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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(Mark One)
X ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
___ EXCHANGE ACT OF 1934
For the fiscal year ended September 30, 1995, or
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
___ EXCHANGE ACT OF 1934
For the transition period from ________ to ________
Commission file number 0-14177
MRI BUSINESS PROPERTIES FUND, LTD. II
(Exact name of Registrant as specified in its charter)
CALIFORNIA 94-2935565
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
5665 Northside Drive, N.W.
Atlanta, Georgia 30328
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (770) 916-9090
Securities registered pursuant to Section 12(b) of the Act:
None
Securities registered pursuant to Section 12(g) of the Act:
Limited Partnership Units
Indicate by check mark whether Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that Registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No __
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not 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-K or any amendment to this
Form 10-K. [ ]
No market for the Limited Partnership Units exists and therefore a market
value for such Units cannot be determined.
DOCUMENTS INCORPORATED HEREIN BY REFERENCE:
(1) Prospectus of Registrant dated October 19, 1984, as thereafter supplemented
incorporated in Parts I, III and IV.
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MRI BUSINESS PROPERTIES FUND, LTD. II
(A limited partnership)
PART I
Item 1. Business.
MRI Business Properties Fund, Ltd. II ("Registrant") was organized in 1984
as a California limited partnership under the California Uniform Limited
Partnership Act. The managing general partner of Registrant is Montgomery Realty
Company-84, a California general partnership of which Fox Realty Investors
("FRI"), a California general partnership, is the managing general partner and
Montgomery Realty Corporation, a California corporation, and Montgomery
Partners-84, a California general partnership, are the co-general partners. The
associate general partner of Registrant is MRI Associates, Ltd. II, a California
limited partnership, of which Fox Realty Investors is the general partner, and
Two Broadway Associates III, an affiliate of Merrill Lynch, Pierce, Fenner &
Smith Incorporated, is the limited partner.
Registrant's Registration Statement, filed pursuant to the Securities Act
of 1933 (No. 2-90792), was declared effective by the Securities and Exchange
Commission on October 19, 1984. Registrant marketed its securities pursuant to
its Prospectus dated October 19, 1984 which was thereafter supplemented (the
"Prospectus"). This Prospectus was filed with the Securities and Exchange
Commission pursuant to Rule 424(b) of the Securities Act of 1933 and such
Prospectus as supplemented is incorporated by reference herein.
During fiscal 1995 and the first quarter of fiscal 1996, Registrant's
remaining Properties were sold. See "Sales" and "Subsequent Events."
Registrant's principal business was to acquire (either directly or through joint
ventures), hold for investment, and ultimately sell hotels. Registrant is a
"closed" limited partnership real estate syndicate of the unspecified asset
type. For a further description of Registrant's business, see the sections
entitled "Risk Factors" and "Investment Objectives and Policies" in the
Prospectus.
Beginning in November 1984 through June 24, 1985, Registrant offered and
sold $91,083,000 in Limited Partnership Assignee Units. The net proceeds of this
offering were used to purchase interests in four income-producing real
properties. Registrant's property portfolio, when acquired, was geographically
diversified with properties acquired in four states. The acquisition activities
of Registrant were completed on March 13, 1986, and since that time the
principal activity of Registrant was to merge managing its portfolio. As a
result of an enhanced market for hotel properties, Registrant sold its Marriott
Riverwalk property in the third quarter of 1995 (see "Sales" below for
information with respect to this sale) and its Marriott Somerset and Radisson
South properties in the first fiscal quarter of 1996 (see "Subsequent Events"
for information with respect to these sales). In addition, the Joint Venture in
which Registrant held an interest sold its only asset, the Holiday Inn - Crowne
Plaza, in the first quarter of 1996. (See, "Subsequent Events"). Item 2,
"Properties" sets forth a description of Registrant's properties.
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Registrant anticipates that in fiscal 1996 Registrant will be dissolved
and, after establishing sufficient reserves, the net assets of Registrant will
be distributed to its partners in accordance with the terms of the Partnership
Agreement.
During fiscal 1995, Registrant was involved in only one industry segment,
as described above. Registrant does not engage in any foreign operations or
derive revenues from foreign sources.
During fiscal 1995, Registrant's Radisson South property required an
asbestos abatement cleanup. The cost of this cleanup was approximately
$3,000,000. Registrant funded this cleanup through working capital reserve.
Registrant maintained property and liability insurance on the properties
and believes such coverage to be adequate.
Registrant's original investment objective of capital growth was not
attained. Accordingly, a portion of invested capital may not be returned to
limited partners. Upon termination of Registrant the general partners may be
required to contribute up to approximately $1,250,000 to Registrant in
accordance with the partnership agreement.
Employees/Management
Registrant has no employees. Registrant's properties were managed by
unaffiliated third party management companies pursuant to management agreements
with such third parties.
Registrant's affairs were managed by Metric Management Inc., ("MMI") or a
predecessor from March 1988 to December 1993. On December 16, 1993, the services
agreement with MMI was modified and, as a result thereof, Registrant's general
partner assumed responsibility for cash management of Registrant as of December
23, 1993 and assumed responsibility for day-to-day management of Registrant's
affairs, including portfolio management, accounting and investor relations
services as of April 1, 1994.
On December 6, 1993, NPI Equity Investment II, Inc. ("NPI Equity II" or
the "Managing General Partner") became the managing partner of FRI. As a result,
NPI Equity II became responsible for the operation and management of the
business and affairs of Registrant and the other investment partnerships
sponsored by FRI and its affiliates. The individuals who had served previously
as partners of FRI contributed their general partnership interests in FRI to a
newly formed limited partnership, Portfolio Realty Associates, L.P. ("PRA"), in
exchange for limited partnership interests in PRA. In the foregoing capacity,
such parties continue to hold indirectly certain economic interests in
Registrant and such other investment limited partnerships, but have ceased to be
responsible for the operation and management of Registrant and such other
partnerships. NPI Equity II is a wholly-owned subsidiary of National Property
Investors, Inc. ("NPI"), a diversified real estate management company with
offices in Jericho, New York and Atlanta, Georgia.
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Sales/Refinancings
In December, 1994, Registrant refinanced its existing mortgages
encumbering the Marriott Riverwalk property. Registrant obtained a $19,400,000
loan which bears interest at 9.85% per annum. On June 16, 1995, Registrant sold
the hotel to an unaffiliated third party for $49,268,000. The sale proceeds were
comprised of cash of $30,000,000 and the mortgage note of $19,268,000 which was
assumed by the buyer. The sale resulted in a gain of $18,749,000, which is net
of selling expenses of $256,000. The net proceeds from this sale were
distributed in the fourth quarter of fiscal 1995. See Item 5, "Market for
Registrant's Common Equity and Related Stockholder Matters" for additional
information with respect to the distribution.
Subsequent Events
On October 5, 1995, Registrant's Somerset Marriott Hotel was sold to an
unaffiliated third party for $24,950,000. After satisfaction of notes payable of
approximately $22,530,000 (including accrued interest and a prepayment premium
of $500,000), closing costs, credits and adjustments, the Partnership received
approximately $2,580,000. At the date of the sale the net carrying value of the
property was approximately $22,625,000. The sale resulted in a gain of
approximately $1,550,000 which is net of selling expenses of approximately
$275,000 and will be recognized in fiscal 1996. Registrant had previously
recorded a $10,948,000 provision for impairment of value in 1992 and 1993.
On December 1, 1995 the joint venture (in which Registrant has a
controlling interest) sold the Radisson South Hotel to an unaffiliated third
party for $31,840,000. After satisfaction of mortgage notes of approximately
$14,452,000 (including accrued interest), closing costs and adjustments, the
joint venture received approximately $17,000,000. In accordance with the joint
venture agreement, Registrant was entitled to all of the net proceeds. In
addition, Registrant expects to receive approximately $990,000 of cash from
operations and to collect approximately $1,300,000 in outstanding receivables.
At the date of the sale, the carrying value of the property was $20,730,000. The
sale resulted in a gain of approximately $10,950,000 which includes selling
expenses of approximately $300,000 and $140,000 of net liabilities assumed by
the purchaser.
As of July 7, 1995, MRI Business Properties Combined Fund No. 1, a joint
venture with MRI Business Properties Fund, Ltd. III (the "Combined Fund"),
entered into an agreement with its joint venture partner in the Holiday Inn
Crowne Plaza pursuant to which the parties agreed to sell the Holiday Inn Crowne
Plaza. The agreement provided that the net proceeds to the Combined Fund from
any such sale must be at least $5,000,000. On December 1, 1995, the Combined
Fund sold the Holiday Inn Crowne Plaza property to an unaffiliated third party
for $44,000,000. After satisfaction of the mortgage note of $34,000,000, closing
costs and other expenses, the joint venture received approximately $8,900,000.
The Combined Fund received $5,000,000 of net proceeds (of which Registrant's
share is $2,500,000) in accordance with the July 7, 1995 agreement. Registrant
will recognize a gain on disposition of approximately $3,000,000 during the
first quarter of fiscal 1996. The Combined Fund had previously recorded an
approximate $12,000,000 provision for impairment of value in 1991 and 1992. A
former joint venture partner may be required to contribute certain funds to
Registrant in accordance with the joint venture agreement. The amount of
contribution, if any, is not determinable at this time.
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Material Events/Change in Control
On October 12, 1994, NPI sold one-third of the stock of NPI to an
affiliate ("Apollo") of Apollo Real Estate Advisors, L.P. Apollo is entitled to
designate three of the seven directors of NPI Equity II. In addition, the
approval of certain major actions on behalf of Registrant requires the
affirmative vote of at least five directors of NPI Equity II.
On October 12, 1994, affiliates of Apollo acquired for aggregate
consideration of approximately $14,800,000 (i) one-third of the stock of the
respective general partners of DeForest Ventures I L.P. ("DeForest I") and
DeForest Ventures II L.P. ("DeForest II") and (ii) an additional equity interest
in NPI-AP Management, L.P. ("NPI-AP"), an affiliate of NPI (bringing its total
equity interest in such entity to one-third). NPI-AP is the sole limited partner
of DeForest II and one of the limited partners of DeForest I. DeForest I was
formed for the purpose of making tender offers (the "Tender Offers") for limited
partnership interests in Registrant as well as 11 affiliated limited
partnerships. DeForest II was formed for the purpose of making tender offers for
limited partnership interest in 7 affiliated limited partnerships.
Pursuant to DeForest I's Form 13-D filed with the Securities and Exchange
Commission, DeForest I owns 26,615 limited partnership units or 29.24% of the
total limited partnership units of Registrant. (See Item 12, "Security Ownership
of Certain Beneficial Owners and Management.")
On August 17, 1995, the stockholders of NPI, the sole shareholder of NPI
Equity II, entered into an agreement to sell to IFGP Corporation, an affiliate
of Insignia Financial Group, Inc. ("Insignia"), all of the issued and
outstanding stock of NPI. The sale of the stock is subject to the satisfaction
of certain conditions (including, third party consents and other conditions not
within the control of the parties to the agreement) and is scheduled to closed
in January 1996. Upon closing, it is expected that the current officers and
directors of NPI Equity II will resign and Insignia will elect new officers and
directors.
Insignia together with its subsidiaries and affiliates, is a fully
integrated real estate service company specializing in the ownership and
operation of securitized real estate assets. Insignia's principal offices are
located in Greenville, South Carolina and its stock is publicly traded on the
New York Stock Exchange under the symbol IFS. According to Commercial Property
News and the National Multi-Housing Council, Insignia is the largest property
manager in the United States, has been the largest manager of residential
properties since 1992, and is among the largest managers of commercial
properties. As a full service real estate management organization, Insignia
performs property management, asset management, investor services, partnership
administrations, real estate investment banking, mortgage banking, and real
estate brokerage services for various types of property owners.
Competition
Registrant was affected by and subject to the general competitive
conditions of the lodging industry. In addition, each of Registrant's properties
competed in an area which normally contained numerous other properties which may
be considered competitive. However, in 1995 the market for hotel properties
improved significantly due to the creation of a number of Hotel REITS and
numerous acquisitions by hotel
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franchisers (i.e., Marriott, Radisson, etc.). As a result, Registrant was able
to liquidate its portfolio as contemplated by the Prospectus at competitive
prices.
Item 2. Properties
A description of the hotel properties in which Registrant had an ownership
interest in fiscal 1995 is as follows:
Portfolio
Date of Date of Percentage
Name and Location Purchase Sale Rooms (6)
- ----------------- -------- ---- ----- ----------
Radisson South Hotel(1) 11/84 12/95 575 23
7800 Normandale Blvd.
Minneapolis, Minnesota
Marriott Riverwalk Hotel(3) 11/84 06/95 500 26
711 East Riverwalk
San Antonio, Texas
Somerset Marriott Hotel(4) 09/85 10/95 434 26
110 Davidson Avenue
Franklin Township,
Somerset County, New Jersey
Holiday Inn Crowne Plaza(2)(5) 03/86 12/95 492 25
4355 Ashford-Dunwoody Rd.
Atlanta, Georgia
- -------------
(1) The property was owned by a joint venture in which Registrant has a
controlling interest.
(2) Registrant and an affiliated partnership, MRI Business Properties Fund,
Ltd. III, owned a joint venture which had a 50 percent interest in this
property.
(3) In March 1989, the joint venture which owned this property was dissolved,
and Registrant was assigned the joint venture partner's interest in this
property.
(4) In April 1990, the joint venture which owned this property was dissolved,
and Registrant was assigned the joint venture partner's interest in this
property.
(5) Formerly the Hyatt Regency Ravinia Hotel. The name was changed as a
result of a change in ownership of the hotel which occurred in fiscal year
1991.
(6) Represents the percentage of original cash invested in the individual
property of the total original cash invested in all properties.
See Item 8, "Financial Statements and Supplementary Data", for information
regarding any encumbrances to which the properties of Registrant are subject.
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The following chart sets forth the average occupancy and daily room rate
for each of Registrant's properties for the years ended September 30, 1995, 1994
and 1993.
MRI BUSINESS PROPERTIES FUND, LTD. II
OCCUPANCY AND ROOM RATE SUMMARY
For the Fiscal Years Ended September 30, 1995, 1994 and 1993
Average Average
Occupancy Rate (%) Daily Room Rate ($)
1995 1994 1993 1995 1994 1993
HOTELS:
Radisson South Hotel 73 69 70 77.02 72.53 69.30
Marriott Riverwalk Hotel(1) - 83 80 - 114.70 116.64
Somerset Marriott Hotel 74 71 69 87.51 84.68 84.30
Holiday Inn Crowne Plaza(2) 75 74 68 95.98 88.32 82.55
(1) Property was sold in June 1995.
(2) Formerly the Hyatt Regency Ravinia Hotel.
Item 3. Legal Proceedings.
Lawrence M. Whiteside, on behalf of himself and all others similarly
situated, v. Fox Capital Management Corporation et, al., Superior Court of the
State of California, San Mateo County, Case No. 390018. ("Whiteside")
Bonnie L. Ruben and Sidney Finkel, on behalf of themselves and all others
similarly situated, v. DeForest Ventures I L.P., DeForest Capital I Corporation,
MRI Business Properties Fund, Ltd. II, MRI Business Properties Fund, Ltd. III,
NPI Equity Investments II, Inc., Montgomery Realty Company-84, MRI Associates,
Ltd. II, Montgomery Realty Company-85 and MRI Associates, Ltd. III, United
States District Court, Northern District of Georgia, Atlanta Division("Ruben").
Roger L. Vernon, individually and on behalf of all similarly situated
persons v. DeForest Ventures I L.P. et. al., Circuit Court of Cook County,
County Departments, Chancery Division, Case No. 94CH0100592. ("Vernon")
James Andrews, et al., on behalf of themselves and all others similarly
situated v. Fox Capital Management Corporation, et al., United States District
Court, Northern District of Georgia, Atlanta Division, Case No.
1-94-CV-3351-JEC. ("Andrews")
In the first quarter of fiscal 1995, limited partners in certain limited
partnerships affiliated with Registrant, commenced actions in against, among
others, the Managing General Partner. The actions alleged, among other things,
that the tender offers made by DeForest Ventures I L.P. ("DeForest I") and
DeForest Ventures II L.P. ("DeForest II") in October 1994 constituted (a) breach
of the fiduciary duty owed by the Managing General Partner to the limited
partners of Registrant, and (b) a breach of, and an inducement to breach, the
provisions of the Partnership Agreement of Registrant. The actions, which had
been brought as class actions on behalf of limited partners sought monetary
damages in an unspecified amount and, in the Whiteside action, to enjoin the
tender offers. The temporary restraining order was
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sought in the Whiteside action was denied by the court on November 3, 1994 and
on November 18, 1994, the court denied Whiteside a preliminary injunction.
On March 16, 1995 the United States Court for the Northern District of
Georgia, Atlanta, Division, entered an order which granted preliminary approval
to a settlement agreement (the "Settlement Agreement") in the Ruben and Andrews
actions, conditionally certified two classes for purpose of settlement, and
authorized the parties to give notice to the classes of the terms of the
proposed settlement. Plaintiffs counsel in the Vernon and Whiteside action
joined in the Settlement Agreement as well. The Settlement Agreement received
final approval on May 19, 1995 and the actions were dismissed subject to
satisfaction of the terms of the Settlement Agreement. The two certified classes
constituted all limited partners of Registrant and the eighteen other affiliated
partnerships who either tendered their units in connection with the October
tender offers or continued to hold their units in Registrant and the other
affiliated partnerships. Pursuant to the terms of the Settlement Agreement,
which were described in the notice sent to the class members in March 1995, (and
more fully described in the Amended Stipulation of Settlement submitted in the
court on March 14, 1995) all claims which either were made or could have been
asserted in any of the class actions would be dismissed with prejudice and/or
released. In consideration for the dismissal and/or release of such claims,
among other things, DeForest I paid to each unit holder who tendered their units
in Registrant an amount equal to 15% of the original tender offer price less
attorney's fees and expenses. In addition, DeForest I commenced a second tender
offer on June 2, 1995 for an aggregate number of units of Registrant (including
the units purchased in the initial tender) constituting up to 49% of the total
number of units of Registrant at a price equal to the initial tender price plus
15% less attorney's fees and expenses. Furthermore, under the terms of the
Settlement Agreement, the Managing General Partner agreed, among other things,
to provide Registrant a credit line of $150,000 per property which would bear
interest at the lesser of prime rate plus 1% and the rate permitted under the
partnership agreement of Registrant. The second tender offer closed on June 30,
1995.
Item 4. Submission of Matters to a Vote of Security Holders.
No matter was submitted to a vote of security holders during the period
covered by this Report.
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PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters.
The Limited Partnership Assignee Unit holders are entitled to certain
distributions as provided in the Partnership Agreement. No market for Limited
Partnership Assignee Units exists, nor is expected to develop.
No distributions were made during the years ended September 30, 1994 and
1993. Distributions of approximately $26.00 and $329.00 per limited partnership
assignee unit were made from operations and sales proceeds, respectively, in the
fourth quarter of fiscal 1995. Distributions of approximately $3.00 and $28.00
per limited partnership assignee unit were made from operations and sales
proceeds, respectively, in the first quarter of fiscal 1996. See Item 1,
"Business" and Item 7, "Management's Discussion and Analysis of Financial
Condition and Result of Operations" for a discussion of Registrant's expected
dissolution and financial ability to make distributions.
As of December 1, 1995, the approximate number of holders of Limited
Partnership Assignee Units was 5,213.
Item 6. Selected Financial Data
The following represents selected financial data for MRI Business
Properties Fund, Ltd. II for the fiscal years ended September 30, 1995, 1994,
1993, 1992 and 1991. The data should be read in conjunction with the
consolidated financial statements included elsewhere herein. This data is not
covered by the independent auditors' report.
<TABLE>
<CAPTION>
Year Ended September 30,
1995 1994 1993 1992 1991
(Amounts in thousands except per unit data)
<S> <C> <C> <C> <C> <C>
Total revenues $ 74,089 $ 58,270 $ 57,797 $ 55,193 $ 51,693
======== ======== ======== ======== ========
Income (loss) before
minority interest in
joint ventures' operations $ 20,348 1,384 (755) (11,756) (8,428)
Minority interest in joint
ventures' operations $ (307) (145) (26) 217 109
--------- -------- --------- ------- --------
Net income (loss) $ 20,041 $ 1,239 $ (781) $(11,539) $ (8,319)
========= ======== ========= ========= =========
Net income (loss) per limited
partnership assignee unit (1) $ 181.19 $ 13 $ (8) $ (124) $ (90)
========= ======== ========= ======== =========
Total assets $ 51,430 $ 85,668 $ 83,785 $ 85,925 $ 98,651
========= ======== ======== ========= ========
Long-term obligations:
Notes payable $ 36,610 $ 56,814 $ 56,856 $ 58,063 $ 59,119
========= ======== ======== ======== ========
Cash distributions per limited
partnership assignee unit $ 354,99 $ - $ - $ - $ 3
========= ======== ======== ======== ========
</TABLE>
(1) $1,000 original contribution per unit, based on weighted average units
outstanding during the year, after giving effect to net loss allocated to
the general partner.
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Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations.
This Item should be read in conjunction with the Consolidated Financial
Statements and other Items contained elsewhere in this Report.
Liquidity and Capital Resources
As described in Item 1, "Business" and Item 8, "Financial Statements and
Supplementary Data, Notes 10 and 12", Registrant sold its remaining properties
during the second half of fiscal 1995 and the first quarter of fiscal 1996. The
aggregate sales prices for these properties was $150,058,000. After satisfaction
of existing mortgages, closing costs and amounts distributed to Registrant's
joint venture partners in the Radisson South and Holiday Inn-Crowne Plaza
properties, net proceeds received by Registrant were approximately $52,080,000.
In addition, with respect to the sale of its Radisson South hotel, Registrant
expects to receive approximately $990,000 of cash from operations and
approximately $1,300,000 in outstanding receivables. As a result of these sales,
Registrant will record a gain of $18,749,000 for fiscal 1995 and a gain of
approximately $15,500,000 for fiscal 1996.
Since these were Registrant's last remaining properties, Registrant expects
to be terminated in 1996 after collection of receivables, payment of outstanding
liabilities and a final distribution to the partners. Registrant expects to
distribute a substantial portion of these proceeds in January 1996, with the
remaining amount to be distributed upon termination of Registrant.
Registrant uses working capital reserves provided from any undistributed
cash flow from operations and sales of properties as its primary source of
liquidity. During the year ended September 30, 1995, the Radisson South
generated positive cash flow while the Somerset Marriott Hotel generated
negative cash flow due to significant property improvements. The Holiday Inn
Crowne Plaza, owned by the unconsolidated joint venture, experienced positive
cash flow during the year ended September 30, 1995. Working capital reserves are
usually invested in United States Treasury obligations, money market accounts
and repurchase agreements secured by United States Treasury obligations.
Registrant distributed $32,334,000 to the limited partners ($354.99 per
limited partnership unit) and $660,000 to the General Partners on July 26, 1995.
The distributions were from the sale proceeds from Registrant's Marriott
Riverwalk Hotel and working capital reserves.
The level of liquidity based upon cash and cash equivalents experienced a
$4,533,000 decrease at September 30, 1995, as compared to September 30, 1994.
Registrant's $6,086,000 of net cash from operating activities was more than
offset by $9,398,000 of net cash used in investing activities and $1,221,000 of
net cash used in financing activities. Investing activities consisted of
$32,994,000 of distributions to partners and property improvements of $7,868,000
which was partially offset by $30,000,000 of net sale proceeds and a decrease in
restricted cash of $1,464,000. The decrease in restricted cash is primarily the
result of the lender releasing $823,000 of restricted cash relating to completed
renovations at Registrant's Marriott Somerset property. Financing activities
consisted of $19,874,000 paid in satisfaction of the mortgages encumbering
Registrant's Marriott
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Riverwalk property, $747,000 of notes payable principal payments and proceeds of
$19,400,000 from refinancing the mortgages encumbering Registrant's Marriott
Riverwalk property. A prepayment premium of approximately $640,000 was paid to
the former mortgagee. Mortgage costs of $212,000 (operating activities) paid
during the year ended September 30, 1995 and $194,000 paid in the prior year
were incurred in connection with the refinancing. All other increases
(decreases) in certain assets and liabilities are the result of the timing of
receipt and payment of various operating activities.
As required by the terms of the settlement of the actions brought against,
among others, DeForest Ventures I L.P. ("DeForest") relating to the tender offer
made by DeForest in October 1994 (the "First Tender Offer") for units of limited
partnership interest in Registrant and certain affiliated partnerships, DeForest
commenced a second tender offer (the "Second Tender Offer") on June 2, 1995 for
units of limited partnership interest in Registrant. Pursuant to the Second
Tender Offer, DeForest acquired an additional 339 units of Registrant which,
when added to the units acquired during the First Tender Offer, represents
approximately 29% of the total number of outstanding units of Registrant (see
Item 3, "Legal Proceedings"). The Managing General Partner believes that the
tender will not have a significant impact on future operations or liquidity of
Registrant. Also in connection with the settlement, an affiliate of the Managing
General Partner has made available to Registrant a credit line of up to $150,000
per property owned by Registrant. Registrant has no outstanding amounts due
under this line of credit. This line of credit was Registrant's only unused
source of liquidity.
On August 17, 1995, the stockholders of NPI, Inc., the sole shareholder of
NPI Equity II, agreed to sell to Insignia all of the issued and outstanding
stock of NPI, Inc. The consummation of this transaction is subject to the
satisfaction of certain conditions (including, third party consents and other
conditions not within the control of the parties to the agreement) and is
scheduled to close in January 1996. Upon closing, it is expected that Insignia
will elect new officers and directors of NPI Equity II. The Managing General
Partner does not believe these transactions will have a significant effect on
Registrant's liquidity or results of operation.
In March 1995, the Financial Accounting Standards Board issued Statement
No. 121 "Accounting for the Impairment of Long Lived Assets and for Long Lived
Assets to Be Disposed Of," effective for fiscal years beginning after December
15, 1995. This Statement will not affect the financial position or results of
operations of Registrant.
Registrant's original investment objective of capital growth was not
attained. Accordingly, a portion of invested capital may not be returned to
limited partners. Upon termination of Registrant the general partners may be
required to contribute up to approximately $1,250,000 to Registrant in
accordance with the partnership agreement.
Results of Operations
Fiscal Year 1995 ("1995") Compared to Fiscal Year 1994 ("1994")
Operating results, before minority interest in joint venture's operations,
improved by $18,964,000 for the year ended September 30, 1995, as compared to
1994. Revenues increased by $15,819,000 and expenses decreased by $3,145,000.
Operating
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results improved primarily due to the $18,749,000 gain on sale of Registrant's
Marriott Riverwalk Hotel.
With respect to the remaining properties, revenues improved by $4,035,000
for the year ended September 30, 1995, as compared to September 30, 1994, due to
increases in room revenues of $2,837,000, food and beverage revenue of $968,000,
and other operating revenue of $230,000. Room revenue increased at Registrant's
Radisson South and Somerset Marriott hotels due to increases in average daily
room rates and occupancy. Food and beverage revenue increased at both of
Registrant's hotels primarily due to increased occupancy. Other operating
revenues increased primarily due to increases in telephone income and
miscellaneous income at both of Registrant's hotels. In addition, interest
income increased by $186,000 primarily due to the investment of Registrant's
Marriott Riverwalk sale proceeds.
With respect to the remaining properties expenses increased by $2,375,000
due to increases in room expenses of $793,000, food and beverage expenses of
$614,000, other operating expenses of $700,000 and depreciation and amortization
of $419,000, which were partially offset by decreases in interest expense of
$89,000 and equity in joint venture operations of $62,000. Room and food and
beverage expenses increased due to increases in occupancy at both of
Registrant's hotels. Other operating expenses increased at both of Registrant's
hotels. Deprecation and amortization increased due to significant fixed asset
improvements. Interest expense decreased due to the amortization of the mortgage
principal balances. The loss from Registrant's unconsolidated joint venture
(Holiday Inn Crowne Plaza) decreased due to improved operations at the hotel. In
addition, general and administrative expenses increased by $13,000.
Fiscal Year 1994 ("1994") Compared to Fiscal Year 1993 ("1993")
Operating results, before minority interest in joint venture's operations
improved by $2,139,000 for the year ended September 30, 1994, as compared to
1993. Revenues increased by $473,000 and expenses decreased by $1,666,000.
Revenues improved by $473,000 for the year ended September 30, 1994, as
compared to September 30, 1993, due to increases in room revenues of $490,000,
other operating revenue of $288,000 and interest income of $105,000, which was
substantially offset by a decrease in food and beverage revenue of $410,000.
Room revenue increased at Registrant's Radisson South and Marriott Riverwalk
hotels and declined at the Somerset Marriott Hotel. The increase in room revenue
was attributable to an increase in average daily room rates at Registrant's
Radisson South Hotel and an increase in occupancy at Registrant's Marriott
Riverwalk Hotel. Other operating revenues increased primarily due to increases
in telephone income and miscellaneous income at all of Registrant's hotels.
Interest income increased due to an increase in average working capital reserves
available for investment. Food and beverage revenue decreased at Registrant's
Marriott Riverwalk and Somerset Marriott hotels.
Expenses decreased by $1,666,000 due to decreases in provision for
impairment of value of $2,007,000, equity in unconsolidated joint venture
operations of $720,000 and food and beverage expenses of $276,000, which were
partially offset by increases in room expenses of $260,000, other operating
expenses of $667,000, interest expense of $174,000, depreciation and
amortization of $195,000 and general and administrative expenses of $41,000. The
loss from Registrant's unconsolidated joint venture (Holiday Inn Crowne Plaza)
decreased due to improved operations at the hotel. Food and beverage expense
decreased primarily due to lower food and beverage revenues.
12
<PAGE>
Room expenses increased primarily at Registrant's Marriott Riverwalk and
Radisson South hotels, and was attributable to the increased revenue at these
hotels. Other operating expenses increased at all of Registrant's properties.
Interest expense increased due to a debt modification, relating to the Somerset
Marriott which became effective during the fourth quarter of 1993. General and
administrative expenses increased primarily due to costs associated with the
management transition. Depreciation expense increased due to significant fixed
assets improvements.
Unconsolidated Joint Venture Operations
(MRI BPF Combined Fund No. 1)
During fiscal years 1995, 1994 and 1993, Registrant was allocated losses
from the unconsolidated joint venture which owns the Holiday Inn Crowne Plaza
(formerly the Hyatt Regency Ravinia Hotel). The hotel was sold on December 1,
1995. The Consolidated Financial Statements for the unconsolidated joint venture
are presented in Item 8, Financial Statements and Financial Statement Schedules.
A discussion of its Results of Operations follows:
Fiscal Year 1995 ("1995") Compared to Fiscal Year 1994 ("1994")
Operating results, prior to minority interest, improved by $257,000, for
the year ended September 30, 1995, as compared to 1994, as revenues increased by
$1,349,000 and expenses increased by $1,092,000. The significant increase in
revenue is attributable to an increase in average room rates and a slight
increase in occupancy. The increase in operating expenses is partially
attributable to the increase in occupancy at the hotel. Interest expense
increased due to the increased interest rate on the extension of the mortgage.
Fiscal Year 1994 ("1994") Compared to Fiscal Year 1993 ("1993")
Operating results, prior to minority interest, improved by $1,202,000, for
the year ended September 30, 1994, as compared to 1993, as revenues increased by
$2,045,000 and expenses increased by $843,000. The significant increase in
revenue is attributable to both higher occupancy and average room rates. The
increase in expenses is attributable to the increase in occupancy at the hotel.
In addition, under the terms of the joint venture agreement, the loss from
the Holiday Inn Crowne Plaza was allocated in different proportions during the
year ended September 30, 1994, as compared to 1993. This combined with improved
operations, resulted in a smaller loss being allocated to Registrant.
13
<PAGE>
Item 8. Financial Statements and Supplementary Data.
MRI BUSINESS PROPERTIES FUND, LTD. II
CONSOLIDATED FINANCIAL STATEMENTS
YEAR ENDED SEPTEMBER 30, 1995
INDEX
MRI BUSINESS PROPERTIES FUND, LTD. II
(A LIMITED PARTNERSHIP)
Page
Independent Auditors' Reports . . . . . . . . . . . . . . . . . . . . . F - 2
Financial Statements:
Balance Sheets at September 30, 1995 and 1994 . . . . . . . . . F - 4
Statements of Operations for the Years Ended September 30, 1995,
1994 and 1993. . . . . . . . . . . . . . . . . . . . . . . . F - 5
Statements of Partners' Equity for the Years Ended
September 30, 1995, 1994 and 1993. . . . . . . . . . . . . . F - 6
Statements of Cash Flows for the Years Ended September 30, 1995,
1994 and 1993. . . . . . . . . . . . . . . . . . . . . . . . F - 7
Notes to Financial Statements. . . . . . . . . . .. . . . . . . F - 8
Financial Statement Schedules:
Schedule III - Real Estate and Accumulated Depreciation at
September 30, 1995 . . . . . . . . . . . . . . . . . . . . . F - 20
MRI BUSINESS PROPERTIES COMBINED FUND NO. 1
(A GENERAL PARTNERSHIP)
Independent Auditors' Reports . . . . . . . . . . . . . . . . . . . . . F - 23
Consolidated Financial Statements:
Balance Sheets at September 30, 1995 and 1994 . . . . . . . . . F - 24
Statements of Operations for the Years Ended September 30, 1995,
1994 and 1993 . . . . . . . . . . . . . . . . . . . . . . . F - 26
Statements of Partners' Equity (Deficit) for the Years Ended
September 30, 1995, 1994 and 1993. . . . . . . . . . . . . . F - 27
Statements of Cash Flows for the Years Ended September 30, 1995,
1994 and 1993. . . . . . . . . . . . . . . . . . . . . . . . F - 28
Notes to Consolidated Financial Statements. . . . . . . . . . . F - 29
Financial Statement Schedules:
Schedule III - Real Estate and Accumulated Depreciation at
September 30, 1995 . . . . . . . . . . . . . . . . . . . . . F - 35
Financial statements and financial schedules not included have been omitted
because of the absence of conditions under which they are required or because
the information is included elsewhere in this Report.
F - 1
<PAGE>
To the Partners
MRI Business Properties Fund, Ltd. II
Atlanta, Georgia
Independent Auditors' Report
We have audited the accompanying consolidated balance sheet of MRI Business
Properties Fund, Ltd. II (a limited partnership) (the "Partnership"), as of
September 30, 1995 and 1994, and the related consolidated statements of
operations, partners' equity and cash flows for the years then ended. Our audit
also included the additional information supplied pursuant to Item 14(a)(2).
These consolidated financial statements are the responsibility of the
Partnership's management. Our responsibility is to express an opinion on these
consolidated financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the consolidated financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the consolidated financial statements.
An audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of MRI Business
Properties Fund, Ltd. II as of September 30, 1995 and 1994, and the results of
its operations and its cash flows for the years then ended in conformity with
generally accepted accounting principles. Also in our opinion, the related
financial statement schedule, when considered in relation to the basic
consolidated financial statements taken as a whole, presents fairly, in all
material respects, the information set forth therein.
As discussed in Notes 1 and 12 to the financial statements, the Partnership's
remaining joint venture owned properties were sold on December 1, 1995. The
Partnership is expected to be terminated in 1996 after collection of
receivables, payment of outstanding liabilities and a final distribution to the
partners.
/s/ Imowitz, Koenig & Co., LLP
Certified Public Accountants
New York, N.Y.
December 1, 1995
F-2
<PAGE>
INDEPENDENT AUDITORS' REPORT
MRI Business Properties Fund, Ltd. II
We have audited the accompanying consolidated statements of operations,
partners' equity and cash flows of MRI Business Properties Fund, Ltd. II (a
limited Partnership) (the "Partnership") for the year ended September 30, 1993.
These consolidated financial statements are the responsibility of the
Partnership's management. Our responsibility is to express an opinion on these
consolidated financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the consolidated financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall consolidated financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.
In our opinion, such consolidated financial statements present fairly, in all
material respects, the results of operations and cash flows of the partnership
and its subsidiaries for the year ended September 30, 1993, in conformity with
generally accepted accounting principles.
/s/ Deloitte & Touche LLP
December 17, 1993
F-3
<PAGE>
MRI BUSINESS PROPERTIES FUND, LTD. II
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
SEPTEMBER 30,
-----------------------------
1995 1994
------------ ------------
ASSETS
<S> <C> <C>
Cash and cash equivalents $ 4,813,000 $ 9,346,000
Restricted cash -- 1,921,000
Accounts receivable and other assets 2,712,000 4,835,000
Due from affiliate 170,000 --
Real Estate:
Real estate 92,497,000 132,781,000
Accumulated depreciation (37,814,000) (53,454,000)
Allowance for impairment of value (10,948,000) (10,948,000)
------------- -------------
Real estate, net 43,735,000 68,379,000
------------- -------------
Intangible assets (net of accumulated
amortization of $616,000 in 1994) -- 1,187,000
------------- -------------
Total assets $ 51,430,000 $ 85,668,000
============= =============
LIABILITIES AND PARTNERS' EQUITY
Accounts payable and other liabilities $ 2,407,000 $ 4,039,000
Due to an affiliate of the joint venture partner 55,000 91,000
Due to unconsolidated joint venture 618,000 338,000
Notes payable 36,610,000 56,814,000
------------- -------------
Total liabilities 39,690,000 61,282,000
------------- -------------
Minority interest in joint venture 2,937,000 2,630,000
------------- -------------
Commitments and Contingencies
Partners' Equity:
General partners' equity (deficit) 2,000 (2,876,000)
Limited partners' equity (91,083 assignee
units outstanding at September 30, 1995 and 1994) 8,801,000 24,632,000
------------- -------------
Total partners' equity 8,803,000 21,756,000
------------- -------------
Total liabilities and partners' equity $ 51,430,000 $ 85,668,000
============= =============
</TABLE>
See notes to consolidated financial statements.
F - 4
<PAGE>
MRI BUSINESS PROPERTIES FUND, LTD. II
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEARS ENDED SEPTEMBER 30,
--------------------------------------------
1995 1994 1993
------------ ------------ ------------
<S> <C> <C> <C>
Revenues:
Room revenue $ 34,045,000 $ 36,862,000 $ 36,372,000
Food and beverage revenue 17,919,000 17,984,000 18,394,000
Other operating revenue 2,850,000 3,084,000 2,796,000
Interest 526,000 340,000 235,000
Gain on sale of property 18,749,000 -- --
------------ ------------ ------------
Total revenues 74,089,000 58,270,000 57,797,000
------------ ------------ ------------
Expenses (including $2,450,000, $2,111,000 and
$3,016,000 paid to an affiliate of a joint venture
partner, general partners and affiliates in 1995,
1994, and 1993)
Room expenses 7,865,000 8,019,000 7,759,000
Food and beverage expenses 13,621,000 13,867,000 14,143,000
Other operating expenses 20,513,000 22,987,000 22,320,000
Interest 5,789,000 6,159,000 5,985,000
Depreciation and amortization 5,230,000 5,082,000 4,887,000
Equity in unconsolidated joint venture's
operations 280,000 342,000 1,062,000
General and administrative 443,000 430,000 389,000
Provision for impairment of value -- -- 2,007,000
Total expenses 53,741,000 56,886,000 58,552,000
------------ ------------ ------------
Income (loss) before minority interest in joint
venture's operations 20,348,000 1,384,000 (755,000)
Minority interest in joint venture's operations (307,000) (145,000) (26,000)
------------ ------------ ------------
Net income (loss) $ 20,041,000 $ 1,239,000 $ (781,000)
============ ============ ============
Net income (loss) per limited partnership
assignee unit $ 181.19 $ 13.33 $ (8.40)
============ ============ ============
Cash distributions per limited partnership
assignee unit $ 354.99 $ - $ -
============ ============ ============
</TABLE>
See notes to consolidated financial statements.
F - 5
<PAGE>
MRI BUSINESS PROPERTIES FUND, LTD. II
CONSOLIDATED STATEMENTS OF PARTNERS' EQUITY
YEARS ENDED SEPTEMBER 30, 1995, 1994 AND 1993
<TABLE>
<CAPTION>
General Limited Total
Partners' Partners' Partners'
Equity (Deficit) Equity Equity
---------------- ------------- ------------
<S> <C> <C> <C>
Balance - October 1, 1992 $ (2,885,000) $ 24,183,000 $ 21,298,000
Net (loss) (16,000) (765,000) (781,000)
------------- ------------ -------------
Balance - September 30, 1993 (2,901,000) 23,418,000 20,517,000
Net income 25,000 1,214,000 1,239,000
------------- ------------ -------------
Balance - September 30, 1994 (2,876,000) 24,632,000 21,756,000
Net income 3,538,000 16,503,000 20,041,000
Distributions (660,000) (32,334,000) (32,994,000)
------------- ------------ -------------
Balance - September 30, 1995 $ 2,000 $ 8,801,000 $ 8,803,000
============= ============= =============
</TABLE>
See notes to consolidated financial statements.
F - 6
<PAGE>
MRI BUSINESS PROPERTIES FUND, LTD. II
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEARS ENDED SEPTEMBER 30,
---------------------------------------------
1995 1994 1993
------------ ------------ ------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ 20,041,000 $ 1,239,000 $ (781,000)
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Depreciation and amortization 5,612,000 5,364,000 5,136,000
Provision for impairment of value -- -- 2,007,000
Provision for doubtful receivables 204,000 9,000 37,000
Minority interest in joint venture's operations 307,000 145,000 26,000
Equity in unconsolidated joint venture's operations 280,000 342,000 1,062,000
Financing costs paid (212,000) (8,000) (11,000)
Gain on sale of property (18,749,000) -- --
Changes in operating assets and liabilities:
Accounts receivable and other assets (928,000) 116,000 (341,000)
Accounts payable, other liabilities and
due to an affiliate of the joint venture partner (299,000) 349,000 (319,000)
Due from affiliate (170,000) -- --
------------ ----------- ------------
Net cash provided by operating activities 6,086,000 7,556,000 6,816,000
------------ ----------- ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sale of property 30,000,000 -- --
Additions to real estate (7,868,000) (5,816,000) (2,681,000)
Settlement proceeds -- 102,000 181,000
Proceeds from cash investments -- 9,581,000 5,100,000
Purchase of cash investments -- (4,444,000) (5,723,000)
Distributions to partners (32,994,000) -- --
Unconsolidated joint venture contributions -- (150,000) --
Restricted cash decrease (increase) 1,464,000 (518,000) (775,000)
------------ ----------- ------------
Net cash (used in) investing activities (9,398,000) (1,245,000) (3,898,000)
------------ ----------- ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Satisfaction of mortgage payable (19,874,000) -- --
Proceeds from mortgage refinancing 19,400,000 -- --
Notes payable principal payments (747,000) (1,028,000) (1,445,000)
------------ ----------- ------------
Net cash (used in) financing activities (1,221,000) (1,028,000) (1,445,000)
------------ ----------- ------------
(Decrease) Increase in Cash and Cash Equivalents (4,533,000) 5,283,000 1,473,000
Cash and Cash Equivalents at Beginning of Year 9,346,000 4,063,000 2,590,000
------------ ----------- ------------
Cash and Cash Equivalents at End of Year $ 4,813,000 $ 9,346,000 $ 4,063,000
============ ============ ============
Supplemental Disclosure of Cash Flow Information:
Interest paid in cash during the year $ 5,583,000 $ 5,760,000 $ 5,752,000
============ ============ ============
Supplemental Disclosure of Non-Cash Investing and
Financing Activities:
Equipment financed -- $ 725,000 --
============ ============ ============
Accrued legal fees netted against settlement proceeds -- -- $ 119,000
============ ============ ============
Accrued financing costs $ -- -- $ 114,000
============ ============ ============
Sale of property and assumption of debt in 1995
- see note 10
</TABLE>
See notes to consolidated financial statements.
F - 7
<PAGE>
MRI BUSINESS PROPERTIES FUND, LTD. II
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED SEPTEMBER 30, 1995, 1994 AND 1993
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization
MRI Business Properties Fund, Ltd. II (the "Partnership") is a
limited partnership organized under the laws of the State of
California to acquire, hold for investment, and ultimately sell
income-producing hotel properties. At September 30, 1995, the
Partnership owned a hotel property located in Somerset, N.J.
(Somerset Marriott) and a controlling joint venture interest in the
Radisson South Hotel (Minneapolis, Minnesota). In addition, the
Partnership's unconsolidated joint venture hotel property (the
Holiday Inn Crowne Plaza Ravinia) is located in Atlanta, Georgia.
The Partnership's Marriott Riverwalk Hotel property was sold in June
1995, Somerset Marriott was sold in October 1995 and the Radisson
South and the Holiday Inn Crowne Plaza (owned by the unconsolidated
joint venture) were sold in December 1995. The Partnership is
expected to be terminated in 1996 after collection of receivables,
payment of outstanding liabilities and a final distribution to the
partners. The managing general partner of the Partnership is
Montgomery Realty Company-84 ("Montgomery"), a general partnership,
and the associate general partner is MRI Associates, Ltd. II ("MRI"),
a limited partnership. Fox Realty Investors ("FRI") is the managing
general partner of Montgomery and a general partner of MRI. The
Partnership was organized on April 24, 1984 but did not commence
operations until November 1984. The capital contributions of
$91,083,000 ($1,000 per unit) were made by the limited partners.
On December 6, 1993, NPI Equity Investments II, Inc. ("MGP") became
the managing partner of FRI and assumed operational control over Fox
Capital Management Corporation ("FCMC"). As a result, MGP became
responsible for the operation and management of the business and
affairs of the Partnership and the other investment partnerships
sponsored by FRI and/or FCMC. The individuals who had served
previously as partners of FRI and as officers and directors of FCMC
contributed their general partnership interests in FRI to a newly
formed limited partnership, Portfolio Realty Associates, L.P.
("PRA"), in exchange for limited partnership interests in PRA. In
the foregoing capacity, such partners will continue to hold
indirectly certain economic interests in the Partnership and such
other investment partnerships, but will cease to be responsible for
the operation and management of the Partnership and such other
partnerships. MGP is a wholly-owned subsidiary of National Property
Investors, Inc. ("NPI, Inc"), a diversified real estate management
company headquartered in Jericho, New York and Atlanta, Georgia.
On October 12, 1994, NPI, Inc. sold one-third of the stock of NPI,
Inc. to an affiliate of Apollo Real Estate Advisors, L.P. ("Apollo").
In addition, in October 1994 and June 1995, DeForest Ventures I L.P.
("DeForest"), an entity controlled by Apollo and affiliates of NPI
Inc., commenced tender offers for limited partnership assignee units
of Registrant and 11 other affiliated limited partnerships. Pursuant
to the tender offers DeForest acquired approximately 29% of total
limited partnership units of the Partnership.
On August 17, 1995, the stockholders of NPI, Inc., entered into an
agreement to sell to IFGP Corporation, an affiliate of Insignia
Financial Group, Inc. ("Insignia"), all of the issued and outstanding
stock of NPI, Inc. The sale is subject to the satisfaction of
certain conditions and is scheduled to close in January 1996.
F - 8
<PAGE>
MRI BUSINESS PROPERTIES FUND, LTD. II
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED SEPTEMBER 30, 1995, 1994 AND 1993
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Termination
As discussed in Note 12, the Partnership's remaining joint venture
owned properties were sold on December 1, 1995. The Partnership is
expected to be terminated in 1996 after collection of receivables,
payment of outstanding liabilities and a final distribution to the
partners.
Consolidation
The consolidated financial statements include the Partnership and the
remaining joint venture in which the Partnership has a controlling
interest. All significant intercompany transactions and balances
have been eliminated.
The investment in an unconsolidated joint venture is accounted for
under the equity method of accounting (see Note 5).
Distributions
On July 26, 1995 the Partnership made distributions of $32,334,000 to
limited partners ($354.99 per limited partnership assignee unit) and
$660,000 to the general partner during the fiscal year ended
September 30, 1995. These distributions were primarily made from the
proceeds received from the sale of the Partnership's Marriott
Riverwalk Hotel property.
In October 1995 the partnership made distributions of $2,802,000
($30.76 per limited partnership assignee unit) and $57,000 to the
general partners. These distributions were primarily made from the
net proceeds received from sale of the Partnership's Somerset
Marriott Hotel Property.
New Accounting Pronouncements
In December 1991, the Financial Accounting Standards Board ("FASB")
issued Statement No. 107, "Disclosures About Fair Value of Financial
Instruments." This Statement was amended in October 1994 by FASB
Statement No. 119, "Disclosures About Derivative Financial
Instruments and Fair Value of Financial Instruments." These
Statements will not affect the financial position or results of
operations of the Partnership but will require additional disclosure
on the fair value of certain financial instruments for which it is
practicable to estimate fair value. Disclosures under these
statements will be required in the financial statements for fiscal
years ending after December 15, 1995.
In March 1995, the FASB issued Statement No. 121 "Accounting for the
Impairment of Long Lived Assets to Be Disposed Of," effective for
fiscal years beginning after December 15, 1995. This Statement will
not affect the financial position or results of operations of the
Partnership.
F - 9
<PAGE>
MRI BUSINESS PROPERTIES FUND, LTD. II
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED SEPTEMBER 30, 1995, 1994 AND 1993
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Cash and Cash Equivalents
The Partnership considers cash investments with a maturity of three
months or less at the time of purchase to be cash equivalents.
Concentration of Credit Risk
The Partnership maintains cash balances at institutions insured up to
$100,000 by the Federal Deposit Insurance Corporation ("FDIC").
Balances in excess of $100,000 are usually invested in money market
accounts, United States Treasury bills and repurchase agreements,
which are collateralized by United States Treasury obligations. At
times during the year, cash balances exceeded insured levels. At
September 30, 1995, the Partnership had $1,752,000 invested in
overnight repurchase agreements, secured by United States Treasury
obligations, which are included in cash and cash equivalents.
Inventories and Operating Supplies
Inventories and operating supplies, including linen, china and
glassware, are stated generally at the lower of cost or market.
Real Estate
Real estate properties and improvements are stated at cost. A
provision for impairment of value is recorded when a decline in the
value of a property is determined to be other than temporary as a
result of one or more of the following: (1) a property is offered for
sale at a price below its current carrying value, (2) a property has
significant balloon payments due within the foreseeable future for
which the Partnership does not have the resources to meet, and
anticipates it will be unable to obtain replacement financing or debt
modification sufficient to allow a continued hold of the property
over a reasonable period of time, (3) a property has been, and is
expected to continue, generating significant operating deficits and
the Partnership is unable or unwilling to sustain such deficit
results of operations, and has been unable to, or anticipates it will
be unable to, obtain debt modification, financing or refinancing
sufficient to allow a continued hold of the property over a
reasonable period of time, or, (4) a property's value has declined
based on management's expectations with respect to projected future
operational cash flows and prevailing economic conditions. An
impairment loss is indicated when the undiscounted sum of estimated
future cash flows from an asset, including estimated sales proceeds,
and assuming a reasonable period of ownership up to five years, is
less than the carrying amount of the asset. The impairment loss is
measured as the difference between the estimated fair value and the
carrying amount of the asset. In the absence of the above
circumstances, properties and improvements are stated at cost.
Acquisition fees are capitalized as a cost of properties and
improvements. Properties which were contributed to the joint
ventures by the minority joint venture partners are stated at amounts
agreed upon among the partners at the date of acquisition or
F - 10
<PAGE>
MRI BUSINESS PROPERTIES FUND, LTD. II
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED SEPTEMBER 30, 1995, 1994 AND 1993
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Real Estate (Continued)
contribution which approximated fair market value. The Partnership
contributed cash to the joint ventures equal to its proportionate
ownership interest in the joint ventures. Certain payments received
from the joint venture partners pursuant to performance guarantee
agreements in excess of the hotel's operating income are applied as a
reduction of the cost of the related hotel. The cost of one property
was reduced in connection with the dissolution of a joint venture
partnership.
Depreciation
Depreciation is computed using the straight-line method based on
estimated useful lives ranging from 5 years to 39 years. Properties
for which a provision for impairment of value has been recorded and
are expected to be disposed of within the next year are not
depreciated.
Deferred Financing Costs
Financing costs are deferred and amortized, as interest expense, over
the lives of the related loans, originally ten years, or expensed if
financing is not obtained. At September 30, 1995 and September 30,
1994, accumulated amortization of deferred financing costs totaled
$52,000 and $41,000 respectively. Net deferred costs of $38,000 and
$107,000 for the years ended September 30, 1995 and 1994,
respectively, are included in accounts receivable and other assets.
Intangible Asset
The intangible asset which was acquired by the Partnership in
connection with its Marriott Riverwalk acquisition was stated at
fair value and was amortized over the estimated useful life of the
respective asset which was 30 years. The asset was written off when
the Marriott Riverwalk was sold (see Note 10).
Net Income (Loss) Per Limited Partnership Assignee Unit
Net income (loss) per limited partnership assignee unit is computed
by dividing net income (loss) allocated to the limited partners by
91,083 assignee units outstanding.
Income Taxes
No provision for Federal and state income taxes has been made in
the financial statements because income taxes are the obligation of
the partners.
F - 11
<PAGE>
MRI BUSINESS PROPERTIES FUND, LTD. II
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED SEPTEMBER 30, 1995, 1994 AND 1993
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Reclassification
Certain amounts have been reclassified to conform to the 1995
presentation.
2. TRANSACTIONS WITH THE GENERAL PARTNER AND AFFILIATES
In accordance with the Partnership Agreement, the Partnership may be
charged by the general partner and affiliates for services provided
to the Partnership. From March 1988 to December 1992 such amounts
were assigned pursuant to a services agreement by the general partner
and affiliates to Metric Realty Services, L.P., which performed
partnership management and other services for the Partnership.
On January 1, 1993, Metric Management, Inc., ("MMI") a company which
is not affiliated with the general partner, commenced providing
certain property and portfolio management services to the Partnership
under a new services agreement. As provided in the new services
agreement effective January 1, 1993, no reimbursements were made to
the general partner and affiliates after December 31, 1992.
Subsequent to December 31, 1992, reimbursements were made to MMI. On
December 16, 1993, the service agreement with MMI was modified and,
as a result thereof, MGP assumed responsibility for cash management
and other partnership services on various dates commencing December
23, 1993. Related party expenses for the years ended September 30,
1995, 1994 and 1993 are as follows:
<TABLE>
<CAPTION>
1995 1994 1993
-------- -------- -------
<S> <C> <C> <C>
Reimbursement of expenses:
Partnership accounting and investor services $102,000 $76,000 $39,000
Professional services -- 11,000 7,000
-------- -------- -------
Total $102,000 $87,000 $46,000
======== ======== =======
</TABLE>
Reimbursed expenses are included in general and administrative
expenses.
In accordance with the Partnership Agreement, the general partner is
entitled to receive cash distributions from operations as follows:
(1) a Partnership management incentive equal to an allocation of ten
percent determined on a cumulative, noncompounded basis, of cash
available for distribution (as defined in the Partnership Agreement)
which is distributed to partners, and (2) a continuing interest
representing two percent of cash available for distribution
distributed to partners remaining after the allocation of the
Partnership management incentive. Subsequent to December 31, 1986,
the Partnership management incentive is subordinated to certain cash
distributions to the unit holders.
F - 12
<PAGE>
MRI BUSINESS PROPERTIES FUND, LTD. II
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED SEPTEMBER 30, 1995, 1994 AND 1993
2. TRANSACTIONS WITH THE GENERAL PARTNER AND AFFILIATES (Continued)
The general partner is also entitled to its continuing interest of two
percent of net income and net loss, taxable income and taxable loss
and distribution of cash available for distribution provided, however,
that 20% of realized gains from the sale or other disposition of
properties is allocated to the general partners until such time as the
general partners do not have deficit capital accounts. Upon
termination of the Partnership the general partners may be required to
contribute up to approximately $1,250,000 to the Partnership in
accordance with the partnership agreement.
On July 26, 1995 the general partner received a distribution of
$660,000, representing the general partners two percent interest in
cash available for distribution which was primarily from the proceeds
received on the sale of the Partnership's Marriott Riverwalk Hotel
property. There were no cash distributions to the general partner for
the years ended September 30, 1994 and 1993.
In October 1995 the general partner received a distribution of
$57,000, representing the general partners two percent in cash
available for distribution which was primarily received from the
proceeds received on the sale of the Partnership's Somerset Marriott
Hotel property.
3. RELATED PARTY TRANSACTIONS
Apart from the reimbursements paid to the general partner and
affiliates as set forth in Note 2 above, the Partnership has an
agreement with an affiliate of a joint venture partner, an otherwise
non-affiliated third party, which provides for the management and
operation of the joint venture property. Management fees paid to the
affiliate of such joint venture partner for the years ended September
30, 1995, 1994, and 1993 were $897,000, $805,000, and $762,000,
respectively. In addition, $1,451,000, $1,219,000, and $2,208,000
were paid to an affiliate of the joint venture partner for franchise
services and reimbursed expenses during the years ended September 30,
1995, 1994, and 1993, respectively.
4. RESTRICTED CASH
Restricted cash represents amounts maintained in accounts in
accordance with loan agreements on the Marriott Riverwalk Hotel and
Somerset Marriott Hotel in order to fund future capital requirements.
The September 30, 1994 balance was composed of $1,098,000 for the
Marriott Riverwalk Hotel and $823,000 for the Somerset Marriott Hotel.
F - 13
<PAGE>
MRI BUSINESS PROPERTIES FUND, LTD. II
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED SEPTEMBER 30, 1995, 1994 AND 1993
5. INVESTMENT IN UNCONSOLIDATED JOINT VENTURE
In February 1986, the Partnership acquired a 50 percent ownership
interest in MRI Business Properties Combined Fund No. 1 ("Combined
Fund"), a joint venture with MRI Business Properties Fund, Ltd. III,
a California limited partnership affiliated with the Partnership's
general partner. The Combined Fund acquired a majority interest in a
joint venture, MRI Ravinia Associates, which on March 13, 1986,
acquired the Hyatt Regency Ravinia Hotel. In fiscal year 1991 the
Combined Fund effected a change in the joint venture ownership (see
discussion below). The Partnership's interest in the Combined Fund is
reported using the equity method of accounting.
In fiscal year 1990, the joint venture partner at the Hyatt Regency
Ravinia Hotel indicated it would not contribute its 50 percent share
to fund deficit operations at the hotel. Consequently, in fiscal year
1991, the Partnership and MRI Business Properties Fund Ltd. III, each
funded $1,060,000 to the hotel, of which $530,000 from each was funded
on behalf of the joint venture partner. Accordingly, the joint
venture partner was not allocated loss in fiscal year 1991.
Formal notice of deficiency was sent placing the joint venture partner
in default. As a result of such default, in fiscal year 1991, the
Combined Fund effected a change in the joint venture ownership by
amending their agreement with the joint venture, partner and forming a
new joint venture with an affiliate of Holiday Inns, Inc.
("Holiday"). The new joint venture entered into a new management
agreement with Holiday. As consideration for a 50 percent interest in
the new joint venture Holiday has agreed to pay for the costs to
terminate the Hyatt Management Agreement, the conversion costs
associated with the change to a Holiday Inn Crowne Plaza and the
coverage of operational losses up to $5,000,000 for up to the first
five years of the new joint venture. As a result of the new joint
venture, which included the Combined Fund's surrender of certain
priority returns, there was a reduction, through provision for
impairment of value, to the book basis of the property of the Combined
Fund of approximately $7,700,000 which was recognized in 1991. An
additional provision for impairment of value of approximately
$4,300,000 was recognized in 1992. In July 1993, the guarantee was
exhausted and the Combined Fund and its joint venture partner become
jointly responsible for their share of operational losses. In October
1993, the Combined Fund and Holiday each contributed $300,000 to cover
operational losses. The $34,000,000 mortgage encumbering the hotel
which was due to mature in July 1995 was extended to January 1, 1996
and was satisfied on December 1, 1995 on sale of the hotel (see Note
12).
F - 14
<PAGE>
MRI BUSINESS PROPERTIES FUND, LTD. II
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED SEPTEMBER 30, 1995, 1994 AND 1993
6. REAL ESTATE
Hotel properties and improvements at September 30, 1995 and 1994 are
summarized as follows:
<TABLE>
<CAPTION>
1995 1994
------------ ------------
<S> <C> <C>
Land $ 7,834,000 $ 7,834,000
Buildings and improvements 58,377,000 90,172,000
Furnishings 26,286,000 34,775,000
------------ ------------
Total 92,497,000 132,781,000
Accumulated depreciation (37,814,000) (53,454,000)
Allowance for impairment of value (10,948,000) (10,948,000)
------------ ------------
Net real estate $ 43,735,000 $ 68,379,000
============ ============
</TABLE>
7. NOTES PAYABLE
Individual properties and improvements are pledged as collateral for
the related notes payable. The notes bear interest at rates from 5.1
percent to 14.5 percent. One of the notes has been discounted to
yield imputed interest at 13 percent. Amortization of the discount
was $285,000, $260,000 and $238,000 for fiscal years 1995, 1994 and
1993, respectively.
The Marriott Riverwalk notes were refinanced by the partnership in
December 1994 and were fully satisfied in June of 1995 in connection
with the sale of the property (see Note 10).
Notes payable also includes a renovation loan of $650,000 for the
Somerset Marriott Hotel to Marriott Corporation which is currently
due. The Somerset Marriott Hotel and Radisson South Hotel notes
payable were fully satisfied in October 1995 and December 1995,
respectively, in connection with the respective sales of the
properties (see Note 12). The Radisson South Hotel notes were due to
mature on December 1, 1995 and the Somerset Marriott notes were due to
mature on December 31, 1997 and February 1, 1998.
8. PROVISIONS FOR IMPAIRMENT OF VALUE
During fiscal years 1993 and 1992, the Partnership determined that
based upon the continuing deterioration of the economic market in
Somerset, New Jersey, and projected future operational cash flows, the
decline in value of the Somerset Marriott Hotel was other than
temporary and that recovery of its carrying value was not likely.
Accordingly, provisions for impairment of value of $2,007,000 and
$8,941,000 were recognized in fiscal year 1993 and 1992, respectively.
Carrying value includes the cost of the property less accumulated
depreciation.
F - 15
<PAGE>
MRI BUSINESS PROPERTIES FUND, LTD. II
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED SEPTEMBER 30, 1995, 1994 AND 1993
9. RENTAL COMMITMENTS AND CONTINGENCY
The operating leases were assumed by the buyers on the sale of the
respective hotel properties. (see Notes 10 and 12). Rental expense
for operating leases was $276,000, 407,000 and $304,000 in 1995, 1994
and 1993, respectively.
10. GAIN ON SALE OF PROPERTY
On June 16, 1995, the Partnership's Marriott Riverwalk (San Antonio,
Texas) property was sold to an unaffiliated third party for
$49,268,000. The sale proceeds were comprised of cash of $30,000,000
and the mortgage note of $19,268,000 which was assumed by the buyer.
At the date of the sale, the net carrying value of the property was
$27,326,000 and net assets of approximately $2,937,000 were taken over
by the purchaser. The sale resulted in a gain of $18,749,000, which
is net of selling expenses of $256,000.
11. RECONCILIATION TO INCOME TAX METHOD OF ACCOUNTING
The differences between the method of accounting for income tax
reporting and the accrual method of accounting used in the financial
statements are as follows:
<TABLE>
<CAPTION>
1995 1994 1993
----------- ---------- -----------
<S> <C> <C> <C>
Net income (loss) - financial statements $20,041,000 $1,239,000 $ (781,000)
Differences resulted from:
Depreciation and amortization (1,585,000) (1,523,000) (1,377,000)
Provision for impairment of value - - 2,007,000
Interest and financing costs 205,000 34,000 34,000
Minority interest in joint
ventures' operations (109,000) (9,000) 44,000
Equity in unconsolidated joint
venture's operations (606,000) (596,000) 48,000
Gain on sale of Property-net (1,750,000) - -
Other 177,000 284,000 (221,000)
------------ ----------- ------------
Net income (loss) - income tax method $ 16,373,000 $ (571,000) $ (246,000)
============ ========== ============
Taxable income (loss) per limited
partnership assignee unit after giving
effect to the allocation to the
general partner $ 146 $ (6) $ (3)
============ ========== ============
</TABLE>
F - 16
<PAGE>
MRI BUSINESS PROPERTIES FUND, LTD. II
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED SEPTEMBER 30, 1995, 1994 AND 1993
11. RECONCILIATION TO INCOME TAX METHOD OF ACCOUNTING (continued)
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Partners' equity - financial statements $8,803,000 $21,756,000 $20,517,000
Differences resulted from:
Deferred sales commissions and organization
costs 10,172,000 10,172,000 10,172,000
Provision for impairment of value 10,948,000 10,948,000 10,948,000
Depreciation and amortization (14,929,000) (14,091,000) (12,568,000)
Guaranteed payments 5,971,000 5,971,000 5,971,000
Minority interest 2,367,000 2,476,000 2,485,000
Equity in unconsolidated joint venture's
operations 8,129,000 8,735,000 9,331,000
Other 943,000 3,058,000 2,740,000
----------- ------------ -----------
Partners' equity - income tax method $32,404,000 $ 49,025,000 $49,596,000
=========== ============ ===========
</TABLE>
12. SUBSEQUENT EVENTS - SALE OF PROPERTIES
On October 5, 1995, the Partnership's Somerset Marriott Hotel was sold
to an unaffiliated third party for $24,950,000. After satisfaction of
notes payable of approximately $22,530,000 (including accrued interest
and a prepayment premium of $500,000), closing costs, credits and
adjustments, the Partnership received approximately $2,580,000. At
the date of the sale the net carrying value of the property was
approximately $22,625,000. The sale resulted in a gain of
approximately $1,550,000 which is net of selling expenses of
approximately $275,000 and will be recognized in fiscal 1996. The
Partnership had previously recorded a $10,948,000 provision for
impairment of value in 1992 and 1993.
On December 1, 1995 the joint venture (in which the Partnership has a
controlling interest) sold the Radisson South Hotel to an unaffiliated
third party for $31,840,000. After satisfaction of mortgage notes of
approximately $14,452,000 (including accrued interest), closing costs
and adjustments, the joint venture received approximately $17,000,000.
In accordance with the joint venture agreement, the Partnership is
entitled to all the net proceeds. In addition, the Partnership
expects to receive approximately $990,000 of cash from operations and
to collect approximately $1,300,000 in outstanding receivables. At
the date of the sale the carrying value of the property was
$20,730,000. The sale resulted in a gain of approximately $10,950,000
which includes selling expenses of approximately $300,000 and $140,000
of net liabilities assumed by the purchaser.
F - 17
<PAGE>
MRI BUSINESS PROPERTIES FUND, LTD. II
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED SEPTEMBER 30, 1995, 1994 AND 1993
12. SUBSEQUENT EVENT - SALE OF PROPERTIES (continued)
As of July 7, 1995, the Combined Fund, entered into an agreement with
its joint venture partner in the Holiday Inn Crowne Plaza pursuant to
which the parties agreed to sell the Holiday Inn Crowne Plaza. The
agreement provides that the net proceeds to the Combined Fund from any
such sale must be at least $5,000,000. On December 1, 1995, the
Combined Fund sold the Holiday Inn Crowne Plaza property to an
unaffiliated third party for $44,000,000. After satisfaction of the
mortgage note of $34,000,000, closing costs and other expenses, the
joint venture received approximately $8,900,000. The Combined Fund
received $5,000,000 of net proceeds (of which the Partnership's share
is $2,500,000) in accordance with the July 7, 1995 agreement. The
Partnership will recognize a gain on disposition of approximately
$3,000,000 during the first quarter of fiscal 1996. The Combined Fund
had previously recorded an approximate $12,000,000 provision for
impairment of value in 1991 and 1992. A former joint venture partner
may be required to contribute certain funds to the Partnership in
accordance with the joint venture agreement. The amount of
contribution, if any, is not determinable at this time.
13. PRO FORMA FINANCIAL INFORMATION
The following pro forma consolidated balance sheet as of September 30,
1995 gives effect to the sales of the Partnership's Somerset Marriott
property, Radisson South consolidated joint venture property and the
Partnership's joint venture interest in the Holiday Inn Crowne Plaza
(see Notes 10 and 12). The adjustments related to the pro forma
consolidated balance sheet assume the transactions were consummated at
September 30, 1995.
The pro forma adjustments are required to eliminate the assets and
liabilities of the Somerset Marriott, Radisson South, and Holiday Inn
Crowne Plaza properties and to reflect consideration received for the
properties.
These pro forma adjustments are not necessarily reflective of the
results that actually would have occurred if the sales had been in
effect as of the period presented.
Pro forma consolidated statement of operations have not been provided
because all of the properties have been sold. The Partnership is
expected to be terminated after collection of receivables, payment of
outstanding liabilities and a final distribution to partners.
F - 18
<PAGE>
MRI BUSINESS PROPERTIES FUND, LTD. II
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED SEPTEMBER 30, 1995, 1994 AND 1993
13. Pro Forma Financial Information (Continued)
Pro Forma Consolidated Balance Sheet
<TABLE>
<CAPTION>
Pro Forma
Historical Adjustments Pro Forma
----------- ----------- ----------
<S> <C> <C> <C>
Assets
Cash and cash equivalents $ 4,813,000 -- $ 4,813,000
Accounts receivable and other assets 2,712,000 20,912,000 23,624,000
Due from affiliate 170,000 170,000
Real Estate:
Real estate 92,497,000 (92,497,000) --
Accumulated depreciation (37,814,000) 37,814,000 --
Allowance for impairment of value (10,948,000) 10,948,000 --
----------- ----------- -----------
Real estate, net 43,735,000 (43,735,000) --
----------- ----------- -----------
Total assets $51,430,000 $(22,823,000) $28,607,000
=========== ============ ===========
Liabilities and Partners' Equity
Accounts payable and other liabilities $ 2,407,000 $ (2,368,000) $ 39,000
Due to unconsolidated joint venture 618,000 (618,000) --
Notes payable 36,610,000 (36,610,000) --
Due to an affiliate of the joint venture
partner 55,000 (55,000) --
----------- ----------- -----------
Total liabilities 39,690,000 (39,651,000) 39,000
----------- ----------- -----------
Minority interest in joint venture 2,937,000 (2,937,000) --
----------- ----------- -----------
Commitments and Contingencies
Partners' Equity:
General partners equity 2,000 395,000 397,000
Limited partners equity (91,083 assignee
units outstanding at September 30, 1995) 8,801,000 19,370,000 28,171,000
----------- ----------- -----------
Total partners' equity 8,803,000 19,765,000 28,568,000
----------- ----------- -----------
Total liabilities and partners' equity $51,430,000 $(22,823,000) $28,607,000
=========== =========== ===========
</TABLE>
F - 19
<PAGE>
SCHEDULE III
MRI BUSINESS PROPERTIES FUND, LTD. II
REAL ESTATE AND ACCUMULATED DEPRECIATION
SEPTEMBER 30, 1995
<TABLE>
<CAPTION>
COLUMN COLUMN COLUMN COLUMN
A B C D
Cost Capitalized
Initial Cost Subsequent
to Partnership to Acquisition
---------------------- -----------------------
Buildings
Encumbrances and Carrying
Description (5) Land Improvements Improvements Costs (8)
----------- --- ---- ------------ ------------ ---------
(Amounts in thousands)
------------------------
<S> <C> <C> <C> <C> <C>
PARTNERSHIP:
Somerset Marriott,
Somerset, New Jersey $21,984 $5,286(6) $35,523 $10,873 $ --
JOINT VENTURE:
Radisson South Hotel,
Minneapolis, Minnesota 14,626 3 ,151 27,921 16,839 (7,096)
------ ------- ------- ------ -------
TOTAL 36,610 8,437 63,444 27,712 (7,096)
====== ======= ======= ====== =======
<CAPTION>
COLUMN COLUMN COLUMN COLUMN COLUMN
A E F G H
Gross Amount at Which
Carried at Close of Period(1) Accumulated
----------------------------- Depreciation
Buildings and provision
and for Year Date
Improve- impairment of of
Description Land ments Total (2) (3)(4) Construction Acquisition
----------- ----- ------ -------- ------- ------------ -----------
<S> <C> <C> <C> <C> <C> <C>
PARTNERSHIP:
Somerset Marriott,
Somerset, New Jersey $5,286 $46,396 $51,682 $29,051 1978 9/85
JOINT VENTURE:
Radisson South Hotel, 1970 &
Minneapolis, Minnesota 2,548 38,267 40,815 19,711 1980(7) 11/84
------ ------- ------- -------
TOTAL 7,834 84,663 92,497 48,762
====== ======= ======= =======
</TABLE>
See accompanying notes.
F - 20
<PAGE>
SCHEDULE III
MRI BUSINESS PROPERTIES FUND, LTD. II
REAL ESTATE AND ACCUMULATED DEPRECIATION
SEPTEMBER 30, 1995
NOTES:
(1) The aggregate cost for Federal income tax purposes is $99,594,000.
(2) Balance, October 1, 1992 $ 124,959,000
Improvements capitalized subsequent to acquisition 2,681,000
Disposal of property improvements (300,000)
--------------
Balance, September 30, 1993 127,340,000
Improvements capitalized subsequent to acquisition 6,541,000
Settlement proceeds (102,000)
Disposal of property improvements (998,000)
--------------
Balance, September 30, 1994 132,781,000
Improvements capitalized subsequent to acquisition 7,868,000
Sale of property (48,152,000)
--------------
Balance, September 30, 1995 $ 92,497,000
==============
(3) Balance, October 1, 1992 $ 53,542,000
Provision for impairment of value 2,007,000
Additions charged to expense 4,828,000
--------------
Balance, September 30, 1993 60,377,000
Additions charged to expense 5,023,000
Disposal of property improvements (998,000)
--------------
Balance, September 30, 1994 64,402,000
Additions charged to expense 5,186,000
Sale of property (20,826,000)
--------------
Balance, September 30, 1995 $ 48,762,000
==============
(4) Depreciation is computed on lives ranging from five to 39 years.
(5) Encumbrances shown are net of unamortized discount totaling $50,000
and include capital lease obligations.
(6) Land acquired during fiscal year 1988.
(7) The hotel consists of three buildings. Two were constructed in 1970
and one was constructed in 1980.
(8) Certain revenues received from the original sellers in excess of the
properties net operating income for a specified period of time after
acquisition, have been applied as a reduction of the cost of the related
property.
F - 21
<PAGE>
MRI BUSINESS PROPERTIES
COMBINED FUND NO. 1
CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED
SEPTEMBER 30, 1995, 1994, AND 1993
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Partners of
MRI Business Properties Combined Fund No. 1
We have audited the accompanying consolidated balance sheets of MRI Business
Properties Combined Fund No. 1 (a general partnership) and its joint venture as
of September 30, 1995 and 1994, and the related consolidated statements of
operations, partners' equity (deficiency) and cash flows for the years then
ended. These financial statements are the responsibility of the Partnership's
management. Our responsibility is to express an opinion on these financial
statements based on our audits. The consolidated statements of operations,
partners' equity (deficiency) and cash flows for the year ended September 30,
1993 of MRI Business Properties Combined Fund No. 1 were audited by other
auditors whose report dated December 17, 1993, expressed an unqualified opinion
on those statements.
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 the disclosures in the financial statements. An audit also
includes assessing the accounting principles used and the 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 1995 and 1994 consolidated financial statements referred to
above present fairly, in all material respects, the financial position of MRI
Business Properties Combined Fund No. 1 and its joint venture as of September
30, 1995 and 1994, and the results of their operations and their cash flows for
the years then ended in conformity with generally accepted accounting
principles.
Our audits were made for the purpose of forming an opinion on the basic
financial statements taken as a whole. The schedule on page 12 is presented for
the purpose of additional analysis and is not a required part of the basic
financial statements. Such information has been subjected to the auditing
procedures applied in the audits of the basic financial statements and, in our
opinion, is fairly stated in all material respects in relation to the basic
financial statements taken as a whole.
As discussed in Note 9 to the financial statements, the Partnership has sold
substantially all of its assets during the first quarter of fiscal 1996. The
Partnership is expected to be terminated in 1996 after receipt of receivables,
payment of outstanding liabilities and a final distribution to the partners.
Tauber & Balser, P.C.
Atlanta, Georgia
November 29, 1995
(except for Notes 9, as to which
the date is December 1, 1995)
<PAGE>
INDEPENDENT AUDITORS' REPORT
MRI Business Properties Combined Fund No. 1.
We have audited the accompanying consolidated statements of operations,
partners' equity (deficiency) and cash flows for the year ended September 30,
1993 of MRI Business Properties Combined Fund No. 1 (a limited partnership) (the
"Partnership") and its joint venture. These consolidated financial statements
are the responsibility of the Partnership's management. Our responsibility is to
express an opinion on these consolidated financial statements based on our
audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the consolidated financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall consolidated financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.
In our opinion, such consolidated financial statements present fairly, in all
material respects, the results of operations and cash flows of the Partnership
and its joint venture for the year ended September 30, 1993, in conformity with
generally accepted accounting principles.
/s/ Deloitte & Touche LLP
December 17, 1993
<PAGE>
MRI BUSINESS PROPERTIES COMBINED FUND NO. 1
CONSOLIDATED BALANCE SHEETS
SEPTEMBER 30, 1995 AND 1994
ASSETS
1995 1994
----------- --------
Cash and cash equivalents $ 887,000 $ 561,000
Restricted cash 958,000 564,000
Accounts receivable, less allowance
for uncollectible accounts of
$40,000 and $39,000, respectively 1,155,000 1,132,000
Inventory 96,000 74,000
Prepaid expenses and other 31,000 27,000
Property and improvements 63,148,000 62,898,000
Accumulated depreciation (17,952,000) (16,335,000)
Allowance for impairment of value (11,962,000) (11,962,000)
----------- -----------
Net property and improvements 33,234,000 34,601,000
Organization costs, net of
accumulated amortization of
$207,000 and $157,000, respectively 39,000 90,000
----------- -----------
TOTAL ASSETS $36,400,000 $37,049,000
=========== ===========
LIABILITIES AND PARTNERS' DEFICIENCY
Accounts payable $ 350,000 $ 507,000
Accrued interest - 266,000
Accrued property taxes 121,000 151,000
Other liabilities 1,334,000 1,396,000
Management fees payable to
affiliate 1,578,000 964,000
Due to affiliates 1,491,000 1,131,000
Note payable 34,000,000 34,000,000
----------- -----------
Total liabilities 38,874,000 38,415,000
Joint venturer's interest (1,238,000) (689,000)
Partners' deficiency
MRI BPF, Ltd. II (618,000) (338,000)
MRI BPF, Ltd. III (618,000) (339,000)
----------- -----------
(1,236,000) (677,000)
----------- -----------
TOTAL LIABILITIES AND PARTNERS'
DEFICIENCY $36,400,000 $37,049,000
=========== ===========
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
<PAGE>
MRI BUSINESS PROPERTIES COMBINED FUND NO. 1
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED SEPTEMBER 30,
<TABLE>
<CAPTION>
1995 1994 1993
----------- ----------- -------
<S> <C> <C> <C>
Revenues:
Rooms $12,958,000 $12,037,000 $10,065,000
Food and beverage 6,955,000 6,602,000 6,687,000
Other 810,000 741,000 588,000
Interest 28,000 22,000 17,000
----------- ----------- -----------
Total revenues 20,751,000 19,402,000 17,357,000
Expenses (including $2,475,000,
$2,374,000 and $2,001,000 paid or
payable to an affiliate of the
joint venture partner in 1995,
1994, and 1993):
Rooms 3,397,000 3,158,000 2,705,000
Food and beverage 5,504,000 5,268,000 5,428,000
Other operating 7,659,000 7,445,000 6,882,000
Depreciation and amortization 1,863,000 1,709,000 1,644,000
Interest 3,436,000 3,187,000 3,248,000
General and administrative - 17,000
----------- ----------- -----------
Total expenses 21,859,000 20,767,000 19,924,000
----------- ----------- -----------
LOSS BEFORE JOINT VENTURER'S INTEREST
IN OPERATIONS (1,108,000) (1,365,000) (2,567,000)
JOINT VENTURER'S INTEREST IN
OPERATIONS 549,000 681,000 135,000
----------- ----------- -----------
NET LOSS $ (559,000) $ (684,000) $(2,432,000)
=========== =========== ===========
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
<PAGE>
MRI BUSINESS PROPERTIES COMBINED FUND NO. 1
CONSOLIDATED STATEMENTS OF PARTNERS' EQUITY (DEFICIENCY)
FOR THE YEARS ENDED SEPTEMBER 30, 1995, 1994 AND 1993
<TABLE>
<CAPTION>
MRI Business MRI Business
Properties Fund, Properties Fund,
Ltd II Ltd III Total
<S> <C> <C> <C>
Balance, October 1, 1992 $ 916,000 $ 1,223,000 $ 2,139,000
Net loss (1,062,000) (1,370,000) (2,432,000)
------------- ------------- ------------
Balance, September 30, 1993 (146,000) (147,000) (293,000)
Capital contributions 150,000 150,000 300,000
Net loss (342,000) (342,000) (684,000)
------------- ------------ ------------
Balance, September 30, 1994 (338,000) (339,000) (677,000)
Net loss (280,000) (279,000) (559,000)
------------- ------------ ------------
Balance, September 30, 1995 $ (618,000) $ (618,000) $(1,236,000)
============= ============= ===========
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
<PAGE>
MRI BUSINESS PROPERTIES COMBINED FUND NO. 1
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED SEPTEMBER 30,
<TABLE>
<CAPTION>
1995 1994 1993
----------- ----------- --------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (559,000) $ (684,000) $(2,432,000)
Adjustments to reconcile net loss
to net cash provided (used) by operating
activities:
Depreciation and amortization 1,863,000 1,709,000 1,704,000
Provision for doubtful receivables 1,000 - 2,000
Joint Venturer's interest in operations (549,000) (681,000) (135,000)
Net changes in:
Accounts receivable (23,000) - (118,000)
Inventory (22,000) 18,000 11,000
Prepaid expenses and other (4,000) (1,000) 27,000
Accounts payable, accrued expenses
and other liabilities 99,000 551,000 60,000
----------- ----------- -----------
Net cash provided (used) by
operating activities 806,000 912,000 (881,000)
----------- ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of property and equipment (446,000) (1,438,000) (2,372,000)
(Deposit to) release from restricted
cash, net (394,000) 175,000 489,000
----------- ----------- -----------
Net cash used by investing activities (840,000) (1,263,000) (1,883,000)
----------- ----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Advances from Joint Venturer - 300,000 -
Capital contributions - 300,000 -
Increase in due to affiliates 360,000 10,000 1,121,000
Joint venture partner contributions - - 1,700,000
----------- ----------- -----------
Net cash provided by financing
activities 360,000 610,000 2,821,000
----------- ----------- -----------
NET INCREASE IN CASH AND
CASH EQUIVALENTS 326,000 259,000 57,000
CASH AND CASH EQUIVALENTS:
BEGINNING OF YEAR $ 561,000 $ 302,000 $ 245,000
----------- ----------- -----------
END OF YEAR $ 887,000 $ 561,000 $ 302,000
=========== =========== ===========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Interest paid $ 3,702,000 $ 3,188,000 $ 3,188,000
=========== =========== ===========
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
<PAGE>
MRI BUSINESS PROPERTIES COMBINED FUND NO.1
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1995 AND 1994
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION AND NATURE OF THE BUSINESS
MRI Business Properties Combined Fund No. 1 ("Partnership") is a general
partnership organized February 18, 1986 under the laws of the State of
California to obtain a 50 percent interest in a Joint Venture which acquired
the Ravinia Hotel. The general partners of the Partnership are MRI Business
Properties Fund, Ltd. II ("MRI BPF, Ltd. II") and MRI Business Properties
Fund, Ltd. III ("MRI BPF, Ltd. III") which are California limited
partnerships affiliated through their managing general partners.
The Partnership is a 50 percent owner in a Joint Venture with Holiday Inn
Ravinia, Inc., a wholly-owned subsidiary of Holiday Inn Worldwide, Inc. This
Joint Venture owns a 495-room hotel operated as the Holiday Inn Crowne Plaza
Ravinia in Atlanta, Georgia (Note 9). Losses of the Joint Venture are allocated
to its owners pursuant to the venture agreement based on ownership.
CONSOLIDATION
The consolidated financial statements include the Partnership and a Joint
Venture in which the Partnership has a 50 percent interest. The Joint Venture's
fiscal year ends on the Thursday prior to September 30 of each year. The year
ended September 29, 1994 contained 53 weeks. All significant intercompany
transactions and balances have been eliminated.
CASH AND CASH EQUIVALENTS
The Partnership considers all highly liquid investments with a maturity of
three months or less when purchased to be "cash equivalents".
INVENTORIES
Inventories consist of food, beverage, and miscellaneous supplies.
Inventories are recorded under the first-in,
<PAGE>
MRI BUSINESS PROPERTIES COMBINED FUND NO.1
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1995 AND 1994
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
first-out method and are generally stated at the lower of cost or market.
ORGANIZATION COSTS
Organization costs are deferred and amortized over five years using the
straight-line method.
PROPERTY AND IMPROVEMENTS AND DEPRECIATION
Property and improvements are stated at cost. A provision for impairment of
value was recorded for the property since the property's value had declined
based on management's expectations with respect to projected future operational
cash flows and prevailing economic conditions. In the absence of the above
circumstances, property and improvements are stated at cost. Acquisition fees
are capitalized as a cost of property and improvements.
Depreciation is computed by the straight-line method over estimated useful
lives of 27-40 years for building and improvements and 5-6 years for
furnishings.
INCOME TAXES
MRI Business Properties Combined Fund No. 1 is not subject to income taxes
because it is a Partnership. Instead, each partner is taxed on its share of the
Partnership's taxable income, whether or not distributed, and is entitled to
deduct on its own income tax return its share of the Partnership net losses to
the extent of its tax basis in the Partnership.
RECLASSIFICATION OF FINANCIAL STATEMENT PRESENTATION
Certain reclassifications have been made to the 1993 financial statements
to conform with the 1995 and 1994 financial statement presentation. Such
reclassifications have had no effect on net loss as previously reported.
<PAGE>
MRI BUSINESS PROPERTIES COMBINED FUND NO.1
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1995 AND 1994
NOTE 2 - RESTRICTED CASH
Restricted cash represents monies maintained in an account in accordance
with the management agreement on the Holiday Inn Crowne Plaza Ravinia in order
to meet future capital requirements. Pursuant to the management agreement,
monthly funding is required by the property in the amount of 5 percent of
monthly Adjusted Gross Revenues.
NOTE 3 - ACCOUNTS RECEIVABLE
Accounts receivable consists of trade receivables due the hotel from
guests, corporations, associations and governments.
NOTE 4 - PROPERTY AND IMPROVEMENTS
Hotel property and improvements are summarized as follows:
1995 1994
---- ----
Land $ 9,108,000 $ 9,108,000
Building and improvements 45,356,000 45,179,000
Furnishings 8,684,000 8,611,000
----------- -----------
63,148,000 62,898,000
Accumulated depreciation (17,952,000) (16,335,000)
Allowance for impairment
of value (see Note 5) (11,962,000) (11,962,000)
----------- -----------
Net property and improvements $33,234,000 $34,601,000
============ ===========
Differences exist between financial statement and federal income tax bases
as a result of accelerated depreciation methods. The depreciable property basis
used for tax purposes as of September 30, 1995 and 1994 is $38,298,000 and
$37,617,000 along with accumulated depreciation of
<PAGE>
MRI BUSINESS PROPERTIES COMBINED FUND NO.1
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1995 AND 1994
NOTE 4 - PROPERTY AND IMPROVEMENTS (CONTINUED)
$9,910,000 and $7,546,000, respectively. Depreciation expense for tax
purposes as of September 30, 1995, 1994, and 1993 amounts to $3,638,000,
$3,617,000, and $3,317,000, respectively.
NOTE 5 - PROVISION FOR IMPAIRMENT OF VALUE
The impairment of value (Note 4) resulted in the reduction of the book
basis of the hotel in the amounts of $4,311,000 and $7,651,000 in 1992 and 1991,
respectively. For these years, the Joint Venture determined that based upon the
continuing deterioration of the economic market in Atlanta, Georgia and
projected operational cash flows, the decline in value of the hotel was other
than temporary and that recovery of its carrying value was not likely.
NOTE 6 - DUE TO AFFILIATES
Of the $1,491,000 due to affiliates, $370,000 is due to an affiliate of the
Partnership while the remainder represents an advance from Holiday Inn
Worldwide, Inc. issued in 1993. These advances are unsecured and non-interest
bearing.
NOTE 7 - NOTE PAYABLE
Property and improvements are pledged as collateral for the note payable of
$34,000,000 which bears interest at 12.29% per annum. The note requires monthly
payments of interest only with a balloon payment in January 1, 1996 of all
outstanding principal and unpaid interest. The note is to be satisfied upon the
sale of the collateralized property (Note 9).
<PAGE>
MRI BUSINESS PROPERTIES COMBINED FUND NO.1
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1995 AND 1994
NOTE 8 - RELATED PARTY TRANSACTIONS
The Partnership has an agreement with Holiday Inn Worldwide, Inc. to
provide for the management and operation of the Joint Venture property. Fees
paid or payable pursuant to the agreement is based on percentages of gross
revenues or gross operating profits from operations of the property. The
percentages used for these fees, per the related agreement, are 4% of Adjusted
Gross Revenues and 10% of Gross Operating Profit, as defined in the contract.
1995 1994 1993
----------- ----------- --------
Adjusted Gross
Revenues $20,508,000 $19,375,000 $17,258,000
Basic Management
Fee 820,000 775,000 690,000
Gross Operating
Profit $ 5,322,000 $ 4,705,000 $ 3,242,000
Incentive
Management Fee 532,000 471,000 324,000
Pursuant to the management agreement, incentive management fees are accrued
at year-end, if unpaid. Accrued management fees amounted to $1,578,000 and
$964,000 for the fiscal years ended 1995 and 1994, respectively.
In addition, Holiday Inn Worldwide, Inc. provides certain services
to the Partnership. Under the agreement, these services are to be provided at
cost. The services provided and the related expenses to the Partnership were,
exclusive of management fees, for the years ended September 30:
1995 1994 1993
---------- ---------- ---------
Administrative services $ 159,000 $ 149,000 $139,000
Advertising services 371,000 360,000 274,000
Reservation services 130,000 121,000 100,000
Insurance (Property,
Liability, and
Workmen's Compensation) 463,000 498,000 474,000
---------- ---------- --------
$1,123,000 $1,128,000 $987,000
========== ========== ========
<PAGE>
MRI BUSINESS PROPERTIES COMBINED FUND NO.1
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1995 AND 1994
NOTE 8 - RELATED PARTY TRANSACTIONS (CONTINUED)
In addition, Holiday Inn Worldwide, Inc. provides payroll and asset
acquisition services for the Partnership which are included in the basic
management fee. The expense incurred with Holiday Inn Worldwide, Inc. for
these services for 1995 and 1994 were $390,000 and $492,000, respectively.
NOTE 9 - SUBSEQUENT EVENT
On December 1, 1995 the Partnership sold all of its assets and the
purchaser assumed all operating liabilities in accordance with an agreement
entered into on July 7, 1995, except for $353,000 of cash, $22,000 of other
assets, and $373,000 of other liabilities. Proceeds from the sale were used to
satisfy the outstanding principal and interest on the mortgage and the remainder
is to be distributed to the partners.
<PAGE>
MRI BUSINESS PROPERTIES COMBINED FUND NO. 1
REAL ESTATE AND ACCUMULATED DEPRECIATION
SEPTEMBER 30, 1995
SCHEDULE III
<TABLE>
<CAPTION>
COLUMN COLUMN COLUMN COLUMN COLUMN COLUMN COLUMN COLUMN
A B C D E F G H
Cost Capitalized
Initial Cost Subsequent Gross Amount at Which
to Partnership to Acquisition Carried at Close of Period(1)
-------------- ---------------- -----------------------------
Provision
for Impair-
ment and Year Date
Buildings Buildings Accumulated of Con- of
and Im- Improve- Carrying and Im- Depreciation struc- acqui-
Description Encumbrances Land provements ments Costs Land provements Total(2) (3)(4) tion sition
- ----------- ------------ ---- ---------- ------- --------- ---- ---------- -------- ------------ ------ ------
(Amounts in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
JOINT VENTURE:
Holiday Inn Crowne
Plaza (5) Atlanta,
Georgia $34,000 $9,108 $47,125 $6,915 - $9,108 $54,040 $63,148 $29,914 1986 3/13/86
====== ====== ======= ====== === ====== ======= ======= =======
</TABLE>
NOTES:
(1) The aggregate cost for Federal income tax purposes is $63,426,000.
(2) Balance, October 1, 1992 $69,840,000
Improvements capitalized subsequent to acquisition 2,372,000
----------
Balance, September 30, 1993 72,212,000
Improvements capitalized subsequent to acquisition 1,437,000
Write off of fully depreciated assets (10,751,000)
----------
Balance, September 30, 1994 $62,898,000
Improvements capitalized subsequent to acquisition 446,000
Write off of fully depreciated assets (196,000)
----------
Balance, September 30, 1995 $63,148,000
==========
(3) Balance, October 1, 1992 $35,840,000
Additions charged to expense 1,594,000
----------
Balance, September 30, 1993 37,434,000
Additions charged to expense 1,614,000
Write off of fully depreciated assets (10,751,000)
----------
Balance, September 30, 1994 28,297,000
Additions charged to expense 1,813,000
Write off of fully depreciated assets (196,000)
----------
Balance, September 30, 1995 $29,914,000
==========
(4) Depreciation is computed on lives ranging from five to forty years.
(5) Formerly Hyatt Regency Ravinia Hotel.
<PAGE>
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure.
Effective April 22, 1994, Registrant dismissed its prior Independent
Auditors, Deloitte & Touche ("Deloitte") and retained as its new Independent
Auditors, Imowitz Koenig & Co., LLP. Deloitte's Independent Auditors' Report on
Registrant's financial statements for fiscal years ended September 30, 1993 and
1992 did not contain an adverse opinion or a disclaimer of opinion, and were not
qualified or modified as to uncertainty, audit scope or accounting principles.
The decision to change Independent Auditors was approved by the Managing General
Partner's Directors. During fiscal years ended 1992, 1993 and through April 22,
1994 there were no disagreements between Registrant and Deloitte on any matter
of accounting principles or practices, financial statement disclosure, or
auditing scope of procedure which disagreements if not resolved to the
satisfaction of Deloitte, would have caused it to make reference to the subject
matter of the disagreements in connection with its reports.
Effective April 22, 1994, Registrant engaged Imowitz Koenig & Co., LLP as
its Independent Auditors. During the last two fiscal years and through April 22,
1994, Registrant did not consult Imowitz Koenig & Co., LLP regarding any of the
matters or events set forth in Item 304(a)(2)(i) and (ii) of Regulation S-K.
14
<PAGE>
PART III
Item 10. Directors and Executive Officers of the Registrant.
Neither Registrant, Montgomery Realty Company-84 ("MRC"), the general
partner of Registrant, nor FRI, the general partner of MRC, has any officers or
directors. NPI Equity Investments II, Inc. ("NPI Equity II"), the Managing
General Partner of FRI, manages and controls substantially all of Registrant's
affairs and has general responsibility and ultimate authority in all matters
affecting its business. NPI Equity is a wholly owned subsidiary of National
Property Investors, Inc. ("NPI"). NPI Equity II and its affiliates also control,
or act as, the managing general partner of 28 other public limited partnerships.
All of these partnerships are engaged in the acquisition, leasing and
disposition of real estate. As of December 1, 1995, the names, ages and
positions held by executive officers and directors of NPI Equity II are as
follows:
Has served as a Director
and/or Officer of NPI
Name and Age Positions Held Equity II since
- ------------ -------------- -------------------------
Michael L. Ashner (43) President and Director 12/93
Martin Lifton (63) Chairman and Director 12/93
Arthur N. Queler (49) Secretary/Treasurer 12/93
and Director
Steven Lifton (34) Vice President and 12/93
Director (Director 10/94)
W. Edward Scheetz (30) Director 10/94
Ricardo Koenigsberger (29) Director 10/94
Lee Neibart (45) Director 10/94
Michael L. Ashner has been President and Chairman and Director of NPI and
a Director of NPI Property Management Corporation ("NPI Management") since their
formation in 1984. As the President and a Director of NPI, Mr. Ashner has been
involved with the sponsoring of approximately 35 limited partnerships. Mr.
Ashner is also the President and Director of NPI Equity Investments, Inc. ("NPI
Equity") and NPI Equity II, each a wholly owned subsidiary of NPI. NPI Equity
and NPI Equity II control, or are, the managing general partners of 31 public
partnerships. In addition, since 1981 Mr. Ashner has been President of Exeter
Capital Corporation, a firm which has organized and administered real estate
limited partnerships. Prior to forming NPI in 1984, Mr. Ashner served as a
general partner of seven real estate limited partnerships that were formed by
Exeter Capital Corporation to own and operate income producing real estate,
including apartments, commercial office space and retail space. He received his
A.B. degree cum laude from Cornell University and received a J.D. degree magna
cum laude from the University of Miami School of Law, where he was an editor of
the law review.
15
<PAGE>
Martin Lifton is the Chairman of NPI and a Director of NPI Equity, NPI
Equity II and NPI Management. In addition, Mr. Lifton is Chairman and President
of The Lifton Company, a real estate investment firm. Since entering the real
estate business over 35 years ago, Mr. Lifton has engaged in a wide range of
real estate activities, including the purchase of apartment complexes and other
properties in the New York City metropolitan area and in the southeastern United
States. Mr. Lifton's firm currently owns several apartment buildings in New York
City and Mr. Lifton is a partner in four industrial warehouse buildings in
California and an office building in Baltimore. In partnership with NPI, Mr.
Lifton has purchased interests in five apartment complexes since 1988. Mr.
Lifton was also one of the founders of The Bank of Great Neck located in Great
Neck, New York, of which he currently is Chairman. Mr. Lifton received his B.S.
degree from the New York University.
Arthur N. Queler is a co-founder of NPI of which he has been Executive
Vice President, Treasurer, Secretary and Director since 1984. Mr. Queler is
also the Vice President, Secretary, Treasurer and Director of NPI
Management, NPI Equity and NPI Equity II. In addition, since 1983, Mr.
Queler has been President of ANQ Securities, Inc., a NASD registered
broker-dealer firm which has been responsible for supervision of licensed
brokers and coordination with a nationwide broker-dealer network for the
marketing of NPI investment programs. Mr. Queler is a certified public
accountant. He received his B.A. and M.B.A. degrees from the City College of
New York.
Steven Lifton is a Vice President of NPI having been appointed to this
position in January 1991 and has been a director since 1992. In addition, he is
a Senior Vice President of The Lifton Company. with The Lifton Company he has
had extensive involvement in the budgeting, refinancing, rehabilitation and
overall operation of several thousand apartment units. Mr. Lifton has also
supervised the operation of other companies affiliated with The Lifton Company
which are engaged in the business of real estate brokerage, second mortgage
financing, land development and other real estate related activities. Mr. Lifton
received his B.B.A. degree from The George Washington University Business
School. He is a Director of The Bank of Great Neck.
W. Edward Scheetz has been a Director of NPI and NPI Equity since October
1994. Since May 1993, Mr. Scheetz has been a limited partner of Apollo Real
Estate Advisors, L.P. ("Apollo"), the managing general partner of Apollo
Real Estate Investment Fund, L.P., a private investment fund. Mr.
Scheetz has also served as a Director of Roland International, Inc., a
real estate investment company since January 1994, and as a Director of
Capital Apartment Properties, Inc., a multi-family residential real estate
investment trust, since January 1994. From 1989 to May 1993, Mr. Scheetz was a
principal of Trammel Crow Ventures, a national real estate investment firm.
Mr. Scheetz received his A.B. in Economics, Magna Cum Laude, from Princeton
University.
Ricardo Koenigsberger has been a Director of NPI and NPI Equity since
October 1994. Since October 1990, Mr. Koenigsberger has been an associate
of Apollo and of Lion Advisors, L.P., which acts as financial advisor to
and representative for certain institutional investors with respect to
securities investments. For more than one year prior thereto, Mr.
Koenigsberger was an associate with Drexel Burnham Lambert Incorporated. Mr.
Koenigsberger received his B.S. degree from The University of
Pennsylvania-Wharton School.
16
<PAGE>
Lee Neibart has been a Director of NPI and NPI Equity since October 1994.
Mr. Neibart has also been an associate of Apollo since December 1993. From
1986 to 1993, Mr. Neibart also served as Executive Vice President of the Robert
Martin Company, a private real estate development and management firm based
in Westchester County, New York, and from 1982 to 1985, Mr. Neibart served as
President of the New York Chapter of the National Association of Industrial
Office Parks, a professional real estate organization. Mr. Neibart holds a
B.A. from the University of Wisconsin and an M.B.A. from New York University.
There are no family relationships between any of the directors or the
executive officers of NPI Equity II, except that Martin Lifton is the father of
Steven Lifton. Each director and officer of NPI Equity II will hold office until
the next annual meeting of stockholders and directors of NPI Equity II and until
his successor is elected and qualified.
Messrs. Ashner, Lifton and Queler currently are the beneficial owners of 66
2/3% of the outstanding stock of NPI.
Registrant believes, based on written representations received by it, that
for the fiscal year ended September 30, 1995, all filing requirements under
Section 16(a) of the Securities Exchange Act of 1934 applicable to beneficial
owners of Registrant's Securities, Registrant's general partners and officers
and directors of such general partners, were complied with.
Item 11. Executive Compensation.
The Registrant is not required to and did not pay any compensation to the
officers or directors of NPI Equity II. NPI Equity II does not presently pay any
compensation to any of its officers or directors. (See Item 13, "Certain
Relationships and Related Transactions")
Item 12. Security Ownership of Certain Beneficial Owners and Management.
The Registrant is a limited partnership and has no officers or directors.
The managing general partner has discretionary control over most of the
decisions made by or for Registrant in accordance with the terms of the
Partnership Agreement.
The following table sets forth certain information regarding limited
partnership units of Registrant owned by each person who is known by Registrant
to own beneficially or exercise voting or dispositive control over more than 5%
of Registrant's limited partnership units, by each of NPI Equity II's directors
and by
17
<PAGE>
all directors and executive officers of NPI Equity II as a group as of December
1, 1995.
Name and address of Amount and nature of
Beneficial Owner Beneficial Owner % of Class
- ---------------- ---------------- ----------
DeForest Ventures I L.P.(1) 26,615 (2) 29.24
Michael Ashner (3) 15 (4) *
Martin Lifton (3) 15 (4) *
Arthur Queler (1) 5 (4) *
Steven Lifton (3) (4) *
Ricardo Koenigsberger (5) - -
Lee Neibart (5) - -
W. Edward Scheetz (5) - -
All directors and executive
officers as a group (eight persons) 50(4) *
- ----------------
* less than 1%
(1) Each of such persons may be reached at 5665 Northside Drive, N.W.,
Atlanta, Georgia 30328.
(2) Based upon information supplied to Registrant by DeForest Ventures I L.P.
on December 1, 1995.
(3) Each of such persons may be reached at 100 Jericho Quadrangle, Jericho, New
York 11753.
(4) Represents such persons proportionate interest in units held by QAL
Associates II and QALA Associates III, each a general partnership in
which, among others, Messrs. Ashner, Martin Lifton, Queler and Steven
Lifton are partners.
(5) Each of such persons may be reached at 1301 Avenue of the Americas, New
York, New York 10038.
There are no arrangements known to Registrant, the operation of which may,
at a subsequent date, result in a change in control of Registrant, other than as
follows:
(a) In connection with the admission of NPI Equity II as the managing
partner of FRI, PRA reserved the right to remove NPI Equity II from its position
as managing partner of FRI if certain events occur, such as an event of
bankruptcy or the failure to maintain an adequate net worth. In such event, PRA
may, but is not required to, assume the position of managing partner of FRI.
(b) In connection with the loan made by PaineWebber Real Estate
Securities, Inc., formerly known as Kidder Peabody Mortgage Capital Corporation
("PaineWebber"), to DeForest Ventures I L.P. ("DeForest I") and DeForest
Ventures II L.P., ("DeForest II") in connection with the consummation of the
tender offers made for units in Registrant and 18 affiliated limited
partnerships, NPI pledged, as collateral for the loan, all of the issued and
outstanding capital stock of NPI Equity II. Accordingly, if DeForest I or
DeForest II were unable to satisfy its obligations under the loan and
PaineWebber were to foreclose on its collateral, PaineWebber would become the
sole shareholder of NPI Equity II.
(c) See Item 1, "Business - Material Events\Change in Control" for
information relating to the sale by the stockholders of NPI of all of the issued
and outstanding shares of stock of NPI to an affiliate of Insignia.
18
<PAGE>
Item 13. Certain Relationships and Related Transactions.
The Partnership Agreement provides that MRC will be reimbursed for actual
expenses incurred in providing services required by Registrant. From March 1988
to December 1992 such amounts were assigned pursuant to a services agreement by
the MRC and affiliates to Metric Realty Services, L.P., which performed
partnership management and other services for Registrant. On January 1, 1993,
Metric Management, Inc., a company which is not affiliated with the general
partner, commenced providing certain property and portfolio management services
to Registrant under a new services agreement. As provided in the new services
agreement, effective January 1, 1993, no reimbursements were made to the general
partner and affiliates after December 31, 1992. Subsequent to December 31, 1992,
reimbursements were made to Metric Management, Inc. On December 16, 1993, the
services agreement with Metric Management, Inc. was modified and, as a result
thereof, the Managing General Partner assumed responsibility for cash management
of Registrant as of December 23, 1993 and for day to day management of
Registrant's affairs, including portfolio management, accounting, and investor
relations services as of April 1, 1994. Related party expenses for the years
ended September 30, 1995, 1994 and 1993 were as follows:
1995 1994 1993
---------- ---------- -------
Reimbursement of expenses:
Partnership accounting and
investor services $102,000 $ 76,000 $ 39,000
Professional services - 11,000 7,000
-------- -------- --------
Total $102,000 $ 87,000 $ 46,000
======== ======== ========
In accordance with the Partnership Agreement, the general partner is
entitled to receive cash distributions from operations as follows: (1) a
Partnership management incentive equal to an allocation of ten percent
determined on a cumulative, noncompounded basis, of cash available for
distribution (as defined in the Partnership Agreement) which is distributed to
partners, and (2) a continuing interest representing two percent of cash
available for distribution distributed to partners remaining after the
allocation of the Partnership management incentive. Subsequent to December 31,
1986, the Partnership management incentive is subordinated to certain cash
distributions to the unit holders.
The general partner is also entitled to its continuing interest of two
percent of net income and net loss, taxable income and taxable loss and
distribution of cash available for distribution provided, however, that 20% of
realized gains from the sale or other disposition of properties is allocated to
the general partners until such time as the general partners do not have deficit
capital accounts. Upon termination of the Partnership the general partners may
be required to contribute up to approximately $1,250,000 to the Partnership in
accordance with the partnership agreement.
On July 26, 1995 the general partner received a distribution of $660,000,
representing the general partners two percent interest in cash available for
distribution which was primarily from the proceeds received on the sale of the
Partnership's Marriott Riverwalk Hotel property. There were no cash
distributions to the general partner for the years ended September 30, 1994 and
1993.
19
<PAGE>
In October 1995 the general partner received a distribution of $57,000,
representing the general partners two percent in cash available for distribution
which was primarily received from the proceeds received on the sale of the
Partnership's Somerset Marriott Hotel property.
Apart from the reimbursements paid to the general partner and affiliates
as set forth above, the Partnership has an agreement with an affiliate of a
joint venture partner, an otherwise non-affiliated third party, which provides
for the management and operation of the joint venture property. Management fees
paid to the affiliate of such joint venture partner for the years ended
September 30, 1995, 1994 and 1993 were $897,000, $805,000 and $762,000,
respectively. In addition, $1,451,000, $1,219,000 and $2,208,000 were paid to an
affiliate of the joint venture partner for franchise services and reimbursed
expenses during the year ended September 30, 1995, 1994 and 1993, respectively.
See Item 1. "Business-Employees/Management" for information relating
to the acquisition by NPI Equity II of management and control of Registrant.
20
<PAGE>
PART IV
Item 14. Exhibits, Financial Statements Schedules, and Reports on Form 8-K.
(a)(1)(2) Financial Statements and Financial Statement Schedules:
See Item 8 of this Form 10-K for Consolidated Financial Statements
of Registrant, Notes thereto, and Financial Statement Schedules. (A
table of contents to Consolidated Financial Statements and Financial
Statement Schedules is included in Item 8 and incorporated herein by
reference.)
(a) (3) Exhibits:
2. NPI, Inc. Stock Purchase Agreement dated as of August 17, 1995
incorporated by reference to Exhibit 2 to Registrant's Current
Report on Form 8-K dated August 17, 1995.
3,4. Partnership Agreement incorporated by reference to
Registrant's Prospectus filed pursuant to Rule 424 (b) of the
Securities Act of 1933.
16. Letter dated April 27, 1994 from Registrant's Former
Independent Auditors incorporated by reference to Registrant's
Current Report on Form 8-K dated April 22, 1994.
(b) Reports on Form 8-K:
No reports on Form 8-K were filed by Registrant during the last
quarter of Registrant's fiscal year except a report dated August 17,
1995 relating to the sale of all of the issued and outstanding shares
of stock of National Property Investors, Inc. (Item 1, Change in
Control).
21
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, Registrant has duly caused this Report to be signed on its
behalf by the undersigned, thereunto duly authorized on the 27th day of
December, 1995.
MRI BUSINESS PROPERTIES FUND, LTD. II
By: Montgomery Realty Company-84,
its Managing General Partner
By: Fox Realty Investors,
its Managing General Partner
By: NPI Equity Investments II, Inc.,
its Managing Partner
By: /s/ Michael L. Ashner
Michael L. Ashner
President
Pursuant to the requirements of the Securities Exchange Act of 1934, this
Report has been signed below by the following persons on behalf of Registrant in
their capacities as directors and/or officers of NPI Equity Investments II,
Inc., on the dates indicated below.
Signature/Name Title Date
/s/Michael L. Ashner
Michael L. Ashner President and Director
(Principal Executive
Officer) December 27, 1995
/s/Martin Lifton
Martin Lifton Chairman and Director December 27, 1995
/s/Arthur N. Queler
Arthur N. Queler Secretary/ Treasurer and
Director (Principal
Financial Officer) December 27, 1995
/s/Steven J. Lifton
Steven J. Lifton Vice President and Director December 27, 1995
22
<PAGE>
Exhibit Index
Exhibit Page
2. NPI, Inc. Stock Purchase Agreement dated as of (a)
August 17, 1995
3,4. Partnership Agreement (b)
16. Letter dated April 27, 1994 from Registrant's (c)
Former Independent Auditors
- -----------------------
(a) Incorporated by reference to Exhibit 2 to Registrant's Current Report on
Form 8-K dated August 17, 1995.
(b) Incorporated by referenced to Registrant's Prospectus filed pursuant to
Rule 424 (b) of the Securities Act of 1933.
(c) Incorporated by reference to Registrant's Current Report on Form 8-K
dated April 22, 1994.
23
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
The schedule contains summary financial information extracted from MRI Business
Properties Fund, Ltd.II and is qualified in its entirety by reference to such
financial statements.
</LEGEND>
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> SEP-30-1995
<PERIOD-START> OCT-01-1994
<PERIOD-END> SEP-30-1995
<CASH> 4,813,000
<SECURITIES> 0
<RECEIVABLES> 2,712,000 <F1>
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 92,497,000
<DEPRECIATION> 48,762,000 <F2>
<TOTAL-ASSETS> 51,430,000
<CURRENT-LIABILITIES> 0
<BONDS> 36,610,000
0
0
<COMMON> 0
<OTHER-SE> 8,803,000
<TOTAL-LIABILITY-AND-EQUITY> 51,430,000
<SALES> 0
<TOTAL-REVENUES> 73,563,000 <F3>
<CGS> 0
<TOTAL-COSTS> 47,509,000
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 5,789,000
<INCOME-PRETAX> 20,041,000
<INCOME-TAX> 0
<INCOME-CONTINUING> 20,041,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 20,041,000
<EPS-PRIMARY> 181.19
<EPS-DILUTED> 181.19
<FN>
<F1> Receivables include $728,000 of other assets
<F2> Depreciation includes $10,948,000 of allowance for impairment of value
<F3> Revenues include $18,749,000 of gain on sale of property
</TABLE>
