UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-KSB/A
(MARK ONE)
[X] ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934 FOR THE FISCAL YEAR ENDED DECEMBER 31, 1999
OR
[_] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934 FOR THE TRANSITION PERIOD FROM ______ TO ______
COMMISSION FILE NUMBER 333-35063
------------------------
BARON CAPITAL TRUST
(Name of Small Business Issuer as Specified in its Charter)
Delaware 31-1574856
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
7809 COOPER ROAD
CINCINNATI, OHIO 45242
(Address of Principal Executive Offices including Zip Code)
(513) 984-5001
(Issuer's Telephone Number, including Area Code)
------------------------
SECURITIES REGISTERED UNDER SECTION 12(b) OF THE EXCHANGE ACT: NONE
SECURITIES REGISTERED UNDER SECTION 12(g) OF THE EXCHANGE ACT: NONE
Check whether the Issuer (1) has 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
--- ---
Check if there is no disclosure of delinquent filers in response to Item 405 of
Regulation S-B contained in this form, and no disclosure will be contained, to
the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-KSB or any
amendment to this Form 10-KSB. X
---
The issuer's revenues for its most recent fiscal year were $585,402.
As of March 31, 2000 the aggregate market value of voting and non-voting equity
common stock held by non-affiliates (based on total shares outstanding reduced
by the number of shares held by trustees, officers, and other affiliates) of the
registrant was $6,941,463 based on the actual cash paid for shares issued to 462
investors.
<PAGE>
ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING THE PAST FIVE YEARS
Check whether the issuer has filed all documents and reports required to be
filed by Section 12, 13 or 15(d) of the Exchange Act after the distribution of
securities under a plan confirmed by a court.
Yes______ No_______
-----------------------------
-----------------------------
<PAGE>
BARON CAPITAL TRUST
FORM 10-KSB ANNUAL REPORT
FISCAL YEAR ENDED DECEMBER 31, 1999
PAGE
----
PART I:
Item 1 Description of Business............................................ 4
Item 2 Description of Properties.......................................... 8
Item 3 Legal Proceedings.................................................. 53
Item 4 Submission of Matters to a Vote of Security Holders................ 53
PART II:
Item 5 Market for Common Equity and Related Stockholder Matters........... 53
Item 6 Management's Discussion and Analysis or Plan of Operation.......... 54
Item 7 Financial Statements............................................... 57
Item 8 Changes In and Disagreements with Accountants on
Accounting and Financial Disclosure................................ 58
PART III:
Item 9 Trustees, Executive Officers, Promoters and Control Persons;
Compliance with Section 16(a) of the Exchange Act.................. 58
Item 10 Executive Compensation............................................. 60
Item 11 Security Ownership of Certain Beneficial Owners and Management..... 61
Item 12 Certain Relationships and Related Transactions..................... 61
Item 13 Exhibits and Reports on Form 8-K................................... 62
3
<PAGE>
PART I
ITEM 1. DESCRIPTION OF BUSINESS
General
Baron Capital Trust, a Delaware business trust (the "Trust"), was formed on
July 31, 1997. The Trust and its affiliate, Baron Capital Properties, L.P. (the
"Operating Partnership"), a Delaware limited 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.
In May 1998, pursuant to a registration statement on Form SB-2, the Trust
commenced a public offering of 2,500,000 common shares of beneficial interest
("Trust Common Shares" or "Common Shares") at an offering price of $10.00 per
share ("Cash Offering"). The Cash Offering is scheduled to terminate on May 31,
2000. The Trust has contributed and will continue to contribute to the Operating
Partnership the net cash proceeds from the issuance of Common Shares in exchange
for an equivalent number of units of limited partnership in the Operating
Partnership ("Operating Partnership Units" or "Units"). As of March 31, 2000,
the Trust had sold and/or issued to the public 694,146 Common Shares, and the
Trust intends to continue to sell Common Shares through the termination of the
Cash Offering.
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. To this end, in April 2000,
pursuant to a registration statement on Form S-4, the Operating Partnership
completed an exchange offering to acquire equity interests in 23 real estate
partnerships, which directly or indirectly own equity and/or debt interests in
26 residential apartment properties located in the southeast and mid-west United
States. (See "Brief Description of Properties - Exchange Offering" below). The
Trust is the sole general partner of the Operating Partnership and , as of March
31, 2000, owned 694,156 Operating Partnership Units, representing approximately
36.6% of the then outstanding Units. The exchange offering was completed on
April 7, 2000, and following its completion, the Trust owned 694,456 Units,
representing approximately 16.0% of the then outstanding Units.
The Trust intends to make regular quarterly pro rata distributions to its
Shareholders of net income generated from investments in property interests. The
Trust has elected to operate as a real estate investment trust ("REIT") for
federal income tax purposes, provided, however, that if its Managing Shareholder
determines, with the affirmative vote of a majority in interest 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 conducts all of the Trust's real estate
operations and holds all direct or indirect property interests acquired. The
Operating Partnership owns 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
controls the activities of 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
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. 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.
The Trust's executive offices are located in Cincinnati, Ohio at 7809
Cooper Road, Cincinnati, Ohio 45242. The Trust's main telephone number is (513)
984-5001.
4
<PAGE>
Brief Description of Properties
Acquired Properties
Through the Operating Partnership, the Trust invests in direct or indirect
equity or debt interests in residential apartment communities. As of December
31, 1999, the Trust had an indirect equity interest in four apartment
communities (consisting of an aggregate of 365 apartment units) (individually an
"Acquired Property" and collectively, the "Acquired Properties"). The Trust
acquired such property interests with the net proceeds of the Cash Offering.
Three of the Acquired Properties were constructed during the 1980s and are
comprised of one-story garden style apartment buildings of modular construction.
One of the Acquired Properties is still under construction. As of March 31,
2000, 96 units of that property had been completed, 82 of such units have been
rented and 14 units are in the rent-up stage. An additional 72 units are planned
for completion by the end of 2000. The Acquired Properties are located in urban
and suburban and secondary markets in Florida and Kentucky. During 1999, the
average economic occupancy of the Acquired Properties was approximately 95.1%
and the average monthly rent collected per occupied unit was approximately $477.
The table below indicates the geographic locations of the Acquired
Properties in which the Trust had an ownership interest at December 31, 1999:
State Sites Properties Units
------ ----- ---------- ------
Florida 3 3 197
Kentucky 1 1 168
--- --- ---
Total 4 4 365
=== === ===
Exchange Offering
In April 2000, pursuant to a registration statement on Form S-4, the
Operating Partnership completed an exchange offering (the "Exchange Offering")
under which it acquired additional interests in residential apartment
properties. In the Exchange Offering, the Operating Partnership issued 2,434,274
registered Operating Partnership Units (with an initial assigned value of
$24,342,740) in exchange for substantially all outstanding units of limited
partnership interest owned by individual limited partners ("Exchange Limited
Partners") in 23 limited partnerships (the "Exchange Partnerships"), which
directly or indirectly own equity and/or debt interests in one or more of 26
residential apartment properties located in the southeast and mid-west United
States. Prior to the completion of the Exchange Offering, the Exchange
Partnerships were managed by corporate general partners (the "Corporate General
Partners") which were controlled by Gregory K. McGrath, who is the Chief
Executive, sole stockholder and director of the Managing Shareholder of the
Trust.
Following the completion of the Exchange Offering, (i) the Exchange
Partnerships continue to own the same property interests they owned prior to the
offering, (ii) substantially all of the limited partnership interests in the 23
Exchange Partnership are owned by the Operating Partnership, (ii) Mr. McGrath,
for nominal consideration, assigned to the Trust all of the equity stock in 18
of the Corporate General Partners and granted to the Board of the Trust a
management proxy coupled with an interest to vote the shares of the remaining
five Corporate General Partners; (ii) the Corporate General Partner of each of
the Exchange Partnerships has assigned to the Operating Partnership all of its
economic interest in the partnership; and (iii) Mr. McGrath has caused each
Corporate General Partner to waive its right to receive from its Exchange
Partnership any ongoing fees, effective upon completion of the exchange. As a
result of the foregoing, the Operating Partnership owns substantially all of the
economic interest represented by the equity and debt interests owned by the
Exchange Partnerships and the Trust controls management of such partnerships.
The Exchange Offering expired on April 7, 2000. Under the terms of the
Exchange Offering, Exchange Limited Partners in a particular Exchange
Partnership were entitled to participate in the offering only if limited
partners holding at least 90% of the units of limited partnership interest in
that partnership affirmatively elected to accept the offering. Exchange Limited
Partners holding approximately 97.4% of the outstanding units of limited
partnership interest in such partnerships accepted the offering, and each of the
Exchange Partnerships exceeded the 90% requirement. As a result, following the
completion of the Exchange Offering, the limited partnership interests of nine
Exchange Partnerships are owned entirely by
5
<PAGE>
the Operating Partnership (in the case of nine Exchange Partnerships in which
all Exchange Limited Partners accepted the offering) and substantially all of
the limited partnership interests in the other 14 Exchange Partnerships are
owned by the Operating Partnership, with the remaining limited partnership
interests being retained by Exchange Limited Partners who elected not to accept
the offering or failed to respond to the offering.
Listed below is the name of each of the Exchange Partnerships and a
breakdown of the results of the Exchange Offering for each of them. Exchange
Limited Partners that elected not to accept the Exchange Offering or failed to
respond to the offering retained their respective original limited partnership
interests in their particular Exchange Partnerships on substantially the same
terms and conditions as their original investments. The percentages shown in the
third column indicate the percentage partnership interest acquired by the
Operating Partnership in each of the Exchange Partnerships in connection with
the Exchange Offering.
<TABLE>
<CAPTION>
- - --------------------------------------------------------------------------------------------------------------------------------
No. of Units Percentage
No. of Units Percentage of Declining the of
Accepting the Outstanding Exchange Outstanding
Name of Exchange Partnership Exchange Offering Units Offering Units
- - --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Baron Strategic Investment Fund, Ltd. 2,250.00 93.75% 30.00 1.25%
- - --------------------------------------------------------------------------------------------------------------------------------
Baron Strategic Investment Fund II, Ltd. 1,600.00 100.00% -- --
- - --------------------------------------------------------------------------------------------------------------------------------
Baron Strategic Investment Fund IV, Ltd. 2,000.00 100.00% -- --
- - --------------------------------------------------------------------------------------------------------------------------------
Baron Strategic Investment Fund V, Ltd. 2,340.00 97.50% -- --
- - --------------------------------------------------------------------------------------------------------------------------------
Baron Strategic Investment Fund VI, Ltd. 2,310.00 96.65% -- --
- - --------------------------------------------------------------------------------------------------------------------------------
Baron Strategic Investment Fund VIII, Ltd. 2,400.00 100.00% -- --
- - --------------------------------------------------------------------------------------------------------------------------------
Baron Strategic Investment Fund IX, Ltd. 2,364.00 98.50% -- --
- - --------------------------------------------------------------------------------------------------------------------------------
Baron Strategic Investment Fund X, Ltd. 2,350.00 97.62% 50.00 2.08%
- - --------------------------------------------------------------------------------------------------------------------------------
Baron Strategic Vulture Fund I, Ltd. 1,800.00 100.00% -- --
- - --------------------------------------------------------------------------------------------------------------------------------
Brevard Mortgage Program, Ltd. 575.00 100.00% -- --
- - --------------------------------------------------------------------------------------------------------------------------------
Central Florida Income Appreciation Fund, Ltd. 2,069.99 98.57% -- --
- - --------------------------------------------------------------------------------------------------------------------------------
Florida Capital Income Fund, Ltd. 1,534.00 95.04% -- --
- - --------------------------------------------------------------------------------------------------------------------------------
Florida Capital Income Fund II, Ltd. 1,890.00 94.50% -- --
- - --------------------------------------------------------------------------------------------------------------------------------
Florida Capital Income Fund III, Ltd. 1,484.00 92.75% 116.00 7.25%
- - --------------------------------------------------------------------------------------------------------------------------------
Florida Capital Income Fund IV, Ltd. 3,520.00 96.70% -- --
- - --------------------------------------------------------------------------------------------------------------------------------
Florida Income Advantage Fund I, Ltd. 925.00 98.40% -- --
- - --------------------------------------------------------------------------------------------------------------------------------
Florida Income Appreciation Fund I, Ltd. 190.00 100.00% -- --
- - --------------------------------------------------------------------------------------------------------------------------------
Florida Income Growth Fund V, Ltd. 2,210.00 96.09% 90.00 3.91%
- - --------------------------------------------------------------------------------------------------------------------------------
Florida Opportunity Income Partners, Ltd. 800.00 100.00% -- --
- - --------------------------------------------------------------------------------------------------------------------------------
GSU Stadium Student Apartments, Ltd. 1,862.10 100.00% -- --
- - --------------------------------------------------------------------------------------------------------------------------------
Lamplight Court of Bellefontaine Apartments, Ltd. 700.00 100.00% -- --
- - --------------------------------------------------------------------------------------------------------------------------------
Midwest Income Growth Fund VI, Ltd. 560.00 93.33% -- --
- - --------------------------------------------------------------------------------------------------------------------------------
Realty Opportunity Income Fund VIII, Ltd. 904.00 95.76% 5.00 .53%
- - --------------------------------------------------------------------------------------------------------------------------------
Total 38,638.09 97.40% 291.00 0.73%
- - --------------------------------------------------------------------------------------------------------------------------------
</TABLE>
In the Exchange Offering, the Operating Partnership acquired equity and/or
subordinated mortgage and other debt interests in 26 properties (the "Exchange
Properties") directly or indirectly owned by the 23 Exchange Partnerships.
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 and
other debt interests in 10 Exchange 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. The Exchange Properties are described
in further detail under ITEM 2 - DESCRIPTION OF PROPERTIES below.
6
<PAGE>
The number of Operating Partnership Units offered in exchange for the
limited partnership interests in the Exchange Partnerships was based on
appraisals prepared by qualified and licensed independent appraisal firms for
each underlying residential apartment property. For purposes of the Exchange
Offering, each Operating Partnership Unit was arbitrarily assigned an initial
value of $10.00, 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 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 Common
Shares, 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 under the Act.
Competition
The apartment industry is highly competitive and fragmented with numerous
owners and developers competing with the Trust on a national, regional and local
basis. Competition for residents of apartment communities is subject to the
conditions and pricing of individual units, local market conditions, the
location of the apartment community and other factors. In addition, other forms
of housing, including manufactured housing communities and single family homes
provide alternatives to potential residents.
The Trust's current portfolio is generally diversified across metropolitan
areas throughout Florida, Georgia, Indiana, Kentucky and Ohio. The Trust's
properties tend to be located in urban, suburban and secondary markets, where
the Trust competes locally with other apartment communities.
Americans with Disabilities Act
Properties in which the Trust invests 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 requirements could require removal of structural
barriers to handicapped access in certain public areas of the properties where
such removal is readily achievable. 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 the leasing office, are open to the public. The Trust
believes that its properties comply with all present requirements under the ADA
and applicable state laws. Noncompliance could result in imposition of fines or
an award of damages to private litigants. If required to make material
additional changes, the Trust's results of operations could be adversely
affected.
Environmental
The Trust is subject to Federal, state, and local environmental laws and
regulations that apply to the development of real property, including
construction activities, the ownership of real property, and the operation of
multifamily apartment communities. Such laws and regulations could affect the
property interests acquired by the Trust and to be acquired by the Trust in the
future and/or operate to reduce the number and attractiveness of investment
opportunities available to the Trust.
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
7
<PAGE>
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.
The effect upon the Trust of the application of the foregoing laws and
regulations cannot be predicted. Such laws and regulations have not had a
material effect on the Trust's financial condition and results of operations to
date. The Trust is not aware of any environmental condition on any of its
properties which is likely to have a material adverse effect on its financial
condition and results of operations.
Employees
The Trust and the Operating Partnership currently employ a total of 20
full-time employees.
ITEM 2. DESCRIPTION OF PROPERTIES
Description of Properties
The Trust has executive and administrative offices, financial operations
and a portion of property operations located in approximately 5,000 square feet
of space at 7809 Cooper Road, Cincinnati, Ohio 45242. The space was leased in
May 1998 from Grammas Development Company, an unaffiliated entity, for a term of
five years and one month. Management believes that the lease terms are
competitive with commercial lease rates in the Cincinnati market.
The Acquired Properties
Set forth below is a description of the Operating Partnership's acquisition
between June 1998 and June 1999 of beneficial interests in 67-unit, 80-unit,
50-unit and a 40% 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). By acquiring general and limited partnership interests, the
Operating Partnership avoids certain costs, such as first mortgage assumption
fees and recordation of title costs. The investments were made using net
proceeds of the Trust's Cash Offering. Also described is a purchase agreement
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. In November 1997 an affiliate of the Operating
Partnership, Baron Capital XLV, Inc., acquired the general partnership interest
in the Heatherwood Partnership. 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 March 31, 2000
for each type of unit was approximately $435, $530 and $650, respectively, or
$1.51, $.92 and $.75 per square foot, respectively. The average monthly
occupancy rates for 1995, 1996, 1997, 1998, and 1999 were approximately 88%,
93%, 97%, 94%, and 96%, respectively. The average annual rental rate per unit
for each of the last five years has been $5,424 (1995), $5,628 (1996), $5,820
(1997), $6,060 (1998), and $5,555 (1999).
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 based on independent appraisal of the market value of the
property plus the value of any additional assets,
8
<PAGE>
less all liabilities, and was approved by the Board of the Trust. 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.
There is no lease, option, or contract to purchase or sell the Heatherwood
Property. A renovation program has been in place since the date of acquisition.
This program includes both interior and exterior improvements at a cost of
approximately $2,500 per unit. The costs have been paid from maintenance
reserves established and maintained by the property on a monthly basis. The
property is in Florida and, as such, subject to the competitive nature of the
state. The demand for units is high between October and April and much lower for
the other months. This situation overrides any other competitive factor. The
Heatherwood Property is not located in an overbuilt area and demand is adequate.
The Heatherwood Property is adequately covered by insurance.
The Heatherwood Property is a residential community; there is no tenant who
occupies 10% or more of the rentable square footage. There is no business,
occupation or profession taking place on the Heatherwood Property. The property
leases units for periods of no longer than one year. The federal tax
depreciation basis as of June 30, 1999 is $1,571,341. Depreciation is taken on a
straight-line basis over 30 years. The Heatherwood Property is taxed at 200
mills per $10,000 valuation, and the 1998 taxes due March 31, 1999 were
$22,787.05. Estimated taxes on proposed improvements are not material.
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, Florida. On January
15, 1986 an affiliate of the Operating Partnership, Baron Capital LIX, Inc.,
acquired the general partnership interest in the Crystal Court Partnership. 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 March 31, 2000
for each type of unit is approximately $329, $419 and $520, respectively, or
$1.14, $.73 and $.60 per square foot, respectively. The average monthly
occupancy rates for 1995, 1996, 1997, 1998 and 1999 were approximately 91%, 90%,
95%, 91% and 95%, respectively. The average annual rental rate per unit for the
Crystal Court Property for each of the last five years has been $4,188 (1995),
$4,356 (1996), $4,632 (1997), $4,812 (1998), and $4,433 (1999).
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
approximately $704,000. The purchase price was based on an independent appraisal
of the market value of the property plus the value of any additional assets,
less all liabilities, and was approved by the Board of the Trust. The Crystal
Court Property is subject to first mortgage financing with a current principal
balance of approximately $1,471,705. 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.
There is no lease, option, or contract to purchase or to sell the Crystal
Court Property. A renovation program has been in place since the original
acquisition. This program includes both interior and exterior improvements at a
cost of approximately $2,000 per unit. The costs have been paid from maintenance
reserves established and maintained by the property on a monthly basis. The
property is in Florida and, as such, subject to the competitive nature of the
state. The demand for units is high between October and April and much lower for
the other months. This situation overrides any other competitive factor. The
Crystal Court Property is not located in an overbuilt area and demand is
adequate. The Crystal Court
9
<PAGE>
Property is adequately covered by insurance.
The Crystal Court Property is a residential community; there is no tenant
who occupies 10% or more of the rentable square footage. There is no business,
occupation or profession taking place on the Crystal Court Property. The
property leases units for periods of no longer than one year. The federal tax
depreciation basis as of June 30, 1999 is $1,657,232. Depreciation is taken on a
straight-line basis over 30 years. The Crystal Court Property is taxed at 21.4
mills per $1,000 valuation, and the 1998 taxes due March 31, 1999 were
$24,897.65. Estimated taxes on proposed improvements are not material.
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. 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. Occupancy data for the years
1995 through 1997 for the Riverwalk Property is unavailable. The occupancy rates
in 1998 and 1999 were 98% and 96%, respectively. As of March 31, 2000, the
property was 98% occupied. The average monthly rental rate as of March 31, 2000
was approximately $565 for a one bath unit and $605 for a two bath unit. 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
average annual rental rates for 1998 and 1999 were approximately $6,780 and
$7,123 per unit, respectively.
The Operating Partnership acquired the Riverwalk limited partnership
interests from 12 unaffiliated individuals, and Riverwalk, LC acquired the
Riverwalk general partnership interest from Riverwalk Enterprises, Inc. for a
total purchase price of approximately $700,000. None of the principals of
Riverwalk Enterprises is affiliated with the Trust or the Operating Partnership.
The purchase price was based on an independent appraisal of the property less
all liabilities, and was approved by the Board of the Trust. The sale was
subject to a first mortgage of approximately $1,330,000, held by TMG Life
Insurance Company. The current principal balance of the mortgage is
approximately $1,585,589. 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. Assuming no prepayments of principal, the balance that will be
due at maturity is approximately $1,411,716. The monthly debt service payments
are $14,071, or an annual amount of $168,859. Prepayment is permitted at any
time, subject however to a yield maintenance termination fee calculated in
accordance with the terms of the loan.
There is no lease, option, or contract to purchase or to sell the Riverwalk
Property. A renovation program has been in place since the original acquisition.
This program includes both interior and exterior improvements at a cost of
approximately $500 per unit to date. The cost will increase per unit as more
renovations are completed. The costs have been paid from maintenance reserves
established and maintained by the property on a monthly basis. The property is
in Florida and, as such, subject to the competitive nature of the state. The
demand for units is high between October and April and much lower for the other
months. This situation overrides any other competitive factor. The Riverwalk
Property is not located in an overbuilt area and demand is adequate. The
Riverwalk Property is adequately covered by insurance.
The Riverwalk Property is a residential community; there is no tenant who
occupies 10% or more of the rentable square footage. There is no business,
occupation or profession taking place on the Riverwalk Property. The property
leases units for periods of no longer than one year. The federal tax
depreciation basis as of June 30, 1999 is $1,518,035. Depreciation is taken on a
straight-line basis over 30 years. Riverwalk is taxed at 24.95 mills per $1,000
valuation and the 1998 taxes due March 31, 1999 were $34,985.58. Estimated taxes
on proposed improvements are not material.
The total cost of the acquisition to the Operating Partnership was
approximately $655,000, which includes costs of
10
<PAGE>
the transaction, including a $200,000 commission paid to Prime One 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 $475,000 was paid and
payment of the remaining principal balance of $100,000 was extended until
October 15, 2000. 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 expects to satisfy the Levine loan from the net
proceeds of the Trust's sale of Common Shares in the ongoing Cash Offering or
operating cash flow. The purchase price was determined by the parties in an
arms-length negotiation.
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 (the "Alexandria Property"). Ninety-six of the 168 residential units
(approximately 57%) have been completed as of March 31, 2000 and are in the
rent-up stage. As of March 31, 2000, 82 of the 96 completed units have been
rented at an average annual rental rate of $8,367. The average monthly occupancy
rates for 1998 and 1999 were 14% and 26%, respectively, based on all 168 units
scheduled to be developed. The Operating Partnership paid $400,000 for the
acquired partnership interest and 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). Subsequently, the Operating Partnership acquired additional limited
partnership units for $885,000 and as of April 12, 2000 it owns an approximately
40% limited partnership interest. The acquisition agreement called for an
installment sale with the Operating Partnership to acquire limited partnership
interests as buildings are completed. The purchase price was based on an
independent appraisal of the property less all liabilities, and was approved by
the Board of the Trust. 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.
The Alexandria Property is a new development, and there is no renovation
program in place. The property has substantial technological advantages over its
competition in the area and is looking to maximize these advantages in the
future. Alexandria is not in an over-developed location. The Alexandria Property
is adequately covered by insurance. The Alexandria Property is a residential
community; there is no tenant who occupies 10% or more of the rentable square
footage. There is no business, occupation or profession taking place on the
Alexandria Property. The property leases units for periods of no longer than one
year. The property is still in construction and as such there are no assets to
depreciate on the partnership books. The construction company is paying only
land taxes on the Alexandria Property.
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
11
<PAGE>
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 companies. As of December 31, 1999,
approximately $6,150,000 of such loans had been drawn down, resulting in
outstanding guarantees of approximately $2,152,500. 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 issued registered Units
in exchange for substantially all limited partnership interests owned by
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 or other debt interests in 26 residential apartment
properties (collectively, the "Exchange Properties" and individually an
"Exchange Property"). The actual partnership interest percentage owned by the
Operating Partnership in each of the Exchange Partnerships is set forth in the
table above under ITEM 1. DESCRIPTION OF PROPERTIES - Brief Description of
Properties - Exchange Offering.
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 168 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).
Certain information relating to the 26 Exchange Properties and mortgage
indebtedness secured thereby is summarized in the tables set forth below.
12
<PAGE>
Property Information
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, (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 June 30, 1999,
and (v) physical occupancy of each property as of June 30, 1999.
<TABLE>
<CAPTION>
Name of
Residential Approx.
Apartment Rentable
Property (and type Year Approx. Area Avg. Unit Size
Partnership Of interest) Location Completed No. of Units Acres (Sq. Ft.)* (Sq. Ft.)
- - ----------- ---------------- -------- --------- ------------ ------- ---------- --------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Exchange Equity
Partnerships:
Baron Strategic Steeplechase Anderson, 1977 Total 72 3.20 47,280 Avg. 657
Investment Fund II, Apartments (1) Indiana 1 BR 12 1 BR 550
Ltd. 2 BR 60 2 BR 678
Central Florida Laurel Oaks Deland, 1986 Total 56 6.21 45,216 Avg. 807
Income Appreciation Apartments (1) Florida 1 BR 11 1 BR 576
Fund, Ltd. 2 BR 45 2 BR 864
Florida Capital Eagle Lake Port 1987 Total 77 4.68 45,504 Avg. 591
Income Fund, Ltd. Apartments (1) Orange, 1 BR 73 1 BR 576
Florida 2 BR 4 2 BR 864
Florida Capital Forest Glen Daytona 1985 Total 52 6.85 62,692 Avg. 1,205
Income Fund II, Ltd. Apartments Beach, 2 BR 28 2 BR 1,075
(Phase I) (2) Florida 3 BR 24 3 BR 1,358
Florida Capital Bridge Point Jacksonville, 1986 Total 48 3.39 27,360 Avg. 570
Income Fund III, Apartments Florida Studio 6 Studio 288
Ltd. (Phase II) (1) 1 BR 37 1 BR 576
2 BR 5 2 BR 864
Florida Capital Glen Lake St. 1986 Total 144 7.16 79,200 Avg. 550
Income Fund IV, Ltd. Apartments (1) Petersburg, 1 BR 144 1 BR 550
Florida
Florida Income Forest Glen Daytona 1985 Total 26 6.85 29,931 Avg. 1,151
Advantage Fund I, Apartments Beach, 2 BR 19 2 BR 1,075
Ltd. (Phase III) (2) Florida 3 BR 7 3 BR 1,358
Florida Income Forest Glen Daytona 1985 Total 8 6.85 9,166 Avg. 1,146
Appreciation Fund Apartments Beach, 2 BR 6 2 BR 1,075
I, Ltd. (Phase IV) (2) Florida 3 BR 2 3 BR 1,358
</TABLE>
<TABLE>
<CAPTION>
Name of
Residential Physical
Apartment 6/30/99 Occupancy
Property (and type Average Rental Rates/Month As Of
Partnership Of interest) (Per Unit) (Per Sq. Ft.) 6/30/99
- - ----------- ---------------- -------------------------- ---------
<S> <C> <C> <C> <C>
Exchange Equity
Partnerships:
Baron Strategic Steeplechase $433 $.66 92%
Investment Fund II, Apartments (1)
Ltd.
Central Florida Laurel Oaks $531 $.66 98%
Income Appreciation Apartments (1)
Fund, Ltd.
Florida Capital Eagle Lake $465 $.78 96%
Income Fund, Ltd. Apartments (1)
Florida Capital Forest Glen $673 $.56 94%
Income Fund II, Ltd. Apartments
(Phase I) (2)
Florida Capital Bridge Point $465 $.82 94%
Income Fund III, Apartments
Ltd. (Phase II) (1)
Florida Capital Glen Lake $674 $1.23 76%
Income Fund IV, Ltd. Apartments (1)
Florida Income Forest Glen $656 $.57 88%
Advantage Fund I, Apartments
Ltd. (Phase III) (2)
Florida Income Forest Glen $655 $.57 100%
Appreciation Fund Apartments
I, Ltd. (Phase IV) (2)
</TABLE>
13
<PAGE>
<TABLE>
<CAPTION>
Name of
Residential Approx.
Apartment Rentable
Property (and type Year Approx. Area Avg. Unit Size
Partnership Of interest) Location Completed No. of Units Acres (Sq. Ft.)* (Sq. Ft.)
- - ----------- ---------------- -------- --------- ------------ ------- ---------- --------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Florida Income Blossom Corners Orlando, 1980 Total 70 3.67 39,300 Avg. 561
Growth Fund V, Ltd. Apartments Florida Studio 15 Studio 300
(Phase I) (1) 1 BR 49 1 BR 600
2 BR 6 2 BR 900
Florida Opportunity Camellia Court Daytona 1982 Total 60 5.15 34,848 Avg. 581
Income Partners, Apartments (1) Beach, 1 BR 59 1 BR 576
Ltd. Florida 2 BR 1 2 BR 864
GSU Stadium Student Stadium Club Statesboro, 1987 Total 60 3.50 50,736 Avg. 860
Apartments, Ltd. Apartments (1) Georgia Studio 2 Studio 288
3 BR 3 3 BR 880
4 BR 55 4 BR 880
Midwest Income Brookwood Way Mansfield, 1974 Total 66 3.92 38,016 Avg. 576
Growth Fund VI, Ltd. Apartments (1) Ohio Studio 3 Studio 288
1 BR 60 1 BR 576
2 BR 3 2 BR 864
Realty Opportunity Forest Glen Daytona 1985 Total 30 6.85 34,231 Avg. 1,141
Income Fund VIII, Apartments Beach, 2 BR 23 2 BR 1,075
Ltd. (Phase II) (2) Florida 3 BR 7 3 BR 1,358
Exchange Hybrid
Partnerships:
Baron Strategic Pineview Orlando, 1988 Total 91 4.38 46,656 Avg. 513
Investment Fund VI, Apartments (3) Florida Studio 26 Studio 288
Ltd. 1 BR 59 1 BR 576
2 BR 6 2 BR 864
Baron Strategic Crystal Court Lakeland, 1982 Total 72 4.5 43,776 Avg. 608
Investment Fund IX, Phase I (4) Florida 1 BR 64 1 BR 576
Ltd. 2 BR 8 2 BR 864
Baron Strategic Crystal Court Lakeland, 1982 Total 72 4.5 43,776 Avg. 608
Investment Fund X, Phase I (5) Florida 1 BR 64 1 BR 576
Ltd. 2 BR 8 2 BR 864
Pineview Orlando, 1988 Total 91 4.38 46,656 Avg. 513
Apartments (6) Florida Studio 26 1 BR 288
1 BR 59 2 BR 576
2 BR 6 864
</TABLE>
<TABLE>
<CAPTION>
Name of
Residential Physical
Apartment 6/30/99 Occupancy
Property (and type Average Rental Rates/Month As Of
Partnership Of interest) (Per Unit) (Per Sq. Ft.) 6/30/99
- - ----------- ---------------- -------------------------- ---------
<S> <C> <C> <C> <C>
Florida Income Blossom Corners $495 $.88 95%
Growth Fund V, Ltd. Apartments
(Phase I) (1)
Florida Opportunity Camellia Court $436 $.75 93%
Income Partners, Apartments (1)
Ltd.
GSU Stadium Student Stadium Club $963 $1.13 70%
Apartments, Ltd. Apartments (1)
Midwest Income Brookwood Way $376 $.65 94%
Growth Fund VI, Ltd. Apartments (1)
Realty Opportunity Forest Glen $653 $.57 90%
Income Fund VIII, Apartments
Ltd. (Phase II) (2)
Exchange Hybrid
Partnerships:
Baron Strategic Pineview $461 $.90 92%
Investment Fund VI, Apartments (3)
Ltd.
Baron Strategic Crystal Court $410 $.68 96%
Investment Fund IX, Phase I (4)
Ltd.
Baron Strategic Crystal Court $410 $.68 96%
Investment Fund X, Phase I (5)
Ltd.
Pineview $461 $.90 92%
Apartments (6)
</TABLE>
14
<PAGE>
<TABLE>
<CAPTION>
Name of
Residential Approx.
Apartment Rentable
Property (and type Year Approx. Area Avg. Unit Size
Partnership Of interest) Location Completed No. of Units Acres (Sq. Ft.)* (Sq. Ft.)
- - ----------- ---------------- -------- --------- ------------ ------- ---------- --------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Lamplight Court of Lamplight Bellefontaine, 1973 Total 80 6.00 46,944 Avg. 587
Bellefontaine Apartments (7) Ohio Studio 12 Studio 288
Apartments, Ltd. 1BR 53 1 BR 576
2 BR 15 2 BR 864
---------- --------- ----------- --------
TOTAL
PROPERTIES: 1,012** 83.16 680,856 673
- - --------------------- ========== ========= =========== ========
</TABLE>
<TABLE>
<CAPTION>
Name of
Residential Physical
Apartment 6/30/99 Occupancy
Property (and type Average Rental Rates/Month As Of
Partnership Of interest) (Per Unit) (Per Sq. Ft.) 6/30/99
- - ----------- ---------------- -------------------------- ---------
<S> <C> <C> <C> <C>
Lamplight Court of Lamplight $397 $.68 88%
Bellefontaine Apartments (7)
Apartments, Ltd.
------------ ------------ -----------
TOTAL
PROPERTIES: $533 $.80 89.5%
- - --------------------- ============ ============ ===========
</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 (i) 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.
15
<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, (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 June 30, 1999, and (v) physical occupancy of each property as of June
30, 1999.
<TABLE>
<CAPTION>
Name of
Residential Approx.
Apartment Rentable
Property (and type Year Approx. Area Avg. Unit Size
Partnership Of interest) Location Completed No. of Units Acres (Sq. Ft.)* (Sq. Ft.)
- - ----------- ---------------- -------- --------- ------------ ------- ---------- --------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Exchange Mortgage
Partnerships:
Baron Strategic Blossom Corners Orlando, 1981 Total 68 3.51 38,100 Avg. 557
Investment Fund, Apartments Florida Studio 16 Studio 300
Ltd. (Phase II) (1) 1 BR 45 1 BR 600
2 BR 7 2 BR 864
Villas at Lake Cincinnati, Est. 4th Total 164 20.2 217,300 Avg. 1,325
Sycamore (1) Ohio quarter 2 BR 2 BR
2003 3 BR 3 BR
Baron Strategic Country Square Tampa, 1981 Total 73 4.56 40,032 Avg. 548
Investment Fund IV, Apartments Florida Studio 14 Studio 288
Ltd. (Phase I) (1) 1 BR 52 1 BR 576
2 BR 7 2 BR 864
Baron Strategic Candlewood Tampa, 1984 Total 33 2.75 17,568 Avg. 532
Investment Fund V, Apartments Florida Studio 6 Studio 288
Ltd. (Phase II) (1) 1 BR 26 1 BR 576
2 BR 1 2 BR 864
Curiosity Creek Tampa, 1982 Total 81 4.51 43,776 Avg. 540
Apartments (1) Florida Studio 16 Studio 288
1 BR 59 1 BR 576
2 BR 6 2 BR 864
Baron Strategic Heatherwood Kissimmee, 1982 Total 41 2.26 22,176 Avg. 541
Investment Fund Apartments Florida Studio 10 Studio 288
VIII, Ltd. (Phase II) (2) 1 BR/1B 26 1 BR/1B 576
2 BR/1B 4 2 BR/1B 864
2 BR/2B 1 2 BR/2B 864
</TABLE>
<TABLE>
<CAPTION>
Name of
Residential Physical
Apartment 6/30/99 Occupancy
Property (and type Average Rental Rates/Month As Of
Partnership Of interest) (Per Unit) (Per Sq. Ft.) 6/30/99
- - ----------- ---------------- -------------------------- ---------
<S> <C> <C> <C> <C>
Exchange Mortgage
Partnerships:
Baron Strategic Blossom Corners $513 $.92 90%
Investment Fund, Apartments
Ltd. (Phase II) (1)
Villas at Lake - - -
Sycamore (1)
Baron Strategic Country Square $469 $.86 96%
Investment Fund IV, Apartments
Ltd. (Phase I) (1)
Baron Strategic Candlewood $463 $.87 89%
Investment Fund V, Apartments
Ltd. (Phase II) (1)
Curiosity Creek $443 $.82 98%
Apartments (1)
Baron Strategic Heatherwood $527 $.98 93%
Investment Fund Apartments
VIII, Ltd. (Phase II) (2)
</TABLE>
16
<PAGE>
<TABLE>
<CAPTION>
Name of
Residential Approx.
Apartment Rentable
Property (and type Year Approx. Area Avg. Unit Size
Partnership Of interest) Location Completed No. of Units Acres (Sq. Ft.)* (Sq. Ft.)
- - ----------- ---------------- -------- --------- ------------ ------- ---------- --------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Longwood Cocoa, 1981 Total 59 4.00 36,288 Avg. 615
Apartments Florida 1 BR 51 1 BR 576
(Phase I) (1) 2 BR 8 2 BR 864
Villas at Lake Cincinnati, Est. 4th Total 164 20.2 217,300 Avg. 1,325
Sycamore (1) Ohio quarter 2 BR 2 BR
2003 3 BR 3 BR
Baron Strategic Curiosity Creek Tampa, 1982 Total 81 4.51 43,776 Avg. 540
Vulture Fund I, Ltd. Apartments (1) Florida Studio 16 Studio 288
1 BR 59 1 BR 576
2 BR 6 2 BR 864
Brevard Mortgage Meadowdale Melbourne, 1984 Total 64 4.81 39,168 Avg. 612
Program, Ltd. Apartments (1) Florida 1 BR 56 1 BR 576
2 BR 8 2 BR 864
Exchange Hybrid
Partnerships
Baron Strategic Candlewood Tampa, 1988 Total 33 2.75 17,568 Avg. 532
Investment Fund VI, Apartments Florida Studio 6 Studio 288
Ltd. (Phase II) (3) 1 BR 26 1 BR 576
2 BR 1 2 BR 864
Country Square 1981 Total 73 4.56 40,032 Avg. 548
Apartments Tampa, Studio 14 Studio 288
(Phase I) (3) Florida 1 BR 52 1 BR 576
2 BR 7 2 BR 864
Garden Terrace Tampa, 1983 Total 91 6.00 54,720 Avg. 601
Apartments Florida Studio 8 Studio 288
(Phase III) (3) 1 BR 67 1 BR 576
2 BR 16 2 BR 864
Baron Strategic Candlewood Tampa, 1984 Total 33 2.75 17,568 Avg. 532
Investment Fund IX, Apartments Florida Studio 6 Studio 288
Ltd. (Phase II) (3) 1 BR 26 1 BR 576
2 BR 1 2 BR 864
</TABLE>
<TABLE>
<CAPTION>
Name of
Residential Physical
Apartment 6/30/99 Occupancy
Property (and type Average Rental Rates/Month As Of
Partnership Of interest) (Per Unit) (Per Sq. Ft.) 6/30/99
- - ----------- ---------------- -------------------------- ---------
<S> <C> <C> <C> <C>
Longwood $433 $.70 92%
Apartments
(Phase I) (1)
Villas at Lake - - -
Sycamore (1)
Baron Strategic Curiosity Creek $443 $.82 98%
Vulture Fund I, Ltd. Apartments (1)
Brevard Mortgage Meadowdale $412 $.67 83%
Program, Ltd. Apartments (1)
Exchange Hybrid
Partnerships
Baron Strategic Candlewood $463 $.87 89%
Investment Fund VI, Apartments
Ltd. (Phase II) (3)
Country Square $469 $.86 96%
Apartments
(Phase I) (3)
Garden Terrace $417 $.69 90%
Apartments
(Phase III) (3)
Baron Strategic Candlewood $463 $.87 89%
Investment Fund IX, Apartments
Ltd. (Phase II) (3)
</TABLE>
17
<PAGE>
<TABLE>
<CAPTION>
Name of
Residential Approx.
Apartment Rentable
Property (and type Year Approx. Area Avg. Unit Size
Partnership Of interest) Location Completed No. of Units Acres (Sq. Ft.)* (Sq. Ft.)
- - ----------- ---------------- -------- --------- ------------ ------- ---------- --------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Garden Terrace Tampa, 1983 Total 91 6.00 54,720 Avg. 601
Apartments Florida Studio 8 Studio 288
(Phase III) (3) 1 BR 67 1 BR 576
2 BR 16 2 BR 864
Villas at Lake Cincinnati, Est. 4th Total 164 20.2 217,300 Avg. 1,325
Sycamore (3) Ohio quarter
2003
Baron Strategic Garden Terrace Tampa, 1983 Total 91 6.00 54,720 Avg. 601
Investment Fund X, Apartments Florida Studio 8 Studio 288
Ltd. (Phase III) (3) 1 BR 67 1 BR 576
2 BR 16 2 BR 864
Heatherwood Kissimmee, 1982 Total 41 2.26 22,176 Avg. 541
Apartments Florida Studio 10 Studio 288
(Phase II) (2) 1 BR 26 1 BR 576
2 BR/1B 4 2 BR/1B 864
2 BR/2B 1 2 BR/2B 864
Lamplight Court of Lamplight Bellefontaine, 1973 Total 80 6.00 46,944 Avg. 587
Bellefontaine Apartments (4) Ohio Studio 12 Studio 288
Apartments, Ltd. 1 BR 53 1 BR 576
2 BR 15 2 BR 864
------ ------------- ----------- -------- -
TOTAL
PROPERTIES5: 590 42.48 338,772 569
- - --------------------- ====== ============= =========== ======== =
</TABLE>
<TABLE>
<CAPTION>
Name of
Residential Physical
Apartment 6/30/99 Occupancy
Property (and type Average Rental Rates/Month As Of
Partnership Of interest) (Per Unit) (Per Sq. Ft.) 6/30/99
- - ----------- ---------------- -------------------------- ---------
<S> <C> <C> <C> <C>
Garden Terrace $417 $.69 90%
Apartments
(Phase III) (3)
Villas at Lake - - -
Sycamore (3)
Baron Strategic Garden Terrace $417 $.69 90%
Investment Fund X, Apartments
Ltd. (Phase III) (3)
Heatherwood $527 $.98 93%
Apartments
(Phase II) (2)
Lamplight Court of Lamplight $397 $.68 88%
Bellefontaine Apartments (4)
Apartments, Ltd.
------------ ------------ -----------
TOTAL
PROPERTIES(5): $447 $.78 91%
- - --------------------- ============ ============ ===========
</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."
(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."
(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 the equity interest is described above at "Property Information-Equity
Property Interests."
(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 the equity interest is described
above at "Property Information-Equity Property Interests."
(5) Does not include information for Lake Sycamore, which is under development.
18
<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, (ii)
name and location of the properties, (iii) principal balances as of June
30, 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.
<TABLE>
<CAPTION>
6/30/99 Annual
Principal Interest Debt
Partnership Property Location Balance Rate Payment
----------- -------- -------- ------- ---- -------
<S> <C> <C> <C> <C> <C>
Exchange Equity
Partnerships
Baron Strategic Steeplechase Anderson, $1,260,000 Yrs. 1-2: $97,644
Investment Fund Apartments Indiana 7.25%
II, Ltd. Yrs. 3-4:
7.75%
Yrs. 5-10:
8.25%
Central Florida Laurel Oaks Deland, 1,588,191 6.54% 121,863
Income Apartments Florida
Appreciation
Fund, Ltd.
Florida Capital Eagle Lake Port 1,427,797 8.56% 145,669
Income Fund, Ltd. Apartments Orange,
Florida
Florida Capital Forest Glen Daytona 1,771,768 7.01% 125,696
Income Fund II, Apartments Beach,
Ltd. (Phase I) Florida
Florida Capital Bridge Point Jacksonville, 710,868 9.52% 77,183
Income Fund III, Apartments Florida
Ltd. (Phase II)
Florida Capital Glen Lake St. 2,684,155 9.55% 296,046
Income Fund IV, Apartments Petersburg, 8.00% 34,728
Ltd. Florida 352,238
(second
</TABLE> mortgage)
<TABLE>
<CAPTION>
Balance
Monthly Amortization Maturity Due On
Partnership Property Payment Term Date Maturity Lender
----------- -------- ------- ---- ---- -------- ------
<S> <C> <C> <C> <C> <C> <C>
Exchange Equity
Partnerships
Baron Strategic Steeplechase $8,138 30 years 10/1/06 $1,099,557 Crown Bank
Investment Fund Apartments
II, Ltd.
Central Florida Laurel Oaks 10,155 30 years 12/1/28 -0- Prudential Mortgage
Income Apartments Capital
Appreciation
Fund, Ltd.
Florida Capital Eagle Lake 12,139 25 years 11/1/05 1,244,562 Column Financial, Inc.
Income Fund, Ltd. Apartments
Florida Capital Forest Glen 10,475 30 years 3/05 1,681,926 Prudential Mortgage
Income Fund II, Apartments Capital
Ltd. (Phase I)
Florida Capital Bridge Point 6,431 25 years 7/1/06 625,327 Huntington Mortgage Co.
Income Fund III, Apartments
Ltd. (Phase II)
Florida Capital Glen Lake 24,670 25 years 5/18/00 2,652,341 Republic Bank
Income Fund IV, Apartments 2,894 25 years 5/1/05 343,772 Glen Lake Arms
Ltd. Joint Venture
</TABLE>
19
<PAGE>
<TABLE>
<CAPTION>
6/30/99 Annual
Principal Interest Debt
Partnership Property Location Balance Rate Payment
----------- -------- -------- ------- ---- -------
<S> <C> <C> <C> <C> <C>
Exchange Equity
Partnerships
Florida Income Forest Glen Daytona 885,884 7.01% 71,649
Advantage III Beach, FL
Fund I
Florida Income Forest Glen Daytona 272,580 7.01% 19,337
Appreciation Apartments Beach,
Fund I, Ltd. (Phase IV) Florida
Florida Income Blossom Orlando, 1,017,388 9.04% 106,084
Growth Fund V, Corners Florida
Ltd. Apartments
(Phase I)
Florida Camellia Daytona 1,065,887 9.04% 111,132
Opportunity Court Beach,
Income Partners, Apartments Florida
Ltd.
GSU Stadium Stadium Club Statesboro, 1,712,134 7.87% 160,346
Student Apartments Georgia
Apartments, Ltd.
Midwest Income Brookwood Way Mansfield, 1,043,073 9.04% 108,612
Growth Fund VI, Apartments Ohio
Ltd.
Realty Forest Glen Daytona 1,022,174 7.01% 72,517
Opportunity Apartments Beach,
Income Fund (Phase II) Florida
VIII, Ltd.
Exchange Hybrid
Partnerships
Baron Strategic Pineview Orlando, 1,596,966 7.75% 139,271
Investment Fund Apartments Florida
VI, Ltd.
Baron Strategic Crystal Court Lakeland, 1,203,764 7.50% 102,533
Investment Fund Apartments Florida
IX, Ltd. (Phase I)
</TABLE>
<TABLE>
<CAPTION>
Balance
Monthly Amortization Maturity Due On
Partnership Property Payment Term Date Maturity Lender
- - ----------- -------- ------- ---- ---- -------- ------
<S> <C> <C> <C> <C> <C> <C>
Exchange Equity
Partnerships
Florida Income Forest Glen 5,971 30 years 3/05 817,310 Prudential Mortgage
Advantage III Capital
Fund I
Florida Income Forest Glen 1,611 30 years 3/05 216,712 Prudential Mortgage
Appreciation Apartments Capital
Fund I, Ltd. (Phase IV)
Florida Income Blossom 8,840 25 years 11/1/06 $882,430 Column Financial, Inc.
Growth Fund V, Corners
Ltd. Apartments
(Phase I)
Florida Camellia 9,261 30 years 11/1/06 984,430 Column Financial, Inc.
Opportunity Court
Income Partners, Apartments
Ltd.
GSU Stadium Stadium Club 13,362 30 years 10/1/05 1,615,458 GMAC
Student Apartments
Apartments, Ltd.
Midwest Income Brookwood Way 9,051 25 years 12/1/06 890,263 Mellon Bank
Growth Fund VI, Apartments
Ltd.
Realty Forest Glen 6,043 30 years 3/05 981,813 Prudential Mortgage
Opportunity Apartments Capital
Income Fund (Phase II)
VIII, Ltd.
Exchange Hybrid
Partnerships
Baron Strategic Pineview 11,606 30 years 11/04 1,493,008 GMAC
Investment Fund Apartments
VI, Ltd.
Baron Strategic Crystal Court 8,544 30 years 11/04 1,126,207 GMAC
Investment Fund Apartments
IX, Ltd. (Phase I)
</TABLE>
20
<PAGE>
<TABLE>
<CAPTION>
6/30/99 Annual
Principal Interest Debt
Partnership Property Location Balance Rate Payment
----------- -------- -------- ------- ---- -------
<S> <C> <C> <C> <C> <C>
Exchange Equity
Partnerships
Baron Strategic Crystal Court Lakeland, 1,203,764 7.50% 102,533
Investment Fund Apartments Florida
X, Ltd. (Phase I)
Pineview Orlando, 1,596,966 7.75% 139,271
Apartments Florida
Lamplight Court Lamplight Bellefontaine 1,356,867 9.04% 135,660
of Bellefontaine Court Ohio
Apts., Ltd.
------------ ------------
TOTAL
PROPERTIES: $20,971,734 $ 1,925,970
============ ============
</TABLE>
<TABLE>
<CAPTION>
Balance
Monthly Amortization Maturity Due On
Partnership Property Payment Term Date Maturity Lender
- - ----------- -------- ------- ---- ---- -------- ------
<S> <C> <C> <C> <C> <C> <C>
Exchange Equity
Partnerships
Baron Strategic Crystal Court 8,544 30 years 11/04 1,126,207 GMAC
Investment Fund Apartments
X, Ltd. (Phase I)
Pineview 11,606 30 years 11/04 1,493,008 GMAC
Apartments
Lamplight Court Lamplight 11,305 25 years 11/1/06 1,158,349 Column Financial
of Bellefontaine Court
Apts., Ltd.
------------ -------------
TOTAL
PROPERTIES: $160,496 $17,813,465
============ =============
</TABLE>
21
<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
substantially all of whose limited partnership interests the Operating
Partnership acquired in 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 June 30, 1999 and due at maturity, (v) the undivided interests of
other Exchange Partnerships in the second mortgage loans or the principal
balance as of June 30, 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 June 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.
22
<PAGE>
EXCHANGE MORTGAGE PARTNERSHIPS
Baron Strategic Investment Fund, Ltd.
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
- - --------------------------------------------------------------------------------
6/30/99 principal balance
(accrued unpaid interest): $850,966 ($46,752)
- - --------------------------------------------------------------------------------
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 (i) Fixed interest rate of 6% as to
amortization provisions: $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.
- - --------------------------------------------------------------------------------
6/30/99 principal balance of first $1,096,229; the loan matures in 3/02, has
mortgage loan secured by property a balance due at maturity of $1,050,024,
and other terms: 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.
- - --------------------------------------------------------------------------------
23
<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
- - --------------------------------------------------------------------------------
6/30/99 principal balance of
Exchange Partnership's 100%
interest in loan (accrued unpaid
interest): $230,000 ($27,315)
- - --------------------------------------------------------------------------------
Balance due at maturity: $230,000
- - --------------------------------------------------------------------------------
6/30/99 aggregate principal balance
of other second mortgage loans
secured by property and owned by
other Exchange Partnerships
(accrued unpaid interest ): $341,500 ($20,132)
- - --------------------------------------------------------------------------------
Appraised replacement cost new of
property (under development): $9,376,039
- - --------------------------------------------------------------------------------
Appraised value of property - $1,080,000
"As is" value: $14,312,000 (assuming completion of
Prospective market value: 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
- - --------------------------------------------------------------------------------
6/30/99 principal balance of first $1,021,362; approved maximum $2,000,000;
mortgage loan secured by the loan matures in 11/01, bears interest
property and other terms: 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 $5,623 and $14,509),
respectively. The lending parties have
agreed to share the benefits of the
second mortgage on a pari passu basis.
- - --------------------------------------------------------------------------------
24
<PAGE>
Baron Strategic Investment Fund IV, Ltd.
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
- - --------------------------------------------------------------------------------
6/30/99 principal balance
(accrued unpaid interest): $1,364,549 ($199,576)
- - --------------------------------------------------------------------------------
Balance due at maturity: $1,364,549
- - --------------------------------------------------------------------------------
Second mortgage loan interests of In 3/97, the Exchange Partnership
another 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.
- - --------------------------------------------------------------------------------
6/30/99 principal balance of first $1,582,377; the loan matures in 3/08, has
mortgage loan secured by property a balance due at maturity of $1,385,953,
and other terms: 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.
- - --------------------------------------------------------------------------------
25
<PAGE>
Baron Strategic Investment Fund V, Ltd.
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
- - --------------------------------------------------------------------------------
6/30/99 principal balance
(accrued unpaid interest): $21,000 ($3,102)
- - --------------------------------------------------------------------------------
Balance due at maturity: $21,000
- - --------------------------------------------------------------------------------
6/30/99 aggregate principal balance
of other second mortgage loans
secured by property and owned by
other Exchange Partnerships
(accrued unpaid interest): $143,500 ($20,089)
- - --------------------------------------------------------------------------------
Second mortgage interests of other Baron Strategic Investment Fund VI, Ltd.
Exchange Partnerships in Property: ("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
6/30/99 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 $9,967) and $75,500 (accrued
unpaid interest of $10,122),
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.
- - --------------------------------------------------------------------------------
26
<PAGE>
Baron Strategic Investment Fund V, Ltd. (cont'd)
- - --------------------------------------------------------------------------------
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.
- - --------------------------------------------------------------------------------
6/30/99 principal balance of first $587,146 ($75,155); the loan matures in
mortgage loan secured by 2/03, has a balance due at maturity of
property (12.8% of amount) $533,678, bears interest at a fixed
and other terms: 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 a
100% interest in one loan: $474,703
- - --------------------------------------------------------------------------------
6/30/99 principal balance
(accrued unpaid interest): $474,703 ($33,148)
- - --------------------------------------------------------------------------------
Balance due at maturity: $474,703
- - --------------------------------------------------------------------------------
27
<PAGE>
Baron Strategic Investment Fund V, Ltd. (cont'd)
- - --------------------------------------------------------------------------------
6/30/99 principal balance of other
Exchange Partnership's undivided
73.7% in three loans and a 100%
interest in one loan (accrued
unpaid interest): $1,243,847 ($112,259)
- - --------------------------------------------------------------------------------
Interests of other Exchange Baron Strategic Vulture Fund I, Ltd.
Partnerships in second mortgage ("Baron Vulture Fund") owns the remaining
loans: 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 6/30/99 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 $134,759); 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)
- - --------------------------------------------------------------------------------
Mortgage interest and (i) Fixed interest rate of 6% as to
Amortization provisions: $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.
- - --------------------------------------------------------------------------------
6/30/99 principal balance of first $1,286,406 ($338,325); the loan matures
mortgage loan secured by in 4/08, has a balance due at maturity of
property (26.3% of amount) $1,122,800, bears interest at the fixed
and other terms: 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.
- - --------------------------------------------------------------------------------
28
<PAGE>
Baron Strategic Investment Fund V, Ltd. (cont'd)
- - --------------------------------------------------------------------------------
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
- - --------------------------------------------------------------------------------
6/30/99 principal balance
(accrued unpaid interest): $1,031,801 (-0-)
- - --------------------------------------------------------------------------------
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
- - --------------------------------------------------------------------------------
Prepayment provisions: Prepayable without penalty.
- - --------------------------------------------------------------------------------
6/30/99 principal balance of $1,022,417; the loan matures in 1/05, has
first mortgage loan secured by a balance due at maturity of $932,217,
property and other terms: 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.
- - --------------------------------------------------------------------------------
29
<PAGE>
Baron Strategic Investment Fund VIII, Ltd.
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
58% interest in loans: $206,260
- - --------------------------------------------------------------------------------
6/30/99 principal balance
(accrued unpaid interest): $206,260 ($2,406)
- - --------------------------------------------------------------------------------
Balance due at maturity: $206,260
- - --------------------------------------------------------------------------------
6/30/99 principal balance of other
Exchange Partnership's undivided
42% in loans (accrued unpaid
interest): $155,787 ($5,972)
- - --------------------------------------------------------------------------------
Interests of other Exchange Baron Strategic Investment Fund X, Ltd.
Partnership in second mortgage ("Baron Fund X") owns the remaining
loans: 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
6/30/99 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 $5,972); 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 (i) Fixed interest rate of 6% as to
amortization provisions: $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
- - --------------------------------------------------------------------------------
30
<PAGE>
Baron Strategic Investment Fund VIII, Ltd. (cont'd)
- - --------------------------------------------------------------------------------
Prepayment provisions: Prepayable without penalty.
- - --------------------------------------------------------------------------------
6/30/99 principal balance of first $699,359 ($405,628); the loan matures in
mortgage loan secured by 11/04, has a balance due at maturity of
property (58% of amount) $655,856, bears interest at a fixed
and other terms: 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
- - --------------------------------------------------------------------------------
6/30/99 principal balance
(accrued unpaid interest): $969,268 ($60,704)
- - --------------------------------------------------------------------------------
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 (i) Fixed interest rate of 6% as to
amortization provisions: $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.
- - --------------------------------------------------------------------------------
6/30/99 principal balance of first $1,022,255; the loan matures in 11/04,
mortgage loan secured by property has a balance due at maturity of
and other terms: $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.
- - --------------------------------------------------------------------------------
31
<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
- - --------------------------------------------------------------------------------
6/30/99 principal balance
(accrued unpaid interest): $98,000 ($5,623)
- - --------------------------------------------------------------------------------
Balance due at maturity: $98,000
- - --------------------------------------------------------------------------------
6/30/99 aggregate principal balance
of other second mortgage loans
secured by property and owned by
other Exchange Partnerships
(accrued unpaid interest): $473,500 ($41,824)
- - --------------------------------------------------------------------------------
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 Fixed interest rate of 12%; requires
amortization provisions: 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
- - --------------------------------------------------------------------------------
6/30/99 principal balance of first $1,021,362; approved maximum $2,000,000;
mortgage loan secured by property the loan matures in 11/01, bears interest
and other terms: 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 $27,315 and $14,509),
respectively. The lending parties have
agreed to share the benefits of the
second mortgage on a pari passu basis.
- - --------------------------------------------------------------------------------
32
<PAGE>
Baron Strategic Vulture Fund I, Ltd.
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
- - --------------------------------------------------------------------------------
6/30/99 principal balance
(accrued unpaid interest): $1,243,847 ($112,259)
- - --------------------------------------------------------------------------------
Balance due at maturity: $1,243,847
- - --------------------------------------------------------------------------------
6/30/99 principal balance of other
Exchange Partnership's undivided
26.3% in three loans and 100%
interest in one loan (accrued
unpaid interest): $474,703 ($33,148)
- - --------------------------------------------------------------------------------
Interests of other Exchange Baron Strategic Investment Fund V, Ltd. (
Partnership in second mortgage "Baron Fund V") owns the remaining
loans: 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 6/30/99 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
$33,148); 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 (i) Fixed interest rate of 6% as to
amortization provisions: $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
- - --------------------------------------------------------------------------------
33
<PAGE>
Baron Strategic Vulture Fund I, Ltd. (cont'd)
- - --------------------------------------------------------------------------------
Prepayment provisions: Prepayable without penalty.
- - --------------------------------------------------------------------------------
6/30/99 principal balance of first $1,286,406 ($948,081); the loan matures
mortgage loan secured by in 4/08, has a balance due at maturity of
property (73.7% of amount) $1,122,800, bears interest at the fixed
and other terms: 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.
- - --------------------------------------------------------------------------------
34
<PAGE>
Brevard Mortgage Program, Ltd.
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 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
- - --------------------------------------------------------------------------------
6/30/99 principal balance
(accrued unpaid interest): $1,048,861 ($112,115)
- - --------------------------------------------------------------------------------
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 (i) Fixed interest rate of 6% as to
amortization provisions: $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.
- - --------------------------------------------------------------------------------
6/30/99 principal balance of first $944,722; the loan matures in 7/01, has a
mortgage loan secured by balance due at maturity of $905,918,
property and other terms: 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.
- - --------------------------------------------------------------------------------
35
<PAGE>
EXCHANGE HYBRID PARTNERSHIPS
Baron Strategic Investment Fund VI, Ltd.
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
- - --------------------------------------------------------------------------------
6/30/99 principal balance
(accrued unpaid interest): $68,000 ($9,767)
- - --------------------------------------------------------------------------------
Balance due at maturity: $68,000
- - --------------------------------------------------------------------------------
6/30/99 principal balance of other
second mortgage loans secured by
the property and owned by other
Exchange Partnerships (accrued
unpaid interest): $96,500 ($13,224)
- - --------------------------------------------------------------------------------
Second mortgage interests of other Baron Strategic Investment Fund V, Ltd.
Exchange Partnerships in the ("Baron Fund V") and Baron Strategic
Property: Investment Fund IX, Ltd. ("Baron Fund
IX") own separate second mortgage loans
secured by the Candlewood Property. The
original principal balance, aggregate
6/30/99 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 $3,102) and
$75,500 (accrued unpaid interest of
$10,122), 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.
- - --------------------------------------------------------------------------------
36
<PAGE>
Baron Strategic Investment Fund VI, Ltd. (cont'd)
- - --------------------------------------------------------------------------------
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)
- - --------------------------------------------------------------------------------
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.
- - --------------------------------------------------------------------------------
6/30/99 principal balance of first $587,146 ($242,491); the loan matures in
mortgage loan secured by 2/03, has a balance due at maturity of
property (41.3% of amount) and other $533,678, bears interest at a fixed
terms: 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
- - --------------------------------------------------------------------------------
6/30/99 principal balance
(accrued unpaid interest): $248,353 ($11,196)
- - --------------------------------------------------------------------------------
Balance due at maturity: $248,353
- - --------------------------------------------------------------------------------
6/30/99 principal balance of other
Exchange Partnerships' undivided
80% in loan (accrued unpaid
interest): $993,414 ($45,728)
- - --------------------------------------------------------------------------------
37
<PAGE>
Baron Strategic Investment Fund VI, Ltd. (cont'd)
- - --------------------------------------------------------------------------------
Interests of other Exchange Baron Strategic Investment Fund IX, Ltd.
Partnerships in second mortgage ("Baron Fund IX") and Baron Strategic
loans: 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, 6/30/99
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 $14,230) and
$682,972 (accrued unpaid interest of
$31,498), 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)
- - --------------------------------------------------------------------------------
Mortgage interest and (i) Fixed interest rate of 2% as to
Amortization provisions: $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.
- - --------------------------------------------------------------------------------
6/30/99 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"):
- - --------------------------------------------------------------------------------
6/30/99 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 ($56,670)
- - --------------------------------------------------------------------------------
38
<PAGE>
Baron Strategic Investment Fund VI, Ltd. (cont'd)
- - --------------------------------------------------------------------------------
6/30/99 principal balance of
Baron Fund IV's second mortgage
loans secured by property
(accrued unpaid interest ): $1,364,549 ($199,576)
- - --------------------------------------------------------------------------------
Appraised replacement cost new of
property: $3,554,776
- - --------------------------------------------------------------------------------
Appraised value of property - income
approach: $2,281,000
- - --------------------------------------------------------------------------------
6/30/99 principal balance of $1,582,377; the loan matures in 3/08, has
first mortgage loan a balance due at maturity of $1,385,953,
secured property: 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.
- - --------------------------------------------------------------------------------
39
<PAGE>
Baron Strategic Investment Fund IX, Ltd.
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
- - --------------------------------------------------------------------------------
6/30/99 principal balance
(accrued unpaid interest): $75,500 ($10,122)
- - --------------------------------------------------------------------------------
Balance due at maturity: $75,500
- - --------------------------------------------------------------------------------
6/30/99 aggregate principal balance
of other second mortgage loans
secured by property and owned by
other Exchange Partnerships
(accrued unpaid interest): $89,000 ($13,069)
- - --------------------------------------------------------------------------------
Second mortgage interests of other Baron Strategic Investment Fund V, Ltd.
Exchange Partnerships in ("Baron Fund V") and Baron Strategic
Property: Investment Fund VI, Ltd. ("Baron Fund
VI") own separate second mortgage loans
secured by the Candlewood Property. The
original principal balance, aggregate
6/30/99 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 $3,102) and
$68,000 (accrued unpaid interest of
$9,967), 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.
- - --------------------------------------------------------------------------------
40
<PAGE>
Baron Strategic Investment Fund IX, Ltd. (cont'd)
- - --------------------------------------------------------------------------------
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
- - --------------------------------------------------------------------------------
Monthly interest payable: $755
- - --------------------------------------------------------------------------------
Prepayment provisions: Prepayable without penalty.
- - --------------------------------------------------------------------------------
6/30/99 principal balance of first $587,146 ($269,500); the loan matures in
mortgage loan secured by 2/03, has a balance due at maturity of
property (45.9% of amount) $533,678, bears interest at a fixed
and other items: 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 loans: $310,442
- - --------------------------------------------------------------------------------
6/30/99 principal balance
(accrued unpaid interest): $310,442 ($14,230)
- - --------------------------------------------------------------------------------
Balance due at maturity: $310,442
- - --------------------------------------------------------------------------------
41
<PAGE>
Baron Strategic Investment Fund IX, Ltd. (cont'd)
- - --------------------------------------------------------------------------------
6/30/99 principal balance of other
Exchange Partnerships' undivided 75%
interest in loans (accrued unpaid
interest): $931,325 ($42,694)
- - --------------------------------------------------------------------------------
Interests of other Exchange Baron Strategic Investment Fund VI, Ltd.
Partnerships in second mortgage ("Baron Fund VI") and Baron Strategic
loans: 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, 6/30/99
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 $11,196) and
$682,972 (accrued unpaid interest of
$31,498), 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)
- - --------------------------------------------------------------------------------
Mortgage interest and (i) Fixed interest rate of 2% as to
Amortization provisions: $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.
- - --------------------------------------------------------------------------------
6/30/99 principal balance of first $967,012 ($241,753); the loan matures in
mortgage loan secured by 5/05, has a balance due at maturity of
property (25% 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. 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
- - --------------------------------------------------------------------------------
6/30/99 principal balance
(accrued unpaid interest): $243,500 ($14,509))
- - --------------------------------------------------------------------------------
Balance due at maturity: $243,500
- - --------------------------------------------------------------------------------
42
<PAGE>
Baron Strategic Investment Fund IX, Ltd. (cont'd)
- - --------------------------------------------------------------------------------
6/30/99 aggregate principal balance
of other second mortgage loans
secured by property and owned by
other Exchange Partnerships
(accrued unpaid interest): $328,000 ($32,938)
- - --------------------------------------------------------------------------------
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 Fixed interest rate of 12%; requires
amortization provisions: 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
- - --------------------------------------------------------------------------------
6/30/99 principal balance of first $1,021,362; approved maximum $2,000,000;
mortgage loan secured by the loan matures in 11/01, bears interest
property and other items: 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.
- - --------------------------------------------------------------------------------
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 $27,315 and $5,623),
respectively. The lending parties have
agreed to share the benefits of the
second mortgage on a pari passu basis.
- - --------------------------------------------------------------------------------
43
<PAGE>
Baron Strategic Investment Fund X, Ltd.
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
- - --------------------------------------------------------------------------------
6/30/99 principal balance
(accrued unpaid interest): $149,361 ($5,972)
- - --------------------------------------------------------------------------------
Balance due at maturity: $149,361
- - --------------------------------------------------------------------------------
6/30/99 principal balance of other
Exchange Partnership's undivided
58% in loans (accrued unpaid
interest): $206,260 ($5,306)
- - --------------------------------------------------------------------------------
Interests of other Exchange Baron Strategic Investment Fund VIII,
Partnership in second mortgage Ltd. ("Baron Fund VIII") owns the
loans: 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
6/30/99 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 $2,406); 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)
- - --------------------------------------------------------------------------------
44
<PAGE>
Baron Strategic Investment Fund X, Ltd. (cont'd)
- - --------------------------------------------------------------------------------
Mortgage interest and (i) Fixed interest rate of 6% as to
Amortization provisions: $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.
- - --------------------------------------------------------------------------------
6/30/99 principal balance of $699,359 ($293,731); the loan matures in
first mortgage loan secured by 11/04, has a balance due at maturity of
property (42% of amount) and $655,856, bears interest at a fixed
other terms: 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
- - --------------------------------------------------------------------------------
6/30/99 principal balance
(accrued unpaid interest): $682,972 ($31,498)
- - --------------------------------------------------------------------------------
Balance due at maturity: $682,972
- - --------------------------------------------------------------------------------
6/30/99 principal balance of other
Exchange Partnerships' undivided
45% in loan (accrued unpaid
interest): $558,795 ($25,426)
- - --------------------------------------------------------------------------------
Interests of other Exchange Baron Strategic Investment Fund VI, Ltd.
Partnerships in second mortgage ("Baron Fund VI") and Baron Strategic
loans: 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, 6/30/99
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
$11,196$5,607) and $310,442, (accrued
unpaid interest of $14,230),
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.
- - --------------------------------------------------------------------------------
45
<PAGE>
Baron Strategic Investment Fund X, Ltd. (cont'd)
- - --------------------------------------------------------------------------------
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 (i) Fixed interest rate of 2% as to
Amortization provisions: $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)
- - --------------------------------------------------------------------------------
Monthly interest payable: $5,122
- - --------------------------------------------------------------------------------
Prepayment provisions: Prepayable without penalty.
- - --------------------------------------------------------------------------------
6/30/99 principal balance of first $967,012 ($531,857); the loan matures in
mortgage loan secured by 5/05, has a balance due at maturity of
property (55% of amount) $822,063, bears interest at the fixed
and other items: 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.
- - --------------------------------------------------------------------------------
46
<PAGE>
Lamplight Court of Bellefontaine Apartments, Ltd.
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
- - --------------------------------------------------------------------------------
6/30/99 principal balance
(accrued unpaid interest): $678,302 ($135,713)
- - --------------------------------------------------------------------------------
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 (i) Adjustable interest rate of 1% over
amortization provisions: 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.
- - --------------------------------------------------------------------------------
6/30/99 principal balance of first $1,358,436; the loan matures in 11/06,
mortgage loan secured by has a balance due at maturity of
property and other terms: $1,158,349, bears interestat 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.
- - --------------------------------------------------------------------------------
47
<PAGE>
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
expects that 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.
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 below in this item
collectively refers 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.
48
<PAGE>
The Exchange Partnerships, substantially all of whose equity interest the
Operating Partnership acquired in 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 completed the Cash Offering and invested the net
proceeds thereof, 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 completion of the Cash 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.
The Trust qualified as a REIT for federal income tax purposes beginning
with its taxable year ending December 31, 1998.
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 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. Section 1.9 of the Declaration of
Trust for the Trust contains certain additional limitations on the Trust's
activities.
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. 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
49
<PAGE>
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.
The Board of the Trust has adopted a policy, described below at " -
Conflicts of Interest Policies," 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, Gregory K. McGrath, Robert S. Geiger 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.
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.
Pending the commitment of Trust and Operating Partnership funds for
business purposes, for distributions to Shareholders and Unitholders 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.
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.
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.
50
<PAGE>
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 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 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.
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, Gregory K. McGrath, Robert S. Geiger, 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
51
<PAGE>
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 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.
Property Description
The Acquired Properties and the Exchange Properties are primarily garden
style, one and two-story residential apartment dwellings which range in size
from eight units to 164 units. The Trust believes that the Acquired Properties
and the Exchange Properties generally occupy strategic locations in growing
sub-markets. The average unit size for properties is 569 square feet, with 21.2%
of the units having two or more bedrooms. A majority of the units have
washer/dryer connections and walk-in closets. Certain of the properties have
improved their attractiveness by investing in extensive landscaping and
rehabilitating certain units. Other features included in certain properties are
swimming pools, playgrounds, volley ball courts, fitness centers and community
rooms.
Each of the Acquired Properties and Exchange Properties is a residential
apartment community; there is no tenant who occupies 10% or more of the rentable
square footage. There is no business, occupation or profession taking place on
the properties. Other information concerning the Acquired Properties and the
Exchange Properties is set forth above in this item.
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. 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 Operating Partnership and the Exchange Partnership use a variety of
lease forms to comply with applicable state and local laws and customs. At some
properties, leases provided or recommended by state or local apartment
associations are used. At other properties, a standard company lease is used and
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 Operating Partnership or the respective Exchange
Partnership 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 Acquired Properties and 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.
Insurance
The Managing Shareholder believes that all of the Acquired Properties
and the Exchange Properties are adequately insured; however, an uninsured loss
could result in loss of capital investment and anticipated profits.
52
<PAGE>
ITEM 3. LEGAL PROCEEDINGS
The Trust is not a party to any legal proceedings.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Market Information
There is no established public trading market for the Common Shares of the
Trust.
Shareholders
As of March 31, 2000, there are approximately 462 Shareholders of record of
Common Shares of the Trust, its only class of common equity.
Distributions
In 1998 and 1999, the Trust declared and paid $72,159 and $270,348,
respectively, of distributions on its outstanding Common Shares. The Trust's
ability to make future distributions will be determined by the net cash flow it
has available to make distributions.
Use of Proceeds from Registered Securities
The Trust's Form SB-2 Registration Statement (the "Registration Statement")
(Commission file number 333-35063) was declared effective by the Securities and
Exchange Commission (the "Commission") on May 15, 1998. On May 18, 1998, the
Trust commenced its public offering (the "Cash Offering") of Common Shares of
beneficial interest, the class of securities registered. On June 2, 1999, the
Trust filed Post-Effective Amendment No. 1 (the "Amendment") to the Registration
Statement, which the Commission declared effective on June 11, 1999. The Cash
Offering is currently ongoing and is scheduled to terminate on May 31, 2000.
The name of the managing underwriter of the Cash 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 maximum aggregate
price of the offering amount registered is $25,000,000. As of December 31, 1999,
675,086 Common Shares have been sold in the Cash Offering, for an aggregate
offering price of $6,750,860. From the effective date of the Registration
Statement through December 31, 1999, the following expenses have been incurred
for the Trust's account in connection with the issuance and distribution of the
registered Common Shares:
<TABLE>
<S> <C>
Underwriting discounts and commissions: $540,068 (plus five-year warrants to acquire 57,613 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): $404,716
Total Expenses: $944,784
</TABLE>
53
<PAGE>
Of such expense payments, $404,716 were made directly to Baron Advisors,
Inc., the Managing Shareholder of the Trust. The remaining payments of $540,068
were made directly or indirectly to others. The net offering proceeds to the
Trust after deducting the foregoing total expenses were $5,806,076.
From the effective date of the Registration Statement through December 31,
1999, the net offering proceeds to the Trust were used for the following
purposes:
Improvements to buildings and facilities: $0
Purchase and installation of equipment: $0
Repayment of indebtedness: $0
Working capital: $568,336
Temporary investments: $0
Investment in Baron Capital Properties,
L.P. (the Operating Partnership) $5,237,740
Other purposes for which 5% or more of net
offering proceeds or $100,000 (whichever is less)
have been used: $0
Of such net proceeds, $5,237,740 was directly contributed to the Operating
Partnership in exchange for Units of limited partnership interest therein. The
Operating Partnership conducts all of the real estate operations of the Trust
and holds all of its real property assets. In 1999, the Trust distributed
$270,348 to its Shareholders.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
The following discussion should be read in conjunction with the Trust's
Consolidated Financial Statements and Notes thereto. (See ITEM 7 - FINANCIAL
STATEMENTS).
Forward-looking Statements
This Management's Discussion and Analysis or Plan of Operation and other
sections of this Report contain 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 or Plan of Operation, 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.
Results of Operations
The Trust commenced operations in the first half of 1998. Through the
Operating Partnership, it started acquiring interests in properties including
the entire limited partnership interests in Heatherwood I Apartments in June
1998; Crystal Court II Apartments in
54
<PAGE>
July 1998; and Riverwalk Apartments in September 1998. In July 1998 it acquired
a limited partnership interest in 13 real estate limited partnerships managed by
affiliates of Gregory K. McGrath (a founder and Chief Executive Officer of the
Trust and the Operating Partnership). During 1998 and 1999, the Trust acquired
limited partnership interests in Alexandria Apartments which totaled 40% as of
December 31, 1999 and remained unchanged as of March 31, 2000. See ITEM 2 -
DESCRIPTION OF PROPERTIES.
Total Assets for the Trust declined by $395,317 from $7,731,515 at December
31, 1998 to $7,336,198 at December 31, 1999. The decline was principally due to
depreciation of $240,349. Total Liabilities for the Trust increased $908,463,
from $4,897,423 at December 31, 1998 to $5,805,886 at December 31, 1999. This
increase resulted principally from accounts payable for professional services
related to the Exchange Offering. The Trust is negotiating with the
professionals involved and expects to receive extended payment terms and
possible reductions of the amounts due. Shareholders' Equity decreased
$1,274,570 from $2,804,882 at December 31, 1998 to $1,530,312 at December 31,
1999. The decrease was principally due to the Net Loss in 1999 of $3,166,927,
offset by the $1,945,705 proceeds from sale of Common Shares of beneficial
interest.
Net Cash Used by Operating Activities decreased by $386,128 from $1,408,715
cash used in the year ended December 31, 1998 to $1,022,587 cash used in the
year ended December 31, 1999. The decrease in Net Cash Used by Operating
Activities was principally due to the increase in accounts payable. Net Cash
Used in Investing Activities decreased $1,687,931 from $2,484,212 for the year
ended December 31, 1998 to $796,281 for the year ended December 31, 1999. The
decrease was principally due to the acquisition of rental apartments in 1998 for
$1,559,162 compared with no such acquisitions in 1999. Cash Flow from Financing
Activities decreased $2,394,883 from $4,070,226 in the year ended December 31,
1998 to $1,675,343 in the year ended December 31, 1999. The decrease was
principally due to the reduction in proceeds from sale of Common Shares of
beneficial interest in the Trust by $2,319,384 from $4,265,089 in the year ended
December 31, 1998 to $1,945,705 in the year ended December 31, 1999.
Revenues increased by $208,878 from $376,524 for the partial year ended
December 31, 1998 to $585,402 for the complete year ended December 31, 1999.
Real Estate Expenses for the properties owned by the Trust increased from
$606,015 for the partial year ended December 31, 1998 to $1,024,209 for the
complete year ended December 31, 1999. The increases in Revenues and Real Estate
Expenses were principally due to a full year of operations in 1999 compared to a
partial year of operations in 1998. Administrative Expenses increased $1,280,551
from $1,447,569 for the year ended December 31, 1998 to $2,728,120 for the year
ended December 31, 1999. The increase in Administrative Expenses was principally
due to an increase in Professional Services of $1,309,450 from $129,011 for the
year ended December 31, 1998 to $1,438,461 for the year ended December 31, 1999.
The increase in Professional Services was principally related to the Exchange
Offering and is not expected to recur.
The Trust plans to continue raising equity in its Cash Offering under its
current prospectus dated June 11, 1999, as it may be amended or supplemented.
The current offering is for $25,000,000, and is effective through May 31, 2000.
Through December 31, 1999 the Trust has raised $6,750,863. 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.
Because of the net losses of $3,166,927 and $1,577,060 in 1999 and 1998,
respectively; the $975,305 in accounts payable owed to professionals in
connection with the Exchange Offering as of December 31, 1999, and the limited
liquid resources as of December 31, 1999, the Company's independent auditors
included an explanatory paragraph in their auditors' report regarding certain
going concern considerations to reflect these conditions (see the Report of
Independent Certified Public Accountants and Note 2 of the Notes to Consolidated
Financial Statements included herewith in Item 7). The completion of the
Exchange Offering on April 7, 2000 has, in the opinion of management, provided
the critical mass necessary for profitable operations. The Company is
negotiating with the firms who are owed accounts payable, and expects to receive
extended payment terms and possible reductions of the amounts due. Distributions
will be made by the Trust as cash flow allows, but will be negatively impacted
as the open accounts payable are reduced.
In April 2000, pursuant to a registration statement on Form S-4, the
Operating Partnership completed an exchange offering (the "Exchange Offering")
under which it acquired additional interests in residential apartment
properties. In the Exchange Offering, the Operating Partnership issued 2,434,274
registered Operating Partnership Units (with an initial assigned value of
$24,342,740) in exchange for substantially all outstanding units of limited
partnership interest owned by individual limited partners ("Exchange
55
<PAGE>
Limited Partners") in 23 limited partnerships (the "Exchange Partnerships"),
which directly or indirectly own equity and/or debt interests in one or more of
26 residential apartment properties located in the southeast and mid-west United
States.
The property interests acquired by the Operating Partnership to date are
described in further detail at ITEM 2 - DESCRIPTION OF PROPERTIES.
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 Common Shares
and Units, 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 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 table below summarizes the results of operations of the Trust for the
year ended December 31, 1999.
Year Ended
December 31, 1999
-----------------
Property Revenues $ 585,402
Property Income (Loss) $ (438,807)
Administrative Expenses $ 2,728,120
Net Loss $ (3,166,927)
Total Assets $ 7,336,198
Shareholders' Equity $ 1,530,312
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
conditions 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 88% for nine months
of the year and 61% for the remaining three months of the year.
Subject to the foregoing discussion, management believes that the Trust and
the Operating Partnership have the ability to satisfy their cash requirements
for the foreseeable future. However, the Trust will continue the Cash Offering
through May 31, 2000,
56
<PAGE>
subject to extension, and it will also be necessary to raise additional capital
during the 12-month period following the completion of the Cash Offering 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 completion of the Cash Offering.
The Trust and the Operating Partnership expect no material change in the
number of employees over the next 12 months.
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. The Trust and the Operating
Partnership have not experienced any material year 2000 problems so far in 2000.
It is possible, however, that the computer systems of the Trust and the
Operating Partnership and certain computer systems or software products of their
suppliers could experience year 2000 problems and that such problems could
adversely affect them. With respect to their own computer systems, the Trust and
the Operating Partnership have upgraded 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 solve any year 2000
problems that could affect their operating software. The failure to identify and
solve all year 2000 problems affecting their business could have an adverse
effect on the business, financial condition and results of operations of the
Trust and the Operating Partnership.
ITEM 7. FINANCIAL STATEMENTS
See Index to Financial Statements.
57
<PAGE>
BARON CAPITAL TRUST
INDEX TO FINANCIAL STATEMENTS
PAGE
----
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS F-1
CONSOLIDATED FINANCIAL STATEMENTS
Balance Sheet F-2
Statements of Operations F-3
Statements of Shareholders' Equity F-4
Statements of Cash Flows F-5-F-6
Notes to Financial Statements F-7-F-28
<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, 1999 and the related consolidated
statements of operations, shareholders' equity and cash flows for the year ended
December 31, 1999 and for the period 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 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 consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of Baron
Capital Trust as of December 31, 1999, and the consolidated results of their
operations and their cash flows for the year ended December 31, 1999 and for the
period from inception (February 3, 1998) to December 31, 1998, in conformity
with generally accepted accounting principles.
The accompanying consolidated financial statements have been prepared assuming
that the Trust will continue as a going concern. As discussed in Note 2 to the
consolidated financial statements, the Trust incurred significant net losses and
negative cash flows from operations for 1999 and 1998 and, as of December 31,
1999, reflects limited liquid resources. These conditions raise substantial
doubt about the Trust's ability to continue as a going concern. Management's
plans with regard to these matters are also described in Note 2. The
consolidated financial statements do not include any adjustments that might
result from the outcome of this uncertainty.
RACHLIN COHEN & HOLTZ LLP
Miami, Florida
February 25, 2000 except for Note 12,
as to which the date is April 7, 2000
F-1
<PAGE>
BARON CAPITAL TRUST
CONSOLIDATED BALANCE SHEET
DECEMBER 31, 1999
ASSETS
Rental Apartments:
Land $ 1,178,693
Depreciable property 6,189,095
-----------
7,367,788
Less accumulated depreciation 1,453,177
-----------
5,914,611
Investments in Partnerships 930,970
Cash and Cash Equivalents 33,774
Restricted Cash 52,089
Reimbursed Administrative Expenses Receivable, Affiliates 36,997
Due from Managing Shareholder 14,783
Other Receivables 3,724
Advances to Affiliates 5,141
Other Property and Equipment 134,981
Other Assets 209,128
-----------
$ 7,336,198
===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
Mortgages payable $ 4,278,117
Accounts payable and accrued liabilities 1,295,092
Note payable 100,000
Notes payable, affiliates 50,000
Capital lease obligation 42,369
Security deposits 40,308
-----------
Total liabilities 5,805,886
-----------
Commitments, Contingencies, Subsequent Events and Other Matters --
Shareholders' Equity:
Common shares of beneficial interest, no par value; 2,500,000
shares authorized; 675,086 shares issued and outstanding 6,616,806
Deficit (4,743,987)
Distributions (342,507)
-----------
Total shareholders' equity 1,530,312
-----------
$ 7,336,198
===========
See notes consolidated financial statements.
F-2
<PAGE>
BARON CAPITAL TRUST
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
From
Inception
Year (February 3,
Ended 1998) to
December 31, December 31,
1999 1998
---------- -----------
<S> <C> <C>
Revenues:
Property:
Rental $ 1,056,995 $ 358,949
Equity in net loss of unconsolidated partnership (595,000) (20,360)
Interest and other income 123,407 37,935
----------- -----------
585,402 376,524
----------- -----------
Real Estate Expenses:
Depreciation 240,349 80,296
Interest 316,095 164,333
Repairs and maintenance 143,923 86,349
Personnel 126,070 53,860
Property taxes 83,495 34,496
Property insurance 29,144 20,477
Utilities 68,827 27,299
Other 16,306 138,905
----------- -----------
1,024,209 606,015
----------- -----------
Administrative Expenses:
Personnel, including officer's compensation 680,774 718,715
Management, investment and administrative fees, Managing Shareholder 148,012 324,213
Professional services 1,438,461 129,011
Other 460,873 275,630
----------- -----------
2,728,120 1,447,569
----------- -----------
Total expenses 3,752,329 2,053,584
----------- -----------
Loss Before Minority Interest (3,166,927) (1,677,060)
Minority Interest of Unitholders in Net Loss of Operating Partnership -- 100,000
----------- -----------
Net Loss $(3,166,927) $(1,577,060)
=========== ===========
Net Loss Per Common Share $ (5.12) $ (7.41)
=========== ===========
</TABLE>
See notes consolidated financial statements.
F-3
<PAGE>
BARON CAPITAL TRUST
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
Common Shares of
Beneficial Interest
-------------------
Shares Amount Deficit Distributions Total
------ ------ ------- ------------- -----
<S> <C> <C> <C> <C> <C>
From Inception (February 3, 1998) to December 31, 1998:
Initial capital contributions:
Managing shareholder 10 $ 100 $ -- $ -- $ 100
Proceeds from sale of common shares of
beneficial interest, net of offering costs 463,640 4,257,001 -- -- 4,257,001
Distributions paid -- -- -- (72,159) (72,159)
Credit for estimated fair value of
services performed by officer -- 197,000 -- -- 197,000
Net loss -- -- (1,577,060) -- (1,577,060)
------- ----------- ----------- ----------- -----------
Balance, December 31, 1998 463,650 4,454,101 (1,577,060) (72,159) 2,804,882
Year Ended December 31, 1999:
Proceeds from sale of common shares of
beneficial interest, net of offering costs 211,436 1,945,705 -- -- 1,945,705
Distributions paid -- -- -- (270,348) (270,348)
Credit for estimated fair value of
services performed by officer -- 217,000 -- -- 217,000
Net loss -- -- (3,166,927) -- (3,166,927)
------- ----------- ----------- ----------- -----------
Balance, December 31, 1999 675,086 $ 6,616,806 $(4,743,987) $ (342,507) $ 1,530,312
======== =========== ============ ========== ==========
</TABLE>
See notes consolidated financial statements.
F-4
<PAGE>
BARON CAPITAL TRUST
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
From
Inception
Year (February 3,
Ended 1998) to
December 31, December 31,
1999 1998
------------ -----------
<S> <C> <C>
Cash Flows from Operating Activities:
Net loss $(3,166,927) $(1,577,060)
Adjustments to reconcile net loss to
net cash used by operating activities:
Credit for estimated fair value of services performed by officer 217,000 197,000
Minority interest of unitholders in net loss of Operating Partnership -- (100,000)
Depreciation 240,349 80,296
Equity in net loss of unconsolidated partnership 595,000 20,360
Increase in operating assets and liabilities:
Other receivables 76,388 (80,112)
Reimbursed administrative expenses receivable 118,074 (155,071)
Due from Managing Shareholder (14,783) --
Other assets 3,633 (221,611)
Accounts payable and accrued liabilities 906,707 388,385
Security deposits 1,972 38,336
Other -- 762
----------- -----------
Net cash used by operating activities (1,022,587) (1,408,715)
----------- -----------
Cash Flows from Investing Activities:
Acquisitions of rental apartments -- (1,559,162)
Investment in partnerships (885,000) (741,280)
Cash distributions from partnerships 69,000 10,950
Purchases of other property and equipment -- (117,771)
(Increase) decrease in restricted cash 14,110 (66,199)
(Advances) repayments to affiliates 5,609 (10,750)
----------- -----------
Net cash used in investing activities (796,281) (2,484,212)
----------- -----------
</TABLE>
See notes consolidated financial statements.
F-5
<PAGE>
BARON CAPITAL TRUST
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Continued)
<TABLE>
<CAPTION>
From
Inception
Year (February 3,
Ended 1998) to
December 31, December 31,
1999 1998
----------- -----------
<S> <C> <C>
Cash Flows from Financing Activities:
Proceeds from sale of common shares of beneficial interest 1,945,705 4,265,089
Distributions paid (270,348) (72,159)
Initial capital contributions -- 100,100
Proceeds from mortgage financing 290,000 --
Proceeds from notes payable, affiliates 50,000 --
Payments on note payable (275,000) (200,000)
Payments on mortgages payable (51,399) (19,019)
Payments on capital lease obligation (13,615) (3,785)
----------- -----------
Net cash provided by financing activities 1,675,343 4,070,226
----------- -----------
Net Increase (Decrease) in Cash and Cash Equivalents (143,525) 177,299
Cash and Cash Equivalents, Beginning 177,299 --
----------- -----------
Cash and Cash Equivalents, Ending $ 33,774 $ 177,299
=========== ===========
Supplemental Disclosure of Cash Flow Information:
Cash paid for mortgage and other interest $ 316,095 $ 164,333
=========== ===========
</TABLE>
See notes consolidated financial statements.
F-6
<PAGE>
BARON CAPITAL TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999 AND 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
consolidated accounts of the Trust and the Operating Partnership. The
Trust is the general partner of the Operating Partnership and owns
approximately 81% of the limited partner units of the Operating
Partnership. The consolidated accounts of the Operating Partnership
include the accounts of three limited partnerships in which the
Operating Partnership is the controlling limited partner, by virtue of
its right to remove the general partner due to its majority ownership
percentage in those limited partnerships.
All significant intercompany transactions and balances have been
eliminated in consolidation.
The minority interest of unitholders in the Operating Partnership
represents the 1,202,160 limited partnership units owned by the
Original Investors of the Operating Partnership (see Note 10), and is
stated at the amount of the capital contribution by them to the
Operating Partnership ($100,000), reduced by their proportionate share
of the net loss of the Operating Partnership limited to the $100,000
contribution. During 1998, the proportionate share of the net loss of
the Operating Partnership allocated to the minority unitholders was
$100,000 with
F-7
<PAGE>
BARON CAPITAL TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Basis of Presentation (Continued
the excess of approximately $71,000 being charged to the majority
unitholders. For 1999, the entire balance of the proportionate share
of the net loss of the Operating Partnership of $502,000 was charged
to the majority unitholders. As of December 31, 1999 and 1998, the
1,202,160 Operating Partnership limited partnership units issued to
the Original Investors are subject to escrow restrictions and 158,353
and 108,757 units are convertible into common shares of the Trust,
respectively (see Note 10).
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.
Reimbursed Administrative Expenses and Other Receivables
Receivables are comprised mainly of (a) administrative expense
reimbursements due from a number of other partnerships that are
related to the Operating Partnership (see Note 9) and (b) 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 the estimated
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
F-8
<PAGE>
BARON CAPITAL TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Real Estate Rental Properties and Depreciation (Continued)
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, through the Operating Partnership, accounts for its
investments in limited partnerships in which it is deemed not to have
the controlling interest, but has more than a minor limited
partnership interest, utilizing the equity method of accounting. The
Operating Partnership's investment in Alexandria Development, L.P.,
which represents a 40% interest at December 31, 1999, is accounted for
using the equity method (see Note 4).
Investments in partnerships in which the Operating Partnership's
interest is so minor that the Partnership has virtually no influence
over partnership operating and financial policies are accounted for
utilizing the cost method. These investments generally represent less
than 5% of the partnership interest (see Note 4). The Trust
periodically assesses the estimated 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.
F-9
<PAGE>
BARON CAPITAL TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
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 six years, the remaining term
of the financing.
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.
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, 1999, 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
F-10
<PAGE>
BARON CAPITAL TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Recent Accounting Pronouncements (Continued)
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.
In June 1999, the Financial Accounting Standards Board issued SFAS No.
137, "Accounting for Derivative Instruments and Hedging Activities -
Deferral of the Effective Date of SFAS No. 133 an Amendment of SFAS
No. 133", which deferred the effective date to all fiscal quarters of
all fiscal years beginning after June 15, 2000.
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, 2001
to affect its financial statements.
NOTE 2. BASIS OF PRESENTATION
The accompanying consolidated financial statements have been prepared in
conformity with generally accepted accounting principles which assume that
the Trust will continue on a going concern basis, including the realization
of assets and liquidation of liabilities in the ordinary course of
business. However, for 1999 and 1998, the Trust incurred net losses of
$3,166,937 and $1,577,060 and negative cash flows from operations of
$1,022,587 and $1,408,715, respectively, and has limited liquid resources
as of December 31, 1999. These conditions raise substantial doubt about the
Trust's ability to continue as a going concern.
Management's plans to continue its operations and become profitable
encompass the following:
o The Trust plans to continue to raise capital through its Cash
Offering, which has been extended to May 31, 2000 and also intends to
make additional public or private offerings of common shares and/or
Operating Partnership units within the 12 month period following the
commencement of the proposed Exchange Offering, which became effective
on November 9, 1999.
F-11
<PAGE>
BARON CAPITAL TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
NOTE 2. BASIS OF PRESENTATION (Continued)
o The Trust, through its Operating Partnership, intends to continue to
acquire rental properties using proceeds from the Trust's Cash
Offering and the Exchange Offering described in Note 10. 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 subordinate
mortgage interest. Operating results in respect of equity interests
will be substantially influenced by the demand 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 Operating
Partnership will also depend upon the pace and price at which they can
acquire and improve additional property interests.
o See Note 12 regarding the completion of the Exchange Offering on April
7, 2000 under which the Trust, through the Operating Partnership,
acquired additional interests in residential apartment properties.
In view of these matters, realization of a major portion of the assets in
the accompanying consolidated balance sheet is dependent upon the continued
operations of the Trust, which in turn is dependent upon the Trust's
ability to meet its capital and financing requirements, and the success of
its future operations. Management believes that the actions presently being
taken by the Trust provide the opportunity for the Trust to continue as a
going concern. However, there can be no assurance that management will be
successful in the implementation of its plans to raise adequate amounts of
capital or that future operations will become profitable. The accompanying
consolidated financial statements do not include any adjustments that might
result from the outcome of this uncertainty.
NOTE 3. RENTAL APARTMENTS
Heatherwood Apartments
On June 30, 1998, the Operating Partnership acquired the entire
limited partnership interest, representing a 99% 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 December 31, 1999 was $1,226,624.
F-12
<PAGE>
BARON CAPITAL TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
NOTE 3. RENTAL APARTMENTS (Continued)
Crystal Court Apartments
On July 31, 1998, the Operating Partnership acquired the entire
limited partnership interest, representing a 91% 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, 1999 was $1,464,099.
Riverwalk Apartments
On September 1, 1998, the Operating Partnership acquired the entire
limited partnership interest, representing a 99% 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 $14,072 and
bears a fixed interest rate of 8.75% amortized over 25 years. The
entire balance, including accrued interest, is due on October 2004 and
may be prepaid with a prescribed prepayment fee. During 1999, an
additional $290,000 was borrowed on the first mortgage under the same
terms as the original mortgage. The entire $290,000 was distributed to
the Operating Partnership. The principal balance outstanding as of
December 31, 1999 was $1,587,394.
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 1% of the original loan
amount or $5,750.
During 1999, with the distributions received from the Riverwalk
Property, the Operating Partnership paid $275,000 of principal and
$42,500 of interest towards the note and exercised several options to
extend the maturity of the note to October 15, 2000 for an extension
fee of 1% of the outstanding loan amount at the time the options were
exercised. The principal balance outstanding as of December 31, 1999
was $100,000.
F-13
<PAGE>
BARON CAPITAL TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
NOTE 4. INVESTMENTS IN PARTNERSHIPS
Alexandria Property $589,690
Other Limited Partnership Interests 341,280
--------
$930,970
--------
Alexandria Apartments
On October 14, 1998, the Operating Partnership acquired an approximate
12% 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, 2000. An affiliate of the Trust 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.
During 1999, the Operating Partnership exercised its option to
purchase an additional eighteen (18) units of limited partnership
interest for $885,000, thereby increasing its ownership interest to
approximately 40%. As of December 31, 1999, the Operating Partnership
owned 26 units of limited partnership interest for which it paid
$1,285,000.
The following is a summary of the investment in the Alexandria
Property:
1999 1998
--------- ---------
Balance, beginning $ 368,690 $ --
Investments 885,000 400,000
Distributions (69,000) (10,950)
Equity in net loss (595,000) (20,360)
--------- ---------
Balance, ending $ 589,690 $ 368,690
========= =========
F-14
<PAGE>
BARON CAPITAL TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
NOTE 4. INVESTMENTS IN PARTNERSHIPS (Continued)
Alexandria Apartments (Continued)
The following is a condensed summary of the financial position as of
December 31, 1999 and results of operations of the Alexandria Property
for 1999 and 1998:
Financial Position:
Rental apartments $ 7,048,559
Construction in progress 3,650,679
Other assets 762,836
------------
Total assets $ 11,462,074
============
Mortgage payable $ 8,525,000
Other liabilities 3,323,378
------------
Total liabilities 11,848,378
Partners' Capital (Deficiency) (386,304)
------------
$ 11,462,074
============
1999 1998
----------- -----------
Results of Operations:
Rental income $ 405,798 $ 85,971
Other income 91,542 266,685
Costs and expenses (2,062,615) (518,186)
------------ -----------
Net loss $ (1,565,275) $ (165,530)
============ ===========
As of December 31, 1999, there was approximately $560,000 in notes
receivable from affiliates included in other assets and
approximately $2,300,000 in notes payable to affiliates included in
other liabilities, respectively. Included in cost and expenses for
1999 is a prepayment penalty of approximately $750,000 charged in
November 1999 by the former mortgage holder on the refinancing of
the mortgage payable. The Alexandria Property's management is
currently contesting the penalty. However, the outcome is not
determinable as of the date of this report.
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 Shareholder. 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.
F-15
<PAGE>
BARON CAPITAL TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
NOTE 5. OTHER PROPERTY AND EQUIPMENT
Furniture and equipment $112,273
Computer equipment and software 44,455
Leasehold improvements 20,313
--------
177,540
Less accumulated depreciation 42,559
--------
$134,981
========
Depreciation expense for other property and equipment for the year
ended December 31, 1999 and the period ended December 31, 1998 was
$34,001 and $8,558, respectively.
NOTE 6. MORTGAGES PAYABLE
<TABLE>
<CAPTION>
Original Maturity Interest December 31,
Property Amount Date Rate 1999
-------- -------- -------- -------- ------------
<S> <C> <C> <C> <C>
Heatherwood Apartments $1,250,000 12/31/2004 7.625% $1,226,624
Crystal Court Apartments 1,494,000 10/31/2004 7.5 1,464,099
Riverwalk Apartments 1,400,000 10/31/2004 8.75 1,587,394
---------- ----------
Total $4,139,000 $4,278,117
========== ==========
</TABLE>
All mortgage notes payable are collateralized by the underlying
properties described in Note 3 above.
The aggregate maturities of mortgages payable for each of the five
years subsequent to December 31, 1999 are as follows:
Year ending December 31:
2000 $ 60,479
2001 62,885
2002 71,180
2003 77,228
2004 4,006,345
----------
Total $4,278,117
==========
F-16
<PAGE>
BARON CAPITAL TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
NOTE 7. CAPITAL LEASE OBLIGATION
During 1998, the Operating Partnership purchased office furniture
financed through a capital lease obligation. The lease calls for sixty
(60) monthly payments of $1,245 including interest at 19.95% and is
secured by the office furniture purchased. Future minimum capital
lease payments and the net present value of the future minimum lease
payments at December 31, 1999 are as follows:
Year Ending December 31:
2000 $ 14,940
2001 14,940
2002 14,940
2003 8,715
--------
Total minimum lease payments 53,535
Less amount representing interest (11,166)
--------
Present value of minimum lease payment $ 42,369
========
NOTE 8. 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, 1999,
approximately $6,150,000 of such loans
F-17
<PAGE>
BARON CAPITAL TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
NOTE 8. COMMITMENTS AND CONTINGENCIES (Continued)
Contract to Purchase Additional Properties (Continued)
had been drawn down, resulting in outstanding guarantees of
approximately $2,150,000. 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 were not repaid prior to the
expiration of the guarantee, it would 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.
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. During 1999 and 1998, no common shares of the Trust or
units of the Operating Partnership were issued to the Chief Executive
Officer as compensation. However, in order to reflect all appropriate
administrative expenses of the Partnership, provisions of $217,000 and
$197,000 have been made in the accompanying financial statements for
the estimated fair value of the services rendered by the Chief
Executive Officer for 1999 and 1998. This amount has been charged to
compensation expense for 1999 and 1998, with corresponding credits to
partners' capital. These estimates of the fair value of such services
were determined by management based upon an analysis of compensation
paid to chief executive officers of a number of comparable real estate
investment trusts. Compensation and benefits for the Chief Executive
Officer are determined annually by the Executive Compensation
Committee of the Board of the Trust.
F-18
<PAGE>
BARON CAPITAL TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
NOTE 8. COMMITMENTS AND CONTINGENCIES (Continued)
Officers' Compensation
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.
Underwriting Agreement
In connection with the Cash Offering, the Trust issued to Sigma
Financial Corporation (the Underwriter), warrants to purchase an
amount equal to 8.5% of the number of Common Shares sold on a best
effort basis by the Underwriter and participating broker-dealers
selected by the Underwriter and the Trust. The warrants may be
purchased at any time and from time to time through May 15, 2003 at an
exercise price of $13 per warrant share. The Trust has reserved
212,500 shares under the Underwriting agreement, which represents 8.5%
of the 2,500,000 shares offered in the Cash Offering. As of December
31, 1999, the Underwriter has the option to purchase up to 57,613
shares at $13 per share.
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:
2000 $ 60,000
2001 60,000
2002 60,000
2003 30,000
---------
Total $ 210,000
=========
Rent expense was approximately $62,000 and $24,000 for 1999 and 1998,
respectively.
F-19
<PAGE>
BARON CAPITAL TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
NOTE 9. 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 the Board or a majority of the
stockholders entitled to vote on such matter or 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 1% of the gross
proceeds from the sale by the Trust of common shares in the Trust's
initial offering, and 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 1999 and 1998, the Trust paid the Managing Shareholder $42,289
and $92,393 for reimbursable expenses incurred during the Cash
Offering, $84,578 and $185,456 for reimbursable investment expenses
and $21,145 and $46,364 for reimbursable management expenses.
F-20
<PAGE>
BARON CAPITAL TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
NOTE 9. RELATED PARTY TRANSACTIONS (Continued)
Trust Management Agreement (Continued)
During 1999, the Trust overpaid $14,783 of reimbursable management
fees to the Managing Shareholder, which is recorded as a due from the
Managing Shareholder in the accompanying balance sheet as of December
31, 1999.
Transactions with Affiliated Entities
During 1999 and 1998, the Operating Partnership paid approximately
$37,000 and $12,000, respectively to an affiliated corporation for
computers being used by the Operating Partnership.
Reimbursed Administrative Expenses
The Partnership shares certain administrative expenses with a number
of other partnerships that are related to the Operating Partnership by
means of a common person who is the sole stockholder and officer of
the general partner of these partnerships and an officer of the
general partner of the Operating Partnership. These administrative
expenses are allocated as described below, and the allocated expenses
are reimbursed to the Partnership by these other partnerships. The
allocation of the costs was determined based upon an analysis of those
administrative costs directly associated with or reasonably allocated
to the activities of each entity. Personnel costs were allocated based
upon estimates of the time devoted by individual employees to each
entity's activities on a monthly basis. Other administrative costs
were allocated on a direct basis to the extent practicable, and the
balance on a pro rata basis. In the opinion of management, the method
used to allocate costs to all of the entities was considered to be
reasonable under the circumstances.
During 1999 and 1998, the Partnership was reimbursed approximately
$857,000 and $496,000, respectively, for administrative expenses,
which have been presented as a reduction of the specific related
category of administrative expenses in the accompanying financial
statements.
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, 1999, the Operating Partnership had
advanced $5,141 to two affiliates.
Notes Payable, Affiliates
On December 23, 1999, the Riverwalk Property executive a promissory
note payable to an affiliate for $20,000. The note payable calls for a
lump sum principal payment plus accrued interest at 10% per annum due
on December 23, 2004.
F-21
<PAGE>
BARON CAPITAL TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
NOTE 9. RELATED PARTY TRANSACTIONS (Continued)
Notes Payable, Affiliates (Continued)
On April 2, 1999, the Crystal Court Property executed a promissory
note payable to an affiliate for $20,000. The note payable calls for a
lump sum principal payment plus accrued interest at 10% per annum due
on April 2, 2004.
On December 10, 1999, the Heatherwood Property executed a promissory
note payable to an affiliate for $10,000. The note payable calls for a
lump sum principal payment plus accrued interest at 10% per annum due
on December 10, 2004.
NOTE 10. 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, as amended, will
terminate no later than May 31, 2000.
Exchange Offering
The Operating Partnership filed a registration statement on Form S-4
with the Securities and Exchange Commission (the "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
who 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 was declared
effective on November 9, 1999, and the Exchange Offering commenced
shortly thereafter.
F-22
<PAGE>
BARON CAPITAL TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
NOTE 10. 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.
See Note 12 regarding the completion of the Exchange Offering on April
7, 2000 under which the Trust, through the Operating Partnership,
acquired additional interests in residential apartment properties.
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
F-23
<PAGE>
BARON CAPITAL TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
NOTE 10. SHAREHOLDERS' EQUITY (Continued)
Operating Partnership Limited Partnership Units (Continued)
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 May 31, 2000, 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.
The fair value of the units issued to the Original Investors amounted
to $100,000, based upon a determination made by the Independent
Trustees of the Trust as of the date of subscription for these units
(February 3, 1998). The determination of the fair value took into
consideration that at the time of the subscription for the units, the
Trust and the Partnership were development stage companies, with no
cash or other significant tangible assets, operating history or
revenue and no certainty of successful offerings or future operations;
the founders had at risk their initial capital contributions plus
certain additional unreimbursed advances to cover certain offering and
operating expenses; the founders have significant experience and
developed know-how critical to the success of the Trust and the
Partnership; and the founders' units are subject to significant
transfer restrictions. The Partnership has accounted for the units as
being issued and outstanding, but subject to escrow restrictions, in
the accompanying consolidated financial statements, and has included
the units as outstanding in determining the weighted average shares
outstanding for purposes of calculating net loss per partnership unit
in the accompanying consolidated financial statements. Because the
release of the units from escrow is not dependent upon the achievement
of any specified level of profits, the release of the units from
escrow is not considered to be compensatory and, accordingly, no
accounting measurement will be given to the release of the units from
escrow.
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.
F-24
<PAGE>
BARON CAPITAL TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
NOTE 10. SHAREHOLDERS' EQUITY (Continued)
Operating Partnership Limited Partnership Units (Continued)
After the exchange with the limited partners and assignment of
economic rights of the general partner, the Operating Partnership will
control the Participating Exchange Partnerships by virtue of its
ownership of at least 90% of the limited partnership interests, which
will provide the Operating Partnership the ability to remove the
general partner under the provisions of the limited partnership
agreements that limited partners holding over 50% of total partnership
interest have the right to remove the general partner.
Distributions
In 1999, the Board of Trustees authorized the payment of three
distributions aggregating $270,348 ($.16 per common share of
beneficial interest) from the surplus of the Trust. During 1998, two
quarterly distributions aggregating $72,159 ($.225 per common share of
beneficial interest) were authorized for payment from surplus of the
Trust. These amounts are presented in the accompanying consolidated
financial statements as a deduction from shareholders' equity under
the caption "Distributions".
NOTE 11. 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 in 1999 and 1998.
The components used in calculating basic net loss per share are as
follows:
Weighted
Average Loss
Net Loss Shares Per Share
----------- -------- ---------
1999 $(3,166,927) 618,772 $(5.12)
=========== ======= ======
1998 $(1,577,060) 212,731 $(7.41)
=========== ======= ======
Assuming that the Original Investors had exchanged their limited
partnership units for an equivalent net amount of 49,900 Common
Shares, the net loss per share on an as-converted basis would have
been $4.74 and $6.00 per share for 1999 and 1998, respectively.
F-25
<PAGE>
BARON CAPITAL TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
NOTE 12. COMPLETION OF EXCHANGE OFFERING
On April 7, 2000, pursuant to a registration statement on Form S-4, the
Operating Partnership completed the Exchange Offering under which it
acquired additional interests in residential apartment properties. In the
Exchange Offering, the Operating Partnership issued 2,434,274 registered
Operating Partnership Units (with an initial assigned value of $24,342,740)
in exchange for substantially all outstanding units of limited partnership
interest owned by individual limited partners ("Exchange Limited Partners")
in 23 limited partnerships (the "Exchange Partnerships"), which directly or
indirectly own equity and/or debt interests in one or more of 26
residential apartment properties located in the southeast and mid-west
United States. Prior to the completion of the Exchange Offering, the
Exchange Partnerships were managed by corporate general partners (the
"Corporate General Partners"), which were controlled by Gregory K. McGrath,
who is the Chief Executive, sole stockholder and director of the Managing
Shareholder of the Trust.
Following the completion of the Exchange Offering, the Exchange
Partnerships continue to own the same property interests they owned prior
to the offering; substantially all of the limited partnership interests in
the 23 Exchange Partnership are owned by the Operating Partnership; Mr.
McGrath, for nominal consideration, assigned to the Trust all of the equity
stock in 18 of the Corporate General Partners and granted to the Board of
the Trust a management proxy coupled with an interest to vote the shares of
the remaining five Corporate General Partners; the Corporate General
Partner of each of the Exchange Partnerships has assigned to the Operating
Partnership all of its economic interest in the partnership; and Mr.
McGrath has caused each Corporate General Partner to waive its right to
receive from its Exchange Partnership any ongoing fees, effective upon
completion of the exchange. As a result of the foregoing, the Operating
Partnership (and indirectly the Trust) own substantially all of the
economic interest represented by the equity and debt interests owned by the
Exchange Partnerships and control management of such partnerships.
The Exchange Offering expired on April 7, 2000. Under the terms of the
Exchange Offering, Exchange Limited Partners in a particular Exchange
Partnership were entitled to participate in the offering only if limited
partners holding at least 90% of the units of limited partnership interest
in that partnership affirmatively elected to accept the offering. Exchange
Limited Partners holding approximately 97.4% of the outstanding units of
limited partnership in such partnerships accepted the offering, and each of
the Exchange Partnerships exceeded the 90% requirement. As a result,
following the completion of the Exchange Offering, the limited partnership
interests of nine Exchange Partnerships are owned entirely by the Operating
Partnership (in the case of nine Exchange Partnership in which all Exchange
Limited Partners accepted the offering) and substantially all of the
limited partnership interests in the other 14 Exchange Partnerships are
owned by the Operating Partnership, with the remaining limited partnership
interests being retained by Exchange Limited Partners who elected not to
accept the offering or failed to respond to the offering.
F-26
<PAGE>
BARON CAPITAL TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
NOTE 13. PRO FORMA FINANCIAL INFORMATION (UNAUDITED)
The unaudited pro forma condensed consolidated balance sheets at
December 31, 1999 and statements of operation for the year ended
December 31, 1999, have been prepared assuming that the Exchange
Offering (see Notes 10 and 12) had been fully subscribed and had
occurred on January 1, 1999.
The pro forma information is not necessarily indicative of what the
Trust's results of operations would have been assuming the completion
of the described transaction at the beginning of the period indicated,
nor does it purport to project the Trust's results of operations for
any future period.
<TABLE>
<CAPTION>
Unaudited Pro Forma Condensed Consolidated Balance Sheets
December 31, 1999
The Trust Exchange Pro Forma
(Historical) Partnerships Adjustments Pro Forma
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Rental properties $ 5,915,000 $22,567,000 $ 8,697,000 $37,179,000
Other assets 1,421,000 12,899,000 3,271,000 17,591,000
----------- ----------- ----------- -----------
Total assets $ 7,336,000 $35,466,000 $11,968,000 $54,770,000
=========== =========== =========== ===========
Mortgage payable $ 4,278,000 $17,802,000 $ -- $22,080,000
Other liabilities 1,528,000 4,697,000 -- 6,225,000
----------- ----------- ----------- -----------
Total liabilities 5,806,000 22,499,000 -- 28,305,000
----------- ----------- ----------- -----------
Shareholders' equity 1,530,000 12,967,000 11,968,000 26,465,000
----------- ----------- ----------- -----------
Total liabilities and
shareholders' equity $ 7,336,000 $35,466,000 $11,968,000 $54,770,000
=========== =========== =========== ===========
</TABLE>
Unaudited Pro Forma Condensed Consolidated Statements of Operation
Year Ended December 31, 1999
<TABLE>
<CAPTION>
The Trust Exchange Pro Forma
(Historical) Partnerships Adjustments Pro Forma
------------ ------------ ----------- -----------
<S> <C> <C> <C> <C>
Total revenues $ 585,000 $ 5,257,000 $ -- $ 5,842,000
Costs and expenses 3,752,000 5,058,000 237,000 9,047,000
----------- ----------- ----------- -----------
Net income (loss) $(3,167,000) $ 199,000 $ (237,000) $(3,205,000)
=========== =========== =========== ===========
Weighted average number of
common shares 618,772 2,497,800 3,116,572
=========== =========== ===========
Net loss per share $ (5.12) $ (1.03)
=========== ===========
</TABLE>
F-27
<PAGE>
BARON CAPITAL TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
NOTE 13. PRO FORMA FINANCIAL INFORMATION (UNAUDITED) (Continued)
Pro Forma Adjustments
The unaudited pro forma condensed consolidated financial statements
represent the acquisition of the exchange partnerships, which will be
accounted for under the purchase method of accounting. The Trust 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 determination based upon valuations
provided by the Trust and other valuations of fair value as if the
acquisitions were effective on January 1, 1999. Therefore, the
allocations reflected in the unaudited pro forma condensed
consolidated financial statements 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.
Pro form depreciation adjustment for the year ended December 31, 1999
is based upon assets at fair value at January 1, 1999; primarily based
upon 30 year asset lives.
Summary pro forma adjustments to present comparative per share data
assume that the exchange transaction had been consummated at January
1, 1999 (assumes shares outstanding for entire period). The escrowed
performance shares are not included in the pro forma computation with
basic loss per share because there is no assurance that the shares
will be released from escrow and their inclusion would be
antidilutive.
NOTE 14. 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-28
<PAGE>
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.
PART III
ITEM 9. TRUSTEES, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL
PERSONS' COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT
The names of the persons that serve as Trustees and executive officers (1)
of the Trust and the Operating Partnership and their respective ages and
positions are set forth below. Each of the trustees has served since 1998. The
term of each independent trustee is one year.
<TABLE>
<CAPTION>
Name Age Position
- - ---- --- --------
<S> <C> <C>
James H. Bownas 52 Trustee
Peter M. Dickson 50 Trustee
Gregory K. McGrath(2) 39 Chief Executive Officer - Trust and Operating
Partnership
Robert S. Geiger(3) 49 Chief Operating Officer - Trust and Operating
Partnership
Robert L. Astorino 53 President - Operating Partnership
Mark L. Wilson 53 Chief Financial Officer - Trust and Operating
Partnership
</TABLE>
Baron Advisors, Inc. ("Baron Advisers"), 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 and its Chief Operating
Officer is Robert S. Geiger. The Managing Shareholder will be compensated for
its services pursuant to a Trust Management Agreement. 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. Such officers and employees
generally will serve in the same capacity for the Trust and will be compensated
by the Trust in amounts determined by the Managing Shareholder, in the case of
employees, and by the Executive Compensation Committee of the Trust.
Gregory K. McGrath is the Chief Executive Officer, sole director and sole
shareholder of Baron Advisors, Inc. and Chief Executive Officer of the Trust and
the Operating Partnership. 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
- - ----------
(1) The Trust has entered into a Trust Management Agreement with Baron
Advisers, Inc., the Managing Shareholder of the Trust(the "Managing
Shareholder") 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 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 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.
(2) Mr. McGrath is Chief Executive Officer, sole shareholder and sole director
of the Managing Shareholder. He is also the Chief Executive Officer, sole
shareholder and director of Baron Capital Properties, Inc., a Delaware
corporation, which is the Corporate Trustee of the Trust.
(3) Mr. Geiger serves as the Chief Operating Officer of the Managing
Shareholder.
58
<PAGE>
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. Mr. McGrath is also the President, sole director
and sole shareholder of Brentwood Management, LLP, an Ohio limited liability
company which provides property management services. Mr. McGrath is also a
principal of The Baron Organization, Inc., a Delaware corporation which manages
an approximately $100 million real estate portfolio. In addition to the
affiliations described above, Mr. McGrath is also a principal in a number of
other related business entities which are involved in various aspects of the
real estate business.
Robert S. Geiger is a practicing attorney. From 1994 to August 1998, he was
managing director of the law firm of Geiger Kasdin Heller Kuperstein Chames &
Weil, P.A., a Miami, Florida law firm with a general practice. From 1986 to
1994, he was managing director of Levine & Geiger, a Miami, Florida law firm.
Mr. Geiger's practice is concentrated in complex commercial and real property
transactions and business reorganizations. He serves as general counsel for
national, regional and local corporations engaged in a wide range of business
activities, including regulated industry matters.
James H. Bownas 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 before 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 pursuant to which multi-family real
estate was sold to, purchased from and managed by and for such entities.
Peter M. Dickson has been managing director of the Guardian Management
Company Limited, a global financial services corporation based in Bermuda since
1991. 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.
Robert L. Astorino has served as President 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 the 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.
Mark L. Wilson was elected Chief Financial Officer of the Trust and the
Operating Partnership in November 1998. 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.
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 Delaware law requires
that at least one of the trustees of a Delaware business trust (such as the
Trust) have an office in Delaware. 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,
59
<PAGE>
Baron Advisors, Inc., and any of their Affiliates. The Chief Executive Officer,
sole director and sole stockholder of Baron Properties is Gregory K. McGrath.
The principal office of Baron Properties is at 1105 North Market Street, Suite
1300, Wilmington, Delaware 19899.
SECTION 16(a) OF THE EXCHANGE ACT BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
No reports were required to be filed in the most recent fiscal year
pursuant to Section 16(a) of the Securities Exchange Act of 1934, as amended,
since the Trust's Common Shares are not registered under the act.
ITEM 10. EXECUTIVE COMPENSATION
<TABLE>
<CAPTION>
- - -----------------------------------------------------------------------------------------------------------------
ANNUAL COMPENSATION
- - -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Name and Principal Position Year Salary Bonus Long Term All Other
Compensation Compensation
- - -----------------------------------------------------------------------------------------------------------------
Gregory K. McGrath, Chief 1999 $217,000 (1) -- -- --
Executive Officer - Trust and
Operating Partnership
- - -----------------------------------------------------------------------------------------------------------------
Robert S. Geiger, Chief 1999 $100,000 -- -- --
Operating Officer - Trust and
Operating Partnership
- - -----------------------------------------------------------------------------------------------------------------
Robert L. Astorino, President 1999 $166,475 $820 -- $1,200 2/
Operating Partnership
- - -----------------------------------------------------------------------------------------------------------------
Mark L. Wilson, Chief Financial 1999 $101,535 -- -- $8,159 2/
Officer - Trust and Operating
Partnership
- - -----------------------------------------------------------------------------------------------------------------
</TABLE>
- - ----------
(1) The Board of the Trust awarded Mr. McGrath compensation in the amount of
$217,000 for his services in 1999. Mr. McGrath elected not to be paid in
cash. Instead, such amount was recorded as a compensation expense of the
Trust and treated as a capital contribution. In addition, Mr. McGrath, is
the Chief Executive Officer and sole shareholder and director of Baron
Advisors, Inc., which is the Managing Shareholder of the Trust. Pursuant to
a Trust Management Agreement, dated as of May 15, 1998, which is renewable
annually, Baron Advisors, Inc. is entitled to be reimbursed 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, up to a maximum of $500,000 per year. In addition,
the Managing Shareholder is entitled to reimbursement (i) 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 proceeds from the Cash
Offering; (ii) for legal, accounting and 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 the
gross proceeds from the Cash Offering; and (iii) for expenses incurred
prior to and during the Cash Offering for investigating and evaluating
investment opportunities for the Trust and the Operating Partnership (other
than in connection with the Exchange Offering) and for assisting them in
consummating their investments, in an amount not to exceed 4% of the gross
proceeds from the Cash Offering. In 1999, the Trust incurred expenses due
Baron Advisors, Inc. totaling $126,862, comprised of reimbursable
management expenses ($21,144), reimbursable organizational and offering
expenses ($21,144), and reimbursable investment advisory expenses
($84,574).
(2) Car Allowance
60
<PAGE>
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information regarding the beneficial
ownership of Common Shares of the Trust by (i) each Trustee, (ii) the Trust's
Chief Executive Officer and each executive officer of the Trust, (iii) all
executive officers of the Trust and the Operating Partnership as a group, and
(iv) to the Trust's knowledge, by any person owning beneficially more than 5% of
the outstanding shares of such class, in each case at December 31, 1999. Except
as otherwise noted, each person named in the table has sole voting and
investment power with respect to all Common Shares shown as beneficially owned
by such person.
<TABLE>
<CAPTION>
- - ------------------------------------------------------------------------------------------------------------------------------------
Name and Address of Amount and Nature
Beneficial Owner of Beneficial Ownership Percentage of Class
- - ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
James H. Bownas -- --
1 East Livingston Avenue
Columbus, Ohio 43215
- - ------------------------------------------------------------------------------------------------------------------------------------
Peter M. Dickson -- --
33 Church Street
Hamilton, Bermuda HM 12
- - ------------------------------------------------------------------------------------------------------------------------------------
Gregory K. McGrath (1) (2) 9.5%
- - ------------------------------------------------------------------------------------------------------------------------------------
Robert S. Geiger (1) (2) 9.5%
- - ------------------------------------------------------------------------------------------------------------------------------------
Robert L. Astorino (1) -- --
- - ------------------------------------------------------------------------------------------------------------------------------------
Mark L. Wilson (1) -- --
- - ------------------------------------------------------------------------------------------------------------------------------------
All executive officers of the Trust and (2) 19%
Operating Partnership, as a group
- - ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
- - ----------
(1) The address of Messrs. McGrath, Geiger, Astorino and Wilson is 7826 Cooper
Road, Cincinnati, Ohio 45242.
(2) Mr. McGrath and Mr. Geiger, the original investors in the Operating
Partnership, each own 601,080 Operating Partnership Units which are
exchangeable into an equivalent number of Common Shares of the Trust.
Pursuant to an agreement among Messrs. McGrath, Geiger, the Trust and the
Operating Partnership, if, as of May 31, 2000, the Units held by each of
them represent 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, Mr. McGrath and Mr.
Geiger have agreed to return any excess Units to the Operating Partnership
for cancellation. Their Units have been deposited in escrow. The escrowed
Units and/or Common Shares are to be released in equal amounts on the
sixth, seventh, eighth and ninth anniversary dates of the effectiveness of
the Cash Offering, or earlier if certain financial goals are achieved by
the Trust. Under the Declaration of Trust, no other Shareholder or
Unitholder may hold more than 5% of the beneficial interest in the Trust.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
During the years ended December 31, 1998 and 1999, the Trust directly or
indirectly entered into several transactions in which the amount exceeded
$60,000 and in which an executive officer of the Trust had an interest. The
Trust expects to enter into additional such transactions in 2000 (See ITEM 1 -
DESCRIPTION OF BUSINESS - Brief Description of Properties - Exchange Offering).
In 1998 and 1999, the following related transactions occurred.
61
<PAGE>
1. The Trust contributed $3,858,240 (1998) and $1,379,500 (1999) of the net
proceeds from the Cash Offering to the Operating Partnership in exchange for
Operating Partnership Units. The Operating Partnership was founded by Gregory K.
McGrath and Robert S. Geiger, who are the Chief Executive Officer and Chief
Operating Officer of the Trust, respectively, and who each own individually
Operating Partnership Units.
2. The Operating Partnership acquired limited partnership interests in
Alexandria Development, L.P. from an affiliate of Mr. McGrath. See ITEM 2 -
DESCRIPTION OF PROPERTIES - Description of Properties - Acquired Properties -
Alexandria Property.
3. In connection with the formation of the Trust and the Operating
Partnership, Mr. McGrath and Mr. Geiger, the founders of the Trust and the
Operating Partnership, subscribed for 1,202,160 Units in the Operating
Partnership in exchange for a cash payment of $100,000. Such Units are
exchangeable into an equivalent number of Common Shares. Pursuant to an
agreement among Mr. McGrath, Mr. Geiger, the Trust and the Operating
Partnership, if, as of May 31, 2000 (the scheduled termination date of the Cash
Offering), the Units held by each of them represent 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, Mr.
McGrath and Mr. Geiger have agreed to return any excess Units to the Operating
Partnership for cancellation. See also footnote 2 above under ITEM 11. SECURITY
OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
As discussed in ITEM 1 - DESCRIPTION OF BUSINESS - Brief Description of
Properties - Exchange Offering, effective April 7, 2000, the Operating
Partnership acquired equity and debt interests in residential apartment
properties in connection with the completion of an Exchange Offering made to
individual limited partners of 23 limited partnerships in which Mr. McGrath
either directly or indirectly held a beneficial interest.
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K
Documents filed as part of this report:
(a) Exhibits are either attached as part of this Report or
incorporated by reference herein.
<TABLE>
<CAPTION>
- - ------------------------------------------------------------------------------------------------------------------------------------
Exhibit Number Description
- - ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
3.1* Certificate of Business Trust Registration of the Registrant (incorporated herein by reference to
Exhibit 3.1 to the Form SB-2 Registration Statement of Baron Capital Trust filed with the Securities
and Exchange Commission on September 5, 1997).
- - ------------------------------------------------------------------------------------------------------------------------------------
3.2* Amended and Restated Declaration of Trust for the Registrant made as of August 11, 1998
(incorporated herein by reference to Exhibit 10.2 to Amendment No. 1 to the Form S-4
Registration Statement of Baron Capital Properties, L.P. filed with the Securities and Exchange
Commission on September 22, 1998 (Registration No. 333-55753)).
- - ------------------------------------------------------------------------------------------------------------------------------------
3.3* Form of by-laws of the Registrant (incorporated herein by reference to Exhibit 3.3 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).
- - ------------------------------------------------------------------------------------------------------------------------------------
4.1* Form of Common Share Certificate (incorporated herein by reference to Exhibit 4.1 to Amendment No. 2
to the Form SB-2 Registration Statement of Baron Capital Trust filed with the Securities and
Exchange Commission on April 24, 1998).
- - ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
62
<PAGE>
<TABLE>
<CAPTION>
- - ------------------------------------------------------------------------------------------------------------------------------------
Exhibit Number Description
- - ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
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).
- - ------------------------------------------------------------------------------------------------------------------------------------
10.2* Form of Indemnification Agreement among the Registrant, Baron Advisors, Inc., and the Registrant's
Independent Trustees and officers (included in Sections 3.6 and 3.7 of the Amended and Restated
Declaration of Trust referenced above in Exhibit 3.2)
- - ------------------------------------------------------------------------------------------------------------------------------------
10.3* Warrant Purchase Agreement, dated as of May 15, 1998, between the Registrant and Sigma Financial
Corporation (incorporated herein by reference to Exhibit 10.4 to Amendment No. 2 to the Form SB-2
Registration Statement of Baron Capital Trust filed with the Securities and Exchange Commission
on April 24, 1998).
- - ------------------------------------------------------------------------------------------------------------------------------------
10.5* Form of Subscription Documents (incorporated herein by reference to Exhibit 3.1 to the Form SB-2
Registration Statement of Baron Capital Trust filed with the Securities and Exchange Commission on
September 5, 1997).
- - ------------------------------------------------------------------------------------------------------------------------------------
10.6* Agreement of Limited Partnership of Baron Capital Properties, L.P. 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).
- - ------------------------------------------------------------------------------------------------------------------------------------
10.7* 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 and Transfer Company (incorporated herein
by reference to Exhibit 10.4 to Amendment No. 2 to the Form S-4 Registration Statement of
Baron Capital Properties, L.P. filed with the Securities and Exchange Commission on January 29,
1999 (Registration No. 333-55753)).
- - ------------------------------------------------------------------------------------------------------------------------------------
10.8* Founders' Subscription Agreement (incorporated herein by reference to Exhibit 10.5 to Amendment
No. 2 to the Form S-4 Registration Statement of Registrant filed with the Securities and
Exchange Commission on January 29, 1999).
- - ------------------------------------------------------------------------------------------------------------------------------------
10.9* First Amendment to Amended and Restated Security Escrow Agreement, dated April 30, 1999
(incorporated herein by reference to Exhibit 10.6 to Amendment No. 4 to the Form S-4
Registration Statement of Registrant filed with the Securities and Exchange Commission on
June 2, 1999).
- - ------------------------------------------------------------------------------------------------------------------------------------
10.10* Amendment to Founders' Subscription Agreement, dated April 30, 1999 (incorporated herein by
reference to Exhibit 10.7 to Amendment No. 4 to the Form S-4 Registration Statement of
Registrant filed with the Securities and Exchange Commission on June 2, 1999)
- - ------------------------------------------------------------------------------------------------------------------------------------
21** Subsidiaries of the Registrant
- - ------------------------------------------------------------------------------------------------------------------------------------
23** Consent of Rachlin Cohen & Holtz, Independent Certified Public Accountants
- - ------------------------------------------------------------------------------------------------------------------------------------
27** Financial Data Schedule
- - ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
- - ----------
* Previously filed.
** Filed herewith.
(b) Reports on Form 8-K:
No reports on Form 8-K were filed during the quarter ended
December 31, 1999.
63
<PAGE>
SIGNATURES
In accordance with the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the registrant has duly caused this amended
report to be signed on its behalf by the undersigned, thereunto duly authorized.
BARON CAPITAL TRUST
April 25, 2000 By: /s/ Gregory K. McGrath
----------------------
Gregory K. McGrath
Chief Executive Officer
In accordance with the requirements of the Securities Exchange Act of 1934,
this amended report has been signed below by the following persons on behalf of
the registrant and in the capacities and on the dates indicated.
Signatures Title Date
/s/ Gregory K. McGrath Chief Executive Officer April 25, 2000
- - ---------------------- (Principal Executive Officer)
Gregory K. McGrath
64
Exhibit 21
\<TABLE>
<CAPTION>
Subsidiaries of the Registrant
- - ----------------------------------------------------------------------------------------------------------------
Percentage of Limited
Partnership Units
Owned By Baron Capital
Name of Limited Partnership Properties, L.P. State of Formation
- - ----------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Baron Strategic Investment Fund, Ltd. 93.75% Florida
- - ----------------------------------------------------------------------------------------------------------------
Baron Strategic Investment Fund II, Ltd. 100.00% Florida
- - ----------------------------------------------------------------------------------------------------------------
Baron Strategic Investment Fund IV, Ltd. 100.00% Florida
- - ----------------------------------------------------------------------------------------------------------------
Baron Strategic Investment Fund V, Ltd. 97.50% Florida
- - ----------------------------------------------------------------------------------------------------------------
Baron Strategic Investment Fund VI, Ltd. 96.65% Florida
- - ----------------------------------------------------------------------------------------------------------------
Baron Strategic Investment Fund VIII, Ltd. 100.00% Florida
- - ----------------------------------------------------------------------------------------------------------------
Baron Strategic Investment Fund IX, Ltd. 98.50% Florida
- - ----------------------------------------------------------------------------------------------------------------
Baron Strategic Investment Fund X, Ltd. 97.62% Florida
- - ----------------------------------------------------------------------------------------------------------------
Baron Strategic Vulture Fund I, Ltd. 100.00% Florida
- - ----------------------------------------------------------------------------------------------------------------
Brevard Mortgage Program, Ltd. 100.00% Florida
- - ----------------------------------------------------------------------------------------------------------------
Central Florida Income Appreciation Fund, Ltd. 98.57% Florida
- - ----------------------------------------------------------------------------------------------------------------
Florida Capital Income Fund, Ltd. 95.04% Florida
- - ----------------------------------------------------------------------------------------------------------------
Florida Capital Income Fund II, Ltd. 94.50% Florida
- - ----------------------------------------------------------------------------------------------------------------
Florida Capital Income Fund III, Ltd. 92.75% Florida
- - ----------------------------------------------------------------------------------------------------------------
Florida Capital Income Fund IV, Ltd. 96.70% Florida
- - ----------------------------------------------------------------------------------------------------------------
Florida Income Advantage Fund I, Ltd. 98.40% Florida
- - ----------------------------------------------------------------------------------------------------------------
Florida Income Appreciation Fund I, Ltd. 100.00% Florida
- - ----------------------------------------------------------------------------------------------------------------
Florida Income Growth Fund V, Ltd. 96.09% Florida
- - ----------------------------------------------------------------------------------------------------------------
Florida Opportunity Income Partners, Ltd. 100.00% Florida
- - ----------------------------------------------------------------------------------------------------------------
GSU Stadium Student Apartments, Ltd. 100.00% Florida
- - ----------------------------------------------------------------------------------------------------------------
Lamplight Court of Bellefontaine Apartments, Ltd. 100.00% Florida
- - ----------------------------------------------------------------------------------------------------------------
Midwest Income Growth Fund VI, Ltd. 93.33% Michigan
- - ----------------------------------------------------------------------------------------------------------------
Realty Opportunity Income Fund VIII, Ltd. 95.76% Florida
- - ----------------------------------------------------------------------------------------------------------------
Crystal Court Apartments II, Ltd. 100.00% Florida
- - ----------------------------------------------------------------------------------------------------------------
Heatherwood Kissimmee, Ltd. 100.00% Florida
- - ----------------------------------------------------------------------------------------------------------------
Riverwalk Enterprises, Ltd. 100.00% Florida
- - ----------------------------------------------------------------------------------------------------------------
</TABLE>
65
Exhibit 23
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
We hereby consent to the use in the Annual Report on Form 10-KSB of Baron
Capital Trust of our report dated February 25, 2000, except for Note 12, as to
which the date is April 7, 2000 (which report contains an explanatory paragraph
relating to substantial doubt about the Trust's ability to continue as a going
concern) relating to the consolidated financial statements of Baron Capital
Trust as of December 31, 1999 and for each of the two years in the period then
ended, appearing in such Annual Report.
RACHLIN COHEN & HOLTZ LLP
Miami, Florida
April 25, 2000
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This Schedule contains summary financial information extracted from Baron
Capital Trust financial statements for the twelve months ended December 31, 1999
and is qualified in its entirety by reference to such financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> DEC-31-1999
<CASH> 85,863
<SECURITIES> 0
<RECEIVABLES> 60,645
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 146,508
<PP&E> 7,502,769
<DEPRECIATION> (1,453,177)
<TOTAL-ASSETS> 7,336,198
<CURRENT-LIABILITIES> 1,435,400
<BONDS> 4,370,486
0
0
<COMMON> 6,616,806
<OTHER-SE> (5,086,494)
<TOTAL-LIABILITY-AND-EQUITY> 7,336,198
<SALES> 0
<TOTAL-REVENUES> 585,402
<CGS> 0
<TOTAL-COSTS> 1,024,209
<OTHER-EXPENSES> 2,728,120
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (3,166,927)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (3,166,927)
<EPS-BASIC> (5.12)
<EPS-DILUTED> (5.12)
</TABLE>
