
1997: $ 37,108 $ 15.46
1998: $ 97,950 $ 40.81
3/31/99: $ 11,160 $ 4.65
------- -------
Total: $146,218 $ 60.92
3
<PAGE>
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------
TABLE OF EXCHANGE VALUES
- -------------------------------------------------------------------------------------------------------------------
Valuation of Aggregate number of Units offered Number of Units offered Percentage of Units offered
Exchange to all Limited Partners in the to each Limited Partner to Limited Partners in the
Partnership(1) Exchange Partnership (assigned per $1,000 of original Exchange Partnership in
dollar value)(2) investment (assigned relation to Units offered
dollar value)(2) to limited partners in all
partnerships participating
in the initial transactions
of the Exchange Offering
<S> <C> <C> <C> <C> <C>
$1,282,220 128,222 Units ($1,282,220) 111 Units ($1,110) 5.13%
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
- ----------
(1) The valuation of this Exchange Equity Partnership to the extent of its
direct or indirect equity interest in a property is based upon the following
factors: (a) the estimated appraised market value of the underlying property
determined by qualified and licensed independent appraisal firms; (b) the
operating history of the property; (c) the current principal balance of first
mortgage and other indebtedness to which the property is subject; (d) the amount
of distributable cash flow currently being generated by the property; plus (e)
additional factors which the Managing Shareholder believes are appropriate to
consider including, among others, the property's overall current condition and
prospects for the property based upon improvements made or to be made to the
property and, in certain cases, the combination of two or more phases of the
property, which are expected to be owned upon completion of the Exchange
Offering, and the actual or potential benefits to be obtained by the
sub-metering of utilities in order to pass costs from the owner of the property
to individual tenants. The valuation of the Exchange Partnership to the extent
of its mortgage interest in properties and other debt interests is based upon
the following factors: (i) the current principal balance of the amount of debt
which is senior to the mortgage interest to be acquired and other indebtedness
to which property is subject; (ii) the estimated appraised market value of the
underlying property determined by qualified and licensed independent appraisal
firms; (iii) the operating history of the property; (iv) the amount of
distributable cash flow currently being generated by the property; plus (v)
additional factors which the Managing Shareholder believes are appropriate to
consider including, among others, the property's overall current condition and
prospects for the property based upon improvements made or to be made to the
property and, in certain cases, the combination of two or more phases of the
property, which are expected to be owned upon completion of the Exchange
Offering and the actual or potential benefits to be obtained by the sub-metering
of utilities in order to pass costs from the owner of the property to individual
tenants. (see "Valuation Method" below.)
(2) For purposes of the Exchange Offering, each Unit to be issued has been
assigned an initial value of $10.00, which is the price per share at which the
Trust is currently offering Common Shares in its Cash Offering. As described
below at "The Exchange Offering," Unitholders, including recipients of Units in
the Exchange Offering, may exchange all or a portion of their Units for an
equivalent number of Common Shares at any time following the completion of the
offering.
4
<PAGE>
Valuation of Partnership Baron Strategic Investment Fund X, Ltd.
Crystal Court I, Heatherwood II, Pineview,
Garden Terrace
Appraised value of underlying property interests: $ 2,663,250
Cash and cash equivalent assets: $ 107,153
Other assets (1): $ 105,852
3/31/99 principal balance of mortgage financing
secured by the property: $(1,506,098)
Other liabilities(2): $ (87,937)
Adjustment (3):
Valuation of the partnership $ 1,282,220
Aggregate number of Units offered to all Limited
Partners in the Partnership (dollar value) 128,222
Number of Units offered to each Limited Partner
in the Partnership per $1,000 of original
investment (dollar value) 111
Percentage of all Units offered to
the Limited Partners in the Partnership in
relation to the maximum number of
Units offered to Limited Partners
in all Exchange Partnerships: 5.13%
Total Number of Partnership Units 2400
Original Price Per Unit $ 500
(1) Comprised of mortgage escrow account balance held by first mortgage
lender to cover taxes, insurance, maintenance and repair reserves
and other items, and miscellaneous assets.
(2) Comprised of security deposits payable, accounts payable to vendors,
notes or advances to third parties (including affiliates) and
accrued expenses (such as real estate taxes).
(3) Comprised of subjective judgements made by the managing shareholder
to adjust for improvements, combination of phases of operation and
the installation of utility submeters.
5
<PAGE>
COMPENSATION
The Exchange Partnership currently compensates the general partner and its
affiliates by paying management and accounting fees. No other payments are made
to the general partner and its affiliates by the Exchange Partnership. Mr.
McGrath, an affiliate of the General Partner, is the sole shareholder and
director of the Managing Shareholder of the Trust. As described in greater
detail below, Mr. McGrath has agreed to serve as Chief Executive Officer of the
Operating Partnership and the Trust in exchange for up to 25,000 Common Shares
of the Trust or up to 25,000 Operating Partnership Units (amount to be
determined by the Executive Compensation Committee of the Trust) and health
benefits for the first year of operations and thereafter in exchange for
compensation and benefits determined annually by that committee. Additionally,
Mr. McGrath would have received 9.5% of all distributions on Units subscribed
for by him in connection with the formation of the Operating Partnership.
Compensation Paid
To General Partner and Affiliates
1996 1997 1998 March 31, 1999
---- ---- ---- --------------
Management Fee 0 0 0 0
Accounting Fee 0 0 0 0
Compensation
Which Would Have
Been Paid to General Partner
And Affiliates if Exchange Offer
Had Been Concluded(1)
1996 1997 1998 March 31, 1999
---- ---- ---- --------------
9.5% Distribution $ 0 $3,525 $9,305 $1,060
In connection with the formation of the Trust and the Operating
Partnership, the Original Investors (comprised of Mr. McGrath and Robert S.
Geiger, who had no prior affiliation with the Trust, the Operating Partnership,
the Managing Shareholder or any of the Exchange Partnerships) each subscribed
for 601,080 Units. In consideration for the Units subscribed for by them, the
Original Investors made a $100,000 capital contribution to the Operating
Partnership. If the Cash Offering and the Exchange Offering are fully
subscribed, the Units received by each of the Original Investors would represent
9.5% of the total Common Shares outstanding after completion of the Cash
Offering and exchange by the Operating Partnership of 2,500,000 of its Units for
units of limited partnership interest in real estate limited partnerships
(including any exchange completed pursuant to the Exchange Offering), calculated
on a fully diluted basis assuming all then outstanding Units (other than those
acquired by the Trust) have been exchanged into an equivalent number of Common
Shares. If, however, as of November 30, 1999, the Cash Offering and/or the
Exchange Offering has been completed and the number of Units subscribed for by
each Original Investor represents a percentage greater than 9.5% of the then
outstanding Common Shares, calculated on a fully diluted basis assuming that all
then outstanding Units (other than those acquired by the Trust) have been
exchanged into an equivalent number of Common Shares, each Original Investor has
agreed to return any excess Units to the Operating Partnership for cancellation.
As described further below, Mr. McGrath and Mr. Geiger have deposited Units
subscribed for by them into a security escrow account for six to nine years,
subject to earlier release under certain conditions.
6
<PAGE>
Strategic VIII
(Exchange Mortgage)
SUPPLEMENT DATED _____, 1999
TO PROSPECTUS OF
BARON CAPITAL PROPERTIES, L.P.
("Operating Partnership")
DATED _____, 1999
THIS PROSPECTUS SUPPLEMENT FORMS A PART OF AND
SHOULD BE READ TOGETHER WITH THE PROSPECTUS
Baron Strategic Investment Fund VIII, Ltd.,
a Florida limited partnership
(the "Exchange Partnership")
(General Partner: Baron Capital XLIV, Inc.)
This Supplement relates to the offer (the "Exchange Offering") of Baron
Capital Properties, L.P. (the "Operating Partnership") to all limited partners
(the "Limited Partners") in the Exchange Partnership (and limited partners of 22
other real estate limited partnerships) to issue its units of limited
partnership interest ("Units" or "Operating Partnership Units") in exchange for
limited partnership interests in the Exchange Partnership (and in such other
limited partnerships). Limited Partners who do not participate in the Exchange
Offering will be entitled to retain their limited partnership interest in the
Exchange Partnership on substantially the same terms and conditions as their
original investment.
Each Limited Partner should consider all factors discussed below under
"Certain Risks" and under the heading "Risk Factors" set forth in the Prospectus
(the "Prospectus") of the Operating Partnership in evaluating the Exchange
Offering, the Operating Partnership, Baron Capital Trust (the "Trust"), the
general partner and a limited partner of the Operating Partnership, and the
business of the Operating Partnership and the Trust, including the following
material risk factors:
o The valuation of $10.00 per Unit used in the Exchange Offering is an
arbitrary amount, and it is possible that Common Shares of beneficial
interest in the Trust ("Common Shares") (into which the Units are
exchangeable on a one-for-one basis), if listed on a national securities
exchange, will trade at a lower price.
o The terms of the Exchange Offering were determined by the founders of the
Trust and the Operating Partnership (the "Original Investors") (described
below under "Compensation") with no separate counsel or advisor for the
Limited Partners.
o Offerees may not have an opportunity prior to their decision to accept the
Exchange Offering to evaluate a significant number of properties in which
the Operating Partnership and the Trust may acquire an interest, and they
will not have the benefit of knowing the extent of the Operating
Partnership's investment in respect of properties involved in the Exchange
Offering until the offering is completed.
o The Original Investors and affiliates have significant influence over the
operation of the Trust, the Operating Partnership and the Exchange
Partnerships, and the Exchange Offering involves transactions among them
which involve conflicts of interest which may result in decisions that do
not fully represent the interests of all Shareholders of the Trust,
holders of Units in the Operating Partnership (individually, a
"Unitholder" and collectively, the "Unitholders") and limited partners of
the Exchange Partnerships.
o The purchase price to be paid by the Operating Partnership and the Trust
for property interests will be based upon appraisals prepared by qualified
and licensed independent appraisal firms in respect of individual
residential apartment properties and other considerations. Offerees should
note, however, that appraisals are only estimates of value and should not
be relied upon as precise measures of true worth or realizable value.
There can be no assurance that the value of property interests acquired
will reflect their fair market value.
o Offerees who accept the offering may not experience returns comparable to
or in excess of those experienced by Limited Partners in the Exchange
Partnership.
o The current returns of the Exchange Partnership may not be achieved by the
Operating Partnership after completion of the offering and may be higher
than the current returns of other partnerships which participate in the
offering, although such other partnerships may offer higher future growth
potential than the Exchange Partnership.
o If the Exchange Offering is completed in respect of the Exchange
Partnership, Offerees who accept the Exchange Offering will be tendering
their current investment in the particular Exchange Partnership with an
<PAGE>
expected limited duration in exchange for an investment in the Operating
Partnership, which has an unlimited duration.
o Real estate investment risks exist such as the effect of economic and
other conditions on cash flows from real estate interests acquired by the
Trust and the Operating Partnership.
o Financing risks exist, including debt service obligations, the ability of
the Trust and the Operating Partnership to incur additional debt, the need
to refinance current indebtedness at various maturities, and the effect of
any increase in interest rates.
o The Operating Partnership expects to acquire subordinated mortgage
interests which are not recorded because of restrictions in subordination
agreements executed in connection with First Mortgages issued to other
unrelated lenders. If a mortgage is not recorded, the security interest of
the Operating Partnership would not be perfected and the respective debt
would rank pari passu with all other unsecured creditors of the borrower.
o The successful operation of the Trust and the Operating Partnership is
dependent on key management.
o There can be no assurance of the successful completion of the Exchange
Offering and the Trust's Cash Offering (described below).
o In exchange for his capital contribution of $50,000, each of the Original
Investors will receive Units initially valued at $6,010,800 if all
2,500,000 Common Shares are sold in the Cash Offering by November 30, 1999
and all 2,500,000 Units being offered in the Exchange Offering are issued
by such date. In addition, each will serve as an officer of the Trust, the
Operating Partnership and the Managing Shareholder and will receive
compensation for such services.
o No public market for the sale of Units is expected to ever develop, and,
although Common Shares (into which Units are exchangeable) may eventually
be listed on a national securities exchange, it is possible that no public
market for the Common Shares will ever develop or be maintained.
o Limited Partners who acquire Units in the Exchange Offering will pay a
higher price per Unit than the consideration the Original Investors paid
for Units issued to them in connection with the formation of the Trust and
the Operating Partnership.
o The Trust will be taxed as a corporation if it fails to qualify as a REIT.
2
<PAGE>
BUSINESS OF THE EXCHANGE PARTNERSHIP
The Exchange Partnership was organized as a Florida limited partnership in
February 1997. In May 1997, Baron Capital XLIV, Inc., the partnership's General
Partner (wholly owned and controlled, along with the Managing Shareholder of the
Trust, by Mr. McGrath), sponsored a private offering of 2,400 units of limited
partner interest in the Exchange Partnership at a purchase price of $500 per
unit (gross proceeds of $1,200,000). The offering was fully subscribed and
closed in February 1998.
The Exchange Partnership invested the net proceeds of its offering to
provide/or acquire undivided interests in (i) five unrecorded second mortgage
loans (the "Second Mortgage Loans") and (ii) three unsecured loans associated
with residential apartment properties located in Cocoa, Florida (Longwood
Property); Kissimmee, Florida (Heatherwood Property) and Cincinnati, Ohio
(Sycamore Property, which is under development). The Second Mortgage Loans are
subordinated to large-scale first mortgage financing and are non-recourse beyond
the underlying property and/or the assets of the debtor.
For further information concerning the Exchange Partnership, its original
private offering, the property interest it holds, the mortgage to which the
underlying property may be subject, and the estimated deferred taxable gain of
each Limited Partner who elects to participate in the Exchange Offering, please
refer to the tables set forth in the Exhibit I attached hereto. Also see the
tables relating to all of the Exchange Partnerships set forth in the Prospectus
at "Initial Real Property Investments" and in Exhibit B to the Prospectus.
CASH DISTRIBUTIONS TO LIMITED PARTNERS
During each year since inception, the Exchange Partnership has made cash
distributions to the Limited Partners in the following amounts:
All LP's Per LP Unit
-------- -----------
1997: $ 59,176 $ 24.66
1998: $ 98,407 $ 41.00
3/31/99: $ 4,900 $ 2.04
------- -------
Total: $162,483 $ 67.70
3
<PAGE>
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------
TABLE OF EXCHANGE VALUES
- -------------------------------------------------------------------------------------------------------------------
Valuation of Aggregate number of Units offered Number of Units offered Percentage of Units offered
Exchange to all Limited Partners in the to each Limited Partner to Limited Partners in the
Partnership(1) Exchange Partnership (assigned per $1,000 of original Exchange Partnership in
dollar value)(2) investment (assigned relation to Units offered
dollar value)(2) to limited partners in all
partnerships participating
in the initial transactions
of the Exchange Offering
<S> <C> <C> <C> <C> <C>
$1,289,726 128,973 Units ($1,289,730) 107 Units ($1,070) 5.16%
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
- ----------
(1) The valuation of this Exchange Equity Partnership to the extent of its
direct or indirect equity interest in a property is based upon the following
factors: (a) the estimated appraised market value of the underlying property
determined by qualified and licensed independent appraisal firms; (b) the
operating history of the property; (c) the current principal balance of first
mortgage and other indebtedness to which the property is subject; (d) the amount
of distributable cash flow currently being generated by the property; plus (e)
additional factors which the Managing Shareholder believes are appropriate to
consider including, among others, the property's overall current condition and
prospects for the property based upon improvements made or to be made to the
property and, in certain cases, the combination of two or more phases of the
property, which are expected to be owned upon completion of the Exchange
Offering, and the actual or potential benefits to be obtained by the
sub-metering of utilities in order to pass costs from the owner of the property
to individual tenants. The valuation of the Exchange Partnership to the extent
of its mortgage interest in properties and other debt interests is based upon
the following factors: (i) the current principal balance of the amount of debt
which is senior to the mortgage interest to be acquired and other indebtedness
to which property is subject; (ii) the estimated appraised market value of the
underlying property determined by qualified and licensed independent appraisal
firms; (iii) the operating history of the property; (iv) the amount of
distributable cash flow currently being generated by the property; plus (v)
additional factors which the Managing Shareholder believes are appropriate to
consider including, among others, the property's overall current condition and
prospects for the property based upon improvements made or to be made to the
property and, in certain cases, the combination of two or more phases of the
property, which are expected to be owned upon completion of the Exchange
Offering and the actual or potential benefits to be obtained by the sub-metering
of utilities in order to pass costs from the owner of the property to individual
tenants. (see "Valuation Method" below.)
(2) For purposes of the Exchange Offering, each Unit to be issued has been
assigned an initial value of $10.00, which is the price per share at which the
Trust is currently offering Common Shares in its Cash Offering. As described
below at "The Exchange Offering," Unitholders, including recipients of Units in
the Exchange Offering, may exchange all or a portion of their Units for an
equivalent number of Common Shares at any time following the completion of the
offering.
4
<PAGE>
Valuation of Partnership Baron Strategic Investment Fund VIII, Ltd.
Heatherwood II, Longwood I, Sycamore
Appraised value of underlying property interests: $ 2,648,100
Cash and cash equivalent assets: $ 90,215
Other assets (1): $ 100,684
3/31/99 principal balance of mortgage financing $(1,430,985)
secured by the property:
Other liabilities(2): $ (118,287)
Adjustment (3):
Valuation of the partnership $ 1,289,726
Aggregate number of Units offered to all Limited
Partners in the Partnership (dollar value) 128,973
Number of Units offered to each Limited Partner
in the Partnership per $1,000 of original
investment (dollar value) 107
Percentage of all Units offered to the
Limited Partners in the Partnership in
relation to the maximum number of Units
offered to Limited Partners in all
Exchange Partnerships: 5.16%
Total Number of Partnership Units 2400
Original Price Per Unit $ 500
(1) Comprised of mortgage escrow account balance held by first mortgage
lender to cover taxes, insurance, maintenance and repair reserves
and other items, and miscellaneous assets.
(2) Comprised of security deposits payable, accounts payable to vendors,
notes or advances to third parties (including affiliates) and
accrued expenses ( such as real estate taxes).
(3) Comprised of subjective judgements made by the managing shareholder
to adjust for improvements, combination of phases of operation and
the installation of utility submeters.
5
<PAGE>
COMPENSATION
The Exchange Partnership currently compensates the general partner and its
affiliates by paying management and accounting fees. No other payments are made
to the general partner and its affiliates by the Exchange Partnership. Mr.
McGrath, an affiliate of the General Partner, is the sole shareholder and
director of the Managing Shareholder of the Trust. As described in greater
detail below, Mr. McGrath has agreed to serve as Chief Executive Officer of the
Operating Partnership and the Trust in exchange for up to 25,000 Common Shares
of the Trust or up to 25,000 Operating Partnership Units (amount to be
determined by the Executive Compensation Committee of the Trust) and health
benefits for the first year of operations and thereafter in exchange for
compensation and benefits determined annually by that committee. Additionally,
Mr. McGrath would have received 9.5% of all distributions on Units subscribed
for by him in connection with the formation of the Operating Partnership.
Compensation Paid
To General Partner and Affiliates
1996 1997 1998 March 31, 1999
---- ---- ---- --------------
Management Fee $0 $0 $0 $0
Accounting Fee $0 $0 $0 $0
Compensation
Which Would Have
Been Paid to General Partner
And Affiliates if Exchange Offer
Had Been Concluded(1)
1996 1997 1998 March 31, 1999
---- ---- ---- --------------
9.5% Distribution $5,241 $8,028 $8,235 $2,138
In connection with the formation of the Trust and the Operating
Partnership, the Original Investors (comprised of Mr. McGrath and Robert S.
Geiger, who had no prior affiliation with the Trust, the Operating Partnership,
the Managing Shareholder or any of the Exchange Partnerships) each subscribed
for 601,080 Units. In consideration for the Units subscribed for by them, the
Original Investors made a $100,000 capital contribution to the Operating
Partnership. If the Cash Offering and the Exchange Offering are fully
subscribed, the Units received by each of the Original Investors would represent
9.5% of the total Common Shares outstanding after completion of the Cash
Offering and exchange by the Operating Partnership of 2,500,000 of its Units for
units of limited partnership interest in real estate limited partnerships
(including any exchange completed pursuant to the Exchange Offering), calculated
on a fully diluted basis assuming all then outstanding Units (other than those
acquired by the Trust) have been exchanged into an equivalent number of Common
Shares. If, however, as of November 30, 1999, the Cash Offering and/or the
Exchange Offering has been completed and the number of Units subscribed for by
each Original Investor represents a percentage greater than 9.5% of the then
outstanding Common Shares, calculated on a fully diluted basis assuming that all
then outstanding Units (other than those acquired by the Trust) have been
exchanged into an equivalent number of Common Shares, each Original Investor has
agreed to return any excess Units to the Operating Partnership for cancellation.
As described further below, Mr. McGrath and Mr. Geiger have deposited Units
subscribed for by them into a security escrow account for six to nine years,
subject to earlier release under certain conditions.
6
<PAGE>
Vulture I
(Exchange Mortgage)
SUPPLEMENT DATED _____, 1999
TO PROSPECTUS OF
BARON CAPITAL PROPERTIES, L.P.
("Operating Partnership")
DATED _____, 1999
THIS PROSPECTUS SUPPLEMENT FORMS A PART OF AND
SHOULD BE READ TOGETHER WITH THE PROSPECTUS
Basic Strategic Vulture Fund I, Ltd.,
a Florida limited partnership
(the "Exchange Partnership")
(General Partner: Baron Capital XXVI, Inc.)
This Supplement relates to the offer (the "Exchange Offering") of Baron
Capital Properties, L.P. (the "Operating Partnership") to all limited partners
(the "Limited Partners") in the Exchange Partnership (and limited partners of 22
other real estate limited partnerships) to issue its units of limited
partnership interest ("Units" or "Operating Partnership Units") in exchange for
limited partnership interests in the Exchange Partnership (and in such other
limited partnerships). Limited Partners who do not participate in the Exchange
Offering will be entitled to retain their limited partnership interest in the
Exchange Partnership on substantially the same terms and conditions as their
original investment.
Each Limited Partner should consider all factors discussed below under
"Certain Risks" and under the heading "Risk Factors" set forth in the Prospectus
(the "Prospectus") of the Operating Partnership in evaluating the Exchange
Offering, the Operating Partnership, Baron Capital Trust (the "Trust"), the
general partner and a limited partner of the Operating Partnership, and the
business of the Operating Partnership and the Trust, including the following
material risk factors:
o The valuation of $10.00 per Unit used in the Exchange Offering is an
arbitrary amount, and it is possible that Common Shares of beneficial
interest in the Trust ("Common Shares") (into which the Units are
exchangeable on a one-for-one basis), if listed on a national securities
exchange, will trade at a lower price.
o The terms of the Exchange Offering were determined by the founders of the
Trust and the Operating Partnership (the "Original Investors") (described
below under "Compensation") with no separate counsel or advisor for the
Limited Partners.
o Offerees may not have an opportunity prior to their decision to accept the
Exchange Offering to evaluate a significant number of properties in which
the Operating Partnership and the Trust may acquire an interest, and they
will not have the benefit of knowing the extent of the Operating
Partnership's investment in respect of properties involved in the Exchange
Offering until the offering is completed.
o The Original Investors and affiliates have significant influence over the
operation of the Trust, the Operating Partnership and the Exchange
Partnerships, and the Exchange Offering involves transactions among them
which involve conflicts of interest which may result in decisions that do
not fully represent the interests of all Shareholders of the Trust,
holders of Units in the Operating Partnership (individually, a
"Unitholder" and collectively, the "Unitholders") and limited partners of
the Exchange Partnerships.
o The purchase price to be paid by the Operating Partnership and the Trust
for property interests will be based upon appraisals prepared by qualified
and licensed independent appraisal firms in respect of individual
residential apartment properties and other considerations. Offerees should
note, however, that appraisals are only estimates of value and should not
be relied upon as precise measures of true worth or realizable value.
There can be no assurance that the value of property interests acquired
will reflect their fair market value.
o Offerees who accept the offering may not experience returns comparable to
or in excess of those experienced by Limited Partners in the Exchange
Partnership.
o The current returns of the Exchange Partnership may not be achieved by the
Operating Partnership after completion of the offering and may be higher
than the current returns of other partnerships which participate in the
offering, although such other partnerships may offer higher future growth
potential than the Exchange Partnership.
o If the Exchange Offering is completed in respect of the Exchange
Partnership, Offerees who accept the Exchange Offering will be tendering
their current investment in the particular Exchange Partnership with an
<PAGE>
expected limited duration in exchange for an investment in the Operating
Partnership, which has an unlimited duration.
o Real estate investment risks exist such as the effect of economic and
other conditions on cash flows from real estate interests acquired by the
Trust and the Operating Partnership.
o Financing risks exist, including debt service obligations, the ability of
the Trust and the Operating Partnership to incur additional debt, the need
to refinance current indebtedness at various maturities, and the effect of
any increase in interest rates.
o The Operating Partnership expects to acquire subordinated mortgage
interests which are not recorded because of restrictions in subordination
agreements executed in connection with First Mortgages issued to other
unrelated lenders. If a mortgage is not recorded, the security interest of
the Operating Partnership would not be perfected and the respective debt
would rank pari passu with all other unsecured creditors of the borrower.
o The successful operation of the Trust and the Operating Partnership is
dependent on key management.
o There can be no assurance of the successful completion of the Exchange
Offering and the Trust's Cash Offering (described below).
o In exchange for his capital contribution of $50,000, each of the Original
Investors will receive Units initially valued at $6,010,800 if all
2,500,000 Common Shares are sold in the Cash Offering by November 30, 1999
and all 2,500,000 Units being offered in the Exchange Offering are issued
by such date. In addition, each will serve as an officer of the Trust, the
Operating Partnership and the Managing Shareholder and will receive
compensation for such services.
o No public market for the sale of Units is expected to ever develop, and,
although Common Shares (into which Units are exchangeable) may eventually
be listed on a national securities exchange, it is possible that no public
market for the Common Shares will ever develop or be maintained.
o Limited Partners who acquire Units in the Exchange Offering will pay a
higher price per Unit than the consideration the Original Investors paid
for Units issued to them in connection with the formation of the Trust and
the Operating Partnership.
o The Trust will be taxed as a corporation if it fails to qualify as a REIT.
2
<PAGE>
BUSINESS OF THE EXCHANGE PARTNERSHIP
The Exchange Partnership was organized as a Florida limited partnership in
April 1996. In May 1997, Baron Capital XXVI, Inc., the partnership's General
Partner (wholly owned and controlled, along with the Managing Shareholder of the
Trust, by Mr. McGrath), sponsored a private offering of 1,800 units of limited
partner interest in the Exchange Partnership at a purchase price of $500 per
unit (gross proceeds of $900,000). The offering was fully subscribed and closed
in October 1996.
The Exchange Partnership invested the net proceeds of its offering to
provide or acquire undivided interests in four unrecorded second mortgage loans
(the "Second Mortgage Loans") secured by a residential apartment property
located in Tampa, Florida (Curiosity Creek Property). The Second Mortgage Loans
are subordinated to large-scale first mortgage financing and are non-recourse
beyond the underlying property and/or assets of the debtor.
For further information concerning the Exchange Partnership, its original
private offering, the property interest it holds, the mortgage to which the
underlying property may be subject, and the estimated deferred taxable gain of
each Limited Partner who elects to participate in the Exchange Offering, please
refer to the tables set forth in the Exhibit I attached hereto. Also see the
tables relating to all of the Exchange Partnerships set forth in the Prospectus
at "Initial Real Property Investments" and in Exhibit B to the Prospectus.
CASH DISTRIBUTIONS TO LIMITED PARTNERS
During each year since inception, the Exchange Partnership has made cash
distributions to the Limited Partners in the following amounts:
All LP's Per LP Unit
-------- -----------
1997: $ 55,173 $ 30.65
1998: $ 84,500 $ 46.94
3/31/99: $ 86,679 $ 48.16
------- -------
Total: $226,352 $125.75
3
<PAGE>
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------
TABLE OF EXCHANGE VALUES
- -------------------------------------------------------------------------------------------------------------------
Valuation of Aggregate number of Units offered Number of Units offered Percentage of Units offered
Exchange to all Limited Partners in the to each Limited Partner to Limited Partners in the
Partnership(1) Exchange Partnership (assigned per $1,000 of original Exchange Partnership in
dollar value)(2) investment (assigned relation to Units offered
dollar value)(2) to limited partners in all
partnerships participating
in the initial transactions
of the Exchange Offering
<S> <C> <C> <C> <C> <C>
$990,101 99,010 Units ($990,100) 110 Units ($1,100) 3.96%
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
- ----------
(1) The valuation of this Exchange Equity Partnership to the extent of its
direct or indirect equity interest in a property is based upon the following
factors: (a) the estimated appraised market value of the underlying property
determined by qualified and licensed independent appraisal firms; (b) the
operating history of the property; (c) the current principal balance of first
mortgage and other indebtedness to which the property is subject; (d) the amount
of distributable cash flow currently being generated by the property; plus (e)
additional factors which the Managing Shareholder believes are appropriate to
consider including, among others, the property's overall current condition and
prospects for the property based upon improvements made or to be made to the
property and, in certain cases, the combination of two or more phases of the
property, which are expected to be owned upon completion of the Exchange
Offering, and the actual or potential benefits to be obtained by the
sub-metering of utilities in order to pass costs from the owner of the property
to individual tenants. The valuation of the Exchange Partnership to the extent
of its mortgage interest in properties and other debt interests is based upon
the following factors: (i) the current principal balance of the amount of debt
which is senior to the mortgage interest to be acquired and other indebtedness
to which property is subject; (ii) the estimated appraised market value of the
underlying property determined by qualified and licensed independent appraisal
firms; (iii) the operating history of the property; (iv) the amount of
distributable cash flow currently being generated by the property; plus (v)
additional factors which the Managing Shareholder believes are appropriate to
consider including, among others, the property's overall current condition and
prospects for the property based upon improvements made or to be made to the
property and, in certain cases, the combination of two or more phases of the
property, which are expected to be owned upon completion of the Exchange
Offering and the actual or potential benefits to be obtained by the sub-metering
of utilities in order to pass costs from the owner of the property to individual
tenants. (see "Valuation Method" below.)
(2) For purposes of the Exchange Offering, each Unit to be issued has been
assigned an initial value of $10.00, which is the price per share at which the
Trust is currently offering Common Shares in its Cash Offering. As described
below at "The Exchange Offering," Unitholders, including recipients of Units in
the Exchange Offering, may exchange all or a portion of their Units for an
equivalent number of Common Shares at any time following the completion of the
offering.
4
<PAGE>
Valuation of Partnership Baron Strategic Vulture I Fund, Ltd.
Curiosity Creek
Appraised value of underlying property interests: $ 1,843,000
Cash and cash equivalent assets: $ 66,686
Other assets (1): $ 102,333
3/31/99 principal balance of mortgage financing
secured by the property: $ (980,126)
Other liabilities(2): $ (41,793)
Adjustment (3): $ --
Valuation of the partnership $ 990,101
Aggregate number of Units offered to all Limited
Partners in the Partnership (dollar value) 99,010
Number of Units offered to each Limited Partner
in the Partnership per $1,000 of original
investment (dollar value) 110
Percentage of all Units offered to the
Limited Partners in the Partnership in
relation to the maximum number of
Units offered to Limited Partners
in all Exchange Partnerships: 3.96%
Total Number of Partnership Units 1800
Original Price Per Unit $ 500
(1) Comprised of mortgage escrow account balance held by first mortgage
lender to cover taxes, insurance, maintenance and repair reserves
and other items, and miscellaneous assets.
(2) Comprised of security deposits payable, accounts payable to vendors,
notes or advances to third parties (including affiliates) and
accrued expenses ( such as real estate taxes).
(3) Comprised of subjective judgements made by the managing shareholder
to adjust for improvements, combination of phases of operation and
the installation of utility submeters.
5
<PAGE>
COMPENSATION
The Exchange Partnership currently compensates the general partner and its
affiliates by paying management and accounting fees. No other payments are made
to the general partner and its affiliates by the Exchange Partnership. Mr.
McGrath, an affiliate of the General Partner, is the sole shareholder and
director of the Managing Shareholder of the Trust. As described in greater
detail below, Mr. McGrath has agreed to serve as Chief Executive Officer of the
Operating Partnership and the Trust in exchange for up to 25,000 Common Shares
of the Trust or up to 25,000 Operating Partnership Units (amount to be
determined by the Executive Compensation Committee of the Trust) and health
benefits for the first year of operations and thereafter in exchange for
compensation and benefits determined annually by that committee. Additionally,
Mr. McGrath would have received 9.5% of all distributions on Units subscribed
for by him in connection with the formation of the Operating Partnership.
Compensation Paid
To General Partner and Affiliates
1996 1997 1998 March 31, 1999
---- ---- ---- --------------
Management Fee $0 $0 $0 $0
Accounting Fee $0 $0 $0 $0
Compensation
Which Would Have
Been Paid to General Partner
And Affiliates if Exchange Offer
Had Been Concluded(1)
1996 1997 1998 March 31, 1999
---- ---- ---- --------------
9.5% Distribution $0 $5,622 $9,349 $ 466
In connection with the formation of the Trust and the Operating
Partnership, the Original Investors (comprised of Mr. McGrath and Robert S.
Geiger, who had no prior affiliation with the Trust, the Operating Partnership,
the Managing Shareholder or any of the Exchange Partnerships) each subscribed
for 601,080 Units. In consideration for the Units subscribed for by them, the
Original Investors made a $100,000 capital contribution to the Operating
Partnership. If the Cash Offering and the Exchange Offering are fully
subscribed, the Units received by each of the Original Investors would represent
9.5% of the total Common Shares outstanding after completion of the Cash
Offering and exchange by the Operating Partnership of 2,500,000 of its Units for
units of limited partnership interest in real estate limited partnerships
(including any exchange completed pursuant to the Exchange Offering), calculated
on a fully diluted basis assuming all then outstanding Units (other than those
acquired by the Trust) have been exchanged into an equivalent number of Common
Shares. If, however, as of November 30, 1999, the Cash Offering and/or the
Exchange Offering has been completed and the number of Units subscribed for by
each Original Investor represents a percentage greater than 9.5% of the then
outstanding Common Shares, calculated on a fully diluted basis assuming that all
then outstanding Units (other than those acquired by the Trust) have been
exchanged into an equivalent number of Common Shares, each Original Investor has
agreed to return any excess Units to the Operating Partnership for cancellation.
As described further below, Mr. McGrath and Mr. Geiger have deposited Units
subscribed for by them into a security escrow account for six to nine years,
subject to earlier release under certain conditions.
6
<PAGE>
Bridgepoint
(Exchange Equity)
SUPPLEMENT DATED _____, 1999
TO PROSPECTUS OF
BARON CAPITAL PROPERTIES, L.P.
("Operating Partnership")
DATED _____, 1999
THIS PROSPECTUS SUPPLEMENT FORMS A PART OF AND
SHOULD BE READ TOGETHER WITH THE PROSPECTUS
Florida Capital Income Fund III, Ltd.,
a Florida limited partnership
(the "Exchange Partnership")
(General Partner: Baron Capital XI, Inc.)
This Supplement relates to the offer (the "Exchange Offering") of Baron
Capital Properties, L.P. (the "Operating Partnership") to all limited partners
(the "Limited Partners") in the Exchange Partnership (and limited partners of 22
other real estate limited partnerships) to issue its units of limited
partnership interest ("Units" or "Operating Partnership Units") in exchange for
limited partnership interests in the Exchange Partnership (and in such other
limited partnerships). Limited Partners who do not participate in the Exchange
Offering will be entitled to retain their limited partnership interest in the
Exchange Partnership on substantially the same terms and conditions as their
original investment.
Each Limited Partner should consider all factors discussed below under
"Certain Risks" and under the heading "Risk Factors" set forth in the Prospectus
(the "Prospectus") of the Operating Partnership in evaluating the Exchange
Offering, the Operating Partnership, Baron Capital Trust (the "Trust"), the
general partner and a limited partner of the Operating Partnership, and the
business of the Operating Partnership and the Trust, including the following
material risk factors:
o The valuation of $10.00 per Unit used in the Exchange Offering is an
arbitrary amount, and it is possible that Common Shares of beneficial
interest in the Trust ("Common Shares") (into which the Units are
exchangeable on a one-for-one basis), if listed on a national securities
exchange, will trade at a lower price.
o The terms of the Exchange Offering were determined by the founders of the
Trust and the Operating Partnership (the "Original Investors") (described
below under "Compensation") with no separate counsel or advisor for the
Limited Partners.
o Offerees may not have an opportunity prior to their decision to accept the
Exchange Offering to evaluate a significant number of properties in which
the Operating Partnership and the Trust may acquire an interest, and they
will not have the benefit of knowing the extent of the Operating
Partnership's investment in respect of properties involved in the Exchange
Offering until the offering is completed.
o The Original Investors and affiliates have significant influence over the
operation of the Trust, the Operating Partnership and the Exchange
Partnerships, and the Exchange Offering involves transactions among them
which involve conflicts of interest which may result in decisions that do
not fully represent the interests of all Shareholders of the Trust,
holders of Units in the Operating Partnership (individually, a
"Unitholder" and collectively, the "Unitholders") and limited partners of
the Exchange Partnerships.
o The purchase price to be paid by the Operating Partnership and the Trust
for property interests will be based upon appraisals prepared by qualified
and licensed independent appraisal firms in respect of individual
residential apartment properties and other considerations. Offerees should
note, however, that appraisals are only estimates of value and should not
be relied upon as precise measures of true worth or realizable value.
There can be no assurance that the value of property interests acquired
will reflect their fair market value.
o Offerees who accept the offering may not experience returns comparable to
or in excess of those experienced by Limited Partners in the Exchange
Partnership.
o The current returns of the Exchange Partnership may not be achieved by the
Operating Partnership after completion of the offering and may be higher
than the current returns of other partnerships which participate in the
offering, although such other partnerships may offer higher future growth
potential than the Exchange Partnership.
o If the Exchange Offering is completed in respect of the Exchange
Partnership, Offerees who accept the Exchange Offering will be tendering
their current investment in the particular Exchange Partnership with an
<PAGE>
expected limited duration in exchange for an investment in the Operating
Partnership, which has an unlimited duration.
o Real estate investment risks exist such as the effect of economic and
other conditions on cash flows from real estate interests acquired by the
Trust and the Operating Partnership.
o Financing risks exist, including debt service obligations, the ability of
the Trust and the Operating Partnership to incur additional debt, the need
to refinance current indebtedness at various maturities, and the effect of
any increase in interest rates.
o The Operating Partnership expects to acquire subordinated mortgage
interests which are not recorded because of restrictions in subordination
agreements executed in connection with First Mortgages issued to other
unrelated lenders. If a mortgage is not recorded, the security interest of
the Operating Partnership would not be perfected and the respective debt
would rank pari passu with all other unsecured creditors of the borrower.
o The successful operation of the Trust and the Operating Partnership is
dependent on key management.
o There can be no assurance of the successful completion of the Exchange
Offering and the Trust's Cash Offering (described below).
o In exchange for his capital contribution of $50,000, each of the Original
Investors will receive Units initially valued at $6,010,800 if all
2,500,000 Common Shares are sold in the Cash Offering by November 30, 1999
and all 2,500,000 Units being offered in the Exchange Offering are issued
by such date. In addition, each will serve as an officer of the Trust, the
Operating Partnership and the Managing Shareholder and will receive
compensation for such services.
o No public market for the sale of Units is expected to ever develop, and,
although Common Shares (into which Units are exchangeable) may eventually
be listed on a national securities exchange, it is possible that no public
market for the Common Shares will ever develop or be maintained.
o Limited Partners who acquire Units in the Exchange Offering will pay a
higher price per Unit than the consideration the Original Investors paid
for Units issued to them in connection with the formation of the Trust and
the Operating Partnership.
o The Trust will be taxed as a corporation if it fails to qualify as a REIT.
2
<PAGE>
BUSINESS OF THE EXCHANGE PARTNERSHIP
The Exchange Partnership was organized as a Florida limited partnership in
April 1995. In May 1995, Baron Capital VII, Inc., the General Partner of the
Exchange Partnership and an affiliate of the Managing Shareholder of the Trust,
by Mr. McGrath) and an affiliate of the Managing Shareholder, sponsored a
private offering of 1,600 units of limited partner interest in the Exchange
Partnership at a purchase price of $500 per unit (gross proceeds of $800,000).
The offering was fully subscribed and closed in November 1995.
The partnership invested the net proceeds of its offering to acquire all
of the limited partnership interests in a limited partnership which holds a fee
simple interest in a 48-unit residential apartment property referred to as the
Bridge Point Apartment Property located in Jacksonville, Florida. The property
is subject to a first mortgage and other indebtedness having a principal balance
at March 31, 1999 of approximately $713,208.
For further information concerning the Exchange Partnership, its original
private offering, the property interest it holds, the mortgage to which the
underlying property may be subject, and the estimated deferred taxable gain of
each Limited Partner who elects to participate in the Exchange Offering, please
refer to the tables set forth in the Exhibit I attached hereto. Also see the
tables relating to all of the Exchange Partnerships set forth in the Prospectus
at "Initial Real Property Investments" and in Exhibit B to the Prospectus.
CASH DISTRIBUTIONS TO LIMITED PARTNERS
During each year since inception, the Exchange Partnership has made cash
distributions to the Limited Partners in the following amounts:
All LP's Per LP Unit
-------- -----------
1996: $ 78,400 $ 49.00
1997: $ 66,648 $ 41.65
1998 : $ 11,790 $ 7.37
3/31/99: $ 1,980 $ 1.24
-------- -------
Total: $158,810 $ 99.26
3
<PAGE>
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------
TABLE OF EXCHANGE VALUES
- -------------------------------------------------------------------------------------------------------------------
Valuation of Aggregate number of Units offered Number of Units offered Percentage of Units offered
Exchange to all Limited Partners in the to each Limited Partner to Limited Partners in the
Partnership(1) Exchange Partnership (assigned per $1,000 of original Exchange Partnership in
dollar value)(2) investment (assigned relation to Units offered
dollar value)(2) to limited partners in all
partnerships participating
in the initial transactions
of the Exchange Offering
<S> <C> <C> <C> <C> <C>
$936,442 93,644 Units ($936,442) 117 Units ($1,170) 3.75%
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
- ----------
(1) The valuation of this Exchange Equity Partnership to the extent of its
direct or indirect equity interest in a property is based upon the following
factors: (a) the estimated appraised market value of the underlying property
determined by qualified and licensed independent appraisal firms; (b) the
operating history of the property; (c) the current principal balance of first
mortgage and other indebtedness to which the property is subject; (d) the amount
of distributable cash flow currently being generated by the property; plus (e)
additional factors which the Managing Shareholder believes are appropriate to
consider including, among others, the property's overall current condition and
prospects for the property based upon improvements made or to be made to the
property and, in certain cases, the combination of two or more phases of the
property, which are expected to be owned upon completion of the Exchange
Offering, and the actual or potential benefits to be obtained by the
sub-metering of utilities in order to pass costs from the owner of the property
to individual tenants. The valuation of the Exchange Partnership to the extent
of its mortgage interest in properties and other debt interests is based upon
the following factors: (i) the current principal balance of the amount of debt
which is senior to the mortgage interest to be acquired and other indebtedness
to which property is subject; (ii) the estimated appraised market value of the
underlying property determined by qualified and licensed independent appraisal
firms; (iii) the operating history of the property; (iv) the amount of
distributable cash flow currently being generated by the property; plus (v)
additional factors which the Managing Shareholder believes are appropriate to
consider including, among others, the property's overall current condition and
prospects for the property based upon improvements made or to be made to the
property and, in certain cases, the combination of two or more phases of the
property, which are expected to be owned upon completion of the Exchange
Offering and the actual or potential benefits to be obtained by the sub-metering
of utilities in order to pass costs from the owner of the property to individual
tenants. (see "Valuation Method" below.)
(2) For purposes of the Exchange Offering, each Unit to be issued has been
assigned an initial value of $10.00, which is the price per share at which the
Trust is currently offering Common Shares in its Cash Offering. As described
below at "The Exchange Offering," Unitholders, including recipients of Units in
the Exchange Offering, may exchange all or a portion of their Units for an
equivalent number of Common Shares at any time following the completion of the
offering.
4
<PAGE>
Valuation of Partnership Florida Capital Income Fund III, Ltd.
Bridgepoint
Appraised value of underlying property interests: $ 1,610,000
Cash and cash equivalent assets: $ 60,353
Other assets (1): $ 40,572
3/31/99 principal balance of mortgage financing
secured by the property: $ (713,208)
Other liabilities(2): $ (61,275)
Adjustment (3):
Valuation of the partnership $ 936,442
Aggregate number of Units offered to all Limited
Partners in the Partnership (dollar value) 93,644
Number of Units offered to each Limited Partner
in the Partnership per $1,000 of original
investment (dollar value) 117
Percentage of all Units offered to the
Limited Partners in the Partnership in
relation to the maximum number of Units
offered to Limited Partners in all
Exchange Partnerships: 3.75%
Total Number of Partnership Units 1600
Original Price Per Unit $ 500
(1) Comprised of mortgage escrow account balance held by first mortgage
lender to cover taxes, insurance, maintenance and repair reserves
and other items, and miscellaneous assets.
(2) Comprised of security deposits payable, accounts payable to vendors,
notes or advances to third parties (including affiliates) and
accrued expenses ( such as real estate taxes).
(3) Comprised of subjective judgements made by the managing shareholder
to adjust for improvements, combination of phases of operation and
the installation of utility submeters.
5
<PAGE>
COMPENSATION
The Exchange Partnership currently compensates the general partner and its
affiliates by paying management and accounting fees. No other payments are made
to the general partner and its affiliates by the Exchange Partnership. Mr.
McGrath, an affiliate of the General Partner, is the sole shareholder and
director of the Managing Shareholder of the Trust. As described in greater
detail below, Mr. McGrath has agreed to serve as Chief Executive Officer of the
Operating Partnership and the Trust in exchange for up to 25,000 Common Shares
of the Trust or up to 25,000 Operating Partnership Units (amount to be
determined by the Executive Compensation Committee of the Trust) and health
benefits for the first year of operations and thereafter in exchange for
compensation and benefits determined annually by that committee. Additionally,
Mr. McGrath would have received 9.5% of all distributions on Units subscribed
for by him in connection with the formation of the Operating Partnership.
Compensation Paid
To General Partner and Affiliates
1996 1997 1998 March 31, 1999
---- ---- ---- --------------
Management Fee $11,423 $10,951 $12,582 $4,371
Accounting Fee $ 3,900 $ 3,900 $ 3,900 $ 975
------- ------- ------- ------
$15,323 $14,861 $16,482 $5,348
Compensation
Which Would Have
Been Paid to General Partner
And Affiliates if Exchange Offer
Had Been Concluded(1)
1996 1997 1998 March 31, 1999
---- ---- ---- --------------
9.5% Distribution $7,448 $6,331 $1,120 $ 188
In connection with the formation of the Trust and the Operating
Partnership, the Original Investors (comprised of Mr. McGrath and Robert S.
Geiger, who had no prior affiliation with the Trust, the Operating Partnership,
the Managing Shareholder or any of the Exchange Partnerships) each subscribed
for 601,080 Units. In consideration for the Units subscribed for by them, the
Original Investors made a $100,000 capital contribution to the Operating
Partnership. If the Cash Offering and the Exchange Offering are fully
subscribed, the Units received by each of the Original Investors would represent
9.5% of the total Common Shares outstanding after completion of the Cash
Offering and exchange by the Operating Partnership of 2,500,000 of its Units for
units of limited partnership interest in real estate limited partnerships
(including any exchange completed pursuant to the Exchange Offering), calculated
on a fully diluted basis assuming all then outstanding Units (other than those
acquired by the Trust) have been exchanged into an equivalent number of Common
Shares. If, however, as of November 30, 1999, the Cash Offering and/or the
Exchange Offering has been completed and the number of Units subscribed for by
each Original Investor represents a percentage greater than 9.5% of the then
outstanding Common Shares, calculated on a fully diluted basis assuming that all
then outstanding Units (other than those acquired by the Trust) have been
exchanged into an equivalent number of Common Shares, each Original Investor has
agreed to return any excess Units to the Operating Partnership for cancellation.
As described further below, Mr. McGrath and Mr. Geiger have deposited Units
subscribed for by them into a security escrow account for six to nine years,
subject to earlier release under certain conditions.
6
<PAGE>
Brookwood Way
(Exchange Equity)
SUPPLEMENT DATED _____, 1999
TO PROSPECTUS OF
BARON CAPITAL PROPERTIES, L.P.
("Operating Partnership")
DATED _____, 1999
THIS PROSPECTUS SUPPLEMENT FORMS A PART OF AND
SHOULD BE READ TOGETHER WITH THE PROSPECTUS
Midwest Income Growth Fund VI, Ltd.,
a Florida limited partnership
(the "Exchange Partnership")
(General Partner: Baron Capital XI, Inc.)
This Supplement relates to the offer (the "Exchange Offering") of Baron
Capital Properties, L.P. (the "Operating Partnership") to all limited partners
(the "Limited Partners") in the Exchange Partnership (and limited partners of 22
other real estate limited partnerships) to issue its units of limited
partnership interest ("Units" or "Operating Partnership Units") in exchange for
limited partnership interests in the Exchange Partnership (and in such other
limited partnerships). Limited Partners who do not participate in the Exchange
Offering will be entitled to retain their limited partnership interest in the
Exchange Partnership on substantially the same terms and conditions as their
original investment.
Each Limited Partner should consider all factors discussed below under
"Certain Risks" and under the heading "Risk Factors" set forth in the Prospectus
(the "Prospectus") of the Operating Partnership in evaluating the Exchange
Offering, the Operating Partnership, Baron Capital Trust (the "Trust"), the
general partner and a limited partner of the Operating Partnership, and the
business of the Operating Partnership and the Trust, including the following
material risk factors:
o The valuation of $10.00 per Unit used in the Exchange Offering is an
arbitrary amount, and it is possible that Common Shares of beneficial
interest in the Trust ("Common Shares") (into which the Units are
exchangeable on a one-for-one basis), if listed on a national securities
exchange, will trade at a lower price.
o The terms of the Exchange Offering were determined by the founders of the
Trust and the Operating Partnership (the "Original Investors") (described
below under "Compensation") with no separate counsel or advisor for the
Limited Partners.
o Offerees may not have an opportunity prior to their decision to accept the
Exchange Offering to evaluate a significant number of properties in which
the Operating Partnership and the Trust may acquire an interest, and they
will not have the benefit of knowing the extent of the Operating
Partnership's investment in respect of properties involved in the Exchange
Offering until the offering is completed.
o The Original Investors and affiliates have significant influence over the
operation of the Trust, the Operating Partnership and the Exchange
Partnerships, and the Exchange Offering involves transactions among them
which involve conflicts of interest which may result in decisions that do
not fully represent the interests of all Shareholders of the Trust,
holders of Units in the Operating Partnership (individually, a
"Unitholder" and collectively, the "Unitholders") and limited partners of
the Exchange Partnerships.
o The purchase price to be paid by the Operating Partnership and the Trust
for property interests will be based upon appraisals prepared by qualified
and licensed independent appraisal firms in respect of individual
residential apartment properties and other considerations. Offerees should
note, however, that appraisals are only estimates of value and should not
be relied upon as precise measures of true worth or realizable value.
There can be no assurance that the value of property interests acquired
will reflect their fair market value.
o Offerees who accept the offering may not experience returns comparable to
or in excess of those experienced by Limited Partners in the Exchange
Partnership.
o The current returns of the Exchange Partnership may not be achieved by the
Operating Partnership after completion of the offering and may be higher
than the current returns of other partnerships which participate in the
offering, although such other partnerships may offer higher future growth
potential than the Exchange Partnership.
o If the Exchange Offering is completed in respect of the Exchange
Partnership, Offerees who accept the Exchange Offering will be tendering
their current investment in the particular Exchange Partnership with an
<PAGE>
expected limited duration in exchange for an investment in the Operating
Partnership, which has an unlimited duration.
o Real estate investment risks exist such as the effect of economic and
other conditions on cash flows from real estate interests acquired by the
Trust and the Operating Partnership.
o Financing risks exist, including debt service obligations, the ability of
the Trust and the Operating Partnership to incur additional debt, the need
to refinance current indebtedness at various maturities, and the effect of
any increase in interest rates.
o The Operating Partnership expects to acquire subordinated mortgage
interests which are not recorded because of restrictions in subordination
agreements executed in connection with First Mortgages issued to other
unrelated lenders. If a mortgage is not recorded, the security interest of
the Operating Partnership would not be perfected and the respective debt
would rank pari passu with all other unsecured creditors of the borrower.
o The successful operation of the Trust and the Operating Partnership is
dependent on key management.
o There can be no assurance of the successful completion of the Exchange
Offering and the Trust's Cash Offering (described below).
o In exchange for his capital contribution of $50,000, each of the Original
Investors will receive Units initially valued at $6,010,800 if all
2,500,000 Common Shares are sold in the Cash Offering by November 30, 1999
and all 2,500,000 Units being offered in the Exchange Offering are issued
by such date. In addition, each will serve as an officer of the Trust, the
Operating Partnership and the Managing Shareholder and will receive
compensation for such services.
o No public market for the sale of Units is expected to ever develop, and,
although Common Shares (into which Units are exchangeable) may eventually
be listed on a national securities exchange, it is possible that no public
market for the Common Shares will ever develop or be maintained.
o Limited Partners who acquire Units in the Exchange Offering will pay a
higher price per Unit than the consideration the Original Investors paid
for Units issued to them in connection with the formation of the Trust and
the Operating Partnership.
o The Trust will be taxed as a corporation if it fails to qualify as a REIT.
2
<PAGE>
BUSINESS OF THE EXCHANGE PARTNERSHIP
The Exchange Partnership was organized as a Michigan limited partnership
in June 1996. In March 1996, Baron Capital of Ohio III, Inc., (formerly named
Sigma Financial Capital VI, Inc.), the General Partner of the Exchange
Partnership and an affiliate of the Managing Shareholder, sponsored a private
offering of 600 units of limited partner interest in the Exchange Partnership at
a purchase price of $500 per unit (gross proceeds of $300,000).
The offering was fully subscribed in and closed in October 1996. The
partnership invested the net proceeds of its offering to acquire all
of the limited partnership interests in a limited partnership which holds a fee
simple interest in a 66-unit residential apartment property referred too as the
Brockwood Way Apartment Property located in Mansfield, Ohio. The
property is subject to mortgage and other indebtedness having a principal
balance at March 31, 1999 of approximately $1,046,599.
For further information concerning the Exchange Partnership, its original
private offering, the property interest it holds, the mortgage to which the
underlying property may be subject, and the estimated deferred taxable gain of
each Limited Partner who elects to participate in the Exchange Offering, please
refer to the tables set forth in the Exhibit I attached hereto. Also see the
tables relating to all of the Exchange Partnerships set forth in the Prospectus
at "Initial Real Property Investments" and in Exhibit B to the Prospectus.
CASH DISTRIBUTIONS TO LIMITED PARTNERS
During each year since inception, the Exchange Partnership has made cash
distributions to the Limited Partners in the following amounts:
All LP's Per LP Unit
-------- -----------
1996: $12,847 $ 21.41
1997: $30,000 $ 50.00
1998 : $30,000 $ 50.00
3/31/99: $ 4,000 $ 6.67
------- -------
Total: $76,847 $128.08
3
<PAGE>
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------
TABLE OF EXCHANGE VALUES
- -------------------------------------------------------------------------------------------------------------------
Valuation of Aggregate number of Units offered Number of Units offered Percentage of Units offered
Exchange to all Limited Partners in the to each Limited Partner to Limited Partners in the
Partnership(1) Exchange Partnership (assigned per $1,000 of original Exchange Partnership in
dollar value)(2) investment (assigned relation to Units offered
dollar value)(2) to limited partners in all
partnerships participating
in the initial transactions
of the Exchange Offering
<S> <C> <C> <C> <C> <C>
$381,063 38,106 Units ($381,060) 127 Units ($1,270) 1.53%
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
- ----------
(1) The valuation of this Exchange Equity Partnership to the extent of its
direct or indirect equity interest in a property is based upon the following
factors: (a) the estimated appraised market value of the underlying property
determined by qualified and licensed independent appraisal firms; (b) the
operating history of the property; (c) the current principal balance of first
mortgage and other indebtedness to which the property is subject; (d) the amount
of distributable cash flow currently being generated by the property; plus (e)
additional factors which the Managing Shareholder believes are appropriate to
consider including, among others, the property's overall current condition and
prospects for the property based upon improvements made or to be made to the
property and, in certain cases, the combination of two or more phases of the
property, which are expected to be owned upon completion of the Exchange
Offering, and the actual or potential benefits to be obtained by the
sub-metering of utilities in order to pass costs from the owner of the property
to individual tenants. The valuation of the Exchange Partnership to the extent
of its mortgage interest in properties and other debt interests is based upon
the following factors: (i) the current principal balance of the amount of debt
which is senior to the mortgage interest to be acquired and other indebtedness
to which property is subject; (ii) the estimated appraised market value of the
underlying property determined by qualified and licensed independent appraisal
firms; (iii) the operating history of the property; (iv) the amount of
distributable cash flow currently being generated by the property; plus (v)
additional factors which the Managing Shareholder believes are appropriate to
consider including, among others, the property's overall current condition and
prospects for the property based upon improvements made or to be made to the
property and, in certain cases, the combination of two or more phases of the
property, which are expected to be owned upon completion of the Exchange
Offering and the actual or potential benefits to be obtained by the sub-metering
of utilities in order to pass costs from the owner of the property to individual
tenants. (see "Valuation Method" below.)
(2) For purposes of the Exchange Offering, each Unit to be issued has been
assigned an initial value of $10.00, which is the price per share at which the
Trust is currently offering Common Shares in its Cash Offering. As described
below at "The Exchange Offering," Unitholders, including recipients of Units in
the Exchange Offering, may exchange all or a portion of their Units for an
equivalent number of Common Shares at any time following the completion of the
offering.
4
<PAGE>
Valuation of Partnership Midwest Income Growth Fund VI, Ltd.
Brookwood Way
Appraised value of underlying property interests: $ 1,780,000
Cash and cash equivalent assets: $ 69,184
Other assets (1): $ 48,250
3/31/99 principal balance of mortgage financing
secured by the property: $(1,046,599)
Other liabilities(2): $ (469,772)
Adjustment (3):
Valuation of the partnership $ 381,063
Aggregate number of Units offered to all Limited
Partners in the Partnership (dollar value) 38,106
Number of Units offered to each Limited Partner
in the Partnership per $1,000 of original
investment (dollar value) 127
Percentage of all Units offered to
the Limited Partners in the Partnership in
relation to the maximum number of Units
offered to Limited Partners in all
Exchange Partnerships: 1.53%
Total Number of Partnership Units 600
Original Price Per Unit $ 500
(1) Comprised of mortgage escrow account balance held by first mortgage
lender to cover taxes, insurance, maintenance and repair reserves
and other items, and miscellaneous assets.
(2) Comprised of security deposits payable, accounts payable to vendors,
notes or advances to third parties (including affiliates) and
accrued expenses ( such as real estate taxes).
(3) Comprised of subjective judgements made by the managing shareholder
to adjust for improvements, combination of phases of operation and
the installation of utility submeters.
5
<PAGE>
COMPENSATION
The Exchange Partnership currently compensates the general partner and its
affiliates by paying management and accounting fees. No other payments are made
to the general partner and its affiliates by the Exchange Partnership. Mr.
McGrath, an affiliate of the General Partner, is the sole shareholder and
director of the Managing Shareholder of the Trust. As described in greater
detail below, Mr. McGrath has agreed to serve as Chief Executive Officer of the
Operating Partnership and the Trust in exchange for up to 25,000 Common Shares
of the Trust or up to 25,000 Operating Partnership Units (amount to be
determined by the Executive Compensation Committee of the Trust) and health
benefits for the first year of operations and thereafter in exchange for
compensation and benefits determined annually by that committee. Additionally,
Mr. McGrath would have received 9.5% of all distributions on Units subscribed
for by him in connection with the formation of the Operating Partnership.
Compensation Paid
To General Partner and Affiliates
1996 1997 1998 March 31, 1999
---- ---- ---- --------------
Management Fee $12,138 $12,847 $14,802 $4,915
Accounting Fee $ 3,900 $ 3,900 $ 3,900 $ 975
------- ------- ------- ------
$16,038 $16,747 $18,702 $5,890
Compensation
Which Would Have
Been Paid to General Partner
And Affiliates if Exchange Offer
Had Been Concluded(1)
1996 1997 1998 March 31, 1999
---- ---- ---- --------------
9.5% Distribution $1,220 $2,850 $2,850 $380
In connection with the formation of the Trust and the Operating
Partnership, the Original Investors (comprised of Mr. McGrath and Robert S.
Geiger, who had no prior affiliation with the Trust, the Operating Partnership,
the Managing Shareholder or any of the Exchange Partnerships) each subscribed
for 601,080 Units. In consideration for the Units subscribed for by them, the
Original Investors made a $100,000 capital contribution to the Operating
Partnership. If the Cash Offering and the Exchange Offering are fully
subscribed, the Units received by each of the Original Investors would represent
9.5% of the total Common Shares outstanding after completion of the Cash
Offering and exchange by the Operating Partnership of 2,500,000 of its Units for
units of limited partnership interest in real estate limited partnerships
(including any exchange completed pursuant to the Exchange Offering), calculated
on a fully diluted basis assuming all then outstanding Units (other than those
acquired by the Trust) have been exchanged into an equivalent number of Common
Shares. If, however, as of November 30, 1999, the Cash Offering and/or the
Exchange Offering has been completed and the number of Units subscribed for by
each Original Investor represents a percentage greater than 9.5% of the then
outstanding Common Shares, calculated on a fully diluted basis assuming that all
then outstanding Units (other than those acquired by the Trust) have been
exchanged into an equivalent number of Common Shares, each Original Investor has
agreed to return any excess Units to the Operating Partnership for cancellation.
As described further below, Mr. McGrath and Mr. Geiger have deposited Units
subscribed for by them into a security escrow account for six to nine years,
subject to earlier release under certain conditions.
6
<PAGE>
Forest Glen II
(Exchange Equity)
SUPPLEMENT DATED _____, 1999
TO PROSPECTUS OF
BARON CAPITAL PROPERTIES, L.P.
("Operating Partnership")
DATED _____, 1999
THIS PROSPECTUS SUPPLEMENT FORMS A PART OF AND
SHOULD BE READ TOGETHER WITH THE PROSPECTUS
Realty Opportunity Income Fund VIII, Ltd.,
a Florida limited partnership
(the "Exchange Partnership")
(General Partner: Baron Capital XI, Inc.)
This Supplement relates to the offer (the "Exchange Offering") of Baron
Capital Properties, L.P. (the "Operating Partnership") to all limited partners
(the "Limited Partners") in the Exchange Partnership (and limited partners of 22
other real estate limited partnerships) to issue its units of limited
partnership interest ("Units" or "Operating Partnership Units") in exchange for
limited partnership interests in the Exchange Partnership (and in such other
limited partnerships). Limited Partners who do not participate in the Exchange
Offering will be entitled to retain their limited partnership interest in the
Exchange Partnership on substantially the same terms and conditions as their
original investment.
Each Limited Partner should consider all factors discussed below under
"Certain Risks" and under the heading "Risk Factors" set forth in the Prospectus
(the "Prospectus") of the Operating Partnership in evaluating the Exchange
Offering, the Operating Partnership, Baron Capital Trust (the "Trust"), the
general partner and a limited partner of the Operating Partnership, and the
business of the Operating Partnership and the Trust, including the following
material risk factors:
o The valuation of $10.00 per Unit used in the Exchange Offering is an
arbitrary amount, and it is possible that Common Shares of beneficial
interest in the Trust ("Common Shares") (into which the Units are
exchangeable on a one-for-one basis), if listed on a national securities
exchange, will trade at a lower price.
o The terms of the Exchange Offering were determined by the founders of the
Trust and the Operating Partnership (the "Original Investors") (described
below under "Compensation") with no separate counsel or advisor for the
Limited Partners.
o Offerees may not have an opportunity prior to their decision to accept the
Exchange Offering to evaluate a significant number of properties in which
the Operating Partnership and the Trust may acquire an interest, and they
will not have the benefit of knowing the extent of the Operating
Partnership's investment in respect of properties involved in the Exchange
Offering until the offering is completed.
o The Original Investors and affiliates have significant influence over the
operation of the Trust, the Operating Partnership and the Exchange
Partnerships, and the Exchange Offering involves transactions among them
which involve conflicts of interest which may result in decisions that do
not fully represent the interests of all Shareholders of the Trust,
holders of Units in the Operating Partnership (individually, a
"Unitholder" and collectively, the "Unitholders") and limited partners of
the Exchange Partnerships.
o The purchase price to be paid by the Operating Partnership and the Trust
for property interests will be based upon appraisals prepared by qualified
and licensed independent appraisal firms in respect of individual
residential apartment properties and other considerations. Offerees should
note, however, that appraisals are only estimates of value and should not
be relied upon as precise measures of true worth or realizable value.
There can be no assurance that the value of property interests acquired
will reflect their fair market value.
o Offerees who accept the offering may not experience returns comparable to
or in excess of those experienced by Limited Partners in the Exchange
Partnership.
o The current returns of the Exchange Partnership may not be achieved by the
Operating Partnership after completion of the offering and may be higher
than the current returns of other partnerships which participate in the
offering, although such other partnerships may offer higher future growth
potential than the Exchange Partnership.
o If the Exchange Offering is completed in respect of the Exchange
Partnership, Offerees who accept the Exchange Offering will be tendering
their current investment in the particular Exchange Partnership with an
<PAGE>
expected limited duration in exchange for an investment in the Operating
Partnership, which has an unlimited duration.
o Real estate investment risks exist such as the effect of economic and
other conditions on cash flows from real estate interests acquired by the
Trust and the Operating Partnership.
o Financing risks exist, including debt service obligations, the ability of
the Trust and the Operating Partnership to incur additional debt, the need
to refinance current indebtedness at various maturities, and the effect of
any increase in interest rates.
o The Operating Partnership expects to acquire subordinated mortgage
interests which are not recorded because of restrictions in subordination
agreements executed in connection with First Mortgages issued to other
unrelated lenders. If a mortgage is not recorded, the security interest of
the Operating Partnership would not be perfected and the respective debt
would rank pari passu with all other unsecured creditors of the borrower.
o The successful operation of the Trust and the Operating Partnership is
dependent on key management.
o There can be no assurance of the successful completion of the Exchange
Offering and the Trust's Cash Offering (described below).
o In exchange for his capital contribution of $50,000, each of the Original
Investors will receive Units initially valued at $6,010,800 if all
2,500,000 Common Shares are sold in the Cash Offering by November 30, 1999
and all 2,500,000 Units being offered in the Exchange Offering are issued
by such date. In addition, each will serve as an officer of the Trust, the
Operating Partnership and the Managing Shareholder and will receive
compensation for such services.
o No public market for the sale of Units is expected to ever develop, and,
although Common Shares (into which Units are exchangeable) may eventually
be listed on a national securities exchange, it is possible that no public
market for the Common Shares will ever develop or be maintained.
o Limited Partners who acquire Units in the Exchange Offering will pay a
higher price per Unit than the consideration the Original Investors paid
for Units issued to them in connection with the formation of the Trust and
the Operating Partnership.
o The Trust will be taxed as a corporation if it fails to qualify as a REIT.
2
<PAGE>
BUSINESS OF THE EXCHANGE PARTNERSHIP
The Exchange Partnership was organized as a Florida limited partnership in
April 1993. In January 1995, Baron Capital IV, Inc., an affiliate of the
Managing Shareholder, became General Partner of the Exchange Partnership, which
in February 1994 commenced a private offering of 944 units of limited partner
interest in the Exchange Partnership at a purchase price of $1,000 per unit
(gross proceeds of $944,000). The offering was fully subscribed and closed in
June 1994.
The partnership invested the net proceeds of its offering to acquire all
of the limited partnership interests in a limited partnership which holds a fee
simple interest in a 30-unit residential apartment property referred too as the
Forest Glen Apartment Property (Phase II) located in Daytona Beach, Florida. The
property is subject to mortgage and other indebtedness having a principal
balance at March 31, 1999 of approximately $1,025,794.
For further information concerning the Exchange Partnership, its original
private offering, the property interest it holds, the mortgage to which the
underlying property may be subject, and the estimated deferred taxable gain of
each Limited Partner who elects to participate in the Exchange Offering, please
refer to the tables set forth in the Exhibit I attached hereto. Also see the
tables relating to all of the Exchange Partnerships set forth in the Prospectus
at "Initial Real Property Investments" and in Exhibit B to the Prospectus.
CASH DISTRIBUTIONS TO LIMITED PARTNERS
During each year since inception, the Exchange Partnership has made cash
distributions to the Limited Partners in the following amounts:
All LP's Per LP Unit
-------- -----------
1996: $56,185 $ 59.52
1997: $ 3,000 $ 3.18
1998 : $16,000 $ 16.95
3/31/99: $ 1,000 $ 1.06
------- -------
Total: $76,185 $ 80.71
3
<PAGE>
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------
TABLE OF EXCHANGE VALUES
- -------------------------------------------------------------------------------------------------------------------
Valuation of Aggregate number of Units offered Number of Units offered Percentage of Units offered
Exchange to all Limited Partners in the to each Limited Partner to Limited Partners in the
Partnership(1) Exchange Partnership (assigned per $1,000 of original Exchange Partnership in
dollar value)(2) investment (assigned relation to Units offered
dollar value)(2) to limited partners in all
partnerships participating
in the initial transactions
of the Exchange Offering
<S> <C> <C> <C> <C> <C>
$987,220 98,722 Units ($987,220) 105 Units ($1,050) 3.95%
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
- ----------
(1) The valuation of this Exchange Equity Partnership to the extent of its
direct or indirect equity interest in a property is based upon the following
factors: (a) the estimated appraised market value of the underlying property
determined by qualified and licensed independent appraisal firms; (b) the
operating history of the property; (c) the current principal balance of first
mortgage and other indebtedness to which the property is subject; (d) the amount
of distributable cash flow currently being generated by the property; plus (e)
additional factors which the Managing Shareholder believes are appropriate to
consider including, among others, the property's overall current condition and
prospects for the property based upon improvements made or to be made to the
property and, in certain cases, the combination of two or more phases of the
property, which are expected to be owned upon completion of the Exchange
Offering, and the actual or potential benefits to be obtained by the
sub-metering of utilities in order to pass costs from the owner of the property
to individual tenants. The valuation of the Exchange Partnership to the extent
of its mortgage interest in properties and other debt interests is based upon
the following factors: (i) the current principal balance of the amount of debt
which is senior to the mortgage interest to be acquired and other indebtedness
to which property is subject; (ii) the estimated appraised market value of the
underlying property determined by qualified and licensed independent appraisal
firms; (iii) the operating history of the property; (iv) the amount of
distributable cash flow currently being generated by the property; plus (v)
additional factors which the Managing Shareholder believes are appropriate to
consider including, among others, the property's overall current condition and
prospects for the property based upon improvements made or to be made to the
property and, in certain cases, the combination of two or more phases of the
property, which are expected to be owned upon completion of the Exchange
Offering and the actual or potential benefits to be obtained by the sub-metering
of utilities in order to pass costs from the owner of the property to individual
tenants. (see "Valuation Method" below.)
(2) For purposes of the Exchange Offering, each Unit to be issued has been
assigned an initial value of $10.00, which is the price per share at which the
Trust is currently offering Common Shares in its Cash Offering. As described
below at "The Exchange Offering," Unitholders, including recipients of Units in
the Exchange Offering, may exchange all or a portion of their Units for an
equivalent number of Common Shares at any time following the completion of the
offering.
4
<PAGE>
Valuation of Partnership Realty Opportunity Income Fund VIII, Ltd.
Forest Glen II
Appraised value of underlying property interests: $ 1,959,310
Cash and cash equivalent assets: $ 48,523
Other assets (1): $ 57,642
3/31/99 principal balance of mortgage financing
secured by the property: $(1,025,794)
Other liabilities(2): $ (52,461)
Adjustment (3):
Valuation of the partnership $ 987,220
Aggregate number of Units offered to all Limited
Partners in the Partnership (dollar value) 98,722
Number of Units offered to each Limited Partner
in the Partnership per $1,000 of original
investment (dollar value) 105
Percentage of all Units offered to
the Limited Partners in the Partnership in
relation to the maximum number of Units
offered to Limited Partners in all
Exchange Partnerships: 3.95%
Total Number of Partnership Units 944
Original Price Per Unit $ 1,000
(1) Comprised of mortgage escrow account balance held by first mortgage
lender to cover taxes, insurance, maintenance and repair reserves
and other items, and miscellaneous assets.
(2) Comprised of security deposits payable, accounts payable to vendors,
notes or advances to third parties (including affiliates) and
accrued expenses ( such as real estate taxes).
(3) Comprised of subjective judgements made by the managing shareholder
to adjust for improvements, combination of phases of operation and
the installation of utility submeters.
5
<PAGE>
COMPENSATION
The Exchange Partnership currently compensates the general partner and its
affiliates by paying management and accounting fees. No other payments are made
to the general partner and its affiliates by the Exchange Partnership. Mr.
McGrath, an affiliate of the General Partner, is the sole shareholder and
director of the Managing Shareholder of the Trust. As described in greater
detail below, Mr. McGrath has agreed to serve as Chief Executive Officer of the
Operating Partnership and the Trust in exchange for up to 25,000 Common Shares
of the Trust or up to 25,000 Operating Partnership Units (amount to be
determined by the Executive Compensation Committee of the Trust) and health
benefits for the first year of operations and thereafter in exchange for
compensation and benefits determined annually by that committee. Additionally,
Mr. McGrath would have received 9.5% of all distributions on Units subscribed
for by him in connection with the formation of the Operating Partnership.
Compensation Paid
To General Partner and Affiliates
1996 1997 1998 March 31, 1999
---- ---- ---- --------------
Management Fee $ 9,260 $ 8,267 $10,806 $4,410
Accounting Fee $ 3,900 $ 3,900 $ 3,900 $ 975
------- ------- ------- ------
$13,160 $12,167 $14,506 $5,385
Compensation
Which Would Have
Been Paid to General Partner
And Affiliates if Exchange Offer
Had Been Concluded(1)
1996 1997 1998 March 31, 1999
---- ---- ---- --------------
9.5% Distribution $5,385 $ 285 $1,520 $ 95
In connection with the formation of the Trust and the Operating
Partnership, the Original Investors (comprised of Mr. McGrath and Robert S.
Geiger, who had no prior affiliation with the Trust, the Operating Partnership,
the Managing Shareholder or any of the Exchange Partnerships) each subscribed
for 601,080 Units. In consideration for the Units subscribed for by them, the
Original Investors made a $100,000 capital contribution to the Operating
Partnership. If the Cash Offering and the Exchange Offering are fully
subscribed, the Units received by each of the Original Investors would represent
9.5% of the total Common Shares outstanding after completion of the Cash
Offering and exchange by the Operating Partnership of 2,500,000 of its Units for
units of limited partnership interest in real estate limited partnerships
(including any exchange completed pursuant to the Exchange Offering), calculated
on a fully diluted basis assuming all then outstanding Units (other than those
acquired by the Trust) have been exchanged into an equivalent number of Common
Shares. If, however, as of November 30, 1999, the Cash Offering and/or the
Exchange Offering has been completed and the number of Units subscribed for by
each Original Investor represents a percentage greater than 9.5% of the then
outstanding Common Shares, calculated on a fully diluted basis assuming that all
then outstanding Units (other than those acquired by the Trust) have been
exchanged into an equivalent number of Common Shares, each Original Investor has
agreed to return any excess Units to the Operating Partnership for cancellation.
As described further below, Mr. McGrath and Mr. Geiger have deposited Units
subscribed for by them into a security escrow account for six to nine years,
subject to earlier release under certain conditions.
6
<PAGE>
Eagle Lake
(Exchange Equity)
SUPPLEMENT DATED _____, 1999
TO PROSPECTUS OF
BARON CAPITAL PROPERTIES, L.P.
("Operating Partnership")
DATED _____, 1999
THIS PROSPECTUS SUPPLEMENT FORMS A PART OF AND
SHOULD BE READ TOGETHER WITH THE PROSPECTUS
Florida Income Growth Fund , Ltd.,
a Florida limited partnership
(the "Exchange Partnership")
(General Partner: Baron Capital XI, Inc.)
This Supplement relates to the offer (the "Exchange Offering") of Baron
Capital Properties, L.P. (the "Operating Partnership") to all limited partners
(the "Limited Partners") in the Exchange Partnership (and limited partners of 22
other real estate limited partnerships) to issue its units of limited
partnership interest ("Units" or "Operating Partnership Units") in exchange for
limited partnership interests in the Exchange Partnership (and in such other
limited partnerships). Limited Partners who do not participate in the Exchange
Offering will be entitled to retain their limited partnership interest in the
Exchange Partnership on substantially the same terms and conditions as their
original investment.
Each Limited Partner should consider all factors discussed below under
"Certain Risks" and under the heading "Risk Factors" set forth in the Prospectus
(the "Prospectus") of the Operating Partnership in evaluating the Exchange
Offering, the Operating Partnership, Baron Capital Trust (the "Trust"), the
general partner and a limited partner of the Operating Partnership, and the
business of the Operating Partnership and the Trust, including the following
material risk factors:
o The valuation of $10.00 per Unit used in the Exchange Offering is an
arbitrary amount, and it is possible that Common Shares of beneficial
interest in the Trust ("Common Shares") (into which the Units are
exchangeable on a one-for-one basis), if listed on a national securities
exchange, will trade at a lower price.
o The terms of the Exchange Offering were determined by the founders of the
Trust and the Operating Partnership (the "Original Investors") (described
below under "Compensation") with no separate counsel or advisor for the
Limited Partners.
o Offerees may not have an opportunity prior to their decision to accept the
Exchange Offering to evaluate a significant number of properties in which
the Operating Partnership and the Trust may acquire an interest, and they
will not have the benefit of knowing the extent of the Operating
Partnership's investment in respect of properties involved in the Exchange
Offering until the offering is completed.
o The Original Investors and affiliates have significant influence over the
operation of the Trust, the Operating Partnership and the Exchange
Partnerships, and the Exchange Offering involves transactions among them
which involve conflicts of interest which may result in decisions that do
not fully represent the interests of all Shareholders of the Trust,
holders of Units in the Operating Partnership (individually, a
"Unitholder" and collectively, the "Unitholders") and limited partners of
the Exchange Partnerships.
o The purchase price to be paid by the Operating Partnership and the Trust
for property interests will be based upon appraisals prepared by qualified
and licensed independent appraisal firms in respect of individual
residential apartment properties and other considerations. Offerees should
note, however, that appraisals are only estimates of value and should not
be relied upon as precise measures of true worth or realizable value.
There can be no assurance that the value of property interests acquired
will reflect their fair market value.
o Offerees who accept the offering may not experience returns comparable to
or in excess of those experienced by Limited Partners in the Exchange
Partnership.
o The current returns of the Exchange Partnership may not be achieved by the
Operating Partnership after completion of the offering and may be higher
than the current returns of other partnerships which participate in the
offering, although such other partnerships may offer higher future growth
potential than the Exchange Partnership.
o If the Exchange Offering is completed in respect of the Exchange
Partnership, Offerees who accept the Exchange Offering will be tendering
their current investment in the particular Exchange Partnership with an
<PAGE>
expected limited duration in exchange for an investment in the Operating
Partnership, which has an unlimited duration.
o Real estate investment risks exist such as the effect of economic and
other conditions on cash flows from real estate interests acquired by the
Trust and the Operating Partnership.
o Financing risks exist, including debt service obligations, the ability of
the Trust and the Operating Partnership to incur additional debt, the need
to refinance current indebtedness at various maturities, and the effect of
any increase in interest rates.
o The Operating Partnership expects to acquire subordinated mortgage
interests which are not recorded because of restrictions in subordination
agreements executed in connection with First Mortgages issued to other
unrelated lenders. If a mortgage is not recorded, the security interest of
the Operating Partnership would not be perfected and the respective debt
would rank pari passu with all other unsecured creditors of the borrower.
o The successful operation of the Trust and the Operating Partnership is
dependent on key management.
o There can be no assurance of the successful completion of the Exchange
Offering and the Trust's Cash Offering (described below).
o In exchange for his capital contribution of $50,000, each of the Original
Investors will receive Units initially valued at $6,010,800 if all
2,500,000 Common Shares are sold in the Cash Offering by November 30, 1999
and all 2,500,000 Units being offered in the Exchange Offering are issued
by such date. In addition, each will serve as an officer of the Trust, the
Operating Partnership and the Managing Shareholder and will receive
compensation for such services.
o No public market for the sale of Units is expected to ever develop, and,
although Common Shares (into which Units are exchangeable) may eventually
be listed on a national securities exchange, it is possible that no public
market for the Common Shares will ever develop or be maintained.
o Limited Partners who acquire Units in the Exchange Offering will pay a
higher price per Unit than the consideration the Original Investors paid
for Units issued to them in connection with the formation of the Trust and
the Operating Partnership.
o The Trust will be taxed as a corporation if it fails to qualify as a REIT.
2
<PAGE>
BUSINESS OF THE EXCHANGE PARTNERSHIP
The Exchange Partnership was organized as a Florida limited partnership in
August 1994. In November 1994, Baron Capital II, Inc., the General Partner of
the Exchange Partnership and an affiliate of the Managing Shareholder, sponsored
a private offering of 1,614 units of limited partner interest in the Exchange
Partnership at a purchase price of $500 per unit (gross proceeds of $870,000).
The offering was fully subscribed and closed in June 1995.
The partnership invested the net proceeds of its offering to acquire all
of the limited partnership interests in a limited partnership which holds a fee
simple interest in a 77-unit residential apartment property referred too as the
Eagle Lake Apartment Property located in Orlando, Florida. The property is
subject to mortgage and other indebtedness having a principal balance at March
31, 1999 of approximately $1,433,616.
For further information concerning the Exchange Partnership, its original
private offering, the property interest it holds, the mortgage to which the
underlying property may be subject, and the estimated deferred taxable gain of
each Limited Partner who elects to participate in the Exchange Offering, please
refer to the tables set forth in the Exhibit I attached hereto. Also see the
tables relating to all of the Exchange Partnerships set forth in the Prospectus
at "Initial Real Property Investments" and in Exhibit B to the Prospectus.
CASH DISTRIBUTIONS TO LIMITED PARTNERS
During each year since inception, the Exchange Partnership has made cash
distributions to the Limited Partners in the following amounts:
All LP's Per LP Unit
-------- -----------
1996: $ 80,700 $ 50.00
1997: $ 66,525 $ 41.22
1998 : $ 10,000 $ 6.20
3/31/99: $ 5,000 $ 3.10
-------- -------
Total: $162,225 $100.52
3
<PAGE>
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------
TABLE OF EXCHANGE VALUES
- -------------------------------------------------------------------------------------------------------------------
Valuation of Aggregate number of Units offered Number of Units offered Percentage of Units offered
Exchange to all Limited Partners in the to each Limited Partner to Limited Partners in the
Partnership(1) Exchange Partnership (assigned per $1,000 of original Exchange Partnership in
dollar value)(2) investment (assigned relation to Units offered
dollar value)(2) to limited partners in all
partnerships participating
in the initial transactions
of the Exchange Offering
<S> <C> <C> <C> <C> <C>
$924,487 92,449 Units ($924,490) 115 Units ($1,150) 3.70%
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
- ----------
(1) The valuation of this Exchange Equity Partnership to the extent of its
direct or indirect equity interest in a property is based upon the following
factors: (a) the estimated appraised market value of the underlying property
determined by qualified and licensed independent appraisal firms; (b) the
operating history of the property; (c) the current principal balance of first
mortgage and other indebtedness to which the property is subject; (d) the amount
of distributable cash flow currently being generated by the property; plus (e)
additional factors which the Managing Shareholder believes are appropriate to
consider including, among others, the property's overall current condition and
prospects for the property based upon improvements made or to be made to the
property and, in certain cases, the combination of two or more phases of the
property, which are expected to be owned upon completion of the Exchange
Offering, and the actual or potential benefits to be obtained by the
sub-metering of utilities in order to pass costs from the owner of the property
to individual tenants. The valuation of the Exchange Partnership to the extent
of its mortgage interest in properties and other debt interests is based upon
the following factors: (i) the current principal balance of the amount of debt
which is senior to the mortgage interest to be acquired and other indebtedness
to which property is subject; (ii) the estimated appraised market value of the
underlying property determined by qualified and licensed independent appraisal
firms; (iii) the operating history of the property; (iv) the amount of
distributable cash flow currently being generated by the property; plus (v)
additional factors which the Managing Shareholder believes are appropriate to
consider including, among others, the property's overall current condition and
prospects for the property based upon improvements made or to be made to the
property and, in certain cases, the combination of two or more phases of the
property, which are expected to be owned upon completion of the Exchange
Offering and the actual or potential benefits to be obtained by the sub-metering
of utilities in order to pass costs from the owner of the property to individual
tenants. (see "Valuation Method" below.)
(2) For purposes of the Exchange Offering, each Unit to be issued has been
assigned an initial value of $10.00, which is the price per share at which the
Trust is currently offering Common Shares in its Cash Offering. As described
below at "The Exchange Offering," Unitholders, including recipients of Units in
the Exchange Offering, may exchange all or a portion of their Units for an
equivalent number of Common Shares at any time following the completion of the
offering.
4
<PAGE>
Valuation of Partnership Florida Capital Income Fund, Ltd.
Eagle Lake
Appraised value of underlying property interests: $ 2,530,000
Cash and cash equivalent assets: $ 73,296
Other assets (1): $ 102,599
3/31/99 principal balance of mortgage financing
secured by the property: $(1,433,616)
Other liabilities(2): $ (347,792)
Adjustment (3):
Valuation of the partnership $ 924,487
Aggregate number of Units offered to all Limited
Partners in the Partnership (dollar value) 92,449
Number of Units offered to each Limited Partner
in the Partnership per $1,000 of original
investment (dollar value) 115
Percentage of all Units offered to
the Limited Partners in the Partnership in
relation to the maximum number of
Units offered to Limited Partners in
all Exchange Partnerships: 3.70%
Total Number of Partnership Units 1,614
Original Price Per Unit $ 500
(1) Comprised of mortgage escrow account balance held by first mortgage
lender to cover taxes, insurance, maintenance and repair reserves
and other items, and miscellaneous assets.
(2) Comprised of security deposits payable, accounts payable to vendors,
notes or advances to third parties (including affiliates) and
accrued expenses ( such as real estate taxes).
(3) Comprised of subjective judgements made by the managing shareholder
to adjust for improvements, combination of phases of operation and
the installation of utility submeters.
5
<PAGE>
COMPENSATION
The Exchange Partnership currently compensates the general partner and its
affiliates by paying management and accounting fees. No other payments are made
to the general partner and its affiliates by the Exchange Partnership. Mr.
McGrath, an affiliate of the General Partner, is the sole shareholder and
director of the Managing Shareholder of the Trust. As described in greater
detail below, Mr. McGrath has agreed to serve as Chief Executive Officer of the
Operating Partnership and the Trust in exchange for up to 25,000 Common Shares
of the Trust or up to 25,000 Operating Partnership Units (amount to be
determined by the Executive Compensation Committee of the Trust) and health
benefits for the first year of operations and thereafter in exchange for
compensation and benefits determined annually by that committee. Additionally,
Mr. McGrath would have received 9.5% of all distributions on Units subscribed
for by him in connection with the formation of the Operating Partnership.
Compensation Paid
To General Partner and Affiliates
1996 1997 1998 March 31, 1999
---- ---- ---- --------------
Management Fee $19,024 $18,361 $20,527 $6,330
Accounting Fee $ 3,900 $ 3,900 $ 3,900 $ 975
------- ------- ------- ------
$22,924 $22,261 $24,427 $7,305
Compensation
Which Would Have
Been Paid to General Partner
And Affiliates if Exchange Offer
Had Been Concluded(1)
1996 1997 1998 March 31, 1999
---- ---- ---- --------------
9.5% Distribution $7,667 $6,320 $950 $475
In connection with the formation of the Trust and the Operating
Partnership, the Original Investors (comprised of Mr. McGrath and Robert S.
Geiger, who had no prior affiliation with the Trust, the Operating Partnership,
the Managing Shareholder or any of the Exchange Partnerships) each subscribed
for 601,080 Units. In consideration for the Units subscribed for by them, the
Original Investors made a $100,000 capital contribution to the Operating
Partnership. If the Cash Offering and the Exchange Offering are fully
subscribed, the Units received by each of the Original Investors would represent
9.5% of the total Common Shares outstanding after completion of the Cash
Offering and exchange by the Operating Partnership of 2,500,000 of its Units for
units of limited partnership interest in real estate limited partnerships
(including any exchange completed pursuant to the Exchange Offering), calculated
on a fully diluted basis assuming all then outstanding Units (other than those
acquired by the Trust) have been exchanged into an equivalent number of Common
Shares. If, however, as of November 30, 1999, the Cash Offering and/or the
Exchange Offering has been completed and the number of Units subscribed for by
each Original Investor represents a percentage greater than 9.5% of the then
outstanding Common Shares, calculated on a fully diluted basis assuming that all
then outstanding Units (other than those acquired by the Trust) have been
exchanged into an equivalent number of Common Shares, each Original Investor has
agreed to return any excess Units to the Operating Partnership for cancellation.
As described further below, Mr. McGrath and Mr. Geiger have deposited Units
subscribed for by them into a security escrow account for six to nine years,
subject to earlier release under certain conditions.
6
<PAGE>
Steeplechase
(Exchange Equity)
SUPPLEMENT DATED _____, 1999
TO PROSPECTUS OF
BARON CAPITAL PROPERTIES, L.P.
("Operating Partnership")
DATED _____, 1999
THIS PROSPECTUS SUPPLEMENT FORMS A PART OF AND
SHOULD BE READ TOGETHER WITH THE PROSPECTUS
Basic Strategic Investment Fund II, Ltd.,
a Florida limited partnership
(the "Exchange Partnership")
(General Partner: Baron Capital XI, Inc.)
This Supplement relates to the offer (the "Exchange Offering") of Baron
Capital Properties, L.P. (the "Operating Partnership") to all limited partners
(the "Limited Partners") in the Exchange Partnership (and limited partners of 22
other real estate limited partnerships) to issue its units of limited
partnership interest ("Units" or "Operating Partnership Units") in exchange for
limited partnership interests in the Exchange Partnership (and in such other
limited partnerships). Limited Partners who do not participate in the Exchange
Offering will be entitled to retain their limited partnership interest in the
Exchange Partnership on substantially the same terms and conditions as their
original investment.
Each Limited Partner should consider all factors discussed below under
"Certain Risks" and under the heading "Risk Factors" set forth in the Prospectus
(the "Prospectus") of the Operating Partnership in evaluating the Exchange
Offering, the Operating Partnership, Baron Capital Trust (the "Trust"), the
general partner and a limited partner of the Operating Partnership, and the
business of the Operating Partnership and the Trust, including the following
material risk factors:
o The valuation of $10.00 per Unit used in the Exchange Offering is an
arbitrary amount, and it is possible that Common Shares of beneficial
interest in the Trust ("Common Shares") (into which the Units are
exchangeable on a one-for-one basis), if listed on a national securities
exchange, will trade at a lower price.
o The terms of the Exchange Offering were determined by the founders of the
Trust and the Operating Partnership (the "Original Investors") (described
below under "Compensation") with no separate counsel or advisor for the
Limited Partners.
o Offerees may not have an opportunity prior to their decision to accept the
Exchange Offering to evaluate a significant number of properties in which
the Operating Partnership and the Trust may acquire an interest, and they
will not have the benefit of knowing the extent of the Operating
Partnership's investment in respect of properties involved in the Exchange
Offering until the offering is completed.
o The Original Investors and affiliates have significant influence over the
operation of the Trust, the Operating Partnership and the Exchange
Partnerships, and the Exchange Offering involves transactions among them
which involve conflicts of interest which may result in decisions that do
not fully represent the interests of all Shareholders of the Trust,
holders of Units in the Operating Partnership (individually, a
"Unitholder" and collectively, the "Unitholders") and limited partners of
the Exchange Partnerships.
o The purchase price to be paid by the Operating Partnership and the Trust
for property interests will be based upon appraisals prepared by qualified
and licensed independent appraisal firms in respect of individual
residential apartment properties and other considerations. Offerees should
note, however, that appraisals are only estimates of value and should not
be relied upon as precise measures of true worth or realizable value.
There can be no assurance that the value of property interests acquired
will reflect their fair market value.
o Offerees who accept the offering may not experience returns comparable to
or in excess of those experienced by Limited Partners in the Exchange
Partnership.
o The current returns of the Exchange Partnership may not be achieved by the
Operating Partnership after completion of the offering and may be higher
than the current returns of other partnerships which participate in the
offering, although such other partnerships may offer higher future growth
potential than the Exchange Partnership.
o If the Exchange Offering is completed in respect of the Exchange
Partnership, Offerees who accept the Exchange Offering will be tendering
their current investment in the particular Exchange Partnership with an
<PAGE>
expected limited duration in exchange for an investment in the Operating
Partnership, which has an unlimited duration.
o Real estate investment risks exist such as the effect of economic and
other conditions on cash flows from real estate interests acquired by the
Trust and the Operating Partnership.
o Financing risks exist, including debt service obligations, the ability of
the Trust and the Operating Partnership to incur additional debt, the need
to refinance current indebtedness at various maturities, and the effect of
any increase in interest rates.
o The Operating Partnership expects to acquire subordinated mortgage
interests which are not recorded because of restrictions in subordination
agreements executed in connection with First Mortgages issued to other
unrelated lenders. If a mortgage is not recorded, the security interest of
the Operating Partnership would not be perfected and the respective debt
would rank pari passu with all other unsecured creditors of the borrower.
o The successful operation of the Trust and the Operating Partnership is
dependent on key management.
o There can be no assurance of the successful completion of the Exchange
Offering and the Trust's Cash Offering (described below).
o In exchange for his capital contribution of $50,000, each of the Original
Investors will receive Units initially valued at $6,010,800 if all
2,500,000 Common Shares are sold in the Cash Offering by November 30, 1999
and all 2,500,000 Units being offered in the Exchange Offering are issued
by such date. In addition, each will serve as an officer of the Trust, the
Operating Partnership and the Managing Shareholder and will receive
compensation for such services.
o No public market for the sale of Units is expected to ever develop, and,
although Common Shares (into which Units are exchangeable) may eventually
be listed on a national securities exchange, it is possible that no public
market for the Common Shares will ever develop or be maintained.
o Limited Partners who acquire Units in the Exchange Offering will pay a
higher price per Unit than the consideration the Original Investors paid
for Units issued to them in connection with the formation of the Trust and
the Operating Partnership.
o The Trust will be taxed as a corporation if it fails to qualify as a REIT.
2
<PAGE>
BUSINESS OF THE EXCHANGE PARTNERSHIP
The Exchange Partnership was organized as a Florida limited partnership in
April 1996. In May 1996, Baron Capital XXXI, Inc., the General Partner of the
Exchange Partnership and an affiliate of the Managing Shareholder, sponsored a
private offering of 1,600 units of limited partner interest in the Exchange
Partnership at a purchase price of $500 per unit (gross proceeds of $800,000).
The offering was fully subscribed and closed in October 1996. The
partnership invested the net proceeds of its offering to acquire all of the
limited partnership interests in a limited partnership which holds a fee simple
interest in a 72-unit residential apartment property referred too as the
Steeplechase Apartment Property located in Anderson, Indiana. The property is
subject to mortgage and other indebtedness having a principal balance at March
31, 1999 of approximately $1,260,000.
For further information concerning the Exchange Partnership, its original
private offering, the property interest it holds, the mortgage to which the
underlying property may be subject, and the estimated deferred taxable gain of
each Limited Partner who elects to participate in the Exchange Offering, please
refer to the tables set forth in the Exhibit I attached hereto. Also see the
tables relating to all of the Exchange Partnerships set forth in the Prospectus
at "Initial Real Property Investments" and in Exhibit B to the Prospectus.
CASH DISTRIBUTIONS TO LIMITED PARTNERS
During each year since inception, the Exchange Partnership has made cash
distributions to the Limited Partners in the following amounts:
All LP's Per LP Unit
-------- -----------
1996: $ 19,543 $ 12.21
1997: $ 68,000 $ 42.50
1998 : $ 13,600 $ 8.50
3/31/99: $ 2,000 $ 1.25
-------- -------
Total: $103,143 $ 64.46
3
<PAGE>
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------
TABLE OF EXCHANGE VALUES
- -------------------------------------------------------------------------------------------------------------------
Valuation of Aggregate number of Units offered Number of Units offered Percentage of Units offered
Exchange to all Limited Partners in the to each Limited Partner to Limited Partners in the
Partnership(1) Exchange Partnership (assigned per $1,000 of original Exchange Partnership in
dollar value)(2) investment (assigned relation to Units offered
dollar value)(2) to limited partners in all
partnerships participating
in the initial transactions
of the Exchange Offering
<S> <C> <C> <C> <C> <C>
$824,306 82,431 Units ($824,310) 103 Units ($1,030) 3.30%
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
- ----------
(1) The valuation of this Exchange Equity Partnership to the extent of its
direct or indirect equity interest in a property is based upon the following
factors: (a) the estimated appraised market value of the underlying property
determined by qualified and licensed independent appraisal firms; (b) the
operating history of the property; (c) the current principal balance of first
mortgage and other indebtedness to which the property is subject; (d) the amount
of distributable cash flow currently being generated by the property; plus (e)
additional factors which the Managing Shareholder believes are appropriate to
consider including, among others, the property's overall current condition and
prospects for the property based upon improvements made or to be made to the
property and, in certain cases, the combination of two or more phases of the
property, which are expected to be owned upon completion of the Exchange
Offering, and the actual or potential benefits to be obtained by the
sub-metering of utilities in order to pass costs from the owner of the property
to individual tenants. The valuation of the Exchange Partnership to the extent
of its mortgage interest in properties and other debt interests is based upon
the following factors: (i) the current principal balance of the amount of debt
which is senior to the mortgage interest to be acquired and other indebtedness
to which property is subject; (ii) the estimated appraised market value of the
underlying property determined by qualified and licensed independent appraisal
firms; (iii) the operating history of the property; (iv) the amount of
distributable cash flow currently being generated by the property; plus (v)
additional factors which the Managing Shareholder believes are appropriate to
consider including, among others, the property's overall current condition and
prospects for the property based upon improvements made or to be made to the
property and, in certain cases, the combination of two or more phases of the
property, which are expected to be owned upon completion of the Exchange
Offering and the actual or potential benefits to be obtained by the sub-metering
of utilities in order to pass costs from the owner of the property to individual
tenants. (see "Valuation Method" below.)
(2) For purposes of the Exchange Offering, each Unit to be issued has been
assigned an initial value of $10.00, which is the price per share at which the
Trust is currently offering Common Shares in its Cash Offering. As described
below at "The Exchange Offering," Unitholders, including recipients of Units in
the Exchange Offering, may exchange all or a portion of their Units for an
equivalent number of Common Shares at any time following the completion of the
offering.
4
<PAGE>
Valuation of Partnership Baron Strategic Investment Fund II, Ltd.
Steeplechase
Appraised value of underlying property interests: $ 1,690,000
Cash and cash equivalent assets: $ 10,299
Other assets (1): $ 55,111
3/31/99 principal balance of mortgage financing
secured by the property: $(1,260,000)
Other liabilities(2): $ (148,553)
Adjustment (3): $ 477,449
Valuation of the partnership $ 824,306
Aggregate number of Units offered to all Limited
Partners in the Partnership (dollar value) 82,431
Number of Units offered to each Limited Partner
in the Partnership per $1,000 of original
investment (dollar value) 103
Percentage of all Units offered to
the Limited Partners in the Partnership in
relation to the maximum number of
Units offered to Limited Partners
in all Exchange Partnerships: 3.30%
Total Number of Partnership Units 1,600
Original Price Per Unit $ 500
(1) Comprised of mortgage escrow account balance held by first mortgage
lender to cover taxes, insurance, maintenance and repair reserves
and other items, and miscellaneous assets.
(2) Comprised of security deposits payable, accounts payable to vendors,
notes or advances to third parties (including affiliates) and
accrued expenses ( such as real estate taxes).
(3) Comprised of subjective judgements made by the managing shareholder
to adjust for improvements, (updating all units and adding 12 units
to the rental pool) and the installation of utility submeters.
5
<PAGE>
COMPENSATION
The Exchange Partnership currently compensates the general partner and its
affiliates by paying management and accounting fees. No other payments are made
to the general partner and its affiliates by the Exchange Partnership. Mr.
McGrath, an affiliate of the General Partner, is the sole shareholder and
director of the Managing Shareholder of the Trust. As described in greater
detail below, Mr. McGrath has agreed to serve as Chief Executive Officer of the
Operating Partnership and the Trust in exchange for up to 25,000 Common Shares
of the Trust or up to 25,000 Operating Partnership Units (amount to be
determined by the Executive Compensation Committee of the Trust) and health
benefits for the first year of operations and thereafter in exchange for
compensation and benefits determined annually by that committee. Additionally,
Mr. McGrath would have received 9.5% of all distributions on Units subscribed
for by him in connection with the formation of the Operating Partnership.
Compensation Paid
To General Partner and Affiliates
1996 1997 1998 March 31, 1999
---- ---- ---- --------------
Management Fee $12,265 $12,252 $15,353 $5,189
Accounting Fee $ 3,900 $ 3,900 $ 3,900 975
------- ------- ------- ------
$16,165 $16,152 $19,253 $6,164
Compensation
Which Would Have
Been Paid to General Partner
And Affiliates if Exchange Offer
Had Been Concluded(1)
1996 1997 1998 March 31, 1999
---- ---- ---- --------------
9.5% Distribution $1,857 $ 6,460 $1,292 $190
In connection with the formation of the Trust and the Operating Partnership, the
Original Investors (comprised of Mr. McGrath and Robert S. Geiger, who had no
prior affiliation with the Trust, the Operating Partnership, the Managing
Shareholder or any of the Exchange Partnerships) each subscribed for 601,080
Units. In consideration for the Units subscribed for by them, the Original
Investors made a $100,000 capital contribution to the Operating Partnership. If
the Cash Offering and the Exchange Offering are fully subscribed, the Units
received by each of the Original Investors would represent 9.5% of the total
Common Shares outstanding after completion of the Cash Offering and exchange by
the Operating Partnership of 2,500,000 of its Units for units of limited
partnership interest in real estate limited partnerships (including any exchange
completed pursuant to the Exchange Offering), calculated on a fully diluted
basis assuming all then outstanding Units (other than those acquired by the
Trust) have been exchanged into an equivalent number of Common Shares. If,
however, as of November 30, 1999, the Cash Offering and/or the Exchange Offering
has been completed and the number of Units subscribed for by each Original
Investor represents a percentage greater than 9.5% of the then outstanding
Common Shares, calculated on a fully diluted basis assuming that all then
outstanding Units (other than those acquired by the Trust) have been exchanged
into an equivalent number of Common Shares, each Original Investor has agreed to
return any excess Units to the Operating Partnership for cancellation. As
described further below, Mr. McGrath and Mr. Geiger have deposited Units
subscribed for by them into a security escrow account for six to nine years,
subject to earlier release under certain conditions.
6
<PAGE>
Forest Glen I
(Exchange Equity)
SUPPLEMENT DATED _____, 1999
TO PROSPECTUS OF
BARON CAPITAL PROPERTIES, L.P.
("Operating Partnership")
DATED _____, 1999
THIS PROSPECTUS SUPPLEMENT FORMS A PART OF AND
SHOULD BE READ TOGETHER WITH THE PROSPECTUS
Florida Capitla Income Fund II, Ltd.,
a Florida limited partnership
(the "Exchange Partnership")
(General Partner: Baron Capital XI, Inc.)
This Supplement relates to the offer (the "Exchange Offering") of Baron
Capital Properties, L.P. (the "Operating Partnership") to all limited partners
(the "Limited Partners") in the Exchange Partnership (and limited partners of 22
other real estate limited partnerships) to issue its units of limited
partnership interest ("Units" or "Operating Partnership Units") in exchange for
limited partnership interests in the Exchange Partnership (and in such other
limited partnerships). Limited Partners who do not participate in the Exchange
Offering will be entitled to retain their limited partnership interest in the
Exchange Partnership on substantially the same terms and conditions as their
original investment.
Each Limited Partner should consider all factors discussed below under
"Certain Risks" and under the heading "Risk Factors" set forth in the Prospectus
(the "Prospectus") of the Operating Partnership in evaluating the Exchange
Offering, the Operating Partnership, Baron Capital Trust (the "Trust"), the
general partner and a limited partner of the Operating Partnership, and the
business of the Operating Partnership and the Trust, including the following
material risk factors:
o The valuation of $10.00 per Unit used in the Exchange Offering is an
arbitrary amount, and it is possible that Common Shares of beneficial
interest in the Trust ("Common Shares") (into which the Units are
exchangeable on a one-for-one basis), if listed on a national securities
exchange, will trade at a lower price.
o The terms of the Exchange Offering were determined by the founders of the
Trust and the Operating Partnership (the "Original Investors") (described
below under "Compensation") with no separate counsel or advisor for the
Limited Partners.
o Offerees may not have an opportunity prior to their decision to accept the
Exchange Offering to evaluate a significant number of properties in which
the Operating Partnership and the Trust may acquire an interest, and they
will not have the benefit of knowing the extent of the Operating
Partnership's investment in respect of properties involved in the Exchange
Offering until the offering is completed.
o The Original Investors and affiliates have significant influence over the
operation of the Trust, the Operating Partnership and the Exchange
Partnerships, and the Exchange Offering involves transactions among them
which involve conflicts of interest which may result in decisions that do
not fully represent the interests of all Shareholders of the Trust,
holders of Units in the Operating Partnership (individually, a
"Unitholder" and collectively, the "Unitholders") and limited partners of
the Exchange Partnerships.
o The purchase price to be paid by the Operating Partnership and the Trust
for property interests will be based upon appraisals prepared by qualified
and licensed independent appraisal firms in respect of individual
residential apartment properties and other considerations. Offerees should
note, however, that appraisals are only estimates of value and should not
be relied upon as precise measures of true worth or realizable value.
There can be no assurance that the value of property interests acquired
will reflect their fair market value.
o Offerees who accept the offering may not experience returns comparable to
or in excess of those experienced by Limited Partners in the Exchange
Partnership.
o The current returns of the Exchange Partnership may not be achieved by the
Operating Partnership after completion of the offering and may be higher
than the current returns of other partnerships which participate in the
offering, although such other partnerships may offer higher future growth
potential than the Exchange Partnership.
o If the Exchange Offering is completed in respect of the Exchange
Partnership, Offerees who accept the Exchange Offering will be tendering
their current investment in the particular Exchange Partnership with an
<PAGE>
expected limited duration in exchange for an investment in the Operating
Partnership, which has an unlimited duration.
o Real estate investment risks exist such as the effect of economic and
other conditions on cash flows from real estate interests acquired by the
Trust and the Operating Partnership.
o Financing risks exist, including debt service obligations, the ability of
the Trust and the Operating Partnership to incur additional debt, the need
to refinance current indebtedness at various maturities, and the effect of
any increase in interest rates.
o The Operating Partnership expects to acquire subordinated mortgage
interests which are not recorded because of restrictions in subordination
agreements executed in connection with First Mortgages issued to other
unrelated lenders. If a mortgage is not recorded, the security interest of
the Operating Partnership would not be perfected and the respective debt
would rank pari passu with all other unsecured creditors of the borrower.
o The successful operation of the Trust and the Operating Partnership is
dependent on key management.
o There can be no assurance of the successful completion of the Exchange
Offering and the Trust's Cash Offering (described below).
o In exchange for his capital contribution of $50,000, each of the Original
Investors will receive Units initially valued at $6,010,800 if all
2,500,000 Common Shares are sold in the Cash Offering by November 30, 1999
and all 2,500,000 Units being offered in the Exchange Offering are issued
by such date. In addition, each will serve as an officer of the Trust, the
Operating Partnership and the Managing Shareholder and will receive
compensation for such services.
o No public market for the sale of Units is expected to ever develop, and,
although Common Shares (into which Units are exchangeable) may eventually
be listed on a national securities exchange, it is possible that no public
market for the Common Shares will ever develop or be maintained.
o Limited Partners who acquire Units in the Exchange Offering will pay a
higher price per Unit than the consideration the Original Investors paid
for Units issued to them in connection with the formation of the Trust and
the Operating Partnership.
o The Trust will be taxed as a corporation if it fails to qualify as a REIT.
2
<PAGE>
BUSINESS OF THE EXCHANGE PARTNERSHIP
The Exchange Partnership was organized as a Florida limited partnership in
April 1993. In May 1995, Baron Capital IV, Inc., an affiliate of the Managing
Shareholder, became General Partner of the Exchange Partnership, which in the
first half of 1994 commenced a private offering of 1,840 units of limited
partner interest in the Exchange Partnership at a purchase price of $500 per
unit (gross proceeds of $920,000). (The partnership also issued 160 units to
four investors in exchange for property interests acquired by them in an
unrelated program which was terminated.) The offering was fully subscribed and
closed in July 1995.
The partnership invested the net proceeds of its offering to acquire all
of the limited partnership interests in a limited partnership which holds a fee
simple interest in a 70-unit residential apartment property referred too as the
Forest Glen Apartment Property (Phase I) located in Daytona Beach, Florida. The
property is subject to mortgage and other indebtedness having a principal
balance at March 31, 1999 of approximately $1,778,043.
For further information concerning the Exchange Partnership, its original
private offering, the property interest it holds, the mortgage to which the
underlying property may be subject, and the estimated deferred taxable gain of
each Limited Partner who elects to participate in the Exchange Offering, please
refer to the tables set forth in the Exhibit I attached hereto. Also see the
tables relating to all of the Exchange Partnerships set forth in the Prospectus
at "Initial Real Property Investments" and in Exhibit B to the Prospectus.
CASH DISTRIBUTIONS TO LIMITED PARTNERS
During each year since inception, the Exchange Partnership has made cash
distributions to the Limited Partners in the following amounts:
All LP's Per LP Unit
-------- -----------
1996: $ 66,750 $ 36.28
1997: $ 4,941 $ 2.69
1998 : $ 25,369 $ 13.79
3/31/99: $ 5,000 $ 2.72
-------- -------
Total: $102,060 $ 55.48
3
<PAGE>
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------
TABLE OF EXCHANGE VALUES
- -------------------------------------------------------------------------------------------------------------------
Valuation of Aggregate number of Units offered Number of Units offered Percentage of Units offered
Exchange to all Limited Partners in the to each Limited Partner to Limited Partners in the
Partnership(1) Exchange Partnership (assigned per $1,000 of original Exchange Partnership in
dollar value)(2) investment (assigned relation to Units offered
dollar value)(2) to limited partners in all
partnerships participating
in the initial transactions
of the Exchange Offering
<S> <C> <C> <C> <C> <C>
$1,554,087 155,409 Units ($1,554,090) 169 Units ($1,690) 6.22%
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
- ----------
(1) The valuation of this Exchange Equity Partnership to the extent of its
direct or indirect equity interest in a property is based upon the following
factors: (a) the estimated appraised market value of the underlying property
determined by qualified and licensed independent appraisal firms; (b) the
operating history of the property; (c) the current principal balance of first
mortgage and other indebtedness to which the property is subject; (d) the amount
of distributable cash flow currently being generated by the property; plus (e)
additional factors which the Managing Shareholder believes are appropriate to
consider including, among others, the property's overall current condition and
prospects for the property based upon improvements made or to be made to the
property and, in certain cases, the combination of two or more phases of the
property, which are expected to be owned upon completion of the Exchange
Offering, and the actual or potential benefits to be obtained by the
sub-metering of utilities in order to pass costs from the owner of the property
to individual tenants. The valuation of the Exchange Partnership to the extent
of its mortgage interest in properties and other debt interests is based upon
the following factors: (i) the current principal balance of the amount of debt
which is senior to the mortgage interest to be acquired and other indebtedness
to which property is subject; (ii) the estimated appraised market value of the
underlying property determined by qualified and licensed independent appraisal
firms; (iii) the operating history of the property; (iv) the amount of
distributable cash flow currently being generated by the property; plus (v)
additional factors which the Managing Shareholder believes are appropriate to
consider including, among others, the property's overall current condition and
prospects for the property based upon improvements made or to be made to the
property and, in certain cases, the combination of two or more phases of the
property, which are expected to be owned upon completion of the Exchange
Offering and the actual or potential benefits to be obtained by the sub-metering
of utilities in order to pass costs from the owner of the property to individual
tenants. (see "Valuation Method" below.)
(2) For purposes of the Exchange Offering, each Unit to be issued has been
assigned an initial value of $10.00, which is the price per share at which the
Trust is currently offering Common Shares in its Cash Offering. As described
below at "The Exchange Offering," Unitholders, including recipients of Units in
the Exchange Offering, may exchange all or a portion of their Units for an
equivalent number of Common Shares at any time following the completion of the
offering.
4
<PAGE>
Valuation of Partnership Florida Capital Income Fund II, Ltd.
Forest Glen I
Appraised value of underlying property interests: $ 3,396,138
Cash and cash equivalent assets: $ 78,837
Other assets (1): $ 97,093
3/31/99 principal balance of mortgage financing $(1,778,043)
secured by the property:
Other liabilities(2): $ (239,938)
Adjustment (3):
Valuation of the partnership $ 1,554,087
Aggregate number of Units offered to all Limited
Partners in the Partnership (dollar value) 155,409
Number of Units offered to each Limited Partner
in the Partnership per $1,000 of original
investment (dollar value) 169
Percentage of all Units offered to
the Limited Partners in the Partnership in
relation to the maximum number of
Units offered to Limited Partners in
all Exchange Partnerships: 6.22%
Total Number of Partnership Units 1,840
Original Price Per Unit $ 500
(1) Comprised of mortgage escrow account balance held by first mortgage
lender to cover taxes, insurance, maintenance and repair reserves
and other items, and miscellaneous assets.
(2) Comprised of security deposits payable, accounts payable to vendors,
notes or advances to third parties (including affiliates) and
accrued expenses ( such as real estate taxes).
(3) Comprised of subjective judgements made by the managing shareholder
to adjust for improvements, combination of phases of operation and
the installation of utility submeters.
5
<PAGE>
COMPENSATION
The Exchange Partnership currently compensates the general partner and its
affiliates by paying management and accounting fees. No other payments are made
to the general partner and its affiliates by the Exchange Partnership. Mr.
McGrath, an affiliate of the General Partner, is the sole shareholder and
director of the Managing Shareholder of the Trust. As described in greater
detail below, Mr. McGrath has agreed to serve as Chief Executive Officer of the
Operating Partnership and the Trust in exchange for up to 25,000 Common Shares
of the Trust or up to 25,000 Operating Partnership Units (amount to be
determined by the Executive Compensation Committee of the Trust) and health
benefits for the first year of operations and thereafter in exchange for
compensation and benefits determined annually by that committee. Additionally,
Mr. McGrath would have received 9.5% of all distributions on Units subscribed
for by him in connection with the formation of the Operating Partnership.
Compensation Paid
To General Partner and Affiliates
1996 1997 1998 March 31, 1999
---- ---- ---- --------------
Management Fee $ 9,260 $ 8,267 $10,806 $4,410
Accounting Fee $ 3,900 $ 3,900 $ 3,900 $ 975
------- ------- ------- ------
$13,160 $12,167 $14,506 $5,385
Compensation
Which Would Have
Been Paid to General Partner
And Affiliates if Exchange Offer
Had Been Concluded(1)
1996 1997 1998 March 31, 1999
---- ---- ---- --------------
9.5% Distribution $6,341 $ 469 $2,410 $ 475
In connection with the formation of the Trust and the Operating
Partnership, the Original Investors (comprised of Mr. McGrath and Robert S.
Geiger, who had no prior affiliation with the Trust, the Operating Partnership,
the Managing Shareholder or any of the Exchange Partnerships) each subscribed
for 601,080 Units. In consideration for the Units subscribed for by them, the
Original Investors made a $100,000 capital contribution to the Operating
Partnership. If the Cash Offering and the Exchange Offering are fully
subscribed, the Units received by each of the Original Investors would represent
9.5% of the total Common Shares outstanding after completion of the Cash
Offering and exchange by the Operating Partnership of 2,500,000 of its Units for
units of limited partnership interest in real estate limited partnerships
(including any exchange completed pursuant to the Exchange Offering), calculated
on a fully diluted basis assuming all then outstanding Units (other than those
acquired by the Trust) have been exchanged into an equivalent number of Common
Shares. If, however, as of November 30, 1999, the Cash Offering and/or the
Exchange Offering has been completed and the number of Units subscribed for by
each Original Investor represents a percentage greater than 9.5% of the then
outstanding Common Shares, calculated on a fully diluted basis assuming that all
then outstanding Units (other than those acquired by the Trust) have been
exchanged into an equivalent number of Common Shares, each Original Investor has
agreed to return any excess Units to the Operating Partnership for cancellation.
As described further below, Mr. McGrath and Mr. Geiger have deposited Units
subscribed for by them into a security escrow account for six to nine years,
subject to earlier release under certain conditions.
6
<PAGE>
Glen Lake
(Exchange Equity)
SUPPLEMENT DATED _____, 1999
TO PROSPECTUS OF
BARON CAPITAL PROPERTIES, L.P.
("Operating Partnership")
DATED _____, 1999
THIS PROSPECTUS SUPPLEMENT FORMS A PART OF AND
SHOULD BE READ TOGETHER WITH THE PROSPECTUS
Florida Capital Income Fund IV, Ltd.,
a Florida limited partnership
(the "Exchange Partnership")
(General Partner: Baron Capital V, Inc.)
This Supplement relates to the offer (the "Exchange Offering") of Baron
Capital Properties, L.P. (the "Operating Partnership") to all limited partners
(the "Limited Partners") in the Exchange Partnership (and limited partners of 22
other real estate limited partnerships) to issue its units of limited
partnership interest ("Units" or "Operating Partnership Units") in exchange for
limited partnership interests in the Exchange Partnership (and in such other
limited partnerships). Limited Partners who do not participate in the Exchange
Offering will be entitled to retain their limited partnership interest in the
Exchange Partnership on substantially the same terms and conditions as their
original investment.
Each Limited Partner should consider all factors discussed below under
"Certain Risks" and under the heading "Risk Factors" set forth in the Prospectus
(the "Prospectus") of the Operating Partnership in evaluating the Exchange
Offering, the Operating Partnership, Baron Capital Trust (the "Trust"), the
general partner and a limited partner of the Operating Partnership, and the
business of the Operating Partnership and the Trust, including the following
material risk factors:
o The valuation of $10.00 per Unit used in the Exchange Offering is an
arbitrary amount, and it is possible that Common Shares of beneficial
interest in the Trust ("Common Shares") (into which the Units are
exchangeable on a one-for-one basis), if listed on a national securities
exchange, will trade at a lower price.
o The terms of the Exchange Offering were determined by the founders of the
Trust and the Operating Partnership (the "Original Investors") (described
below under "Compensation") with no separate counsel or advisor for the
Limited Partners.
o Offerees may not have an opportunity prior to their decision to accept the
Exchange Offering to evaluate a significant number of properties in which
the Operating Partnership and the Trust may acquire an interest, and they
will not have the benefit of knowing the extent of the Operating
Partnership's investment in respect of properties involved in the Exchange
Offering until the offering is completed.
o The Original Investors and affiliates have significant influence over the
operation of the Trust, the Operating Partnership and the Exchange
Partnerships, and the Exchange Offering involves transactions among them
which involve conflicts of interest which may result in decisions that do
not fully represent the interests of all Shareholders of the Trust,
holders of Units in the Operating Partnership (individually, a
"Unitholder" and collectively, the "Unitholders") and limited partners of
the Exchange Partnerships.
o The purchase price to be paid by the Operating Partnership and the Trust
for property interests will be based upon appraisals prepared by qualified
and licensed independent appraisal firms in respect of individual
residential apartment properties and other considerations. Offerees should
note, however, that appraisals are only estimates of value and should not
be relied upon as precise measures of true worth or realizable value.
There can be no assurance that the value of property interests acquired
will reflect their fair market value.
o Offerees who accept the offering may not experience returns comparable to
or in excess of those experienced by Limited Partners in the Exchange
Partnership.
o The current returns of the Exchange Partnership may not be achieved by the
Operating Partnership after completion of the offering and may be higher
than the current returns of other partnerships which participate in the
offering, although such other partnerships may offer higher future growth
potential than the Exchange Partnership.
o If the Exchange Offering is completed in respect of the Exchange
Partnership, Offerees who accept the Exchange Offering will be tendering
their current investment in the particular Exchange Partnership with an
<PAGE>
expected limited duration in exchange for an investment in the Operating
Partnership, which has an unlimited duration.
o Real estate investment risks exist such as the effect of economic and
other conditions on cash flows from real estate interests acquired by the
Trust and the Operating Partnership.
o Financing risks exist, including debt service obligations, the ability of
the Trust and the Operating Partnership to incur additional debt, the need
to refinance current indebtedness at various maturities, and the effect of
any increase in interest rates.
o The Operating Partnership expects to acquire subordinated mortgage
interests which are not recorded because of restrictions in subordination
agreements executed in connection with First Mortgages issued to other
unrelated lenders. If a mortgage is not recorded, the security interest of
the Operating Partnership would not be perfected and the respective debt
would rank pari passu with all other unsecured creditors of the borrower.
o The successful operation of the Trust and the Operating Partnership is
dependent on key management.
o There can be no assurance of the successful completion of the Exchange
Offering and the Trust's Cash Offering (described below).
o In exchange for his capital contribution of $50,000, each of the Original
Investors will receive Units initially valued at $6,010,800 if all
2,500,000 Common Shares are sold in the Cash Offering by November 30, 1999
and all 2,500,000 Units being offered in the Exchange Offering are issued
by such date. In addition, each will serve as an officer of the Trust, the
Operating Partnership and the Managing Shareholder and will receive
compensation for such services.
o No public market for the sale of Units is expected to ever develop, and,
although Common Shares (into which Units are exchangeable) may eventually
be listed on a national securities exchange, it is possible that no public
market for the Common Shares will ever develop or be maintained.
o Limited Partners who acquire Units in the Exchange Offering will pay a
higher price per Unit than the consideration the Original Investors paid
for Units issued to them in connection with the formation of the Trust and
the Operating Partnership.
o The Trust will be taxed as a corporation if it fails to qualify as a REIT.
2
<PAGE>
BUSINESS OF THE EXCHANGE PARTNERSHIP
The Exchange Partnership was organized as a Florida limited partnership in
August 1995. In August 1995, Baron Capital V, Inc., the General Partner of the
Exchange Partnership and an affiliate of the Managing Shareholder, sponsored a
private offering of 3,640 units of limited partner interest in the Exchange
Partnership at a purchase price of $500 per unit (gross proceeds of $1,820,000).
The offering was fully subscribed and closed in June 1996.
The partnership invested the net proceeds of its offering to acquire all
of the limited partnership interests in a limited partnership which holds a fee
simple interest in a 144-unit residential apartment property referred too as the
Glen Lake Apartment Property located in St. Petersburg, Florida. The
property is subject to mortgage and other indebtedness having a principal
balance at March 31, 1999 of approximately $3,044,468.
For further information concerning the Exchange Partnership, its original
private offering, the property interest it holds, the mortgage to which the
underlying property may be subject, and the estimated deferred taxable gain of
each Limited Partner who elects to participate in the Exchange Offering, please
refer to the tables set forth in the Exhibit I attached hereto. Also see the
tables relating to all of the Exchange Partnerships set forth in the Prospectus
at "Initial Real Property Investments" and in Exhibit B to the Prospectus.
CASH DISTRIBUTIONS TO LIMITED PARTNERS
During each year since inception, the Exchange Partnership has made cash
distributions to the Limited Partners in the following amounts:
All LP's Per LP Unit
-------- -----------
1996: $160,644 $ 44.13
1997: $176,333 $ 48.44
1998 : $ 95,506 $ 26.51
3/31/99: $ 0 $ 0
-------- -------
Total: $432,483 $119.08
3
<PAGE>
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------
TABLE OF EXCHANGE VALUES
- -------------------------------------------------------------------------------------------------------------------
Valuation of Aggregate number of Units offered Number of Units offered Percentage of Units offered
Exchange to all Limited Partners in the to each Limited Partner to Limited Partners in the
Partnership(1) Exchange Partnership (assigned per $1,000 of original Exchange Partnership in
dollar value)(2) investment (assigned relation to Units offered
dollar value)(2) to limited partners in all
partnerships participating
in the initial transactions
of the Exchange Offering
<S> <C> <C> <C> <C> <C>
$2,270,000 227,000 Units ($2,270,000) 125 Units ($1,250) 9.09%
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
- ----------
(1) The valuation of this Exchange Equity Partnership to the extent of its
direct or indirect equity interest in a property is based upon the following
factors: (a) the estimated appraised market value of the underlying property
determined by qualified and licensed independent appraisal firms; (b) the
operating history of the property; (c) the current principal balance of first
mortgage and other indebtedness to which the property is subject; (d) the amount
of distributable cash flow currently being generated by the property; plus (e)
additional factors which the Managing Shareholder believes are appropriate to
consider including, among others, the property's overall current condition and
prospects for the property based upon improvements made or to be made to the
property and, in certain cases, the combination of two or more phases of the
property, which are expected to be owned upon completion of the Exchange
Offering, and the actual or potential benefits to be obtained by the
sub-metering of utilities in order to pass costs from the owner of the property
to individual tenants. The valuation of the Exchange Partnership to the extent
of its mortgage interest in properties and other debt interests is based upon
the following factors: (i) the current principal balance of the amount of debt
which is senior to the mortgage interest to be acquired and other indebtedness
to which property is subject; (ii) the estimated appraised market value of the
underlying property determined by qualified and licensed independent appraisal
firms; (iii) the operating history of the property; (iv) the amount of
distributable cash flow currently being generated by the property; plus (v)
additional factors which the Managing Shareholder believes are appropriate to
consider including, among others, the property's overall current condition and
prospects for the property based upon improvements made or to be made to the
property and, in certain cases, the combination of two or more phases of the
property, which are expected to be owned upon completion of the Exchange
Offering and the actual or potential benefits to be obtained by the sub-metering
of utilities in order to pass costs from the owner of the property to individual
tenants. (see "Valuation Method" below.)
(2) For purposes of the Exchange Offering, each Unit to be issued has been
assigned an initial value of $10.00, which is the price per share at which the
Trust is currently offering Common Shares in its Cash Offering. As described
below at "The Exchange Offering," Unitholders, including recipients of Units in
the Exchange Offering, may exchange all or a portion of their Units for an
equivalent number of Common Shares at any time following the completion of the
offering.
4
<PAGE>
Valuation of Partnership Florida Capital Income Fund IV
Glen Lake
Appraised value of underlying property interests: $ 6,433,079
Cash and cash equivalent assets: $ 128,565
Other assets (1): $ 130,459
3/31/99 principal balance of mortgage financing
secured by the property: $(3,044,468)
Other liabilities(2): $(1,172,134)
Adjustment (3): $ 205,501
Valuation of the partnership $ 2,270,000
Aggregate number of Units offered to all Limited
Partners in the Partnership (dollar value) 227,000
Number of Units offered to each Limited Partner
in the Partnership per $1,000 of original
investment (dollar value) 125
Percentage of all Units offered to
the Limited Partners in the Partnership in
relation to the maximum number of
Units offered to Limited Partners
in all Exchange Partnerships: 9.09%
Total Number of Partnership Units 3,640
Original Price Per Unit $ 500
(1) Comprised of mortgage escrow account balance held by first mortgage
lender to cover taxes, insurance, maintenance and repair reserves
and other items, and miscellaneous assets.
(2) Comprised of security deposits payable, accounts payable to vendors,
notes or advances to third parties (including affiliates) and
accrued expenses ( such as real estate taxes).
(3) Comprised of subjective judgements made by the managing shareholder
to adjust for improvements, (updating all units) and the
installation of utility submeters.
5
<PAGE>
COMPENSATION
The Exchange Partnership currently compensates the general partner and its
affiliates by paying management and accounting fees. No other payments are made
to the general partner and its affiliates by the Exchange Partnership. Mr.
McGrath, an affiliate of the General Partner, is the sole shareholder and
director of the Managing Shareholder of the Trust. As described in greater
detail below, Mr. McGrath has agreed to serve as Chief Executive Officer of the
Operating Partnership and the Trust in exchange for up to 25,000 Common Shares
of the Trust or up to 25,000 Operating Partnership Units (amount to be
determined by the Executive Compensation Committee of the Trust) and health
benefits for the first year of operations and thereafter in exchange for
compensation and benefits determined annually by that committee. Additionally,
Mr. McGrath would have received 9.5% of all distributions on Units subscribed
for by him in connection with the formation of the Operating Partnership.
Compensation Paid
To General Partner and Affiliates
1996 1997 1998 March 31, 1999
---- ---- ---- --------------
Management Fee $37,779 $38,409 $38,486 $11,179
Accounting Fee $ 3,900 $ 3,900 $ 3,900 $ 975
------- ------- ------- ------
$41,679 $42,309 $40,386 $12,154
Compensation
Which Would Have
Been Paid to General Partner
And Affiliates if Exchange Offer
Had Been Concluded(1)
1996 1997 1998 March 31, 1999
---- ---- ---- --------------
9.5% Distribution $15,261 $16,752 $9,168 $ 0
In connection with the formation of the Trust and the Operating
Partnership, the Original Investors (comprised of Mr. McGrath and Robert S.
Geiger, who had no prior affiliation with the Trust, the Operating Partnership,
the Managing Shareholder or any of the Exchange Partnerships) each subscribed
for 601,080 Units. In consideration for the Units subscribed for by them, the
Original Investors made a $100,000 capital contribution to the Operating
Partnership. If the Cash Offering and the Exchange Offering are fully
subscribed, the Units received by each of the Original Investors would represent
9.5% of the total Common Shares outstanding after completion of the Cash
Offering and exchange by the Operating Partnership of 2,500,000 of its Units for
units of limited partnership interest in real estate limited partnerships
(including any exchange completed pursuant to the Exchange Offering), calculated
on a fully diluted basis assuming all then outstanding Units (other than those
acquired by the Trust) have been exchanged into an equivalent number of Common
Shares. If, however, as of November 30, 1999, the Cash Offering and/or the
Exchange Offering has been completed and the number of Units subscribed for by
each Original Investor represents a percentage greater than 9.5% of the then
outstanding Common Shares, calculated on a fully diluted basis assuming that all
then outstanding Units (other than those acquired by the Trust) have been
exchanged into an equivalent number of Common Shares, each Original Investor has
agreed to return any excess Units to the Operating Partnership for cancellation.
As described further below, Mr. McGrath and Mr. Geiger have deposited Units
subscribed for by them into a security escrow account for six to nine years,
subject to earlier release under certain conditions.
6
<PAGE>
Laurel Oaks
(formerly Grove Hamlet)
(Exchange Equity)
SUPPLEMENT DATED _____, 1999
TO PROSPECTUS OF
BARON CAPITAL PROPERTIES, L.P.
("Operating Partnership")
DATED _____, 1999
THIS PROSPECTUS SUPPLEMENT FORMS A PART OF AND
SHOULD BE READ TOGETHER WITH THE PROSPECTUS
Central Florida Income Appreciation Fund Ltd.,
a Florida limited partnership
(the "Exchange Partnership")
(General Partner: Baron Capital XI, Inc.)
This Supplement relates to the offer (the "Exchange Offering") of Baron
Capital Properties, L.P. (the "Operating Partnership") to all limited partners
(the "Limited Partners") in the Exchange Partnership (and limited partners of 22
other real estate limited partnerships) to issue its units of limited
partnership interest ("Units" or "Operating Partnership Units") in exchange for
limited partnership interests in the Exchange Partnership (and in such other
limited partnerships). Limited Partners who do not participate in the Exchange
Offering will be entitled to retain their limited partnership interest in the
Exchange Partnership on substantially the same terms and conditions as their
original investment.
Each Limited Partner should consider all factors discussed below under
"Certain Risks" and under the heading "Risk Factors" set forth in the Prospectus
(the "Prospectus") of the Operating Partnership in evaluating the Exchange
Offering, the Operating Partnership, Baron Capital Trust (the "Trust"), the
general partner and a limited partner of the Operating Partnership, and the
business of the Operating Partnership and the Trust, including the following
material risk factors:
o The valuation of $10.00 per Unit used in the Exchange Offering is an
arbitrary amount, and it is possible that Common Shares of beneficial
interest in the Trust ("Common Shares") (into which the Units are
exchangeable on a one-for-one basis), if listed on a national securities
exchange, will trade at a lower price.
o The terms of the Exchange Offering were determined by the founders of the
Trust and the Operating Partnership (the "Original Investors") (described
below under "Compensation") with no separate counsel or advisor for the
Limited Partners.
o Offerees may not have an opportunity prior to their decision to accept the
Exchange Offering to evaluate a significant number of properties in which
the Operating Partnership and the Trust may acquire an interest, and they
will not have the benefit of knowing the extent of the Operating
Partnership's investment in respect of properties involved in the Exchange
Offering until the offering is completed.
o The Original Investors and affiliates have significant influence over the
operation of the Trust, the Operating Partnership and the Exchange
Partnerships, and the Exchange Offering involves transactions among them
which involve conflicts of interest which may result in decisions that do
not fully represent the interests of all Shareholders of the Trust,
holders of Units in the Operating Partnership (individually, a
"Unitholder" and collectively, the "Unitholders") and limited partners of
the Exchange Partnerships.
o The purchase price to be paid by the Operating Partnership and the Trust
for property interests will be based upon appraisals prepared by qualified
and licensed independent appraisal firms in respect of individual
residential apartment properties and other considerations. Offerees should
note, however, that appraisals are only estimates of value and should not
be relied upon as precise measures of true worth or realizable value.
There can be no assurance that the value of property interests acquired
will reflect their fair market value.
o Offerees who accept the offering may not experience returns comparable to
or in excess of those experienced by Limited Partners in the Exchange
Partnership.
o The current returns of the Exchange Partnership may not be achieved by the
Operating Partnership after completion of the offering and may be higher
than the current returns of other partnerships which participate in the
offering, although such other partnerships may offer higher future growth
potential than the Exchange Partnership.
<PAGE>
o If the Exchange Offering is completed in respect of the Exchange
Partnership, Offerees who accept the Exchange Offering will be tendering
their current investment in the particular Exchange Partnership with an
expected limited duration in exchange for an investment in the Operating
Partnership, which has an unlimited duration.
o Real estate investment risks exist such as the effect of economic and
other conditions on cash flows from real estate interests acquired by the
Trust and the Operating Partnership.
o Financing risks exist, including debt service obligations, the ability of
the Trust and the Operating Partnership to incur additional debt, the need
to refinance current indebtedness at various maturities, and the effect of
any increase in interest rates.
o The Operating Partnership expects to acquire subordinated mortgage
interests which are not recorded because of restrictions in subordination
agreements executed in connection with First Mortgages issued to other
unrelated lenders. If a mortgage is not recorded, the security interest of
the Operating Partnership would not be perfected and the respective debt
would rank pari passu with all other unsecured creditors of the borrower.
o The successful operation of the Trust and the Operating Partnership is
dependent on key management.
o There can be no assurance of the successful completion of the Exchange
Offering and the Trust's Cash Offering (described below).
o In exchange for his capital contribution of $50,000, each of the Original
Investors will receive Units initially valued at $6,010,800 if all
2,500,000 Common Shares are sold in the Cash Offering by November 30, 1999
and all 2,500,000 Units being offered in the Exchange Offering are issued
by such date. In addition, each will serve as an officer of the Trust, the
Operating Partnership and the Managing Shareholder and will receive
compensation for such services.
o No public market for the sale of Units is expected to ever develop, and,
although Common Shares (into which Units are exchangeable) may eventually
be listed on a national securities exchange, it is possible that no public
market for the Common Shares will ever develop or be maintained.
o Limited Partners who acquire Units in the Exchange Offering will pay a
higher price per Unit than the consideration the Original Investors paid
for Units issued to them in connection with the formation of the Trust and
the Operating Partnership.
o The Trust will be taxed as a corporation if it fails to qualify as a REIT.
2
<PAGE>
BUSINESS OF THE EXCHANGE PARTNERSHIP
The Exchange Partnership was organized as a Florida limited partnership in
April 1993. In July 1994, Baron Capital of Ohio III, Inc., (formely named Sigma
Financial Capital, Inc.), the General Partner of the Exchange Partnership and an
affiliate of the Managing Shareholder, sponsored a private offering of 2,100
units of limited partner interest in the Exchange Partnership at a purchase
price of $500 per unit (gross proceeds of $1,050,000).
The offering was fully subscribed and closed in October 1995. The
partnership invested the net proceeds of its offering to acquire all of the
limited partnership interests in a limited partnership which holds a fee simple
interest in a 70-unit residential apartment property referred too as the Grove
Hamlet Apartment Property located in Deland, Florida. The property is subject to
mortgage and other indebtedness having a principal balance at March 31, 1999 of
approximately $1,592,583.
For further information concerning the Exchange Partnership, its original
private offering, the property interest it holds, the mortgage to which the
underlying property may be subject, and the estimated deferred taxable gain of
each Limited Partner who elects to participate in the Exchange Offering, please
refer to the tables set forth in the Exhibit I attached hereto. Also see the
tables relating to all of the Exchange Partnerships set forth in the Prospectus
at "Initial Real Property Investments" and in Exhibit B to the Prospectus.
CASH DISTRIBUTIONS TO LIMITED PARTNERS
During each year since inception, the Exchange Partnership has made cash
distributions to the Limited Partners in the following amounts:
All LP's Per LP Unit
-------- -----------
1996: $73,875 $ 35.18
1997: $ 0 $ 0
1998 : $ 4,114 $ 1.96
3/31/99: $10,000 $ 4.76
------- -------
Total: $87,989 $ 41.90
3
<PAGE>
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------
TABLE OF EXCHANGE VALUES
- -------------------------------------------------------------------------------------------------------------------
Valuation of Aggregate number of Units offered Number of Units offered Percentage of Units offered
Exchange to all Limited Partners in the to each Limited Partner to Limited Partners in the
Partnership(1) Exchange Partnership (assigned per $1,000 of original Exchange Partnership in
dollar value)(2) investment (assigned relation to Units offered
dollar value)(2) to limited partners in all
partnerships participating
in the initial transactions
of the Exchange Offering
<S> <C> <C> <C> <C> <C>
$1,360,237 136,024 Units ($1,360,240) 118 Units ($1,180) 5.45%
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
- ----------
(1) The valuation of this Exchange Equity Partnership to the extent of its
direct or indirect equity interest in a property is based upon the following
factors: (a) the estimated appraised market value of the underlying property
determined by qualified and licensed independent appraisal firms; (b) the
operating history of the property; (c) the current principal balance of first
mortgage and other indebtedness to which the property is subject; (d) the amount
of distributable cash flow currently being generated by the property; plus (e)
additional factors which the Managing Shareholder believes are appropriate to
consider including, among others, the property's overall current condition and
prospects for the property based upon improvements made or to be made to the
property and, in certain cases, the combination of two or more phases of the
property, which are expected to be owned upon completion of the Exchange
Offering, and the actual or potential benefits to be obtained by the
sub-metering of utilities in order to pass costs from the owner of the property
to individual tenants. The valuation of the Exchange Partnership to the extent
of its mortgage interest in properties and other debt interests is based upon
the following factors: (i) the current principal balance of the amount of debt
which is senior to the mortgage interest to be acquired and other indebtedness
to which property is subject; (ii) the estimated appraised market value of the
underlying property determined by qualified and licensed independent appraisal
firms; (iii) the operating history of the property; (iv) the amount of
distributable cash flow currently being generated by the property; plus (v)
additional factors which the Managing Shareholder believes are appropriate to
consider including, among others, the property's overall current condition and
prospects for the property based upon improvements made or to be made to the
property and, in certain cases, the combination of two or more phases of the
property, which are expected to be owned upon completion of the Exchange
Offering and the actual or potential benefits to be obtained by the sub-metering
of utilities in order to pass costs from the owner of the property to individual
tenants. (see "Valuation Method" below.)
(2) For purposes of the Exchange Offering, each Unit to be issued has been
assigned an initial value of $10.00, which is the price per share at which the
Trust is currently offering Common Shares in its Cash Offering. As described
below at "The Exchange Offering," Unitholders, including recipients of Units in
the Exchange Offering, may exchange all or a portion of their Units for an
equivalent number of Common Shares at any time following the completion of the
offering.
4
<PAGE>
Valuation of Partnership Central Florida Income Appreciation Fund, Ltd.
(Laurel Oaks)
Appraised value of underlying property interests: $ 2,881,000
Cash and cash equivalent assets: $ 61,997
Other assets (1): $ 118,953
3/31/99 principal balance of mortgage financing
secured by the property: $(1,592,583)
Other liabilities(2): $ (109,130)
Adjustment (3): $ --
Valuation of the partnership $ 1,360,237
Aggregate number of Units offered to all Limited
Partners in the Partnership (dollar value) 136,024
Number of Units offered to each Limited Partner
in the Partnership per $1,000 of original
investment (dollar value) 118
Percentage of all Units offered
to the Limited Partners in the Partnership in
relation to the maximum number of
Units offered to Limited Partners
in all Exchange Partnerships: 5.45%
Total Number of Partnership Units 2,100
Original Price Per Unit $ 500
(1) Comprised of mortgage escrow account balance held by first mortgage
lender to cover taxes, insurance, maintenance and repair reserves
and other items, and miscellaneous assets.
(2) Comprised of security deposits payable, accounts payable to vendors,
notes or advances to third parties (including affiliates) and
accrued expenses ( such as real estate taxes).
(3) Comprised of subjective judgements made by the managing shareholder
to adjust for improvements, combination of phases of operation and
the installation of utility submeters.
5
<PAGE>
COMPENSATION
The Exchange Partnership currently compensates the general partner and its
affiliates by paying management and accounting fees. No other payments are made
to the general partner and its affiliates by the Exchange Partnership. Mr.
McGrath, an affiliate of the General Partner, is the sole shareholder and
director of the Managing Shareholder of the Trust. As described in greater
detail below, Mr. McGrath has agreed to serve as Chief Executive Officer of the
Operating Partnership and the Trust in exchange for up to 25,000 Common Shares
of the Trust or up to 25,000 Operating Partnership Units (amount to be
determined by the Executive Compensation Committee of the Trust) and health
benefits for the first year of operations and thereafter in exchange for
compensation and benefits determined annually by that committee. Additionally,
Mr. McGrath would have received 9.5% of all distributions on Units subscribed
for by him in connection with the formation of the Operating Partnership.
Compensation Paid
To General Partner and Affiliates
1996 1997 1998 March 31, 1999
---- ---- ---- --------------
Management Fee $11,970 $11,429 $14,649 $5,421
Accounting Fee $ 3,900 $ 3,900 $ 3,900 $ 975
------- ------- ------- ------
$15,870 $15,329 $18,549 $6,396
Compensation
Which Would Have
Been Paid to General Partner
And Affiliates if Exchange Offer
Had Been Concluded(1)
1996 1997 1998 March 31, 1999
---- ---- ---- --------------
9.5% Distribution $7,018 $0 $391 $950
In connection with the formation of the Trust and the Operating
Partnership, the Original Investors (comprised of Mr. McGrath and Robert S.
Geiger, who had no prior affiliation with the Trust, the Operating Partnership,
the Managing Shareholder or any of the Exchange Partnerships) each subscribed
for 601,080 Units. In consideration for the Units subscribed for by them, the
Original Investors made a $100,000 capital contribution to the Operating
Partnership. If the Cash Offering and the Exchange Offering are fully
subscribed, the Units received by each of the Original Investors would represent
9.5% of the total Common Shares outstanding after completion of the Cash
Offering and exchange by the Operating Partnership of 2,500,000 of its Units for
units of limited partnership interest in real estate limited partnerships
(including any exchange completed pursuant to the Exchange Offering), calculated
on a fully diluted basis assuming all then outstanding Units (other than those
acquired by the Trust) have been exchanged into an equivalent number of Common
Shares. If, however, as of November 30, 1999, the Cash Offering and/or the
Exchange Offering has been completed and the number of Units subscribed for by
each Original Investor represents a percentage greater than 9.5% of the then
outstanding Common Shares, calculated on a fully diluted basis assuming that all
then outstanding Units (other than those acquired by the Trust) have been
exchanged into an equivalent number of Common Shares, each Original Investor has
agreed to return any excess Units to the Operating Partnership for cancellation.
As described further below, Mr. McGrath and Mr. Geiger have deposited Units
subscribed for by them into a security escrow account for six to nine years,
subject to earlier release under certain conditions.
6
<PAGE>
Forest Glen III
(Exchange Equity)
SUPPLEMENT DATED _____, 1999
TO PROSPECTUS OF
BARON CAPITAL PROPERTIES, L.P.
("Operating Partnership")
DATED _____, 1999
THIS PROSPECTUS SUPPLEMENT FORMS A PART OF AND
SHOULD BE READ TOGETHER WITH THE PROSPECTUS
Florida Income Advantage Fund I, Ltd.,
a Florida limited partnership
(the "Exchange Partnership")
(General Partner: Baron Capital XI, Inc.)
This Supplement relates to the offer (the "Exchange Offering") of Baron
Capital Properties, L.P. (the "Operating Partnership") to all limited partners
(the "Limited Partners") in the Exchange Partnership (and limited partners of 22
other real estate limited partnerships) to issue its units of limited
partnership interest ("Units" or "Operating Partnership Units") in exchange for
limited partnership interests in the Exchange Partnership (and in such other
limited partnerships). Limited Partners who do not participate in the Exchange
Offering will be entitled to retain their limited partnership interest in the
Exchange Partnership on substantially the same terms and conditions as their
original investment.
Each Limited Partner should consider all factors discussed below under
"Certain Risks" and under the heading "Risk Factors" set forth in the Prospectus
(the "Prospectus") of the Operating Partnership in evaluating the Exchange
Offering, the Operating Partnership, Baron Capital Trust (the "Trust"), the
general partner and a limited partner of the Operating Partnership, and the
business of the Operating Partnership and the Trust, including the following
material risk factors:
o The valuation of $10.00 per Unit used in the Exchange Offering is an
arbitrary amount, and it is possible that Common Shares of beneficial
interest in the Trust ("Common Shares") (into which the Units are
exchangeable on a one-for-one basis), if listed on a national securities
exchange, will trade at a lower price.
o The terms of the Exchange Offering were determined by the founders of the
Trust and the Operating Partnership (the "Original Investors") (described
below under "Compensation") with no separate counsel or advisor for the
Limited Partners.
o Offerees may not have an opportunity prior to their decision to accept the
Exchange Offering to evaluate a significant number of properties in which
the Operating Partnership and the Trust may acquire an interest, and they
will not have the benefit of knowing the extent of the Operating
Partnership's investment in respect of properties involved in the Exchange
Offering until the offering is completed.
o The Original Investors and affiliates have significant influence over the
operation of the Trust, the Operating Partnership and the Exchange
Partnerships, and the Exchange Offering involves transactions among them
which involve conflicts of interest which may result in decisions that do
not fully represent the interests of all Shareholders of the Trust,
holders of Units in the Operating Partnership (individually, a
"Unitholder" and collectively, the "Unitholders") and limited partners of
the Exchange Partnerships.
o The purchase price to be paid by the Operating Partnership and the Trust
for property interests will be based upon appraisals prepared by qualified
and licensed independent appraisal firms in respect of individual
residential apartment properties and other considerations. Offerees should
note, however, that appraisals are only estimates of value and should not
be relied upon as precise measures of true worth or realizable value.
There can be no assurance that the value of property interests acquired
will reflect their fair market value.
o Offerees who accept the offering may not experience returns comparable to
or in excess of those experienced by Limited Partners in the Exchange
Partnership.
o The current returns of the Exchange Partnership may not be achieved by the
Operating Partnership after completion of the offering and may be higher
than the current returns of other partnerships which participate in the
offering, although such other partnerships may offer higher future growth
potential than the Exchange Partnership.
o If the Exchange Offering is completed in respect of the Exchange
Partnership, Offerees who accept the Exchange Offering will be tendering
their current investment in the particular Exchange Partnership with an
<PAGE>
expected limited duration in exchange for an investment in the Operating
Partnership, which has an unlimited duration.
o Real estate investment risks exist such as the effect of economic and
other conditions on cash flows from real estate interests acquired by the
Trust and the Operating Partnership.
o Financing risks exist, including debt service obligations, the ability of
the Trust and the Operating Partnership to incur additional debt, the need
to refinance current indebtedness at various maturities, and the effect of
any increase in interest rates.
o The Operating Partnership expects to acquire subordinated mortgage
interests which are not recorded because of restrictions in subordination
agreements executed in connection with First Mortgages issued to other
unrelated lenders. If a mortgage is not recorded, the security interest of
the Operating Partnership would not be perfected and the respective debt
would rank pari passu with all other unsecured creditors of the borrower.
o The successful operation of the Trust and the Operating Partnership is
dependent on key management.
o There can be no assurance of the successful completion of the Exchange
Offering and the Trust's Cash Offering (described below).
o In exchange for his capital contribution of $50,000, each of the Original
Investors will receive Units initially valued at $6,010,800 if all
2,500,000 Common Shares are sold in the Cash Offering by November 30, 1999
and all 2,500,000 Units being offered in the Exchange Offering are issued
by such date. In addition, each will serve as an officer of the Trust, the
Operating Partnership and the Managing Shareholder and will receive
compensation for such services.
o No public market for the sale of Units is expected to ever develop, and,
although Common Shares (into which Units are exchangeable) may eventually
be listed on a national securities exchange, it is possible that no public
market for the Common Shares will ever develop or be maintained.
o Limited Partners who acquire Units in the Exchange Offering will pay a
higher price per Unit than the consideration the Original Investors paid
for Units issued to them in connection with the formation of the Trust and
the Operating Partnership.
o The Trust will be taxed as a corporation if it fails to qualify as a REIT.
2
<PAGE>
BUSINESS OF THE EXCHANGE PARTNERSHIP
The Exchange Partnership was organized as a Florida limited partnership in
September 1993. In January 1995, Baron Capital IV, Inc., an affiliate of the
Managing Shareholder, became General Partner of the Exchange Partnership, which
in February 1994 commenced a private offering of 940 units of limited partner
interest in the Exchange Partnership at a purchase price of $1,000 per unit
(gross proceeds of $940,000). The offering was fully subscribed and closed in
June 1995.
The partnership invested the net proceeds of its offering to acquire all
of the limited partnership interests in a limited partnership which holds a fee
simple interest in a 26-unit residential apartment property referred to as the
Forest Glen Apartment Property (Phase III) located in Daytona Beach, Florida.
The property is subject to mortgage and other indebtedness having a principal
balance at March 31, 1999 of approximately $889,021.
For further information concerning the Exchange Partnership, its original
private offering, the property interest it holds, the mortgage to which the
underlying property may be subject, and the estimated deferred taxable gain of
each Limited Partner who elects to participate in the Exchange Offering, please
refer to the tables set forth in the Exhibit I attached hereto. Also see the
tables relating to all of the Exchange Partnerships set forth in the Prospectus
at "Initial Real Property Investments" and in Exhibit B to the Prospectus.
CASH DISTRIBUTIONS TO LIMITED PARTNERS
During each year since inception, the Exchange Partnership has made cash
distributions to the Limited Partners in the following amounts:
All LP's Per LP Unit
-------- -----------
1996: $58,058 $ 61.76
1997: $11,058 $ 11.76
1998 : $20,900 $ 22.23
3/31/99: $ 2,000 $ 2.13
------- -------
Total: $92,016 $ 97.88
3
<PAGE>
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------
TABLE OF EXCHANGE VALUES
- -------------------------------------------------------------------------------------------------------------------
Valuation of Aggregate number of Units offered Number of Units offered Percentage of Units offered
Exchange to all Limited Partners in the to each Limited Partner to Limited Partners in the
Partnership(1) Exchange Partnership (assigned per $1,000 of original Exchange Partnership in
dollar value)(2) investment (assigned relation to Units offered
dollar value)(2) to limited partners in all
partnerships participating
in the initial transactions
of the Exchange Offering
<S> <C> <C> <C> <C> <C>
$1,006,575 100,658 Units ($1,006,580) 107 Units ($1,070) 4.03%
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
- ----------
(1) The valuation of this Exchange Equity Partnership to the extent of its
direct or indirect equity interest in a property is based upon the following
factors: (a) the estimated appraised market value of the underlying property
determined by qualified and licensed independent appraisal firms; (b) the
operating history of the property; (c) the current principal balance of first
mortgage and other indebtedness to which the property is subject; (d) the amount
of distributable cash flow currently being generated by the property; plus (e)
additional factors which the Managing Shareholder believes are appropriate to
consider including, among others, the property's overall current condition and
prospects for the property based upon improvements made or to be made to the
property and, in certain cases, the combination of two or more phases of the
property, which are expected to be owned upon completion of the Exchange
Offering, and the actual or potential benefits to be obtained by the
sub-metering of utilities in order to pass costs from the owner of the property
to individual tenants. The valuation of the Exchange Partnership to the extent
of its mortgage interest in properties and other debt interests is based upon
the following factors: (i) the current principal balance of the amount of debt
which is senior to the mortgage interest to be acquired and other indebtedness
to which property is subject; (ii) the estimated appraised market value of the
underlying property determined by qualified and licensed independent appraisal
firms; (iii) the operating history of the property; (iv) the amount of
distributable cash flow currently being generated by the property; plus (v)
additional factors which the Managing Shareholder believes are appropriate to
consider including, among others, the property's overall current condition and
prospects for the property based upon improvements made or to be made to the
property and, in certain cases, the combination of two or more phases of the
property, which are expected to be owned upon completion of the Exchange
Offering and the actual or potential benefits to be obtained by the sub-metering
of utilities in order to pass costs from the owner of the property to individual
tenants. (see "Valuation Method" below.)
(2) For purposes of the Exchange Offering, each Unit to be issued has been
assigned an initial value of $10.00, which is the price per share at which the
Trust is currently offering Common Shares in its Cash Offering. As described
below at "The Exchange Offering," Unitholders, including recipients of Units in
the Exchange Offering, may exchange all or a portion of their Units for an
equivalent number of Common Shares at any time following the completion of the
offering.
4
<PAGE>
Valuation of Partnership Florida Income Advantage Fund I, Ltd.
Forest Glen III
Appraised value of underlying property interests: $ 1,698,069
Cash and cash equivalent assets: $ 40,832
Other assets (1): $ 49,718
3/31/99 principal balance of mortgage financing
secured by the property: $ (889,021)
Other liabilities(2): $ (39,978)
Adjustment (3): $ 146,955
Valuation of the partnership $ 1,006,575
Aggregate number of Units offered to all Limited
Partners in the Partnership (dollar value) 100,658
Number of Units offered to each Limited Partner
in the Partnership per $1,000 of original
investment (dollar value) 107
Percentage of all Units offered
to the Limited Partners in the Partnership in
relation to the maximum number of
Units offered to Limited
Partners in all Exchange Partnerships: 4.03%
Total Number of Partnership Units 940
Original Price Per Unit $ 1,000
(1) Comprised of mortgage escrow account balance held by first mortgage
lender to cover taxes, insurance, maintenance and repair reserves
and other items, and miscellaneous assets.
(2) Comprised of security deposits payable, accounts payable to vendors,
notes or advances to third parties (including affiliates) and
accrued expenses ( such as real estate taxes).
(3) Comprised of subjective judgements made by the managing shareholder
to adjust for improvements, combination of phases of operation (4
phases) and the addition of two rentable units to the product mix.
5
<PAGE>
COMPENSATION
The Exchange Partnership currently compensates the general partner and its
affiliates by paying management and accounting fees. No other payments are made
to the general partner and its affiliates by the Exchange Partnership. Mr.
McGrath, an affiliate of the General Partner, is the sole shareholder and
director of the Managing Shareholder of the Trust. As described in greater
detail below, Mr. McGrath has agreed to serve as Chief Executive Officer of the
Operating Partnership and the Trust in exchange for up to 25,000 Common Shares
of the Trust or up to 25,000 Operating Partnership Units (amount to be
determined by the Executive Compensation Committee of the Trust) and health
benefits for the first year of operations and thereafter in exchange for
compensation and benefits determined annually by that committee. Additionally,
Mr. McGrath would have received 9.5% of all distributions on Units subscribed
for by him in connection with the formation of the Operating Partnership.
Compensation Paid
To General Partner and Affiliates
1996 1997 1998 March 31, 1999
---- ---- ---- --------------
Management Fee $ 9,314 $ 8,860 $ 9,397 $3,873
Accounting Fee $ 3,900 $ 3,900 $ 3,900 $ 975
------- ------- ------- ------
$13,214 $12,760 $13,297 $4,848
Compensation
Which Would Have
Been Paid to General Partner
And Affiliates if Exchange Offer
Had Been Concluded(1)
1996 1997 1998 March 31, 1999
---- ---- ---- --------------
9.5% Distribution $5,516 $ 1,051 $1,986 $190
In connection with the formation of the Trust and the Operating
Partnership, the Original Investors (comprised of Mr. McGrath and Robert S.
Geiger, who had no prior affiliation with the Trust, the Operating Partnership,
the Managing Shareholder or any of the Exchange Partnerships) each subscribed
for 601,080 Units. In consideration for the Units subscribed for by them, the
Original Investors made a $100,000 capital contribution to the Operating
Partnership. If the Cash Offering and the Exchange Offering are fully
subscribed, the Units received by each of the Original Investors would represent
9.5% of the total Common Shares outstanding after completion of the Cash
Offering and exchange by the Operating Partnership of 2,500,000 of its Units for
units of limited partnership interest in real estate limited partnerships
(including any exchange completed pursuant to the Exchange Offering), calculated
on a fully diluted basis assuming all then outstanding Units (other than those
acquired by the Trust) have been exchanged into an equivalent number of Common
Shares. If, however, as of November 30, 1999, the Cash Offering and/or the
Exchange Offering has been completed and the number of Units subscribed for by
each Original Investor represents a percentage greater than 9.5% of the then
outstanding Common Shares, calculated on a fully diluted basis assuming that all
then outstanding Units (other than those acquired by the Trust) have been
exchanged into an equivalent number of Common Shares, each Original Investor has
agreed to return any excess Units to the Operating Partnership for cancellation.
As described further below, Mr. McGrath and Mr. Geiger have deposited Units
subscribed for by them into a security escrow account for six to nine years,
subject to earlier release under certain conditions.
6
<PAGE>
Blossom Corners I
(Exchange Equity)
SUPPLEMENT DATED _____, 1999
TO PROSPECTUS OF
BARON CAPITAL PROPERTIES, L.P.
("Operating Partnership")
DATED _____, 1999
THIS PROSPECTUS SUPPLEMENT FORMS A PART OF AND
SHOULD BE READ TOGETHER WITH THE PROSPECTUS
Florida Income Growth Fund V, Ltd.,
a Florida limited partnership
(the "Exchange Partnership")
(General Partner: Baron Capital XI, Inc.)
This Supplement relates to the offer (the "Exchange Offering") of Baron
Capital Properties, L.P. (the "Operating Partnership") to all limited partners
(the "Limited Partners") in the Exchange Partnership (and limited partners of 22
other real estate limited partnerships) to issue its units of limited
partnership interest ("Units" or "Operating Partnership Units") in exchange for
limited partnership interests in the Exchange Partnership (and in such other
limited partnerships). Limited Partners who do not participate in the Exchange
Offering will be entitled to retain their limited partnership interest in the
Exchange Partnership on substantially the same terms and conditions as their
original investment.
Each Limited Partner should consider all factors discussed below under
"Certain Risks" and under the heading "Risk Factors" set forth in the Prospectus
(the "Prospectus") of the Operating Partnership in evaluating the Exchange
Offering, the Operating Partnership, Baron Capital Trust (the "Trust"), the
general partner and a limited partner of the Operating Partnership, and the
business of the Operating Partnership and the Trust, including the following
material risk factors:
o The valuation of $10.00 per Unit used in the Exchange Offering is an
arbitrary amount, and it is possible that Common Shares of beneficial
interest in the Trust ("Common Shares") (into which the Units are
exchangeable on a one-for-one basis), if listed on a national securities
exchange, will trade at a lower price.
o The terms of the Exchange Offering were determined by the founders of the
Trust and the Operating Partnership (the "Original Investors") (described
below under "Compensation") with no separate counsel or advisor for the
Limited Partners.
o Offerees may not have an opportunity prior to their decision to accept the
Exchange Offering to evaluate a significant number of properties in which
the Operating Partnership and the Trust may acquire an interest, and they
will not have the benefit of knowing the extent of the Operating
Partnership's investment in respect of properties involved in the Exchange
Offering until the offering is completed.
o The Original Investors and affiliates have significant influence over the
operation of the Trust, the Operating Partnership and the Exchange
Partnerships, and the Exchange Offering involves transactions among them
which involve conflicts of interest which may result in decisions that do
not fully represent the interests of all Shareholders of the Trust,
holders of Units in the Operating Partnership (individually, a
"Unitholder" and collectively, the "Unitholders") and limited partners of
the Exchange Partnerships.
o The purchase price to be paid by the Operating Partnership and the Trust
for property interests will be based upon appraisals prepared by qualified
and licensed independent appraisal firms in respect of individual
residential apartment properties and other considerations. Offerees should
note, however, that appraisals are only estimates of value and should not
be relied upon as precise measures of true worth or realizable value.
There can be no assurance that the value of property interests acquired
will reflect their fair market value.
o Offerees who accept the offering may not experience returns comparable to
or in excess of those experienced by Limited Partners in the Exchange
Partnership.
o The current returns of the Exchange Partnership may not be achieved by the
Operating Partnership after completion of the offering and may be higher
than the current returns of other partnerships which participate in the
offering, although such other partnerships may offer higher future growth
potential than the Exchange Partnership.
o If the Exchange Offering is completed in respect of the Exchange
Partnership, Offerees who accept the Exchange Offering will be tendering
their current investment in the particular Exchange Partnership with an
<PAGE>
expected limited duration in exchange for an investment in the Operating
Partnership, which has an unlimited duration.
o Real estate investment risks exist such as the effect of economic and
other conditions on cash flows from real estate interests acquired by the
Trust and the Operating Partnership.
o Financing risks exist, including debt service obligations, the ability of
the Trust and the Operating Partnership to incur additional debt, the need
to refinance current indebtedness at various maturities, and the effect of
any increase in interest rates.
o The Operating Partnership expects to acquire subordinated mortgage
interests which are not recorded because of restrictions in subordination
agreements executed in connection with First Mortgages issued to other
unrelated lenders. If a mortgage is not recorded, the security interest of
the Operating Partnership would not be perfected and the respective debt
would rank pari passu with all other unsecured creditors of the borrower.
o The successful operation of the Trust and the Operating Partnership is
dependent on key management.
o There can be no assurance of the successful completion of the Exchange
Offering and the Trust's Cash Offering (described below).
o In exchange for his capital contribution of $50,000, each of the Original
Investors will receive Units initially valued at $6,010,800 if all
2,500,000 Common Shares are sold in the Cash Offering by November 30, 1999
and all 2,500,000 Units being offered in the Exchange Offering are issued
by such date. In addition, each will serve as an officer of the Trust, the
Operating Partnership and the Managing Shareholder and will receive
compensation for such services.
o No public market for the sale of Units is expected to ever develop, and,
although Common Shares (into which Units are exchangeable) may eventually
be listed on a national securities exchange, it is possible that no public
market for the Common Shares will ever develop or be maintained.
o Limited Partners who acquire Units in the Exchange Offering will pay a
higher price per Unit than the consideration the Original Investors paid
for Units issued to them in connection with the formation of the Trust and
the Operating Partnership.
o The Trust will be taxed as a corporation if it fails to qualify as a REIT.
2
<PAGE>
BUSINESS OF THE EXCHANGE PARTNERSHIP
The Exchange Partnership was organized as a Florida limited partnership in
June 1995. In November 1995, Baron Capital XI, Inc., the partnership's General
Partner (wholly owned and controlled, along with the Managing Shareholder of the
Trust, by Mr. McGrath) and an affiliate of the Managing Shareholder, sponsored a
private offering of 2,300 units of limited partner interest in the Exchange
Partnership at a purchase price of $500 per unit (gross proceeds of $1,150,000).
The offering was fully subscribed and closed in February 1997.
The partnership invested the net proceeds of its offering to acquire all
of the limited partnership interests in a limited partnership which holds a fee
simple interest in a 70-unit residential apartment property referred too as the
Blossom Corners Apartment Property (Phase I) located in Orlando, Florida. The
property is subject to mortgage and other indebtedness having a principal
balance at March 31, 1999 of approximately $1,020,990.
For further information concerning the Exchange Partnership, its original
private offering, the property interest it holds, the mortgage to which the
underlying property may be subject, and the estimated deferred taxable gain of
each Limited Partner who elects to participate in the Exchange Offering, please
refer to the tables set forth in the Exhibit I attached hereto. Also see the
tables relating to all of the Exchange Partnerships set forth in the Prospectus
at "Initial Real Property Investments" and in Exhibit B to the Prospectus.
CASH DISTRIBUTIONS TO LIMITED PARTNERS
During each year since inception, the Exchange Partnership has made cash
distributions to the Limited Partners in the following amounts:
All LP's Per LP Unit
-------- -----------
1996: $18,111 $ 88.35
1997: $ 1,990 $ 9.71
1998 : $ 8,160 $ 39.80
3/31/99: $ 0 $ 0
------- -------
Total: $28,261 $137.86
3
<PAGE>
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------
TABLE OF EXCHANGE VALUES
- -------------------------------------------------------------------------------------------------------------------
Valuation of Aggregate number of Units offered Number of Units offered Percentage of Units offered
Exchange to all Limited Partners in the to each Limited Partner to Limited Partners in the
Partnership(1) Exchange Partnership (assigned per $1,000 of original Exchange Partnership in
dollar value)(2) investment (assigned relation to Units offered
dollar value)(2) to limited partners in all
partnerships participating
in the initial transactions
of the Exchange Offering
<S> <C> <C> <C> <C> <C>
$1,310,347 131,035 Units ($1,310,350) 114 Units ($1,140) 5.25%
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
- ----------
(1) The valuation of this Exchange Equity Partnership to the extent of its
direct or indirect equity interest in a property is based upon the following
factors: (a) the estimated appraised market value of the underlying property
determined by qualified and licensed independent appraisal firms; (b) the
operating history of the property; (c) the current principal balance of first
mortgage and other indebtedness to which the property is subject; (d) the amount
of distributable cash flow currently being generated by the property; plus (e)
additional factors which the Managing Shareholder believes are appropriate to
consider including, among others, the property's overall current condition and
prospects for the property based upon improvements made or to be made to the
property and, in certain cases, the combination of two or more phases of the
property, which are expected to be owned upon completion of the Exchange
Offering, and the actual or potential benefits to be obtained by the
sub-metering of utilities in order to pass costs from the owner of the property
to individual tenants. The valuation of the Exchange Partnership to the extent
of its mortgage interest in properties and other debt interests is based upon
the following factors: (i) the current principal balance of the amount of debt
which is senior to the mortgage interest to be acquired and other indebtedness
to which property is subject; (ii) the estimated appraised market value of the
underlying property determined by qualified and licensed independent appraisal
firms; (iii) the operating history of the property; (iv) the amount of
distributable cash flow currently being generated by the property; plus (v)
additional factors which the Managing Shareholder believes are appropriate to
consider including, among others, the property's overall current condition and
prospects for the property based upon improvements made or to be made to the
property and, in certain cases, the combination of two or more phases of the
property, which are expected to be owned upon completion of the Exchange
Offering and the actual or potential benefits to be obtained by the sub-metering
of utilities in order to pass costs from the owner of the property to individual
tenants. (see "Valuation Method" below.)
(2) For purposes of the Exchange Offering, each Unit to be issued has been
assigned an initial value of $10.00, which is the price per share at which the
Trust is currently offering Common Shares in its Cash Offering. As described
below at "The Exchange Offering," Unitholders, including recipients of Units in
the Exchange Offering, may exchange all or a portion of their Units for an
equivalent number of Common Shares at any time following the completion of the
offering.
4
<PAGE>
Valuation of Partnership Florida Income Growth Fund V, Ltd.
Blossom Corners I
Appraised value of underlying property interests: $ 2,195,000
Cash and cash equivalent assets: $ 78,457
Other assets (1): $ 123,453
3/31/99 principal balance of mortgage financing
secured by the property: $(1,020,990)
Other liabilities(2): $ (65,573)
Adjustment (3):
Valuation of the partnership $ 1,310,347
Aggregate number of Units offered to all Limited
Partners in the Partnership (dollar value) 131,035
Number of Units offered to each Limited Partner
in the Partnership per $1,000 of original
investment (dollar value) 114
Percentage of all Units offered to the Limited
Partners in the Partnership in relation to the
maximum number of Units offered to Limited
Partners in all Exchange Partnerships: 5.25%
Total Number of Partnership Units
Original Price Per Unit
(1) Comprised of mortgage escrow account balance held by first mortgage
lender to cover taxes, insurance, maintenance and repair reserves
and other items, and miscellaneous assets.
(2) Comprised of security deposits payable, accounts payable to vendors,
notes or advances to third parties (including affiliates) and
accrued expenses ( such as real estate taxes).
(3) Comprised of subjective judgements made by the managing shareholder
to adjust for improvements, combination of phases of operation and
the installation of utility submeters.
5
<PAGE>
COMPENSATION
The Exchange Partnership currently compensates the general partner and its
affiliates by paying management and accounting fees. No other payments are made
to the general partner and its affiliates by the Exchange Partnership. Mr.
McGrath, an affiliate of the General Partner, is the sole shareholder and
director of the Managing Shareholder of the Trust. As described in greater
detail below, Mr. McGrath has agreed to serve as Chief Executive Officer of the
Operating Partnership and the Trust in exchange for up to 25,000 Common Shares
of the Trust or up to 25,000 Operating Partnership Units (amount to be
determined by the Executive Compensation Committee of the Trust) and health
benefits for the first year of operations and thereafter in exchange for
compensation and benefits determined annually by that committee. Additionally,
Mr. McGrath would have received 9.5% of all distributions on Units subscribed
for by him in connection with the formation of the Operating Partnership.
Compensation Paid
To General Partner and Affiliates
1996 1997 1998 March 31, 1999
---- ---- ---- --------------
Management Fee $13,930 $13,680 $17,459 $5,489
Accounting Fee $ 3,900 3,900 3,900 975
------- ------- ------- ------
$17,830 $17,680 $21,369 $6,484
Compensation
Which Would Have
Been Paid to General Partner
And Affiliates if Exchange Offer
Had Been Concluded(1)
1996 1997 1998 March 31, 1999
---- ---- ---- --------------
9.5% Distribution $7,025 $10,829 $4,618 $1,140
In connection with the formation of the Trust and the Operating
Partnership, the Original Investors (comprised of Mr. McGrath and Robert S.
Geiger, who had no prior affiliation with the Trust, the Operating Partnership,
the Managing Shareholder or any of the Exchange Partnerships) each subscribed
for 601,080 Units. In consideration for the Units subscribed for by them, the
Original Investors made a $100,000 capital contribution to the Operating
Partnership. If the Cash Offering and the Exchange Offering are fully
subscribed, the Units received by each of the Original Investors would represent
9.5% of the total Common Shares outstanding after completion of the Cash
Offering and exchange by the Operating Partnership of 2,500,000 of its Units for
units of limited partnership interest in real estate limited partnerships
(including any exchange completed pursuant to the Exchange Offering), calculated
on a fully diluted basis assuming all then outstanding Units (other than those
acquired by the Trust) have been exchanged into an equivalent number of Common
Shares. If, however, as of November 30, 1999, the Cash Offering and/or the
Exchange Offering has been completed and the number of Units subscribed for by
each Original Investor represents a percentage greater than 9.5% of the then
outstanding Common Shares, calculated on a fully diluted basis assuming that all
then outstanding Units (other than those acquired by the Trust) have been
exchanged into an equivalent number of Common Shares, each Original Investor has
agreed to return any excess Units to the Operating Partnership for cancellation.
As described further below, Mr. McGrath and Mr. Geiger have deposited Units
subscribed for by them into a security escrow account for six to nine years,
subject to earlier release under certain conditions.
6
<PAGE>
Strategic IX
(Exchange Hybrid)
SUPPLEMENT DATED _____, 1999
TO PROSPECTUS OF
BARON CAPITAL PROPERTIES, L.P.
("Operating Partnership")
DATED _____, 1999
THIS PROSPECTUS SUPPLEMENT FORMS A PART OF AND
SHOULD BE READ TOGETHER WITH THE PROSPECTUS
Baron Strategic Investment Fund IX, Ltd.,
a Florida limited partnership
(the "Exchange Partnership")
(General Partner: Baron Capital LXII, Inc.)
This Supplement relates to the offer (the "Exchange Offering") of Baron
Capital Properties, L.P. (the "Operating Partnership") to all limited partners
(the "Limited Partners") in the Exchange Partnership (and limited partners of 22
other real estate limited partnerships) to issue its units of limited
partnership interest ("Units" or "Operating Partnership Units") in exchange for
limited partnership interests in the Exchange Partnership (and in such other
limited partnerships). Limited Partners who do not participate in the Exchange
Offering will be entitled to retain their limited partnership interest in the
Exchange Partnership on substantially the same terms and conditions as their
original investment.
Each Limited Partner should consider all factors discussed below under
"Certain Risks" and under the heading "Risk Factors" set forth in the Prospectus
(the "Prospectus") of the Operating Partnership in evaluating the Exchange
Offering, the Operating Partnership, Baron Capital Trust (the "Trust"), the
general partner and a limited partner of the Operating Partnership, and the
business of the Operating Partnership and the Trust, including the following
material risk factors:
o The valuation of $10.00 per Unit used in the Exchange Offering is an
arbitrary amount, and it is possible that Common Shares of beneficial
interest in the Trust ("Common Shares") (into which the Units are
exchangeable on a one-for-one basis), if listed on a national securities
exchange, will trade at a lower price.
o The terms of the Exchange Offering were determined by the founders of the
Trust and the Operating Partnership (the "Original Investors") (described
below under "Compensation") with no separate counsel or advisor for the
Limited Partners.
o Offerees may not have an opportunity prior to their decision to accept the
Exchange Offering to evaluate a significant number of properties in which
the Operating Partnership and the Trust may acquire an interest, and they
will not have the benefit of knowing the extent of the Operating
Partnership's investment in respect of properties involved in the Exchange
Offering until the offering is completed.
o The Original Investors and affiliates have significant influence over the
operation of the Trust, the Operating Partnership and the Exchange
Partnerships, and the Exchange Offering involves transactions among them
which involve conflicts of interest which may result in decisions that do
not fully represent the interests of all Shareholders of the Trust,
holders of Units in the Operating Partnership (individually, a
"Unitholder" and collectively, the "Unitholders") and limited partners of
the Exchange Partnerships.
o The purchase price to be paid by the Operating Partnership and the Trust
for property interests will be based upon appraisals prepared by qualified
and licensed independent appraisal firms in respect of individual
residential apartment properties and other considerations. Offerees should
note, however, that appraisals are only estimates of value and should not
be relied upon as precise measures of true worth or realizable value.
There can be no assurance that the value of property interests acquired
will reflect their fair market value.
o Offerees who accept the offering may not experience returns comparable to
or in excess of those experienced by Limited Partners in the Exchange
Partnership.
o The current returns of the Exchange Partnership may not be achieved by the
Operating Partnership after completion of the offering and may be higher
than the current returns of other partnerships which participate in the
offering, although such other partnerships may offer higher future growth
potential than the Exchange Partnership.
o If the Exchange Offering is completed in respect of the Exchange
Partnership, Offerees who accept the Exchange Offering will be tendering
their current investment in the particular Exchange Partnership with an
<PAGE>
expected limited duration in exchange for an investment in the Operating
Partnership, which has an unlimited duration.
o Real estate investment risks exist such as the effect of economic and
other conditions on cash flows from real estate interests acquired by the
Trust and the Operating Partnership.
o Financing risks exist, including debt service obligations, the ability of
the Trust and the Operating Partnership to incur additional debt, the need
to refinance current indebtedness at various maturities, and the effect of
any increase in interest rates.
o The Operating Partnership expects to acquire subordinated mortgage
interests which are not recorded because of restrictions in subordination
agreements executed in connection with First Mortgages issued to other
unrelated lenders. If a mortgage is not recorded, the security interest of
the Operating Partnership would not be perfected and the respective debt
would rank pari passu with all other unsecured creditors of the borrower.
o The successful operation of the Trust and the Operating Partnership is
dependent on key management.
o There can be no assurance of the successful completion of the Exchange
Offering and the Trust's Cash Offering (described below).
o In exchange for his capital contribution of $50,000, each of the Original
Investors will receive Units initially valued at $6,010,800 if all
2,500,000 Common Shares are sold in the Cash Offering by November 30, 1999
and all 2,500,000 Units being offered in the Exchange Offering are issued
by such date. In addition, each will serve as an officer of the Trust, the
Operating Partnership and the Managing Shareholder and will receive
compensation for such services.
o No public market for the sale of Units is expected to ever develop, and,
although Common Shares (into which Units are exchangeable) may eventually
be listed on a national securities exchange, it is possible that no public
market for the Common Shares will ever develop or be maintained.
o Limited Partners who acquire Units in the Exchange Offering will pay a
higher price per Unit than the consideration the Original Investors paid
for Units issued to them in connection with the formation of the Trust and
the Operating Partnership.
o The Trust will be taxed as a corporation if it fails to qualify as a REIT.
2
<PAGE>
BUSINESS OF THE EXCHANGE PARTNERSHIP
The Exchange Partnership was organized as a Florida limited partnership in
June 1995. In November 1995, Baron Capital XI, Inc., the partnership's General
Partner (wholly owned and controlled, along with the Managing Shareholder of the
Trust, by Mr. McGrath) and an affiliate of the Managing Shareholder, sponsored a
private offering of 2,400 units of limited partner interest in the Exchange
Partnership at a purchase price of $500 per unit (gross proceeds of $1,200,000).
The offering was fully subscribed and closed in February 1997.
The partnership invested the net proceeds of its offering to acquire (i) a
41.1% limited partnership interest in a limited partnership which holds a fee
simple title to a residential apartment property located in Lakeland, Florida
(Crystal Court Property), and (ii) undivided interest in four unrecorded second
mortgage loans secured by residential apartment properties located in Tampa,
Florida (Candlewood Property), Orlando, Florida (Garden Terrace Property) and
Cincinnati, Ohio (Lake Sycamore Property -- under construction). The second
mortgage loans are subordinated to large-scale first mortgage financing and are
non-recourse beyond the underlying property and/or the assets of the debtor.
For further information concerning the Exchange Partnership, its original
private offering, the property interest it holds, the mortgage to which the
underlying property may be subject, and the estimated deferred taxable gain of
each Limited Partner who elects to participate in the Exchange Offering, please
refer to the tables set forth in the Exhibit I attached hereto. Also see the
tables relating to all of the Exchange Partnerships set forth in the Prospectus
at "Initial Real Property Investments" and in Exhibit B to the Prospectus.
CASH DISTRIBUTIONS TO LIMITED PARTNERS
During each year since inception, the Exchange Partnership has made cash
distributions to the Limited Partners in the following amounts:
All LP's Per LP Unit
-------- -----------
1997: $11,490 $ 4.79
1998: $83,734 $ 34.89
3/31/99: $ 3,000 $ 1.25
------- -------
Total: $98,224 $ 40.93
3
<PAGE>
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------
TABLE OF EXCHANGE VALUES
- -------------------------------------------------------------------------------------------------------------------
Valuation of Aggregate number of Units offered Number of Units offered Percentage of Units offered
Exchange to all Limited Partners in the to each Limited Partner to Limited Partners in the
Partnership(1) Exchange Partnership (assigned per $1,000 of original Exchange Partnership in
dollar value)(2) investment (assigned relation to Units offered
dollar value)(2) to limited partners in all
partnerships participating
in the initial transactions
of the Exchange Offering
<S> <C> <C> <C> <C> <C>
$1,251,000 125,100 Units ($1,251,000) 104 Units ($1,040) 5.01%
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
- ----------
(1) The valuation of this Exchange Equity Partnership to the extent of its
direct or indirect equity interest in a property is based upon the following
factors: (a) the estimated appraised market value of the underlying property
determined by qualified and licensed independent appraisal firms; (b) the
operating history of the property; (c) the current principal balance of first
mortgage and other indebtedness to which the property is subject; (d) the amount
of distributable cash flow currently being generated by the property; plus (e)
additional factors which the Managing Shareholder believes are appropriate to
consider including, among others, the property's overall current condition and
prospects for the property based upon improvements made or to be made to the
property and, in certain cases, the combination of two or more phases of the
property, which are expected to be owned upon completion of the Exchange
Offering, and the actual or potential benefits to be obtained by the
sub-metering of utilities in order to pass costs from the owner of the property
to individual tenants. The valuation of the Exchange Partnership to the extent
of its mortgage interest in properties and other debt interests is based upon
the following factors: (i) the current principal balance of the amount of debt
which is senior to the mortgage interest to be acquired and other indebtedness
to which property is subject; (ii) the estimated appraised market value of the
underlying property determined by qualified and licensed independent appraisal
firms; (iii) the operating history of the property; (iv) the amount of
distributable cash flow currently being generated by the property; plus (v)
additional factors which the Managing Shareholder believes are appropriate to
consider including, among others, the property's overall current condition and
prospects for the property based upon improvements made or to be made to the
property and, in certain cases, the combination of two or more phases of the
property, which are expected to be owned upon completion of the Exchange
Offering and the actual or potential benefits to be obtained by the sub-metering
of utilities in order to pass costs from the owner of the property to individual
tenants. (see "Valuation Method" below.)
(2) For purposes of the Exchange Offering, each Unit to be issued has been
assigned an initial value of $10.00, which is the price per share at which the
Trust is currently offering Common Shares in its Cash Offering. As described
below at "The Exchange Offering," Unitholders, including recipients of Units in
the Exchange Offering, may exchange all or a portion of their Units for an
equivalent number of Common Shares at any time following the completion of the
offering.
4
<PAGE>
Valuation of Partnership Baron Strategic Investment Fund IX, Ltd.
Candlewood II, Crystal Court I,
Garden Terrace, Sycamore
Appraised value of underlying property interests: $ 1,856,161
Cash and cash equivalent assets: $ 5,184
Other assets (1): $ 40,995
3/31/99 principal balance of mortgage financing
secured by the property: $ (723,967)
Other liabilities(2): $ (41,601)
Adjustment (3): $ 114,227
Valuation of the partnership $ 1,251,000
Aggregate number of Units offered to all Limited
Partners in the Partnership (dollar value) 125,100
Number of Units offered to each Limited Partner
in the Partnership per $1,000 of original
investment (dollar value) 104
Percentage of all Units offered
to the Limited Partners in the Partnership in
relation to the maximum number of
Units offered to Limited
Partners in all Exchange Partnerships: 5.01%
Total Number of Partnership Units 2,400
Original Price Per Unit $ 500
(1) Comprised of mortgage escrow account balance held by first mortgage
lender to cover taxes, insurance, maintenance and repair reserves
and other items, and miscellaneous assets.
(2) Comprised of security deposits payable, accounts payable to vendors,
notes or advances to third parties (including affiliates) and
accrued expenses ( such as real estate taxes).
(3) Comprised of subjective judgements made by the managing shareholder
to adjust for improvements, (full upgrade of interior and exterior
at Crystal Court), submeters installed (Crystal Court and
Candlewood).
5
<PAGE>
COMPENSATION
The Exchange Partnership currently compensates the general partner and its
affiliates by paying management and accounting fees. No other payments are made
to the general partner and its affiliates by the Exchange Partnership. Mr.
McGrath, an affiliate of the General Partner, is the sole shareholder and
director of the Managing Shareholder of the Trust. As described in greater
detail below, Mr. McGrath has agreed to serve as Chief Executive Officer of the
Operating Partnership and the Trust in exchange for up to 25,000 Common Shares
of the Trust or up to 25,000 Operating Partnership Units (amount to be
determined by the Executive Compensation Committee of the Trust) and health
benefits for the first year of operations and thereafter in exchange for
compensation and benefits determined annually by that committee. Additionally,
Mr. McGrath would have received 9.5% of all distributions on Units subscribed
for by him in connection with the formation of the Operating Partnership.
Compensation Paid
To General Partner and Affiliates
1996 1997 1998 March 31, 1999
---- ---- ---- --------------
Management Fee 0 0 0 0
Accounting Fee 0 0 0 0
Compensation
Which Would Have
Been Paid to General Partner
And Affiliates if Exchange Offer
Had Been Concluded(1)
1996 1997 1998 March 31, 1999
---- ---- ---- --------------
9.5% Distribution $0 $1,092 $7,955 285
In connection with the formation of the Trust and the Operating
Partnership, the Original Investors (comprised of Mr. McGrath and Robert S.
Geiger, who had no prior affiliation with the Trust, the Operating Partnership,
the Managing Shareholder or any of the Exchange Partnerships) each subscribed
for 601,080 Units. In consideration for the Units subscribed for by them, the
Original Investors made a $100,000 capital contribution to the Operating
Partnership. If the Cash Offering and the Exchange Offering are fully
subscribed, the Units received by each of the Original Investors would represent
9.5% of the total Common Shares outstanding after completion of the Cash
Offering and exchange by the Operating Partnership of 2,500,000 of its Units for
units of limited partnership interest in real estate limited partnerships
(including any exchange completed pursuant to the Exchange Offering), calculated
on a fully diluted basis assuming all then outstanding Units (other than those
acquired by the Trust) have been exchanged into an equivalent number of Common
Shares. If, however, as of November 30, 1999, the Cash Offering and/or the
Exchange Offering has been completed and the number of Units subscribed for by
each Original Investor represents a percentage greater than 9.5% of the then
outstanding Common Shares, calculated on a fully diluted basis assuming that all
then outstanding Units (other than those acquired by the Trust) have been
exchanged into an equivalent number of Common Shares, each Original Investor has
agreed to return any excess Units to the Operating Partnership for cancellation.
As described further below, Mr. McGrath and Mr. Geiger have deposited Units
subscribed for by them into a security escrow account for six to nine years,
subject to earlier release under certain conditions.
6
<PAGE>
Forest Glen IV
(Exchange Equity)
SUPPLEMENT DATED _____, 1999
TO PROSPECTUS OF
BARON CAPITAL PROPERTIES, L.P.
("Operating Partnership")
DATED _____, 1999
THIS PROSPECTUS SUPPLEMENT FORMS A PART OF AND
SHOULD BE READ TOGETHER WITH THE PROSPECTUS
Florida Income Appreciation Fund I, Ltd.,
a Florida limited partnership
(the "Exchange Partnership")
(General Partner: Baron Capital XI, Inc.)
This Supplement relates to the offer (the "Exchange Offering") of Baron
Capital Properties, L.P. (the "Operating Partnership") to all limited partners
(the "Limited Partners") in the Exchange Partnership (and limited partners of 22
other real estate limited partnerships) to issue its units of limited
partnership interest ("Units" or "Operating Partnership Units") in exchange for
limited partnership interests in the Exchange Partnership (and in such other
limited partnerships). Limited Partners who do not participate in the Exchange
Offering will be entitled to retain their limited partnership interest in the
Exchange Partnership on substantially the same terms and conditions as their
original investment.
Each Limited Partner should consider all factors discussed below under
"Certain Risks" and under the heading "Risk Factors" set forth in the Prospectus
(the "Prospectus") of the Operating Partnership in evaluating the Exchange
Offering, the Operating Partnership, Baron Capital Trust (the "Trust"), the
general partner and a limited partner of the Operating Partnership, and the
business of the Operating Partnership and the Trust, including the following
material risk factors:
o The valuation of $10.00 per Unit used in the Exchange Offering is an
arbitrary amount, and it is possible that Common Shares of beneficial
interest in the Trust ("Common Shares") (into which the Units are
exchangeable on a one-for-one basis), if listed on a national securities
exchange, will trade at a lower price.
o The terms of the Exchange Offering were determined by the founders of the
Trust and the Operating Partnership (the "Original Investors") (described
below under "Compensation") with no separate counsel or advisor for the
Limited Partners.
o Offerees may not have an opportunity prior to their decision to accept the
Exchange Offering to evaluate a significant number of properties in which
the Operating Partnership and the Trust may acquire an interest, and they
will not have the benefit of knowing the extent of the Operating
Partnership's investment in respect of properties involved in the Exchange
Offering until the offering is completed.
o The Original Investors and affiliates have significant influence over the
operation of the Trust, the Operating Partnership and the Exchange
Partnerships, and the Exchange Offering involves transactions among them
which involve conflicts of interest which may result in decisions that do
not fully represent the interests of all Shareholders of the Trust,
holders of Units in the Operating Partnership (individually, a
"Unitholder" and collectively, the "Unitholders") and limited partners of
the Exchange Partnerships.
o The purchase price to be paid by the Operating Partnership and the Trust
for property interests will be based upon appraisals prepared by qualified
and licensed independent appraisal firms in respect of individual
residential apartment properties and other considerations. Offerees should
note, however, that appraisals are only estimates of value and should not
be relied upon as precise measures of true worth or realizable value.
There can be no assurance that the value of property interests acquired
will reflect their fair market value.
o Offerees who accept the offering may not experience returns comparable to
or in excess of those experienced by Limited Partners in the Exchange
Partnership.
o The current returns of the Exchange Partnership may not be achieved by the
Operating Partnership after completion of the offering and may be higher
than the current returns of other partnerships which participate in the
offering, although such other partnerships may offer higher future growth
potential than the Exchange Partnership.
o If the Exchange Offering is completed in respect of the Exchange
Partnership, Offerees who accept the Exchange Offering will be tendering
their current investment in the particular Exchange Partnership with an
<PAGE>
expected limited duration in exchange for an investment in the Operating
Partnership, which has an unlimited duration.
o Real estate investment risks exist such as the effect of economic and
other conditions on cash flows from real estate interests acquired by the
Trust and the Operating Partnership.
o Financing risks exist, including debt service obligations, the ability of
the Trust and the Operating Partnership to incur additional debt, the need
to refinance current indebtedness at various maturities, and the effect of
any increase in interest rates.
o The Operating Partnership expects to acquire subordinated mortgage
interests which are not recorded because of restrictions in subordination
agreements executed in connection with First Mortgages issued to other
unrelated lenders. If a mortgage is not recorded, the security interest of
the Operating Partnership would not be perfected and the respective debt
would rank pari passu with all other unsecured creditors of the borrower.
o The successful operation of the Trust and the Operating Partnership is
dependent on key management.
o There can be no assurance of the successful completion of the Exchange
Offering and the Trust's Cash Offering (described below).
o In exchange for his capital contribution of $50,000, each of the Original
Investors will receive Units initially valued at $6,010,800 if all
2,500,000 Common Shares are sold in the Cash Offering by November 30, 1999
and all 2,500,000 Units being offered in the Exchange Offering are issued
by such date. In addition, each will serve as an officer of the Trust, the
Operating Partnership and the Managing Shareholder and will receive
compensation for such services.
o No public market for the sale of Units is expected to ever develop, and,
although Common Shares (into which Units are exchangeable) may eventually
be listed on a national securities exchange, it is possible that no public
market for the Common Shares will ever develop or be maintained.
o Limited Partners who acquire Units in the Exchange Offering will pay a
higher price per Unit than the consideration the Original Investors paid
for Units issued to them in connection with the formation of the Trust and
the Operating Partnership.
o The Trust will be taxed as a corporation if it fails to qualify as a REIT.
2
<PAGE>
BUSINESS OF THE EXCHANGE PARTNERSHIP
The Exchange Partnership was organized as a Florida limited partnership in
September 1993. In January 1995, Baron Capital IV, Inc., an affiliate of the
Managing Shareholder, became General Partner of the Exchange Partnership, which
in February 1994 commenced a private offering of 250 units of limited partner
interest in the Exchange Partnership at a purchase price of $1,000 per unit
(gross proceeds of $205,000). The offering was fully subscribed and closed in
September 1994.
The partnership invested the net proceeds of its offering to acquire all
of the limited partnership interests in a limited partnership which holds a fee
simple interest in a 80-unit residential apartment property referred to as the
Forest Glen Apartment Property (Phase IV) located in Daytona Beach, Florida. The
property is subject to mortgage and other indebtedness having a principal
balance at March 31, 1999 of approximately $277,161.
For further information concerning the Exchange Partnership, its original
private offering, the property interest it holds, the mortgage to which the
underlying property may be subject, and the estimated deferred taxable gain of
each Limited Partner who elects to participate in the Exchange Offering, please
refer to the tables set forth in the Exhibit I attached hereto. Also see the
tables relating to all of the Exchange Partnerships set forth in the Prospectus
at "Initial Real Property Investments" and in Exhibit B to the Prospectus.
CASH DISTRIBUTIONS TO LIMITED PARTNERS
During each year since inception, the Exchange Partnership has made cash
distributions to the Limited Partners in the following amounts:
All LP's Per LP Unit
-------- -----------
1996: $18,111 $ 88.35
1997: $ 1,990 $ 9.71
1998 : $ 8,160 $ 39.80
3/31/99: $ 0 $ 0
------- -------
Total: $28,261 $137.86
3
<PAGE>
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------
TABLE OF EXCHANGE VALUES
- -------------------------------------------------------------------------------------------------------------------
Valuation of Aggregate number of Units offered Number of Units offered Percentage of Units offered
Exchange to all Limited Partners in the to each Limited Partner to Limited Partners in the
Partnership(1) Exchange Partnership (assigned per $1,000 of original Exchange Partnership in
dollar value)(2) investment (assigned relation to Units offered
dollar value)(2) to limited partners in all
partnerships participating
in the initial transactions
of the Exchange Offering
<S> <C> <C> <C> <C> <C>
$254,159 25,416 Units ($254,160) 124 Units ($1,240) 1.02%
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
- ----------
(1) The valuation of this Exchange Equity Partnership to the extent of its
direct or indirect equity interest in a property is based upon the following
factors: (a) the estimated appraised market value of the underlying property
determined by qualified and licensed independent appraisal firms; (b) the
operating history of the property; (c) the current principal balance of first
mortgage and other indebtedness to which the property is subject; (d) the amount
of distributable cash flow currently being generated by the property; plus (e)
additional factors which the Managing Shareholder believes are appropriate to
consider including, among others, the property's overall current condition and
prospects for the property based upon improvements made or to be made to the
property and, in certain cases, the combination of two or more phases of the
property, which are expected to be owned upon completion of the Exchange
Offering, and the actual or potential benefits to be obtained by the
sub-metering of utilities in order to pass costs from the owner of the property
to individual tenants. The valuation of the Exchange Partnership to the extent
of its mortgage interest in properties and other debt interests is based upon
the following factors: (i) the current principal balance of the amount of debt
which is senior to the mortgage interest to be acquired and other indebtedness
to which property is subject; (ii) the estimated appraised market value of the
underlying property determined by qualified and licensed independent appraisal
firms; (iii) the operating history of the property; (iv) the amount of
distributable cash flow currently being generated by the property; plus (v)
additional factors which the Managing Shareholder believes are appropriate to
consider including, among others, the property's overall current condition and
prospects for the property based upon improvements made or to be made to the
property and, in certain cases, the combination of two or more phases of the
property, which are expected to be owned upon completion of the Exchange
Offering and the actual or potential benefits to be obtained by the sub-metering
of utilities in order to pass costs from the owner of the property to individual
tenants. (see "Valuation Method" below.)
(2) For purposes of the Exchange Offering, each Unit to be issued has been
assigned an initial value of $10.00, which is the price per share at which the
Trust is currently offering Common Shares in its Cash Offering. As described
below at "The Exchange Offering," Unitholders, including recipients of Units in
the Exchange Offering, may exchange all or a portion of their Units for an
equivalent number of Common Shares at any time following the completion of the
offering.
4
<PAGE>
Valuation of Partnership Florida Income Appreciation Fund I, Ltd.
Forest Glen IV
Appraised value of underlying property interests: $522,483.0
Cash and cash equivalent assets: $12,302.0
Other assets (1): $11,637.0
3/31/99 principal balance of mortgage financing
secured by the property: $(273,545)
Other liabilities(2): $ (18,718)
Adjustment (3):
Valuation of the partnership $ 254,159
Aggregate number of Units offered to all Limited
Partners in the Partnership (dollar value) 25,416
Number of Units offered to each Limited Partner
in the Partnership per $1,000 of original
investment (dollar value) 124
Percentage of all Units offered
to the Limited Partners in the
Partnership in relation to the
maximum number of Units offered to Limited
Partners in all Exchange Partnerships: 1.02%
Total Number of Partnership Units 800
Original Price Per Unit $ 1,000
(1) Comprised of mortgage escrow account balance held by first mortgage
lender to cover taxes, insurance, maintenance and repair reserves
and other items, and miscellaneous assets.
(2) Comprised of security deposits payable, accounts payable to vendors,
notes or advances to third parties (including affiliates) and
accrued expenses ( such as real estate taxes).
(3) Comprised of subjective judgements made by the managing shareholder
to adjust for improvements, combination of phases of operation and
the installation of utility submeters.
5
<PAGE>
COMPENSATION
The Exchange Partnership currently compensates the general partner and its
affiliates by paying management and accounting fees. No other payments are made
to the general partner and its affiliates by the Exchange Partnership. Mr.
McGrath, an affiliate of the General Partner, is the sole shareholder and
director of the Managing Shareholder of the Trust. As described in greater
detail below, Mr. McGrath has agreed to serve as Chief Executive Officer of the
Operating Partnership and the Trust in exchange for up to 25,000 Common Shares
of the Trust or up to 25,000 Operating Partnership Units (amount to be
determined by the Executive Compensation Committee of the Trust) and health
benefits for the first year of operations and thereafter in exchange for
compensation and benefits determined annually by that committee. Additionally,
Mr. McGrath would have received 9.5% of all distributions on Units subscribed
for by him in connection with the formation of the Operating Partnership.
Compensation Paid
To General Partner and Affiliates
1996 1997 1998 March 31, 1999
---- ---- ---- --------------
Management Fee $ 2,996 $ 2,929 $ 2,852 $2,293
Accounting Fee $ 3,900 $ 3,900 $ 3,900 $ 975
------- ------- ------- ------
$ 6,896 $ 6,829 $ 6,752 $3,268
Compensation
Which Would Have
Been Paid to General Partner
And Affiliates if Exchange Offer
Had Been Concluded(1)
1996 1997 1998 March 31, 1999
---- ---- ---- --------------
9.5% Distribution $1,721 $189 $775 $0
In connection with the formation of the Trust and the Operating
Partnership, the Original Investors (comprised of Mr. McGrath and Robert S.
Geiger, who had no prior affiliation with the Trust, the Operating Partnership,
the Managing Shareholder or any of the Exchange Partnerships) each subscribed
for 601,080 Units. In consideration for the Units subscribed for by them, the
Original Investors made a $100,000 capital contribution to the Operating
Partnership. If the Cash Offering and the Exchange Offering are fully
subscribed, the Units received by each of the Original Investors would represent
9.5% of the total Common Shares outstanding after completion of the Cash
Offering and exchange by the Operating Partnership of 2,500,000 of its Units for
units of limited partnership interest in real estate limited partnerships
(including any exchange completed pursuant to the Exchange Offering), calculated
on a fully diluted basis assuming all then outstanding Units (other than those
acquired by the Trust) have been exchanged into an equivalent number of Common
Shares. If, however, as of November 30, 1999, the Cash Offering and/or the
Exchange Offering has been completed and the number of Units subscribed for by
each Original Investor represents a percentage greater than 9.5% of the then
outstanding Common Shares, calculated on a fully diluted basis assuming that all
then outstanding Units (other than those acquired by the Trust) have been
exchanged into an equivalent number of Common Shares, each Original Investor has
agreed to return any excess Units to the Operating Partnership for cancellation.
As described further below, Mr. McGrath and Mr. Geiger have deposited Units
subscribed for by them into a security escrow account for six to nine years,
subject to earlier release under certain conditions.
6
<PAGE>
Stadium Club
(Exchange Equity)
SUPPLEMENT DATED _____, 1999
TO PROSPECTUS OF
BARON CAPITAL PROPERTIES, L.P.
("Operating Partnership")
DATED _____, 1999
THIS PROSPECTUS SUPPLEMENT FORMS A PART OF AND
SHOULD BE READ TOGETHER WITH THE PROSPECTUS
GSU Stadium Student Apartments, Ltd.,
a Florida limited partnership
(the "Exchange Partnership")
(General Partner: Baron Capital XI, Inc.)
This Supplement relates to the offer (the "Exchange Offering") of Baron
Capital Properties, L.P. (the "Operating Partnership") to all limited partners
(the "Limited Partners") in the Exchange Partnership (and limited partners of 22
other real estate limited partnerships) to issue its units of limited
partnership interest ("Units" or "Operating Partnership Units") in exchange for
limited partnership interests in the Exchange Partnership (and in such other
limited partnerships). Limited Partners who do not participate in the Exchange
Offering will be entitled to retain their limited partnership interest in the
Exchange Partnership on substantially the same terms and conditions as their
original investment.
Each Limited Partner should consider all factors discussed below under
"Certain Risks" and under the heading "Risk Factors" set forth in the Prospectus
(the "Prospectus") of the Operating Partnership in evaluating the Exchange
Offering, the Operating Partnership, Baron Capital Trust (the "Trust"), the
general partner and a limited partner of the Operating Partnership, and the
business of the Operating Partnership and the Trust, including the following
material risk factors:
o The valuation of $10.00 per Unit used in the Exchange Offering is an
arbitrary amount, and it is possible that Common Shares of beneficial
interest in the Trust ("Common Shares") (into which the Units are
exchangeable on a one-for-one basis), if listed on a national securities
exchange, will trade at a lower price.
o The terms of the Exchange Offering were determined by the founders of the
Trust and the Operating Partnership (the "Original Investors") (described
below under "Compensation") with no separate counsel or advisor for the
Limited Partners.
o Offerees may not have an opportunity prior to their decision to accept the
Exchange Offering to evaluate a significant number of properties in which
the Operating Partnership and the Trust may acquire an interest, and they
will not have the benefit of knowing the extent of the Operating
Partnership's investment in respect of properties involved in the Exchange
Offering until the offering is completed.
o The Original Investors and affiliates have significant influence over the
operation of the Trust, the Operating Partnership and the Exchange
Partnerships, and the Exchange Offering involves transactions among them
which involve conflicts of interest which may result in decisions that do
not fully represent the interests of all Shareholders of the Trust,
holders of Units in the Operating Partnership (individually, a
"Unitholder" and collectively, the "Unitholders") and limited partners of
the Exchange Partnerships.
o The purchase price to be paid by the Operating Partnership and the Trust
for property interests will be based upon appraisals prepared by qualified
and licensed independent appraisal firms in respect of individual
residential apartment properties and other considerations. Offerees should
note, however, that appraisals are only estimates of value and should not
be relied upon as precise measures of true worth or realizable value.
There can be no assurance that the value of property interests acquired
will reflect their fair market value.
o Offerees who accept the offering may not experience returns comparable to
or in excess of those experienced by Limited Partners in the Exchange
Partnership.
o The current returns of the Exchange Partnership may not be achieved by the
Operating Partnership after completion of the offering and may be higher
than the current returns of other partnerships which participate in the
offering, although such other partnerships may offer higher future growth
potential than the Exchange Partnership.
o If the Exchange Offering is completed in respect of the Exchange
Partnership, Offerees who accept the Exchange Offering will be tendering
their current investment in the particular Exchange Partnership with an
<PAGE>
expected limited duration in exchange for an investment in the Operating
Partnership, which has an unlimited duration.
o Real estate investment risks exist such as the effect of economic and
other conditions on cash flows from real estate interests acquired by the
Trust and the Operating Partnership.
o Financing risks exist, including debt service obligations, the ability of
the Trust and the Operating Partnership to incur additional debt, the need
to refinance current indebtedness at various maturities, and the effect of
any increase in interest rates.
o The Operating Partnership expects to acquire subordinated mortgage
interests which are not recorded because of restrictions in subordination
agreements executed in connection with First Mortgages issued to other
unrelated lenders. If a mortgage is not recorded, the security interest of
the Operating Partnership would not be perfected and the respective debt
would rank pari passu with all other unsecured creditors of the borrower.
o The successful operation of the Trust and the Operating Partnership is
dependent on key management.
o There can be no assurance of the successful completion of the Exchange
Offering and the Trust's Cash Offering (described below).
o In exchange for his capital contribution of $50,000, each of the Original
Investors will receive Units initially valued at $6,010,800 if all
2,500,000 Common Shares are sold in the Cash Offering by November 30, 1999
and all 2,500,000 Units being offered in the Exchange Offering are issued
by such date. In addition, each will serve as an officer of the Trust, the
Operating Partnership and the Managing Shareholder and will receive
compensation for such services.
o No public market for the sale of Units is expected to ever develop, and,
although Common Shares (into which Units are exchangeable) may eventually
be listed on a national securities exchange, it is possible that no public
market for the Common Shares will ever develop or be maintained.
o Limited Partners who acquire Units in the Exchange Offering will pay a
higher price per Unit than the consideration the Original Investors paid
for Units issued to them in connection with the formation of the Trust and
the Operating Partnership.
o The Trust will be taxed as a corporation if it fails to qualify as a REIT.
2
<PAGE>
BUSINESS OF THE EXCHANGE PARTNERSHIP
The Exchange Partnership was organized as a Florida limited partnership in
June 1995. In September 1995, Baron Capital X, Inc., the General Partner of the
Exchange Partnership and an affiliate of the Managing Shareholder, sponsored a
private offering of 2,000 units of limited partner interest in the Exchange
Partnership at a purchase price of $500 per unit (gross proceeds of $800,000).
The offering was fully subscribed and closed in February 1996.
The partnership invested the net proceeds of its offering to acquire all
of the limited partnership interests in a limited partnership which holds a fee
simple interest in a 60-unit residential apartment property referred too as the
Stadium Club Apartment Property located in Statesboro, Georgia. The property is
subject to mortgage and other indebtedness having a principal balance at March
31, 1999 of approximately $1,718,457.
For further information concerning the Exchange Partnership, its original
private offering, the property interest it holds, the mortgage to which the
underlying property may be subject, and the estimated deferred taxable gain of
each Limited Partner who elects to participate in the Exchange Offering, please
refer to the tables set forth in the Exhibit I attached hereto. Also see the
tables relating to all of the Exchange Partnerships set forth in the Prospectus
at "Initial Real Property Investments" and in Exhibit B to the Prospectus.
CASH DISTRIBUTIONS TO LIMITED PARTNERS
During each year since inception, the Exchange Partnership has made cash
distributions to the Limited Partners in the following amounts:
All LP's Per LP Unit
-------- -----------
1996: $100,059 $ 50.03
1997: $202,680 $101.34
1998 : $ 74,828 $ 37.41
3/31/99: $ 10,000 $ 5.00
-------- -------
Total: $287,567 $193.78
3
<PAGE>
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------
TABLE OF EXCHANGE VALUES
- -------------------------------------------------------------------------------------------------------------------
Valuation of Aggregate number of Units offered Number of Units offered Percentage of Units offered
Exchange to all Limited Partners in the to each Limited Partner to Limited Partners in the
Partnership(1) Exchange Partnership (assigned per $1,000 of original Exchange Partnership in
dollar value)(2) investment (assigned relation to Units offered
dollar value)(2) to limited partners in all
partnerships participating
in the initial transactions
of the Exchange Offering
<S> <C> <C> <C> <C> <C>
$1,051,818 105,182 Units ($1,051,820) 105 Units ($1,050) 4.21%
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
- ----------
(1) The valuation of this Exchange Equity Partnership to the extent of its
direct or indirect equity interest in a property is based upon the following
factors: (a) the estimated appraised market value of the underlying property
determined by qualified and licensed independent appraisal firms; (b) the
operating history of the property; (c) the current principal balance of first
mortgage and other indebtedness to which the property is subject; (d) the amount
of distributable cash flow currently being generated by the property; plus (e)
additional factors which the Managing Shareholder believes are appropriate to
consider including, among others, the property's overall current condition and
prospects for the property based upon improvements made or to be made to the
property and, in certain cases, the combination of two or more phases of the
property, which are expected to be owned upon completion of the Exchange
Offering, and the actual or potential benefits to be obtained by the
sub-metering of utilities in order to pass costs from the owner of the property
to individual tenants. The valuation of the Exchange Partnership to the extent
of its mortgage interest in properties and other debt interests is based upon
the following factors: (i) the current principal balance of the amount of debt
which is senior to the mortgage interest to be acquired and other indebtedness
to which property is subject; (ii) the estimated appraised market value of the
underlying property determined by qualified and licensed independent appraisal
firms; (iii) the operating history of the property; (iv) the amount of
distributable cash flow currently being generated by the property; plus (v)
additional factors which the Managing Shareholder believes are appropriate to
consider including, among others, the property's overall current condition and
prospects for the property based upon improvements made or to be made to the
property and, in certain cases, the combination of two or more phases of the
property, which are expected to be owned upon completion of the Exchange
Offering and the actual or potential benefits to be obtained by the sub-metering
of utilities in order to pass costs from the owner of the property to individual
tenants. (see "Valuation Method" below.)
(2) For purposes of the Exchange Offering, each Unit to be issued has been
assigned an initial value of $10.00, which is the price per share at which the
Trust is currently offering Common Shares in its Cash Offering. As described
below at "The Exchange Offering," Unitholders, including recipients of Units in
the Exchange Offering, may exchange all or a portion of their Units for an
equivalent number of Common Shares at any time following the completion of the
offering.
4
<PAGE>
Valuation of Partnership GSU Student Stadium Apartments, Ltd.
Stadium Club
Appraised value of underlying property interests: $ 2,800,000
Cash and cash equivalent assets: $ (32,163)
Other assets (1): $ 104,058
3/31/99 principal balance of mortgage financing
secured by the property: $(1,718,457)
Other liabilities(2): $ (119,620)
Adjustment (3): $ 18,000
Valuation of the partnership $ 1,051,818
Aggregate number of Units offered to all Limited
Partners in the Partnership (dollar value) $ 105,182
Number of Units offered to each Limited Partner
in the Partnership per $1,000 of original
investment (dollar value) 105
Percentage of all Units offered
to the Limited Partners in the
Partnership in relation to the
maximum number of Units offered to Limited
Partners in all Exchange Partnerships: 4.21%
Total Number of Partnership Units 2,000
Original Price Per Unit $ 500
(1) Comprised of mortgage escrow account balance held by first mortgage
lender to cover taxes, insurance, maintenance and repair reserves
and other items, and miscellaneous assets.
(2) Comprised of security deposits payable, accounts payable to vendors,
notes or advances to third parties (including affiliates) and
accrued expenses ( such as real estate taxes).
(3) Comprised of subjective judgements made by the managing shareholder
to adjust for improvements, made recently to property (addition of
computer lab).
5
<PAGE>
COMPENSATION
The Exchange Partnership currently compensates the general partner and its
affiliates by paying management and accounting fees. No other payments are made
to the general partner and its affiliates by the Exchange Partnership. Mr.
McGrath, an affiliate of the General Partner, is the sole shareholder and
director of the Managing Shareholder of the Trust. As described in greater
detail below, Mr. McGrath has agreed to serve as Chief Executive Officer of the
Operating Partnership and the Trust in exchange for up to 25,000 Common Shares
of the Trust or up to 25,000 Operating Partnership Units (amount to be
determined by the Executive Compensation Committee of the Trust) and health
benefits for the first year of operations and thereafter in exchange for
compensation and benefits determined annually by that committee. Additionally,
Mr. McGrath would have received 9.5% of all distributions on Units subscribed
for by him in connection with the formation of the Operating Partnership.
Compensation Paid
To General Partner and Affiliates
1996 1997 1998 March 31, 1999
---- ---- ---- --------------
Management Fee $22,486 $24,320 $22,082 $6,788
Accounting Fee $ 3,900 $ 3,900 $ 3,900 $ 975
------- ------- ------- ------
$26,366 $28,220 $25,982 $7,763
Compensation
Which Would Have
Been Paid to General Partner
And Affiliates if Exchange Offer
Had Been Concluded(1)
1996 1997 1998 March 31, 1999
---- ---- ---- --------------
9.5% Distribution $9,506 $9,755 $7,109 $950
In connection with the formation of the Trust and the Operating
Partnership, the Original Investors (comprised of Mr. McGrath and Robert S.
Geiger, who had no prior affiliation with the Trust, the Operating Partnership,
the Managing Shareholder or any of the Exchange Partnerships) each subscribed
for 601,080 Units. In consideration for the Units subscribed for by them, the
Original Investors made a $100,000 capital contribution to the Operating
Partnership. If the Cash Offering and the Exchange Offering are fully
subscribed, the Units received by each of the Original Investors would represent
9.5% of the total Common Shares outstanding after completion of the Cash
Offering and exchange by the Operating Partnership of 2,500,000 of its Units for
units of limited partnership interest in real estate limited partnerships
(including any exchange completed pursuant to the Exchange Offering), calculated
on a fully diluted basis assuming all then outstanding Units (other than those
acquired by the Trust) have been exchanged into an equivalent number of Common
Shares. If, however, as of November 30, 1999, the Cash Offering and/or the
Exchange Offering has been completed and the number of Units subscribed for by
each Original Investor represents a percentage greater than 9.5% of the then
outstanding Common Shares, calculated on a fully diluted basis assuming that all
then outstanding Units (other than those acquired by the Trust) have been
exchanged into an equivalent number of Common Shares, each Original Investor has
agreed to return any excess Units to the Operating Partnership for cancellation.
As described further below, Mr. McGrath and Mr. Geiger have deposited Units
subscribed for by them into a security escrow account for six to nine years,
subject to earlier release under certain conditions.
6
<PAGE>
Brevard Supplement
(Exchange Mortgage)
SUPPLEMENT DATED _____, 1999
TO PROSPECTUS OF
BARON CAPITAL PROPERTIES, L.P.
("Operating Partnership")
DATED _____, 1999
THIS PROSPECTUS SUPPLEMENT FORMS A PART OF AND
SHOULD BE READ TOGETHER WITH THE PROSPECTUS
Brevard Mortgage Program, Ltd.,
a Florida limited partnership
(the "Exchange Partnership")
(General Partner: Baron Capital XII, Inc.)
This Supplement relates to the offer (the "Exchange Offering") of Baron
Capital Properties, L.P. (the "Operating Partnership") to all limited partners
(the "Limited Partners") in the Exchange Partnership (and limited partners of 22
other real estate limited partnerships) to issue its units of limited
partnership interest ("Units" or "Operating Partnership Units") in exchange for
limited partnership interests in the Exchange Partnership (and in such other
limited partnerships). Limited Partners who do not participate in the Exchange
Offering will be entitled to retain their limited partnership interest in the
Exchange Partnership on substantially the same terms and conditions as their
original investment.
Each Limited Partner should consider all factors discussed below under
"Certain Risks" and under the heading "Risk Factors" set forth in the Prospectus
(the "Prospectus") of the Operating Partnership in evaluating the Exchange
Offering, the Operating Partnership, Baron Capital Trust (the "Trust"), the
general partner and a limited partner of the Operating Partnership, and the
business of the Operating Partnership and the Trust, including the following
material risk factors:
o The valuation of $10.00 per Unit used in the Exchange Offering is an
arbitrary amount, and it is possible that Common Shares of beneficial
interest in the Trust ("Common Shares") (into which the Units are
exchangeable on a one-for-one basis), if listed on a national securities
exchange, will trade at a lower price.
o The terms of the Exchange Offering were determined by the founders of the
Trust and the Operating Partnership (the "Original Investors") (described
below under "Compensation") with no separate counsel or advisor for the
Limited Partners.
o Offerees may not have an opportunity prior to their decision to accept the
Exchange Offering to evaluate a significant number of properties in which
the Operating Partnership and the Trust may acquire an interest, and they
will not have the benefit of knowing the extent of the Operating
Partnership's investment in respect of properties involved in the Exchange
Offering until the offering is completed.
o The Original Investors and affiliates have significant influence over the
operation of the Trust, the Operating Partnership and the Exchange
Partnerships, and the Exchange Offering involves transactions among them
which involve conflicts of interest which may result in decisions that do
not fully represent the interests of all Shareholders of the Trust,
holders of Units in the Operating Partnership (individually, a
"Unitholder" and collectively, the "Unitholders") and limited partners of
the Exchange Partnerships.
o The purchase price to be paid by the Operating Partnership and the Trust
for property interests will be based upon appraisals prepared by qualified
and licensed independent appraisal firms in respect of individual
residential apartment properties and other considerations. Offerees should
note, however, that appraisals are only estimates of value and should not
be relied upon as precise measures of true worth or realizable value.
There can be no assurance that the value of property interests acquired
will reflect their fair market value.
o Offerees who accept the offering may not experience returns comparable to
or in excess of those experienced by Limited Partners in the Exchange
Partnership.
o The current returns of the Exchange Partnership may not be achieved by the
Operating Partnership after completion of the offering and may be higher
than the current returns of other partnerships which participate in the
offering, although such other partnerships may offer higher future growth
potential than the Exchange Partnership.
o If the Exchange Offering is completed in respect of the Exchange
Partnership, Offerees who accept the Exchange Offering will be tendering
their current investment in the particular Exchange Partnership with an
<PAGE>
expected limited duration in exchange for an investment in the Operating
Partnership, which has an unlimited duration.
o Real estate investment risks exist such as the effect of economic and
other conditions on cash flows from real estate interests acquired by the
Trust and the Operating Partnership.
o Financing risks exist, including debt service obligations, the ability of
the Trust and the Operating Partnership to incur additional debt, the need
to refinance current indebtedness at various maturities, and the effect of
any increase in interest rates.
o The Operating Partnership expects to acquire subordinated mortgage
interests which are not recorded because of restrictions in subordination
agreements executed in connection with First Mortgages issued to other
unrelated lenders. If a mortgage is not recorded, the security interest of
the Operating Partnership would not be perfected and the respective debt
would rank pari passu with all other unsecured creditors of the borrower.
o The successful operation of the Trust and the Operating Partnership is
dependent on key management.
o There can be no assurance of the successful completion of the Exchange
Offering and the Trust's Cash Offering (described below).
o In exchange for his capital contribution of $50,000, each of the Original
Investors will receive Units initially valued at $6,010,800 if all
2,500,000 Common Shares are sold in the Cash Offering by November 30, 1999
and all 2,500,000 Units being offered in the Exchange Offering are issued
by such date. In addition, each will serve as an officer of the Trust, the
Operating Partnership and the Managing Shareholder and will receive
compensation for such services.
o No public market for the sale of Units is expected to ever develop, and,
although Common Shares (into which Units are exchangeable) may eventually
be listed on a national securities exchange, it is possible that no public
market for the Common Shares will ever develop or be maintained.
o Limited Partners who acquire Units in the Exchange Offering will pay a
higher price per Unit than the consideration the Original Investors paid
for Units issued to them in connection with the formation of the Trust and
the Operating Partnership.
o The Trust will be taxed as a corporation if it fails to qualify as a REIT.
2
<PAGE>
BUSINESS OF THE EXCHANGE PARTNERSHIP
The Exchange Partnership was organized as a Florida limited partnership in
November 1995. Commencing September 1994, Baron Capital XII, Inc., the General
Partner of the Exchange Partnership and an affiliate of the Managing
Shareholder, sponsored a private offering of 575 units of limited partner
interest in the Exchange Partnership at a purchase price of $1,000 per unit
(gross proceeds of $575,000). The offering was fully subscribed and closed in
April 1996.
The partnership invested the net proceeds of its offering to acquire three
unrecorded Subordinated Mortgage Loans secured by a 64-unit residential
apartment property referred to as the Meadowdale Property located in Melbourne,
Florida. The Subordinated Mortgage Loans are subordinated to first mortgage
financing and are non-recourse beyond the underlying property and/or the assets
of the debtor.
For further information concerning the Exchange Partnership, its original
private offering, the property interest it holds, the mortgage to which the
underlying property may be subject, and the estimated deferred taxable gain of
each Limited Partner who elects to participate in the Exchange Offering, please
refer to the tables set forth in the Exhibit I attached hereto. Also see the
tables relating to all of the Exchange Partnerships set forth in the Prospectus
at "Initial Real Property Investments" and in Exhibit B to the Prospectus.
CASH DISTRIBUTIONS TO LIMITED PARTNERS
During each year since inception, the Exchange Partnership has made cash
distributions to the Limited Partners in the following amounts:
All LP's Per LP Unit
-------- -----------
1996: $ 48,995 $ 85.21
1997: $ 57,500 $100.00
1998 : $ 57,500 $100.00
3/31/99: $ 0 $ 0
-------- -------
Total: $163,995 $285.21
3
<PAGE>
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------
TABLE OF EXCHANGE VALUES
- -------------------------------------------------------------------------------------------------------------------
Valuation of Aggregate number of Units offered Number of Units offered Percentage of Units offered
Exchange to all Limited Partners in the to each Limited Partner to Limited Partners in the
Partnership(1) Exchange Partnership (assigned per $1,000 of original Exchange Partnership in
dollar value)(2) investment (assigned relation to Units offered
dollar value)(2) to limited partners in all
partnerships participating
in the initial transactions
of the Exchange Offering
<S> <C> <C> <C> <C> <C>
$624,738 62,474 Units ($624,740) 109 Units ($1,090) 2.50%
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
- ----------
(1) The valuation of this Exchange Equity Partnership to the extent of its
direct or indirect equity interest in a property is based upon the following
factors: (a) the estimated appraised market value of the underlying property
determined by qualified and licensed independent appraisal firms; (b) the
operating history of the property; (c) the current principal balance of first
mortgage and other indebtedness to which the property is subject; (d) the amount
of distributable cash flow currently being generated by the property; plus (e)
additional factors which the Managing Shareholder believes are appropriate to
consider including, among others, the property's overall current condition and
prospects for the property based upon improvements made or to be made to the
property and, in certain cases, the combination of two or more phases of the
property, which are expected to be owned upon completion of the Exchange
Offering, and the actual or potential benefits to be obtained by the
sub-metering of utilities in order to pass costs from the owner of the property
to individual tenants. The valuation of the Exchange Partnership to the extent
of its mortgage interest in properties and other debt interests is based upon
the following factors: (i) the current principal balance of the amount of debt
which is senior to the mortgage interest to be acquired and other indebtedness
to which property is subject; (ii) the estimated appraised market value of the
underlying property determined by qualified and licensed independent appraisal
firms; (iii) the operating history of the property; (iv) the amount of
distributable cash flow currently being generated by the property; plus (v)
additional factors which the Managing Shareholder believes are appropriate to
consider including, among others, the property's overall current condition and
prospects for the property based upon improvements made or to be made to the
property and, in certain cases, the combination of two or more phases of the
property, which are expected to be owned upon completion of the Exchange
Offering and the actual or potential benefits to be obtained by the sub-metering
of utilities in order to pass costs from the owner of the property to individual
tenants. (see "Valuation Method" below.)
(2) For purposes of the Exchange Offering, each Unit to be issued has been
assigned an initial value of $10.00, which is the price per share at which the
Trust is currently offering Common Shares in its Cash Offering. As described
below at "The Exchange Offering," Unitholders, including recipients of Units in
the Exchange Offering, may exchange all or a portion of their Units for an
equivalent number of Common Shares at any time following the completion of the
offering.
4
<PAGE>
Valuation of Partnership Brevard Mortgage Program, Ltd.
Meadowdale
Appraised value of underlying property interests: $ 1,717,000
Cash and cash equivalent assets: $ 30,819
Other assets (1): $ 28,450
3/31/99 principal balance of mortgage financing
secured by the property: $ (949,411)
Other liabilities(2): $ (202,120)
Adjustment (3): $ --
Valuation of the partnership $ 624,738
Aggregate number of Units offered to all Limited
Partners in the Partnership (dollar value) 62,474
Number of Units offered to each Limited Partner
in the Partnership per $1,000 of original
investment (dollar value) 109
Percentage of all Units offered to
the Limited Partners in the Partnership in
relation to the maximum number of
Units offered to Limited Partners in
all Exchange Partnerships: 2.50%
Total Number of Partnership Units 575
Original Price Per Unit $ 1,000
(1) Comprised of mortgage escrow account balance held by first mortgage
lender to cover taxes, insurance, maintenance and repair reserves
and other items, and miscellaneous assets.
(2) Comprised of security deposits payable, accounts payable to vendors,
notes or advances to third parties (including affiliates) and
accrued expenses ( such as real estate taxes).
(3) Comprised of subjective judgements made by the managing shareholder
to adjust for improvements, combination of phases of operation and
the installation of utility submeters.
5
<PAGE>
COMPENSATION
The Exchange Partnership currently compensates the general partner and its
affiliates by paying management and accounting fees. No other payments are made
to the general partner and its affiliates by the Exchange Partnership. Mr.
McGrath, an affiliate of the General Partner, is the sole shareholder and
director of the Managing Shareholder of the Trust. As described in greater
detail below, Mr. McGrath has agreed to serve as Chief Executive Officer of the
Operating Partnership and the Trust in exchange for up to 25,000 Common Shares
of the Trust or up to 25,000 Operating Partnership Units (amount to be
determined by the Executive Compensation Committee of the Trust) and health
benefits for the first year of operations and thereafter in exchange for
compensation and benefits determined annually by that committee. Additionally,
Mr. McGrath would have received 9.5% of all distributions on Units subscribed
for by him in connection with the formation of the Operating Partnership.
Compensation Paid
To General Partner and Affiliates
1996 1997 1998 March 31, 1999
---- ---- ---- --------------
Management Fee $ 0 $ 0 $ 0 $ 0
Accounting Fee $ 0 $ 0 $ 0 $ 0
Compensation
Which Would Have
Been Paid to General Partner
And Affiliates if Exchange Offer
Had Been Concluded(1)
1996 1997 1998 March 31, 1999
---- ---- ---- --------------
9.5% Distribution $4,655 $5,463 $5,463 $0
In connection with the formation of the Trust and the Operating
Partnership, the Original Investors (comprised of Mr. McGrath and Robert S.
Geiger, who had no prior affiliation with the Trust, the Operating Partnership,
the Managing Shareholder or any of the Exchange Partnerships) each subscribed
for 601,080 Units. In consideration for the Units subscribed for by them, the
Original Investors made a $100,000 capital contribution to the Operating
Partnership. If the Cash Offering and the Exchange Offering are fully
subscribed, the Units received by each of the Original Investors would represent
9.5% of the total Common Shares outstanding after completion of the Cash
Offering and exchange by the Operating Partnership of 2,500,000 of its Units for
units of limited partnership interest in real estate limited partnerships
(including any exchange completed pursuant to the Exchange Offering), calculated
on a fully diluted basis assuming all then outstanding Units (other than those
acquired by the Trust) have been exchanged into an equivalent number of Common
Shares. If, however, as of November 30, 1999, the Cash Offering and/or the
Exchange Offering has been completed and the number of Units subscribed for by
each Original Investor represents a percentage greater than 9.5% of the then
outstanding Common Shares, calculated on a fully diluted basis assuming that all
then outstanding Units (other than those acquired by the Trust) have been
exchanged into an equivalent number of Common Shares, each Original Investor has
agreed to return any excess Units to the Operating Partnership for cancellation.
As described further below, Mr. McGrath and Mr. Geiger have deposited Units
subscribed for by them into a security escrow account for six to nine years,
subject to earlier release under certain conditions.
6
<PAGE>
Strategic
(Exchange Mortgage)
SUPPLEMENT DATED _____, 1999
TO PROSPECTUS OF
BARON CAPITAL PROPERTIES, L.P.
("Operating Partnership")
DATED _____, 1999
THIS PROSPECTUS SUPPLEMENT FORMS A PART OF AND
SHOULD BE READ TOGETHER WITH THE PROSPECTUS
Baron Strategic Investment Fund, Ltd.,
a Florida limited partnership
(the "Exchange Partnership")
(General Partner: Baron Capital XI, Inc.)
This Supplement relates to the offer (the "Exchange Offering") of Baron
Capital Properties, L.P. (the "Operating Partnership") to all limited partners
(the "Limited Partners") in the Exchange Partnership (and limited partners of 22
other real estate limited partnerships) to issue its units of limited
partnership interest ("Units" or "Operating Partnership Units") in exchange for
limited partnership interests in the Exchange Partnership (and in such other
limited partnerships). Limited Partners who do not participate in the Exchange
Offering will be entitled to retain their limited partnership interest in the
Exchange Partnership on substantially the same terms and conditions as their
original investment.
Each Limited Partner should consider all factors discussed below under
"Certain Risks" and under the heading "Risk Factors" set forth in the Prospectus
(the "Prospectus") of the Operating Partnership in evaluating the Exchange
Offering, the Operating Partnership, Baron Capital Trust (the "Trust"), the
general partner and a limited partner of the Operating Partnership, and the
business of the Operating Partnership and the Trust, including the following
material risk factors:
o The valuation of $10.00 per Unit used in the Exchange Offering is an
arbitrary amount, and it is possible that Common Shares of beneficial
interest in the Trust ("Common Shares") (into which the Units are
exchangeable on a one-for-one basis), if listed on a national securities
exchange, will trade at a lower price.
o The terms of the Exchange Offering were determined by the founders of the
Trust and the Operating Partnership (the "Original Investors") (described
below under "Compensation") with no separate counsel or advisor for the
Limited Partners.
o Offerees may not have an opportunity prior to their decision to accept the
Exchange Offering to evaluate a significant number of properties in which
the Operating Partnership and the Trust may acquire an interest, and they
will not have the benefit of knowing the extent of the Operating
Partnership's investment in respect of properties involved in the Exchange
Offering until the offering is completed.
o The Original Investors and affiliates have significant influence over the
operation of the Trust, the Operating Partnership and the Exchange
Partnerships, and the Exchange Offering involves transactions among them
which involve conflicts of interest which may result in decisions that do
not fully represent the interests of all Shareholders of the Trust,
holders of Units in the Operating Partnership (individually, a
"Unitholder" and collectively, the "Unitholders") and limited partners of
the Exchange Partnerships.
o The purchase price to be paid by the Operating Partnership and the Trust
for property interests will be based upon appraisals prepared by qualified
and licensed independent appraisal firms in respect of individual
residential apartment properties and other considerations. Offerees should
note, however, that appraisals are only estimates of value and should not
be relied upon as precise measures of true worth or realizable value.
There can be no assurance that the value of property interests acquired
will reflect their fair market value.
o Offerees who accept the offering may not experience returns comparable to
or in excess of those experienced by Limited Partners in the Exchange
Partnership.
o The current returns of the Exchange Partnership may not be achieved by the
Operating Partnership after completion of the offering and may be higher
than the current returns of other partnerships which participate in the
offering, although such other partnerships may offer higher future growth
potential than the Exchange Partnership.
o If the Exchange Offering is completed in respect of the Exchange
Partnership, Offerees who accept the Exchange Offering will be tendering
their current investment in the particular Exchange Partnership with an
<PAGE>
expected limited duration in exchange for an investment in the Operating
Partnership, which has an unlimited duration.
o Real estate investment risks exist such as the effect of economic and
other conditions on cash flows from real estate interests acquired by the
Trust and the Operating Partnership.
o Financing risks exist, including debt service obligations, the ability of
the Trust and the Operating Partnership to incur additional debt, the need
to refinance current indebtedness at various maturities, and the effect of
any increase in interest rates.
o The Operating Partnership expects to acquire subordinated mortgage
interests which are not recorded because of restrictions in subordination
agreements executed in connection with First Mortgages issued to other
unrelated lenders. If a mortgage is not recorded, the security interest of
the Operating Partnership would not be perfected and the respective debt
would rank pari passu with all other unsecured creditors of the borrower.
o The successful operation of the Trust and the Operating Partnership is
dependent on key management.
o There can be no assurance of the successful completion of the Exchange
Offering and the Trust's Cash Offering (described below).
o In exchange for his capital contribution of $50,000, each of the Original
Investors will receive Units initially valued at $6,010,800 if all
2,500,000 Common Shares are sold in the Cash Offering by November 30, 1999
and all 2,500,000 Units being offered in the Exchange Offering are issued
by such date. In addition, each will serve as an officer of the Trust, the
Operating Partnership and the Managing Shareholder and will receive
compensation for such services.
o No public market for the sale of Units is expected to ever develop, and,
although Common Shares (into which Units are exchangeable) may eventually
be listed on a national securities exchange, it is possible that no public
market for the Common Shares will ever develop or be maintained.
o Limited Partners who acquire Units in the Exchange Offering will pay a
higher price per Unit than the consideration the Original Investors paid
for Units issued to them in connection with the formation of the Trust and
the Operating Partnership.
o The Trust will be taxed as a corporation if it fails to qualify as a REIT.
2
<PAGE>
BUSINESS OF THE EXCHANGE PARTNERSHIP
The Exchange Partnership was organized as a Florida limited partnership in
April 1996. In June 1996, Baron Capital XXXII, Inc., the partnership's General
Partner (wholly owned and controlled, along with the Managing Shareholder of the
Trust, by Mr. McGrath) sponsored a private offering of 2,400 units of limited
partner interest in the Exchange Partnership at a purchase price of $500 per
unit (gross proceeds of $1,200,000). The offering was fully subscribed and
closed in December 1996.
The Exchange Partnership invested the net proceeds of its offering to
acquire or provide (1) three unrecorded second mortgage loans secured by the
Blossom Corners Property (Phase II) and (2) an unrecorded second mortgage loan
secured by the Lake Sycamore Property under development (the "Second Mortgage
Loans"). The second mortgage loans are subordinated to large-scale first
mortgage financing and are non-recourse beyond the underlying property and/or
the assets of the debtor.
For further information concerning the Exchange Partnership, its original
private offering, the property interest it holds, the mortgage to which the
underlying property may be subject, and the estimated deferred taxable gain of
each Limited Partner who elects to participate in the Exchange Offering, please
refer to the tables set forth in the Exhibit I attached hereto. Also see the
tables relating to all of the Exchange Partnerships set forth in the Prospectus
at "Initial Real Property Investments" and in Exhibit B to the Prospectus.
CASH DISTRIBUTIONS TO LIMITED PARTNERS
During each year since inception, the Exchange Partnership has made cash
distributions to the Limited Partners in the following amounts:
All LP's Per LP Unit
-------- -----------
1996: $ 31,409 $ 13.09
1997: $116,000 $ 48.33
1998 : $ 51,000 $ 21.25
3/31/99: $ 12,000 $ 5.00
-------- -------
Total: $210,409 $ 87.67
3
<PAGE>
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------
TABLE OF EXCHANGE VALUES
- -------------------------------------------------------------------------------------------------------------------
Valuation of Aggregate number of Units offered Number of Units offered Percentage of Units offered
Exchange to all Limited Partners in the to each Limited Partner to Limited Partners in the
Partnership(1) Exchange Partnership (assigned per $1,000 of original Exchange Partnership in
dollar value)(2) investment (assigned relation to Units offered
dollar value)(2) to limited partners in all
partnerships participating
in the initial transactions
of the Exchange Offering
<S> <C> <C> <C> <C> <C>
$1,327,230 132,723 Units ($1,327,230) 111 Units ($1,110) 5.31%
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
- ----------
(1) The valuation of this Exchange Equity Partnership to the extent of its
direct or indirect equity interest in a property is based upon the following
factors: (a) the estimated appraised market value of the underlying property
determined by qualified and licensed independent appraisal firms; (b) the
operating history of the property; (c) the current principal balance of first
mortgage and other indebtedness to which the property is subject; (d) the amount
of distributable cash flow currently being generated by the property; plus (e)
additional factors which the Managing Shareholder believes are appropriate to
consider including, among others, the property's overall current condition and
prospects for the property based upon improvements made or to be made to the
property and, in certain cases, the combination of two or more phases of the
property, which are expected to be owned upon completion of the Exchange
Offering, and the actual or potential benefits to be obtained by the
sub-metering of utilities in order to pass costs from the owner of the property
to individual tenants. The valuation of the Exchange Partnership to the extent
of its mortgage interest in properties and other debt interests is based upon
the following factors: (i) the current principal balance of the amount of debt
which is senior to the mortgage interest to be acquired and other indebtedness
to which property is subject; (ii) the estimated appraised market value of the
underlying property determined by qualified and licensed independent appraisal
firms; (iii) the operating history of the property; (iv) the amount of
distributable cash flow currently being generated by the property; plus (v)
additional factors which the Managing Shareholder believes are appropriate to
consider including, among others, the property's overall current condition and
prospects for the property based upon improvements made or to be made to the
property and, in certain cases, the combination of two or more phases of the
property, which are expected to be owned upon completion of the Exchange
Offering and the actual or potential benefits to be obtained by the sub-metering
of utilities in order to pass costs from the owner of the property to individual
tenants. (see "Valuation Method" below.)
(2) For purposes of the Exchange Offering, each Unit to be issued has been
assigned an initial value of $10.00, which is the price per share at which the
Trust is currently offering Common Shares in its Cash Offering. As described
below at "The Exchange Offering," Unitholders, including recipients of Units in
the Exchange Offering, may exchange all or a portion of their Units for an
equivalent number of Common Shares at any time following the completion of the
offering.
4
<PAGE>
Valuation of Partnership Baron Strategic Investment Fund, Ltd.
Blossom Corners II
Appraised value of underlying property interests: $ 2,250,000
Cash and cash equivalent assets: $ 11,374
Other assets (1): $ 114,593
3/31/99 principal balance of mortgage financing
secured by the property: $(1,098,950)
Other liabilities(2): $ (40,787)
Adjustment (3): $ 91,000
Valuation of the partnership $ 1,327,230
Aggregate number of Units offered to all Limited
Partners in the Partnership (dollar value) 132,723
Number of Units offered to each Limited Partner
in the Partnership per $1,000 of original
investment (dollar value) 111
Percentage of all Units offered
to the Limited Partners in the
Partnership in relation to the maximum
number of Units offered to Limited
Partners in all Exchange Partnerships: 5.31%
Total Number of Partnership Units 2,400
Original Price Per Unit $ 500
(1) Comprised of mortgage escrow account balance held by first mortgage
lender to cover taxes, insurance, maintenance and repair reserves
and other items, and miscellaneous assets.
(2) Comprised of security deposits payable, accounts payable to vendors,
notes or advances to third parties (including affiliates) and
accrued expenses ( such as real estate taxes).
(3) Comprised of subjective judgements made by the managing shareholder
to adjust for the combination of phases of operation (2 phases).
5
<PAGE>
COMPENSATION
The Exchange Partnership currently compensates the general partner and its
affiliates by paying management and accounting fees. No other payments are made
to the general partner and its affiliates by the Exchange Partnership. Mr.
McGrath, an affiliate of the General Partner, is the sole shareholder and
director of the Managing Shareholder of the Trust. As described in greater
detail below, Mr. McGrath has agreed to serve as Chief Executive Officer of the
Operating Partnership and the Trust in exchange for up to 25,000 Common Shares
of the Trust or up to 25,000 Operating Partnership Units (amount to be
determined by the Executive Compensation Committee of the Trust) and health
benefits for the first year of operations and thereafter in exchange for
compensation and benefits determined annually by that committee. Additionally,
Mr. McGrath would have received 9.5% of all distributions on Units subscribed
for by him in connection with the formation of the Operating Partnership.
Compensation Paid
To General Partner and Affiliates
1996 1997 1998 March 31, 1999
---- ---- ---- --------------
Management Fee $ 0 $ 0 $ 0 $ 0
Accounting Fee $ 0 $ 0 $ 0 $ 0
Compensation
Which Would Have
Been Paid to General Partner
And Affiliates if Exchange Offer
Had Been Concluded(1)
1996 1997 1998 March 31, 1999
---- ---- ---- --------------
9.5% Distribution $2,984 $11,020 $4,845 $1,140
In connection with the formation of the Trust and the Operating
Partnership, the Original Investors (comprised of Mr. McGrath and Robert S.
Geiger, who had no prior affiliation with the Trust, the Operating Partnership,
the Managing Shareholder or any of the Exchange Partnerships) each subscribed
for 601,080 Units. In consideration for the Units subscribed for by them, the
Original Investors made a $100,000 capital contribution to the Operating
Partnership. If the Cash Offering and the Exchange Offering are fully
subscribed, the Units received by each of the Original Investors would represent
9.5% of the total Common Shares outstanding after completion of the Cash
Offering and exchange by the Operating Partnership of 2,500,000 of its Units for
units of limited partnership interest in real estate limited partnerships
(including any exchange completed pursuant to the Exchange Offering), calculated
on a fully diluted basis assuming all then outstanding Units (other than those
acquired by the Trust) have been exchanged into an equivalent number of Common
Shares. If, however, as of November 30, 1999, the Cash Offering and/or the
Exchange Offering has been completed and the number of Units subscribed for by
each Original Investor represents a percentage greater than 9.5% of the then
outstanding Common Shares, calculated on a fully diluted basis assuming that all
then outstanding Units (other than those acquired by the Trust) have been
exchanged into an equivalent number of Common Shares, each Original Investor has
agreed to return any excess Units to the Operating Partnership for cancellation.
As described further below, Mr. McGrath and Mr. Geiger have deposited Units
subscribed for by them into a security escrow account for six to nine years,
subject to earlier release under certain conditions.
6
<PAGE>
Strategic IV
(Exchange Mortgage)
SUPPLEMENT DATED _____, 1999
TO PROSPECTUS OF
BARON CAPITAL PROPERTIES, L.P.
("Operating Partnership")
DATED _____, 1999
THIS PROSPECTUS SUPPLEMENT FORMS A PART OF AND
SHOULD BE READ TOGETHER WITH THE PROSPECTUS
Baron Strategic Investment Fund IV, Ltd.,
a Florida limited partnership
(the "Exchange Partnership")
(General Partner: Baron Capital XVII, Inc.)
This Supplement relates to the offer (the "Exchange Offering") of Baron
Capital Properties, L.P. (the "Operating Partnership") to all limited partners
(the "Limited Partners") in the Exchange Partnership (and limited partners of 22
other real estate limited partnerships) to issue its units of limited
partnership interest ("Units" or "Operating Partnership Units") in exchange for
limited partnership interests in the Exchange Partnership (and in such other
limited partnerships). Limited Partners who do not participate in the Exchange
Offering will be entitled to retain their limited partnership interest in the
Exchange Partnership on substantially the same terms and conditions as their
original investment.
Each Limited Partner should consider all factors discussed below under
"Certain Risks" and under the heading "Risk Factors" set forth in the Prospectus
(the "Prospectus") of the Operating Partnership in evaluating the Exchange
Offering, the Operating Partnership, Baron Capital Trust (the "Trust"), the
general partner and a limited partner of the Operating Partnership, and the
business of the Operating Partnership and the Trust, including the following
material risk factors:
o The valuation of $10.00 per Unit used in the Exchange Offering is an
arbitrary amount, and it is possible that Common Shares of beneficial
interest in the Trust ("Common Shares") (into which the Units are
exchangeable on a one-for-one basis), if listed on a national securities
exchange, will trade at a lower price.
o The terms of the Exchange Offering were determined by the founders of the
Trust and the Operating Partnership (the "Original Investors") (described
below under "Compensation") with no separate counsel or advisor for the
Limited Partners.
o Offerees may not have an opportunity prior to their decision to accept the
Exchange Offering to evaluate a significant number of properties in which
the Operating Partnership and the Trust may acquire an interest, and they
will not have the benefit of knowing the extent of the Operating
Partnership's investment in respect of properties involved in the Exchange
Offering until the offering is completed.
o The Original Investors and affiliates have significant influence over the
operation of the Trust, the Operating Partnership and the Exchange
Partnerships, and the Exchange Offering involves transactions among them
which involve conflicts of interest which may result in decisions that do
not fully represent the interests of all Shareholders of the Trust,
holders of Units in the Operating Partnership (individually, a
"Unitholder" and collectively, the "Unitholders") and limited partners of
the Exchange Partnerships.
o The purchase price to be paid by the Operating Partnership and the Trust
for property interests will be based upon appraisals prepared by qualified
and licensed independent appraisal firms in respect of individual
residential apartment properties and other considerations. Offerees should
note, however, that appraisals are only estimates of value and should not
be relied upon as precise measures of true worth or realizable value.
There can be no assurance that the value of property interests acquired
will reflect their fair market value.
o Offerees who accept the offering may not experience returns comparable to
or in excess of those experienced by Limited Partners in the Exchange
Partnership.
o The current returns of the Exchange Partnership may not be achieved by the
Operating Partnership after completion of the offering and may be higher
than the current returns of other partnerships which participate in the
offering, although such other partnerships may offer higher future growth
potential than the Exchange Partnership.
o If the Exchange Offering is completed in respect of the Exchange
Partnership, Offerees who accept the Exchange Offering will be tendering
their current investment in the particular Exchange Partnership with an
<PAGE>
expected limited duration in exchange for an investment in the Operating
Partnership, which has an unlimited duration.
o Real estate investment risks exist such as the effect of economic and
other conditions on cash flows from real estate interests acquired by the
Trust and the Operating Partnership.
o Financing risks exist, including debt service obligations, the ability of
the Trust and the Operating Partnership to incur additional debt, the need
to refinance current indebtedness at various maturities, and the effect of
any increase in interest rates.
o The Operating Partnership expects to acquire subordinated mortgage
interests which are not recorded because of restrictions in subordination
agreements executed in connection with First Mortgages issued to other
unrelated lenders. If a mortgage is not recorded, the security interest of
the Operating Partnership would not be perfected and the respective debt
would rank pari passu with all other unsecured creditors of the borrower.
o The successful operation of the Trust and the Operating Partnership is
dependent on key management.
o There can be no assurance of the successful completion of the Exchange
Offering and the Trust's Cash Offering (described below).
o In exchange for his capital contribution of $50,000, each of the Original
Investors will receive Units initially valued at $6,010,800 if all
2,500,000 Common Shares are sold in the Cash Offering by November 30, 1999
and all 2,500,000 Units being offered in the Exchange Offering are issued
by such date. In addition, each will serve as an officer of the Trust, the
Operating Partnership and the Managing Shareholder and will receive
compensation for such services.
o No public market for the sale of Units is expected to ever develop, and,
although Common Shares (into which Units are exchangeable) may eventually
be listed on a national securities exchange, it is possible that no public
market for the Common Shares will ever develop or be maintained.
o Limited Partners who acquire Units in the Exchange Offering will pay a
higher price per Unit than the consideration the Original Investors paid
for Units issued to them in connection with the formation of the Trust and
the Operating Partnership.
o The Trust will be taxed as a corporation if it fails to qualify as a REIT.
2
<PAGE>
BUSINESS OF THE EXCHANGE PARTNERSHIP
The Exchange Partnership was organized as a Florida limited partnership in
October 1996. In November 1996, Baron Capital XVII, Inc., the partnership's
General Partner (wholly owned and controlled, along with the Managing
Shareholder of the Trust, by Mr. McGrath), sponsored a private offering of 2,000
units of limited partner interest in the Exchange Partnership at a purchase
price of $500 per unit (gross proceeds of $1,000,000). The offering was fully
subscribed and closed in April 1997.
The Exchange Partnership invested the net proceeds of its offering to
acquire two unrecorded second mortgage loans (the "Second Mortgage Loans")
secured by the Country Square Property -- Phase I. The second mortgage loans are
subordinated to large-scale first mortgage financing and are non-recourse beyond
the underlying property and/or the assets of the debtor.
For further information concerning the Exchange Partnership, its original
private offering, the property interest it holds, the mortgage to which the
underlying property may be subject, and the estimated deferred taxable gain of
each Limited Partner who elects to participate in the Exchange Offering, please
refer to the tables set forth in the Exhibit I attached hereto. Also see the
tables relating to all of the Exchange Partnerships set forth in the Prospectus
at "Initial Real Property Investments" and in Exhibit B to the Prospectus.
CASH DISTRIBUTIONS TO LIMITED PARTNERS
During each year since inception, the Exchange Partnership has made cash
distributions to the Limited Partners in the following amounts:
All LP's Per LP Unit
-------- -----------
1997: $ 43,484 $ 21.74
1998: $ 88,764 $ 44.38
3/31/99: $ 2,000 $ 1.00
-------- -------
Total: $135,248 $ 67.12
3
<PAGE>
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------
TABLE OF EXCHANGE VALUES
- -------------------------------------------------------------------------------------------------------------------
Valuation of Aggregate number of Units offered Number of Units offered Percentage of Units offered
Exchange to all Limited Partners in the to each Limited Partner to Limited Partners in the
Partnership(1) Exchange Partnership (assigned per $1,000 of original Exchange Partnership in
dollar value)(2) investment (assigned relation to Units offered
dollar value)(2) to limited partners in all
partnerships participating
in the initial transactions
of the Exchange Offering
<S> <C> <C> <C> <C> <C>
$1,040,000 104,000 Units ($1,040,000) 104 Units ($1,040) 4.16%
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
- ----------
(1) The valuation of this Exchange Equity Partnership to the extent of its
direct or indirect equity interest in a property is based upon the following
factors: (a) the estimated appraised market value of the underlying property
determined by qualified and licensed independent appraisal firms; (b) the
operating history of the property; (c) the current principal balance of first
mortgage and other indebtedness to which the property is subject; (d) the amount
of distributable cash flow currently being generated by the property; plus (e)
additional factors which the Managing Shareholder believes are appropriate to
consider including, among others, the property's overall current condition and
prospects for the property based upon improvements made or to be made to the
property and, in certain cases, the combination of two or more phases of the
property, which are expected to be owned upon completion of the Exchange
Offering, and the actual or potential benefits to be obtained by the
sub-metering of utilities in order to pass costs from the owner of the property
to individual tenants. The valuation of the Exchange Partnership to the extent
of its mortgage interest in properties and other debt interests is based upon
the following factors: (i) the current principal balance of the amount of debt
which is senior to the mortgage interest to be acquired and other indebtedness
to which property is subject; (ii) the estimated appraised market value of the
underlying property determined by qualified and licensed independent appraisal
firms; (iii) the operating history of the property; (iv) the amount of
distributable cash flow currently being generated by the property; plus (v)
additional factors which the Managing Shareholder believes are appropriate to
consider including, among others, the property's overall current condition and
prospects for the property based upon improvements made or to be made to the
property and, in certain cases, the combination of two or more phases of the
property, which are expected to be owned upon completion of the Exchange
Offering and the actual or potential benefits to be obtained by the sub-metering
of utilities in order to pass costs from the owner of the property to individual
tenants. (see "Valuation Method" below.)
(2) For purposes of the Exchange Offering, each Unit to be issued has been
assigned an initial value of $10.00, which is the price per share at which the
Trust is currently offering Common Shares in its Cash Offering. As described
below at "The Exchange Offering," Unitholders, including recipients of Units in
the Exchange Offering, may exchange all or a portion of their Units for an
equivalent number of Common Shares at any time following the completion of the
offering.
4
<PAGE>
Valuation of Partnership Baron Strategic Investment Fund IV, Ltd.
Country Square I
Appraised value of underlying property interests: $ 2,185,000
Cash and cash equivalent assets: $ 11,500
Other assets (1): $ 38,722
3/31/99 principal balance of mortgage financing
secured by the property: $(1,586,283)
Other liabilities(2): $ (27,244)
Adjustment (3): $ 418,305
Valuation of the partnership $ 1,040,000
Aggregate number of Units offered to all Limited
Partners in the Partnership (dollar value) 104,000
Number of Units offered to each Limited Partner
in the Partnership per $1,000 of original
investment (dollar value) 104
Percentage of all Units offered
to the Limited Partners in the
Partnership in relation to the
maximum number of Units offered to Limited
Partners in all Exchange Partnerships: 4.16%
Total Number of Partnership Units 2,000
Original Price Per Unit $ 500
(1) Comprised of mortgage escrow account balance held by first mortgage
lender to cover taxes, insurance, maintenance and repair reserves
and other items, and miscellaneous assets.
(2) Comprised of security deposits payable, accounts payable to vendors,
notes or advances to third parties (including affiliates) and
accrued expenses ( such as real estate taxes).
(3) Comprised of subjective judgements made by the managing shareholder
to adjust for improvements, (full interior exterior upgrade)
combination of phases of operation (2 phases) and the installation
of utility submeters.
5
<PAGE>
COMPENSATION
The Exchange Partnership currently compensates the general partner and its
affiliates by paying management and accounting fees. No other payments are made
to the general partner and its affiliates by the Exchange Partnership. Mr.
McGrath, an affiliate of the General Partner, is the sole shareholder and
director of the Managing Shareholder of the Trust. As described in greater
detail below, Mr. McGrath has agreed to serve as Chief Executive Officer of the
Operating Partnership and the Trust in exchange for up to 25,000 Common Shares
of the Trust or up to 25,000 Operating Partnership Units (amount to be
determined by the Executive Compensation Committee of the Trust) and health
benefits for the first year of operations and thereafter in exchange for
compensation and benefits determined annually by that committee. Additionally,
Mr. McGrath would have received 9.5% of all distributions on Units subscribed
for by him in connection with the formation of the Operating Partnership.
Compensation Paid
To General Partner and Affiliates
1996 1997 1998 March 31, 1999
---- ---- ---- --------------
Management Fee $0 $0 $0 $0
Accounting Fee $0 $0 $0 $0
Compensation
Which Would Have
Been Paid to General Partner
And Affiliates if Exchange Offer
Had Been Concluded(1)
1996 1997 1998 March 31, 1999
---- ---- ---- --------------
9.5% Distribution $32 $4,131 $8,433 $190
In connection with the formation of the Trust and the Operating
Partnership, the Original Investors (comprised of Mr. McGrath and Robert S.
Geiger, who had no prior affiliation with the Trust, the Operating Partnership,
the Managing Shareholder or any of the Exchange Partnerships) each subscribed
for 601,080 Units. In consideration for the Units subscribed for by them, the
Original Investors made a $100,000 capital contribution to the Operating
Partnership. If the Cash Offering and the Exchange Offering are fully
subscribed, the Units received by each of the Original Investors would represent
9.5% of the total Common Shares outstanding after completion of the Cash
Offering and exchange by the Operating Partnership of 2,500,000 of its Units for
units of limited partnership interest in real estate limited partnerships
(including any exchange completed pursuant to the Exchange Offering), calculated
on a fully diluted basis assuming all then outstanding Units (other than those
acquired by the Trust) have been exchanged into an equivalent number of Common
Shares. If, however, as of November 30, 1999, the Cash Offering and/or the
Exchange Offering has been completed and the number of Units subscribed for by
each Original Investor represents a percentage greater than 9.5% of the then
outstanding Common Shares, calculated on a fully diluted basis assuming that all
then outstanding Units (other than those acquired by the Trust) have been
exchanged into an equivalent number of Common Shares, each Original Investor has
agreed to return any excess Units to the Operating Partnership for cancellation.
As described further below, Mr. McGrath and Mr. Geiger have deposited Units
subscribed for by them into a security escrow account for six to nine years,
subject to earlier release under certain conditions.
6
s<PAGE>
Strategic V
(Exchange Mortgage)
SUPPLEMENT DATED _____, 1999
TO PROSPECTUS OF
BARON CAPITAL PROPERTIES, L.P.
("Operating Partnership")
DATED _____, 1999
THIS PROSPECTUS SUPPLEMENT FORMS A PART OF AND
SHOULD BE READ TOGETHER WITH THE PROSPECTUS
Baron Strategic Investment Fund V, Ltd.,
a Florida limited partnership
(the "Exchange Partnership")
(General Partner: Baron Capital XL, Inc.)
This Supplement relates to the offer (the "Exchange Offering") of Baron
Capital Properties, L.P. (the "Operating Partnership") to all limited partners
(the "Limited Partners") in the Exchange Partnership (and limited partners of 22
other real estate limited partnerships) to issue its units of limited
partnership interest ("Units" or "Operating Partnership Units") in exchange for
limited partnership interests in the Exchange Partnership (and in such other
limited partnerships). Limited Partners who do not participate in the Exchange
Offering will be entitled to retain their limited partnership interest in the
Exchange Partnership on substantially the same terms and conditions as their
original investment.
Each Limited Partner should consider all factors discussed below under
"Certain Risks" and under the heading "Risk Factors" set forth in the Prospectus
(the "Prospectus") of the Operating Partnership in evaluating the Exchange
Offering, the Operating Partnership, Baron Capital Trust (the "Trust"), the
general partner and a limited partner of the Operating Partnership, and the
business of the Operating Partnership and the Trust, including the following
material risk factors:
o The valuation of $10.00 per Unit used in the Exchange Offering is an
arbitrary amount, and it is possible that Common Shares of beneficial
interest in the Trust ("Common Shares") (into which the Units are
exchangeable on a one-for-one basis), if listed on a national securities
exchange, will trade at a lower price.
o The terms of the Exchange Offering were determined by the founders of the
Trust and the Operating Partnership (the "Original Investors") (described
below under "Compensation") with no separate counsel or advisor for the
Limited Partners.
o Offerees may not have an opportunity prior to their decision to accept the
Exchange Offering to evaluate a significant number of properties in which
the Operating Partnership and the Trust may acquire an interest, and they
will not have the benefit of knowing the extent of the Operating
Partnership's investment in respect of properties involved in the Exchange
Offering until the offering is completed.
o The Original Investors and affiliates have significant influence over the
operation of the Trust, the Operating Partnership and the Exchange
Partnerships, and the Exchange Offering involves transactions among them
which involve conflicts of interest which may result in decisions that do
not fully represent the interests of all Shareholders of the Trust,
holders of Units in the Operating Partnership (individually, a
"Unitholder" and collectively, the "Unitholders") and limited partners of
the Exchange Partnerships.
o The purchase price to be paid by the Operating Partnership and the Trust
for property interests will be based upon appraisals prepared by qualified
and licensed independent appraisal firms in respect of individual
residential apartment properties and other considerations. Offerees should
note, however, that appraisals are only estimates of value and should not
be relied upon as precise measures of true worth or realizable value.
There can be no assurance that the value of property interests acquired
will reflect their fair market value.
o Offerees who accept the offering may not experience returns comparable to
or in excess of those experienced by Limited Partners in the Exchange
Partnership.
o The current returns of the Exchange Partnership may not be achieved by the
Operating Partnership after completion of the offering and may be higher
than the current returns of other partnerships which participate in the
offering, although such other partnerships may offer higher future growth
potential than the Exchange Partnership.
o If the Exchange Offering is completed in respect of the Exchange
Partnership, Offerees who accept the Exchange Offering will be tendering
their current investment in the particular Exchange Partnership with an
<PAGE>
expected limited duration in exchange for an investment in the Operating
Partnership, which has an unlimited duration.
o Real estate investment risks exist such as the effect of economic and
other conditions on cash flows from real estate interests acquired by the
Trust and the Operating Partnership.
o Financing risks exist, including debt service obligations, the ability of
the Trust and the Operating Partnership to incur additional debt, the need
to refinance current indebtedness at various maturities, and the effect of
any increase in interest rates.
o The Operating Partnership expects to acquire subordinated mortgage
interests which are not recorded because of restrictions in subordination
agreements executed in connection with First Mortgages issued to other
unrelated lenders. If a mortgage is not recorded, the security interest of
the Operating Partnership would not be perfected and the respective debt
would rank pari passu with all other unsecured creditors of the borrower.
o The successful operation of the Trust and the Operating Partnership is
dependent on key management.
o There can be no assurance of the successful completion of the Exchange
Offering and the Trust's Cash Offering (described below).
o In exchange for his capital contribution of $50,000, each of the Original
Investors will receive Units initially valued at $6,010,800 if all
2,500,000 Common Shares are sold in the Cash Offering by November 30, 1999
and all 2,500,000 Units being offered in the Exchange Offering are issued
by such date. In addition, each will serve as an officer of the Trust, the
Operating Partnership and the Managing Shareholder and will receive
compensation for such services.
o No public market for the sale of Units is expected to ever develop, and,
although Common Shares (into which Units are exchangeable) may eventually
be listed on a national securities exchange, it is possible that no public
market for the Common Shares will ever develop or be maintained.
o Limited Partners who acquire Units in the Exchange Offering will pay a
higher price per Unit than the consideration the Original Investors paid
for Units issued to them in connection with the formation of the Trust and
the Operating Partnership.
o The Trust will be taxed as a corporation if it fails to qualify as a REIT.
2
<PAGE>
BUSINESS OF THE EXCHANGE PARTNERSHIP
The Exchange Partnership was organized as a Florida limited partnership in
October 1996. In November 1996, Baron Capital XL, Inc., the partnership's
General Partner (wholly owned and controlled, along with the Managing
Shareholder of the Trust, by Mr. McGrath), sponsored a private offering of 2,400
units of limited partner interest in the Exchange Partnership at a purchase
price of $500 per unit (gross proceeds of $1,200,000). The offering was fully
subscribed and closed in June 1997.
The partnership invested the net proceeds of its offering to acquire 10
unrecorded second mortgage loans (the "Second Mortgage Loans") secured by the
residential apartment properties located in Tampa, Florida (Candlewood Property
and Curiosity Creek Property) and Titusville, Florida (Sunrise Property). The
second mortgage loans are subordinated to large-scale first mortgage financing
and are non-recourse beyond the underlying property and/or the assets of the
debtor.
For further information concerning the Exchange Partnership, its original
private offering, the property interest it holds, the mortgage to which the
underlying property may be subject, and the estimated deferred taxable gain of
each Limited Partner who elects to participate in the Exchange Offering, please
refer to the tables set forth in the Exhibit I attached hereto. Also see the
tables relating to all of the Exchange Partnerships set forth in the Prospectus
at "Initial Real Property Investments" and in Exhibit B to the Prospectus.
CASH DISTRIBUTIONS TO LIMITED PARTNERS
During each year since inception, the Exchange Partnership has made cash
distributions to the Limited Partners in the following amounts:
All LP's Per LP Unit
-------- -----------
1997: $ 92,054 $ 38.36
1998 : $120,000 $ 50.00
3/31/99: $ 12,000 $ 5.00
-------- -------
Total: $224,054 $ 93.36
3
<PAGE>
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------
TABLE OF EXCHANGE VALUES
- -------------------------------------------------------------------------------------------------------------------
Valuation of Aggregate number of Units offered Number of Units offered Percentage of Units offered
Exchange to all Limited Partners in the to each Limited Partner to Limited Partners in the
Partnership(1) Exchange Partnership (assigned per $1,000 of original Exchange Partnership in
dollar value)(2) investment (assigned relation to Units offered
dollar value)(2) to limited partners in all
partnerships participating
in the initial transactions
of the Exchange Offering
<S> <C> <C> <C> <C> <C>
$1,265,358 126,536 Units ($1,265,360) 105 Units ($1,050) 5.07%
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
- ----------
(1) The valuation of this Exchange Equity Partnership to the extent of its
direct or indirect equity interest in a property is based upon the following
factors: (a) the estimated appraised market value of the underlying property
determined by qualified and licensed independent appraisal firms; (b) the
operating history of the property; (c) the current principal balance of first
mortgage and other indebtedness to which the property is subject; (d) the amount
of distributable cash flow currently being generated by the property; plus (e)
additional factors which the Managing Shareholder believes are appropriate to
consider including, among others, the property's overall current condition and
prospects for the property based upon improvements made or to be made to the
property and, in certain cases, the combination of two or more phases of the
property, which are expected to be owned upon completion of the Exchange
Offering, and the actual or potential benefits to be obtained by the
sub-metering of utilities in order to pass costs from the owner of the property
to individual tenants. The valuation of the Exchange Partnership to the extent
of its mortgage interest in properties and other debt interests is based upon
the following factors: (i) the current principal balance of the amount of debt
which is senior to the mortgage interest to be acquired and other indebtedness
to which property is subject; (ii) the estimated appraised market value of the
underlying property determined by qualified and licensed independent appraisal
firms; (iii) the operating history of the property; (iv) the amount of
distributable cash flow currently being generated by the property; plus (v)
additional factors which the Managing Shareholder believes are appropriate to
consider including, among others, the property's overall current condition and
prospects for the property based upon improvements made or to be made to the
property and, in certain cases, the combination of two or more phases of the
property, which are expected to be owned upon completion of the Exchange
Offering and the actual or potential benefits to be obtained by the sub-metering
of utilities in order to pass costs from the owner of the property to individual
tenants. (see "Valuation Method" below.)
(2) For purposes of the Exchange Offering, each Unit to be issued has been
assigned an initial value of $10.00, which is the price per share at which the
Trust is currently offering Common Shares in its Cash Offering. As described
below at "The Exchange Offering," Unitholders, including recipients of Units in
the Exchange Offering, may exchange all or a portion of their Units for an
equivalent number of Common Shares at any time following the completion of the
offering.
4
<PAGE>
Valuation of Partnership Baron Strategic Investment Fund V, Ltd.
Curiosity Creek, Sunrise I, Candlewood II
Appraised value of underlying property interests: $ 2,334,350
Cash and cash equivalent assets: $ 126,231
Other assets (1): $ 91,834
3/31/99 principal balance of mortgage financing
secured by the property: $(1,488,703)
Other liabilities(2): $ (46,353)
Adjustment (3): $ 248,000
Valuation of the partnership $ 1,265,358
Aggregate number of Units offered to all Limited
Partners in the Partnership (dollar value) 126,536
Number of Units offered to each Limited Partner
in the Partnership per $1,000 of original
investment (dollar value) 105
Percentage of all Units offered
to the Limited Partners in the
Partnership in relation to the
maximum number of Units offered to Limited
Partners in all Exchange Partnerships: 5.07%
Total Number of Partnership Units 2,400
Original Price Per Unit $ 500
(1) Comprised of mortgage escrow account balance held by first mortgage
lender to cover taxes, insurance, maintenance and repair reserves
and other items, and miscellaneous assets.
(2) Comprised of security deposits payable, accounts payable to vendors,
notes or advances to third parties (including affiliates) and
accrued expenses ( such as real estate taxes).
(3) Comprised of subjective judgements made by the managing shareholder
to adjust for improvements, (full interior and exterior renovations
on Curiosity and Sunrise I) combination of phases of operation (2
phases at Sunrise), and the full installation of submeters at each
site.
5
<PAGE>
COMPENSATION
The Exchange Partnership currently compensates the general partner and its
affiliates by paying management and accounting fees. No other payments are made
to the general partner and its affiliates by the Exchange Partnership. Mr.
McGrath, an affiliate of the General Partner, is the sole shareholder and
director of the Managing Shareholder of the Trust. As described in greater
detail below, Mr. McGrath has agreed to serve as Chief Executive Officer of the
Operating Partnership and the Trust in exchange for up to 25,000 Common Shares
of the Trust or up to 25,000 Operating Partnership Units (amount to be
determined by the Executive Compensation Committee of the Trust) and health
benefits for the first year of operations and thereafter in exchange for
compensation and benefits determined annually by that committee. Additionally,
Mr. McGrath would have received 9.5% of all distributions on Units subscribed
for by him in connection with the formation of the Operating Partnership.
Compensation Paid
To General Partner and Affiliates
1996 1997 1998 March 31, 1999
---- ---- ---- --------------
Management Fee $0 $0 $0 $0
Accounting Fee $0 $0 $0 $0
Compensation
Which Would Have
Been Paid to General Partner
And Affiliates if Exchange Offer
Had Been Concluded(1)
1996 1997 1998 March 31, 1999
---- ---- ---- --------------
9.5% Distribution $77 $8,745 $11,400 $1,140
In connection with the formation of the Trust and the Operating
Partnership, the Original Investors (comprised of Mr. McGrath and Robert S.
Geiger, who had no prior affiliation with the Trust, the Operating Partnership,
the Managing Shareholder or any of the Exchange Partnerships) each subscribed
for 601,080 Units. In consideration for the Units subscribed for by them, the
Original Investors made a $100,000 capital contribution to the Operating
Partnership. If the Cash Offering and the Exchange Offering are fully
subscribed, the Units received by each of the Original Investors would represent
9.5% of the total Common Shares outstanding after completion of the Cash
Offering and exchange by the Operating Partnership of 2,500,000 of its Units for
units of limited partnership interest in real estate limited partnerships
(including any exchange completed pursuant to the Exchange Offering), calculated
on a fully diluted basis assuming all then outstanding Units (other than those
acquired by the Trust) have been exchanged into an equivalent number of Common
Shares. If, however, as of November 30, 1999, the Cash Offering and/or the
Exchange Offering has been completed and the number of Units subscribed for by
each Original Investor represents a percentage greater than 9.5% of the then
outstanding Common Shares, calculated on a fully diluted basis assuming that all
then outstanding Units (other than those acquired by the Trust) have been
exchanged into an equivalent number of Common Shares, each Original Investor has
agreed to return any excess Units to the Operating Partnership for cancellation.
As described further below, Mr. McGrath and Mr. Geiger have deposited Units
subscribed for by them into a security escrow account for six to nine years,
subject to earlier release under certain conditions.
6
<PAGE>
Lamplight
(Exchange Hybred)
SUPPLEMENT DATED _____, 1999
TO PROSPECTUS OF
BARON CAPITAL PROPERTIES, L.P.
("Operating Partnership")
DATED _____, 1999
THIS PROSPECTUS SUPPLEMENT FORMS A PART OF AND
SHOULD BE READ TOGETHER WITH THE PROSPECTUS
Lamplight Court of Bellefontaine Apartments, Ltd.,
a Florida limited partnership
(the "Exchange Partnership")
(General Partner: Baron Capital IX, Inc.)
This Supplement relates to the offer (the "Exchange Offering") of Baron
Capital Properties, L.P. (the "Operating Partnership") to all limited partners
(the "Limited Partners") in the Exchange Partnership (and limited partners of 22
other real estate limited partnerships) to issue its units of limited
partnership interest ("Units" or "Operating Partnership Units") in exchange for
limited partnership interests in the Exchange Partnership (and in such other
limited partnerships). Limited Partners who do not participate in the Exchange
Offering will be entitled to retain their limited partnership interest in the
Exchange Partnership on substantially the same terms and conditions as their
original investment.
Each Limited Partner should consider all factors discussed below under
"Certain Risks" and under the heading "Risk Factors" set forth in the Prospectus
(the "Prospectus") of the Operating Partnership in evaluating the Exchange
Offering, the Operating Partnership, Baron Capital Trust (the "Trust"), the
general partner and a limited partner of the Operating Partnership, and the
business of the Operating Partnership and the Trust, including the following
material risk factors:
o The valuation of $10.00 per Unit used in the Exchange Offering is an
arbitrary amount, and it is possible that Common Shares of beneficial
interest in the Trust ("Common Shares") (into which the Units are
exchangeable on a one-for-one basis), if listed on a national securities
exchange, will trade at a lower price.
o The terms of the Exchange Offering were determined by the founders of the
Trust and the Operating Partnership (the "Original Investors") (described
below under "Compensation") with no separate counsel or advisor for the
Limited Partners.
o Offerees may not have an opportunity prior to their decision to accept the
Exchange Offering to evaluate a significant number of properties in which
the Operating Partnership and the Trust may acquire an interest, and they
will not have the benefit of knowing the extent of the Operating
Partnership's investment in respect of properties involved in the Exchange
Offering until the offering is completed.
o The Original Investors and affiliates have significant influence over the
operation of the Trust, the Operating Partnership and the Exchange
Partnerships, and the Exchange Offering involves transactions among them
which involve conflicts of interest which may result in decisions that do
not fully represent the interests of all Shareholders of the Trust,
holders of Units in the Operating Partnership (individually, a
"Unitholder" and collectively, the "Unitholders") and limited partners of
the Exchange Partnerships.
o The purchase price to be paid by the Operating Partnership and the Trust
for property interests will be based upon appraisals prepared by qualified
and licensed independent appraisal firms in respect of individual
residential apartment properties and other considerations. Offerees should
note, however, that appraisals are only estimates of value and should not
be relied upon as precise measures of true worth or realizable value.
There can be no assurance that the value of property interests acquired
will reflect their fair market value.
o Offerees who accept the offering may not experience returns comparable to
or in excess of those experienced by Limited Partners in the Exchange
Partnership.
o The current returns of the Exchange Partnership may not be achieved by the
Operating Partnership after completion of the offering and may be higher
than the current returns of other partnerships which participate in the
offering, although such other partnerships may offer higher future growth
potential than the Exchange Partnership.
o If the Exchange Offering is completed in respect of the Exchange
Partnership, Offerees who accept the Exchange Offering will be tendering
their current investment in the particular Exchange Partnership with an
<PAGE>
expected limited duration in exchange for an investment in the Operating
Partnership, which has an unlimited duration.
o Real estate investment risks exist such as the effect of economic and
other conditions on cash flows from real estate interests acquired by the
Trust and the Operating Partnership.
o Financing risks exist, including debt service obligations, the ability of
the Trust and the Operating Partnership to incur additional debt, the need
to refinance current indebtedness at various maturities, and the effect of
any increase in interest rates.
o The Operating Partnership expects to acquire subordinated mortgage
interests which are not recorded because of restrictions in subordination
agreements executed in connection with First Mortgages issued to other
unrelated lenders. If a mortgage is not recorded, the security interest of
the Operating Partnership would not be perfected and the respective debt
would rank pari passu with all other unsecured creditors of the borrower.
o The successful operation of the Trust and the Operating Partnership is
dependent on key management.
o There can be no assurance of the successful completion of the Exchange
Offering and the Trust's Cash Offering (described below).
o In exchange for his capital contribution of $50,000, each of the Original
Investors will receive Units initially valued at $6,010,800 if all
2,500,000 Common Shares are sold in the Cash Offering by November 30, 1999
and all 2,500,000 Units being offered in the Exchange Offering are issued
by such date. In addition, each will serve as an officer of the Trust, the
Operating Partnership and the Managing Shareholder and will receive
compensation for such services.
o No public market for the sale of Units is expected to ever develop, and,
although Common Shares (into which Units are exchangeable) may eventually
be listed on a national securities exchange, it is possible that no public
market for the Common Shares will ever develop or be maintained.
o Limited Partners who acquire Units in the Exchange Offering will pay a
higher price per Unit than the consideration the Original Investors paid
for Units issued to them in connection with the formation of the Trust and
the Operating Partnership.
o The Trust will be taxed as a corporation if it fails to qualify as a REIT.
2
<PAGE>
BUSINESS OF THE EXCHANGE PARTNERSHIP
The Exchange Partnership was organized as a Florida limited partnership in
February 1996. Commencing April 1996, Baron Capital IX, Inc., the General
Partner of the Exchange Partnership and an affiliate of the Managing
Shareholder, sponsored a private offering of 700 units of limited partner
interest in the Exchange Partnership at a purchase price of $1,000 per unit
(gross proceeds of $700,000). The offering was fully subscribed and closed in
November 1996.
The partnership invested the net proceeds of its offering to acquire (i) a
31.7% limited partnership which holds a fee simple interest in a 80-unit
residential apartment property referred to as the Lamplight Court Apartment
Property located in Bellefontaine, Ohio and (ii) two unrecorded Subordinated
Mortgage Loans secured by such property. The property is subject to mortgage and
other indebtedness having a principal balance at March 31, 1999 of approximately
$1,363,062.
For further information concerning the Exchange Partnership, its original
private offering, the property interest it holds, the mortgage to which the
underlying property may be subject, and the estimated deferred taxable gain of
each Limited Partner who elects to participate in the Exchange Offering, please
refer to the tables set forth in the Exhibit I attached hereto. Also see the
tables relating to all of the Exchange Partnerships set forth in the Prospectus
at "Initial Real Property Investments" and in Exhibit B to the Prospectus.
CASH DISTRIBUTIONS TO LIMITED PARTNERS
During each year since inception, the Exchange Partnership has made cash
distributions to the Limited Partners in the following amounts:
All LP's Per LP Unit
-------- -----------
1996: $ 32,925 $ 47.04
1997: $ 69,779 $ 99.68
1998 : $ 56,500 $ 80.71
3/31/99: $ 5,000 $ 7.14
-------- -------
Total: $164,204 $234.57
3
<PAGE>
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------
TABLE OF EXCHANGE VALUES
- -------------------------------------------------------------------------------------------------------------------
Valuation of Aggregate number of Units offered Number of Units offered Percentage of Units offered
Exchange to all Limited Partners in the to each Limited Partner to Limited Partners in the
Partnership(1) Exchange Partnership (assigned per $1,000 of original Exchange Partnership in
dollar value)(2) investment (assigned relation to Units offered
dollar value)(2) to limited partners in all
partnerships participating
in the initial transactions
of the Exchange Offering
<S> <C> <C> <C> <C> <C>
$781,757 78,176 Units ($781,760) 112 Units ($1,120) 3.13%
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
- ----------
(1) The valuation of this Exchange Equity Partnership to the extent of its
direct or indirect equity interest in a property is based upon the following
factors: (a) the estimated appraised market value of the underlying property
determined by qualified and licensed independent appraisal firms; (b) the
operating history of the property; (c) the current principal balance of first
mortgage and other indebtedness to which the property is subject; (d) the amount
of distributable cash flow currently being generated by the property; plus (e)
additional factors which the Managing Shareholder believes are appropriate to
consider including, among others, the property's overall current condition and
prospects for the property based upon improvements made or to be made to the
property and, in certain cases, the combination of two or more phases of the
property, which are expected to be owned upon completion of the Exchange
Offering, and the actual or potential benefits to be obtained by the
sub-metering of utilities in order to pass costs from the owner of the property
to individual tenants. The valuation of the Exchange Partnership to the extent
of its mortgage interest in properties and other debt interests is based upon
the following factors: (i) the current principal balance of the amount of debt
which is senior to the mortgage interest to be acquired and other indebtedness
to which property is subject; (ii) the estimated appraised market value of the
underlying property determined by qualified and licensed independent appraisal
firms; (iii) the operating history of the property; (iv) the amount of
distributable cash flow currently being generated by the property; plus (v)
additional factors which the Managing Shareholder believes are appropriate to
consider including, among others, the property's overall current condition and
prospects for the property based upon improvements made or to be made to the
property and, in certain cases, the combination of two or more phases of the
property, which are expected to be owned upon completion of the Exchange
Offering and the actual or potential benefits to be obtained by the sub-metering
of utilities in order to pass costs from the owner of the property to individual
tenants. (see "Valuation Method" below.)
(2) For purposes of the Exchange Offering, each Unit to be issued has been
assigned an initial value of $10.00, which is the price per share at which the
Trust is currently offering Common Shares in its Cash Offering. As described
below at "The Exchange Offering," Unitholders, including recipients of Units in
the Exchange Offering, may exchange all or a portion of their Units for an
equivalent number of Common Shares at any time following the completion of the
offering.
4
<PAGE>
Valuation of Partnership Lamplight Court of Bellefontaine, Ltd.
Lamplight
Appraised value of underlying property interests: $ 2,183,000
Cash and cash equivalent assets: $ 13,782
Other assets (1): $ 80,864
3/31/99 principal balance of mortgage financing
secured by the property: $(1,363,062)
Other liabilities(2): $ (187,827)
Adjustment (3): $ 55,000
Valuation of the partnership $ 781,757
Aggregate number of Units offered to all Limited
Partners in the Partnership (dollar value) 78,176
Number of Units offered to each Limited Partner
in the Partnership per $1,000 of original
investment (dollar value) 112
Percentage of all Units offered
to the Limited Partners in the
Partnership in relation to the
maximum number of Units offered to Limited
Partners in all Exchange Partnerships: 3.13%
Total Number of Partnership Units 700
Original Price Per Unit $ 1,000
(1) Comprised of mortgage escrow account balance held by first mortgage
lender to cover taxes, insurance, maintenance and repair reserves
and other items, and miscellaneous assets.
(2) Comprised of security deposits payable, accounts payable to vendors,
notes or advances to third parties (including affiliates) and
accrued expenses ( such as real estate taxes).
(3) Comprised of subjective judgements made by the managing shareholder
to adjust for improvements, (upgrading of all interiors and
exterior).
5
<PAGE>
COMPENSATION
The Exchange Partnership currently compensates the general partner and its
affiliates by paying management and accounting fees. No other payments are made
to the general partner and its affiliates by the Exchange Partnership. Mr.
McGrath, an affiliate of the General Partner, is the sole shareholder and
director of the Managing Shareholder of the Trust. As described in greater
detail below, Mr. McGrath has agreed to serve as Chief Executive Officer of the
Operating Partnership and the Trust in exchange for up to 25,000 Common Shares
of the Trust or up to 25,000 Operating Partnership Units (amount to be
determined by the Executive Compensation Committee of the Trust) and health
benefits for the first year of operations and thereafter in exchange for
compensation and benefits determined annually by that committee. Additionally,
Mr. McGrath would have received 9.5% of all distributions on Units subscribed
for by him in connection with the formation of the Operating Partnership.
Compensation Paid
To General Partner and Affiliates
1996 1997 1998 March 31, 1999
---- ---- ---- --------------
Management Fee $0 $0 $0 $0
Accounting Fee $0 $0 $0 $0
Compensation
Which Would Have
Been Paid to General Partner
And Affiliates if Exchange Offer
Had Been Concluded(1)
1996 1997 1998 March 31, 1999
---- ---- ---- --------------
9.5% Distribution $3,128 $6,629 $5,368 $475
In connection with the formation of the Trust and the Operating
Partnership, the Original Investors (comprised of Mr. McGrath and Robert S.
Geiger, who had no prior affiliation with the Trust, the Operating Partnership,
the Managing Shareholder or any of the Exchange Partnerships) each subscribed
for 601,080 Units. In consideration for the Units subscribed for by them, the
Original Investors made a $100,000 capital contribution to the Operating
Partnership. If the Cash Offering and the Exchange Offering are fully
subscribed, the Units received by each of the Original Investors would represent
9.5% of the total Common Shares outstanding after completion of the Cash
Offering and exchange by the Operating Partnership of 2,500,000 of its Units for
units of limited partnership interest in real estate limited partnerships
(including any exchange completed pursuant to the Exchange Offering), calculated
on a fully diluted basis assuming all then outstanding Units (other than those
acquired by the Trust) have been exchanged into an equivalent number of Common
Shares. If, however, as of November 30, 1999, the Cash Offering and/or the
Exchange Offering has been completed and the number of Units subscribed for by
each Original Investor represents a percentage greater than 9.5% of the then
outstanding Common Shares, calculated on a fully diluted basis assuming that all
then outstanding Units (other than those acquired by the Trust) have been
exchanged into an equivalent number of Common Shares, each Original Investor has
agreed to return any excess Units to the Operating Partnership for cancellation.
As described further below, Mr. McGrath and Mr. Geiger have deposited Units
subscribed for by them into a security escrow account for six to nine years,
subject to earlier release under certain conditions.
6
<PAGE>
Strategic VI
(Exchange Hybrid)
SUPPLEMENT DATED _____, 1999
TO PROSPECTUS OF
BARON CAPITAL PROPERTIES, L.P.
("Operating Partnership")
DATED _____, 1999
THIS PROSPECTUS SUPPLEMENT FORMS A PART OF AND
SHOULD BE READ TOGETHER WITH THE PROSPECTUS
Baron Strategic Investment Fund VI, Ltd.,
a Florida limited partnership
(the "Exchange Partnership")
(General Partner: Baron Capital XI, Inc.)
This Supplement relates to the offer (the "Exchange Offering") of Baron
Capital Properties, L.P. (the "Operating Partnership") to all limited partners
(the "Limited Partners") in the Exchange Partnership (and limited partners of 22
other real estate limited partnerships) to issue its units of limited
partnership interest ("Units" or "Operating Partnership Units") in exchange for
limited partnership interests in the Exchange Partnership (and in such other
limited partnerships). Limited Partners who do not participate in the Exchange
Offering will be entitled to retain their limited partnership interest in the
Exchange Partnership on substantially the same terms and conditions as their
original investment.
Each Limited Partner should consider all factors discussed below under
"Certain Risks" and under the heading "Risk Factors" set forth in the Prospectus
(the "Prospectus") of the Operating Partnership in evaluating the Exchange
Offering, the Operating Partnership, Baron Capital Trust (the "Trust"), the
general partner and a limited partner of the Operating Partnership, and the
business of the Operating Partnership and the Trust, including the following
material risk factors:
o The valuation of $10.00 per Unit used in the Exchange Offering is an
arbitrary amount, and it is possible that Common Shares of beneficial
interest in the Trust ("Common Shares") (into which the Units are
exchangeable on a one-for-one basis), if listed on a national securities
exchange, will trade at a lower price.
o The terms of the Exchange Offering were determined by the founders of the
Trust and the Operating Partnership (the "Original Investors") (described
below under "Compensation") with no separate counsel or advisor for the
Limited Partners.
o Offerees may not have an opportunity prior to their decision to accept the
Exchange Offering to evaluate a significant number of properties in which
the Operating Partnership and the Trust may acquire an interest, and they
will not have the benefit of knowing the extent of the Operating
Partnership's investment in respect of properties involved in the Exchange
Offering until the offering is completed.
o The Original Investors and affiliates have significant influence over the
operation of the Trust, the Operating Partnership and the Exchange
Partnerships, and the Exchange Offering involves transactions among them
which involve conflicts of interest which may result in decisions that do
not fully represent the interests of all Shareholders of the Trust,
holders of Units in the Operating Partnership (individually, a
"Unitholder" and collectively, the "Unitholders") and limited partners of
the Exchange Partnerships.
o The purchase price to be paid by the Operating Partnership and the Trust
for property interests will be based upon appraisals prepared by qualified
and licensed independent appraisal firms in respect of individual
residential apartment properties and other considerations. Offerees should
note, however, that appraisals are only estimates of value and should not
be relied upon as precise measures of true worth or realizable value.
There can be no assurance that the value of property interests acquired
will reflect their fair market value.
o Offerees who accept the offering may not experience returns comparable to
or in excess of those experienced by Limited Partners in the Exchange
Partnership.
o The current returns of the Exchange Partnership may not be achieved by the
Operating Partnership after completion of the offering and may be higher
than the current returns of other partnerships which participate in the
offering, although such other partnerships may offer higher future growth
potential than the Exchange Partnership.
o If the Exchange Offering is completed in respect of the Exchange
Partnership, Offerees who accept the Exchange Offering will be tendering
their current investment in the particular Exchange Partnership with an
<PAGE>
expected limited duration in exchange for an investment in the Operating
Partnership, which has an unlimited duration.
o Real estate investment risks exist such as the effect of economic and
other conditions on cash flows from real estate interests acquired by the
Trust and the Operating Partnership.
o Financing risks exist, including debt service obligations, the ability of
the Trust and the Operating Partnership to incur additional debt, the need
to refinance current indebtedness at various maturities, and the effect of
any increase in interest rates.
o The Operating Partnership expects to acquire subordinated mortgage
interests which are not recorded because of restrictions in subordination
agreements executed in connection with First Mortgages issued to other
unrelated lenders. If a mortgage is not recorded, the security interest of
the Operating Partnership would not be perfected and the respective debt
would rank pari passu with all other unsecured creditors of the borrower.
o The successful operation of the Trust and the Operating Partnership is
dependent on key management.
o There can be no assurance of the successful completion of the Exchange
Offering and the Trust's Cash Offering (described below).
o In exchange for his capital contribution of $50,000, each of the Original
Investors will receive Units initially valued at $6,010,800 if all
2,500,000 Common Shares are sold in the Cash Offering by November 30, 1999
and all 2,500,000 Units being offered in the Exchange Offering are issued
by such date. In addition, each will serve as an officer of the Trust, the
Operating Partnership and the Managing Shareholder and will receive
compensation for such services.
o No public market for the sale of Units is expected to ever develop, and,
although Common Shares (into which Units are exchangeable) may eventually
be listed on a national securities exchange, it is possible that no public
market for the Common Shares will ever develop or be maintained.
o Limited Partners who acquire Units in the Exchange Offering will pay a
higher price per Unit than the consideration the Original Investors paid
for Units issued to them in connection with the formation of the Trust and
the Operating Partnership.
o The Trust will be taxed as a corporation if it fails to qualify as a REIT.
2
<PAGE>
BUSINESS OF THE EXCHANGE PARTNERSHIP
The Exchange Partnership was organized as a Florida limited partnership in
June 1995. In November 1995, Baron Capital XI, Inc., the partnership's General
Partner (wholly owned and controlled, along with the Managing Shareholder of the
Trust, by Mr. McGrath) and an affiliate of the Managing Shareholder, sponsored a
private offering of 2,400 units of limited partner interest in the Exchange
Partnership at a purchase price of $500 per unit (gross proceeds of $1,200,000).
The offering was fully subscribed and closed in February 1997.
The partnership invested the net proceeds of its offering to acquire (i) a
57% limited partnership interest in a limited partnership which holds fee simple
title to a residential apartment property located in Orlando, Florida (Pineview
Property), (ii) undivided interests in four unrecorded second mortgage loans
secured by residential apartment properties located in Tampa, Florida
(Candlewood Property) and Orlando, Florida (Garden Terrace Property), and (iii)
a note payable from another Exchange Partnership which is secured by two
unrecorded second mortgages on a property located in Tampa, Florida. The second
mortgage loans are subordinated to large scale first mortgage financing and are
non-recourse beyond the underlying property and/or the assets of the debtor.
For further information concerning the Exchange Partnership, its original
private offering, the property interest it holds, the mortgage to which the
underlying property may be subject, and the estimated deferred taxable gain of
each Limited Partner who elects to participate in the Exchange Offering, please
refer to the tables set forth in the Exhibit I attached hereto. Also see the
tables relating to all of the Exchange Partnerships set forth in the Prospectus
at "Initial Real Property Investments" and in Exhibit B to the Prospectus.
CASH DISTRIBUTIONS TO LIMITED PARTNERS
During each year since inception, the Exchange Partnership has made cash
distributions to the Limited Partners in the following amounts:
All LP's Per LP Unit
-------- -----------
1996: $ 2,844 $ 1.19
1997: $112,157 $ 46.73
1998 : $ 98,850 $ 41.19
3/31/99: $ 8,550 $ 3.56
------- -------
Total: $222,401 $ 92.67
3
<PAGE>
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------
TABLE OF EXCHANGE VALUES
- -------------------------------------------------------------------------------------------------------------------
Valuation of Aggregate number of Units offered Number of Units offered Percentage of Units offered
Exchange to all Limited Partners in the to each Limited Partner to Limited Partners in the
Partnership(1) Exchange Partnership (assigned per $1,000 of original Exchange Partnership in
dollar value)(2) investment (assigned relation to Units offered
dollar value)(2) to limited partners in all
partnerships participating
in the initial transactions
of the Exchange Offering
<S> <C> <C> <C> <C> <C>
$1,253,314 125,331 Units ($1,252,310) 104 Units ($1,040) 5.02%
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
- ----------
(1) The valuation of this Exchange Equity Partnership to the extent of its
direct or indirect equity interest in a property is based upon the following
factors: (a) the estimated appraised market value of the underlying property
determined by qualified and licensed independent appraisal firms; (b) the
operating history of the property; (c) the current principal balance of first
mortgage and other indebtedness to which the property is subject; (d) the amount
of distributable cash flow currently being generated by the property; plus (e)
additional factors which the Managing Shareholder believes are appropriate to
consider including, among others, the property's overall current condition and
prospects for the property based upon improvements made or to be made to the
property and, in certain cases, the combination of two or more phases of the
property, which are expected to be owned upon completion of the Exchange
Offering, and the actual or potential benefits to be obtained by the
sub-metering of utilities in order to pass costs from the owner of the property
to individual tenants. The valuation of the Exchange Partnership to the extent
of its mortgage interest in properties and other debt interests is based upon
the following factors: (i) the current principal balance of the amount of debt
which is senior to the mortgage interest to be acquired and other indebtedness
to which property is subject; (ii) the estimated appraised market value of the
underlying property determined by qualified and licensed independent appraisal
firms; (iii) the operating history of the property; (iv) the amount of
distributable cash flow currently being generated by the property; plus (v)
additional factors which the Managing Shareholder believes are appropriate to
consider including, among others, the property's overall current condition and
prospects for the property based upon improvements made or to be made to the
property and, in certain cases, the combination of two or more phases of the
property, which are expected to be owned upon completion of the Exchange
Offering and the actual or potential benefits to be obtained by the sub-metering
of utilities in order to pass costs from the owner of the property to individual
tenants. (see "Valuation Method" below.)
(2) For purposes of the Exchange Offering, each Unit to be issued has been
assigned an initial value of $10.00, which is the price per share at which the
Trust is currently offering Common Shares in its Cash Offering. As described
below at "The Exchange Offering," Unitholders, including recipients of Units in
the Exchange Offering, may exchange all or a portion of their Units for an
equivalent number of Common Shares at any time following the completion of the
offering.
4
<PAGE>
Valuation of Partnership Baron Strategic Investment Fund VI, Ltd.
Pineview, Garden Terrace, Candlewood II,
Appraised value of underlying property interests: $ 2,467,233
Cash and cash equivalent assets: $ 81,648
Other assets (1): $ 71,291
3/31/99 principal balance of mortgage financing $(1,118,128)
secured by the property:
Other liabilities(2): $ (248,730)
Adjustment (3):
Valuation of the partnership $ 1,253,314
Aggregate number of Units offered to all Limited
Partners in the Partnership (dollar value) 125,331
Number of Units offered to each Limited Partner
in the Partnership per $1,000 of original
investment (dollar value) 104
Percentage of all Units offered
to the Limited Partners in the
Partnership in relation to the
maximum number of Units offered to Limited
Partners in all Exchange Partnerships: 5.02%
Total Number of Partnership Units 2,400
Original Price Per Unit $ 500
(1) Comprised of mortgage escrow account balance held by first mortgage
lender to cover taxes, insurance, maintenance and repair reserves
and other items, and miscellaneous assets.
(2) Comprised of security deposits payable, accounts payable to vendors,
notes or advances to third parties (including affiliates) and
accrued expenses ( such as real estate taxes).
(3) Comprised of subjective judgements made by the managing shareholder
to adjust for improvements, combination of phases of operation and
the installation of utility submeters.
5
<PAGE>
COMPENSATION
The Exchange Partnership currently compensates the general partner and its
affiliates by paying management and accounting fees. No other payments are made
to the general partner and its affiliates by the Exchange Partnership. Mr.
McGrath, an affiliate of the General Partner, is the sole shareholder and
director of the Managing Shareholder of the Trust. As described in greater
detail below, Mr. McGrath has agreed to serve as Chief Executive Officer of the
Operating Partnership and the Trust in exchange for up to 25,000 Common Shares
of the Trust or up to 25,000 Operating Partnership Units (amount to be
determined by the Executive Compensation Committee of the Trust) and health
benefits for the first year of operations and thereafter in exchange for
compensation and benefits determined annually by that committee. Additionally,
Mr. McGrath would have received 9.5% of all distributions on Units subscribed
for by him in connection with the formation of the Operating Partnership.
Compensation Paid
To General Partner and Affiliates
1996 1997 1998 March 31, 1999
---- ---- ---- --------------
Management Fee $0 $0 $0 $0
Accounting Fee $0 $0 $0 $0
Compensation
Which Would Have
Been Paid to General Partner
And Affiliates if Exchange Offer
Had Been Concluded(1)
1996 1997 1998 March 31, 1999
---- ---- ---- --------------
9.5% Distribution $ 270 $10,655 $9,391 $812
In connection with the formation of the Trust and the Operating
Partnership, the Original Investors (comprised of Mr. McGrath and Robert S.
Geiger, who had no prior affiliation with the Trust, the Operating Partnership,
the Managing Shareholder or any of the Exchange Partnerships) each subscribed
for 601,080 Units. In consideration for the Units subscribed for by them, the
Original Investors made a $100,000 capital contribution to the Operating
Partnership. If the Cash Offering and the Exchange Offering are fully
subscribed, the Units received by each of the Original Investors would represent
9.5% of the total Common Shares outstanding after completion of the Cash
Offering and exchange by the Operating Partnership of 2,500,000 of its Units for
units of limited partnership interest in real estate limited partnerships
(including any exchange completed pursuant to the Exchange Offering), calculated
on a fully diluted basis assuming all then outstanding Units (other than those
acquired by the Trust) have been exchanged into an equivalent number of Common
Shares. If, however, as of November 30, 1999, the Cash Offering and/or the
Exchange Offering has been completed and the number of Units subscribed for by
each Original Investor represents a percentage greater than 9.5% of the then
outstanding Common Shares, calculated on a fully diluted basis assuming that all
then outstanding Units (other than those acquired by the Trust) have been
exchanged into an equivalent number of Common Shares, each Original Investor has
agreed to return any excess Units to the Operating Partnership for cancellation.
As described further below, Mr. McGrath and Mr. Geiger have deposited Units
subscribed for by them into a security escrow account for six to nine years,
subject to earlier release under certain conditions.
6
<PAGE>
No dealer, salesperson or other individual has been authorized to give any
information or make any representations not contained in this Prospectus in
connection with the offering covered by this Prospectus. If given or made, such
information or representations must not be relied upon as having been authorized
by the Trust or the Operating Partnership. This Prospectus does not constitute
an offer to sell or exchange, or a solicitation of an offer to buy or exchange,
the Units in any jurisdiction where, or to any person to whom, it is unlawful to
make such offer or solicitation. Neither the delivery of this Prospectus nor any
sale or exchange made hereunder shall, under any circumstances, create an
implication that there has not been any change in the facts set forth in this
Prospectus or in the affairs of the Trust or the Operating Partnership since the
date hereof.
SUMMARY OF TABLE OF CONTENTS
Page
----
Cover.....................................................................
Summary of the Trust and the Operating
Partnership............................................................
Description of Exchange Partnerships......................................
Summary of Risk Factors...................................................
Tax Status................................................................
Compensation of Managing Persons and Affiliates...........................
Conflicts of Interest.....................................................
Fiduciary Responsibility..................................................
Special Note Regarding Forward-Looking
Statements..............................................................
Risk Factors..............................................................
The Exchange Offering.....................................................
Prior Performance of Affiliates of Managing
Shareholder.............................................................
Management................................................................
The Trust and the Operating Partnership...................................
Investment Objectives and Policies........................................
Initial Real Estate Investments...........................................
Management's Discussion and Analysis or Plan of
Operation ............................................................
Federal Income Tax Considerations.........................................
Summary of the Operating Partnership Agreement............................
Summary of Declaration of Trust...........................................
Reports to Unitholders and Shareholders...................................
Comparison of Rights of Holders of Exchange
Partnership Units, Operating Partnership Units and
Trust Common Shares....................................................
Capital Stock of the Trust................................................
Capitalization............................................................
Terms of the Cash Offering................................................
Amendments to Partnership Agreements of
Participating Exchange Partnerships with Non-
participating Limited Partners........................................
Other Information.........................................................
Litigation................................................................
Experts...................................................................
Legal Matters.............................................................
Expenses of the Exchange Offering.........................................
Additional Information....................................................
Glossary..................................................................
Exhibits
A ... Prior Performance of Affiliates
of Managing Shareholder
B ... Summary of Exchange Property and
Exchange Partnership Information
C ... Financial Statements of the Trust, the Operating
Partnership and the Managing Shareholder
D ... Financial Statements of the Exchange Properties/
Exchange Partnerships
E ... Combined Statement of Estimated Taxable Operating Results
F ... Exchange Property Appraisal Reports
BARON CAPITAL
PROPERTIES, L.P.
----------
2,500,000 Units
of
Limited Partnership Interest
PROSPECTUS
___________, 1999
----------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 20. Indemnification of Directors and Officers.
Under Section 17-108 of the Delaware Revised Uniform Limited Partnership
Act, subject to such standards and restrictions, if any, contained in its
limited partnership agreement, a limited partnership organized in Delaware may,
and shall have the power to, indemnify and hold harmless any partner or other
person from and against any and all claims and demands whatsoever.
Under Section 7.7(a) of the Agreement of Limited Partnership of the
Registrant ("Partnership Agreement"), the Registrant shall indemnify an
Indemnitee (defined as any person made a party to a proceeding by reason of his
status as (i) the General Partner of the Registrant (including as a guarantor of
any debt of the Registrant) or (ii) an officer of the Registrant or a trustee,
officer or member of the Board of the General Partner of the Registrant, and (b)
such other persons (including affiliates of the General Partner of the
Registrant or the Registrant) as the General Partner of the Registrant may
designate from time to time, in its sole and absolute discretion) from and
against any and all losses, claims, damages, liabilities, joint or several,
expenses (including legal fees and expenses), judgments, fines, settlements, and
other amounts arising from any and all claims, demands, actions, suits or
proceedings, civil, criminal, administrative or investigative, that relate to
the operations of the Registrant as set forth in its Partnership in which any
Indemnitee may be involved, or is threatened to be involved, as a party or
otherwise, unless it is established that: (i) the act or omission of the
Indemnitee was material to the matter giving rise to the proceeding and either
was committed in bad faith or was the result of active and deliberate
dishonesty; (ii) the Indemnitee actually received an improper personal benefit
in money, property or services; or (iii) in the case of any criminal proceeding,
the Indemnitee had reasonable cause to believe that the act or omission was
unlawful. The termination of any proceeding by judgment, order or settlement
does not create a presumption that the Indemnitee did not meet the requisite
standard of conduct set forth in Section 7.7(a). The termination of any
proceeding by conviction or upon a plea of nolo contendere or its equivalent, or
an entry of an order of probation prior to judgment, creates a rebuttable
presumption that the Indemnitee acted in a manner contrary to that specified in
Section 7.7(a). Any indemnification pursuant to Section 7.7 shall be made only
out of the assets of the Registrant.
Under Section 7.7(b) of the Partnership Agreement, reasonable expenses
incurred by an Indemnitee who is a party to a proceeding may be paid or
reimbursed by the Registrant in advance of the final disposition of the
proceeding upon receipt by the Registrant of (a) a written affirmation by the
Indemnitee of the Indemnitee's good faith belief that the standard of conduct
necessary for indemnification by the Registrant as authorized in Section 7.7 of
the Partnership Agreement has been met, and (b) a written undertaking by or on
behalf of the Indemnitee to repay the amount if it shall ultimately be
determined that the standard of conduct has not been met.
Insofar as indemnification for liabilities arising under the Securities
Act of 1933 (the "Act") may be permitted to directors, officers and controlling
persons of the Registrant pursuant to the foregoing provisions, or otherwise,
the Registrant has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as expressed
in the Act and is, therefore, unenforceable.
Item 21. Exhibits and Financial Statement Schedules.
A list of exhibits included as part of this Registration Statement is set
forth in the Index to Exhibits which immediately precedes such exhibits.
II-1
<PAGE>
Item 22. Undertakings.
The Registrant undertakes to do the following:
1. If the Registrant is registering the securities under Rule 415 of
the Securities Act of 1933, as amended (the "Securities Act"), the
Registrant will:
(a) File, during the period in which it offers or sell securities,
a post-effective amendment to this Registration Statement to:
(i) Include any prospectus required by Section 10(a)(3) of
the Securities Act;
(ii) Reflect in the prospectus any facts or events which,
individually or together, represent a fundamental change
in the information in the Registration Statement; and
(iii) Include any additional or changed material information
on the plan of distribution.
(b) For determining liability under the Securities Act, treat each
post-effective amendment as a new registration statement of
the securities offered, and the offering of the securities at
that time to be the initial bona fide offering.
(c) File a post-effective amendment to remove from registration
any of the securities that remain unsold at the end of the
offering.
2. The Registrant will deliver to Offerees who accept the Exchange
Offering certificates representing Units in such nominations and
registered in such names as such Offerees shall indicate in their
Subscription Documents.
3. If the Registrant requests acceleration of the effective date of the
registration statement under Rule 461 under the Securities Act:
Insofar as indemnification for liabilities arising under the
Securities Act of 1933 (the "Act") may be permitted to directors,
officers and controlling persons of the Registrant pursuant to the
foregoing provisions, or otherwise, the Registrant has been advised
that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Act and
is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by
the Registrant of expenses incurred or paid by a director, officer
or controlling person of the Registrant in the successful defense of
any action, suit or proceeding) is asserted by such director,
officer or controlling person in connection with the securities
being registered, the Registrant will, unless in the opinion of its
counsel the matter has been settled by controlling precedent, submit
to a court of appropriate jurisdiction the question of whether such
indemnification is against public policy as expressed in the Act and
will be governed by the final adjudication of such issue.
II-2
<PAGE>
4. If the Registrant relies on Rule 430A under the Securities Act, the
Registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities
Act of 1933, the information omitted from the form of
prospectus filed as part of this registration statement in
reliance upon Rule 430A and contained in a form of prospectus
filed by the Registrant pursuant to Rule 424(b)(1) or (4), or
497(h) under the Securities Act shall be deemed to be part of
this registration statement as of the time the Commission
declared it effective.
(2) For the purpose of determining any liability under the
Securities Act of 1933, each post-effective amendment that
contains a form of prospectus shall be deemed to be a new
registration statement relating to the securities offered
therein, and the offering of such securities at that time
shall be deemed to be the initial bona fide offering thereof.
5. The Registrant undertakes to file a sticker supplement pursuant to
Rule 424(c) under the Act during the distribution period describing
each property not identified in the Prospectus at such time as there
arises a reasonable probability that such property will be acquired
and to consolidate all such stickers into a post-effective amendment
filed at least once every three months, with the information
contained in such amendment provided simultaneously to the existing
Unitholders. Each sticker supplement should disclose all
compensation and fees received by the Managing Shareholder and its
affiliates in connection with any such acquisition. The
post-effective amendment shall include audited financial statements
meeting the requirements of Rule 3-14 of Regulation S-X (or Rule 310
of Regulation S-B, if applicable) only for properties acquired
during the distribution period.
6. The Registrant also undertakes to file, after the end of the
distribution period, a current report on Form 8-K containing the
financial statements and any additional information required by Rule
3-14 of Regulation S-X (or Rule 310 of Regulation S-B, if
applicable), to reflect each commitment (i.e., the signing of a
binding purchase agreement) made after the end of the distribution
period involving the use of 10% or more (on a cumulative basis) of
the net proceeds of the offering and to provide the information
contained in such report to the Unitholders at least once each
quarter after the distribution period of the offering has ended.
7. The Registrant hereby undertakes to respond to requests for
information that is incorporated by reference in the Prospectus
pursuant to Items 4, 10(b), 11 or 13 of Form S-4, within one
business day of receipt of such request, and to send the
incorporated documents by first class mail or other equally prompt
means. This includes information contained in documents filed
subsequent to the effective date of the Registration Statement
through the date of responding to the request.
8. The Registrant hereby undertakes to supply by means of a
post-effective amendment all information concerning a transaction,
and the company being acquired involved therein, that was not the
subject of and included in the Registrant Statement when it became
effective.
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<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has caused this Registration Statement Amendment No. 5 to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of Cincinnati,
State of Ohio on June 14, 1999.
BARON CAPITAL PROPERTIES, L.P.
By: Baron Capital Trust,
General Partner
By: Baron Advisors, Inc.,
Managing Shareholder
By: /s/ Gregory K. McGrath
-------------------------------------
Gregory K. McGrath, President
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement Amendment No. 4 has been signed by the following person
in the capacity and on the date stated.
Name Title Date
---- ----- ----
/s/ Gregory K. McGrath President of Baron Advisors, Inc.,
- ---------------------- Managing Shareholder of Baron Capital
Gregory K. McGrath Trust, General Partner of Registrant June 14, 1999
II-4
<PAGE>
INDEX TO EXHIBITS
Exhibit Sequential
Number Document Description Page No.
- ------ -------------------- --------
3.1* Certificate of Limited Partnership of the Registrant. --
3.2* Agreement of Limited Partnership of Registrant, dated
as of May 15, 1998 (incorporated herein by reference
to Exhibit 10.6 to Amendment No. 3 to the Form SB-2
Registration Statement of Baron Capital Trust filed
with the Securities and Exchange Commission on May 15,
1998 (Registration No. 333-35063). --
4.1* Form of Unit Certificate --
5.1* Form of Opinion of Dennis P. Spates, Esq. as to legality
of securities being registered. --
5.2* Form of Opinion of Manatt, Phelps & Phillips, LLP on
certain tax matters. --
10.1* Trust Management Agreement, dated as of May 15, 1998,
between the Registrant and Baron Advisors, Inc.
(incorporated herein by reference to Exhibit 10.1 to
Amendment No. 3 to the Form SB-2 Registration
Statement of Baron Capital Trust filed with the
Securities and Exchange Commission on
May 15, 1998 (Registration No. 333-35063). --
10.2* Amended and Restated Declaration of Trust for Baron
Capital Trust made as of August 11, 1998. --
10.3* Indemnification Agreement among the Registrant, Baron
Capital Trust (its General Partner), officers of the
Registrant and trustees, officers and members of the
Board of Baron Capital Trust and such other persons as
Baron Capital Trust may designate (included in Section
7.7 of the Agreement of Limited Partnership of the
Registrant referenced above in Exhibit 3.2) --
10.4* Amended and Restated Security Escrow Agreement dated
as of May 15, 1998 among Gregory K. McGrath, Robert
S. Geiger, Baron Capital Trust and American Stock
Transfer & Trust Company. --
10.5* Founders' Subscription Agreement. --
10.6* First Amendment to Amended and Restated Security
Escrow Agreement, dated April 30, 1999. --
10.7* Amendment to Founders' Subscription Agreement,
dated April 30, 1999.
23.1* Consent of Dennis P. Spates, Esq. (included in the
opinion filed as Exhibit 5.1 to this Registration
Statement). --
23.2* Consent of Manatt, Phelps & Phillips, LLP (included in
the opinion filed as Exhibit 5.2 to this
Registration Statement). --
<PAGE>
99.1* Consent of Elroy D. Miedema, Certified Public Accountant. --
99.2 Consent of Rachlin Cohen & Holtz, Independent Certified
Public Accountants. ______
99.3* Prior Performance Table VI: Acquisitions of Properties
by Program required under Guide 5 relating
to preparation of registration statements
relating to interests in real estate limited
partnerships. --
99.4* Consent of Consortium Appraisal, Inc. and Consortium
Appraisal and Consulting Services, Inc., Appraisal Firms. --
99.5* Consent of Richards Appraisal Service, Inc., Appraisal Firm. --
99.6* Appraisal Reports relating to Exchange Properties --
- -------------------------
*Previously filed.
<PAGE>
EXHIBIT 99.2
CONSENTS OF RACHLCIN COHEN & HOLTZ,
INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
<PAGE>
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
We hereby consent to the use in the Registration Statement on Form S-4 of our
report dated April 13, 1999 relating to the financial statements of Baron
Capital Properties, L.P., and to all references to our firm appearing in such
Registration Statement.
RACHLIN COHEN & HOLTZ LLP
Miami, Florida
June 11, 1999
