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IMPORTANT
REQUIRES IMMEDIATE ATTENTION
April 14, 1998
RE: SALE OF PINK SHELL BEACH RESORT
Dear Limited Partner:
We recently sent to you a "Consent Statement and a Limited Partner
Consent Form" summarizing the proposed sale of the Pink Shell Beach
Resort with our recommendation that you approve the proposed sale
checking the box labeled "approve sale" on the Limited Partner Consent
Form and returning it before April 27, 1998. If you have not yet
returned your form please do so as soon as possible. The Partnerships
Amended and Restated Agreement of Limited Partnership requires approval
of Limited Partners holding more than 50% of the units of Limited
Partnership in order to move forward with this transaction.
We have received several questions from Limited Partners over the last
few days as a result of this mailing. Assuming you may have similar
questions, we are providing the following information in a question and
answer format to supplement the information provided in the Consent
Statement, and in order to assist you.
1.) Question
How much will I receive as a result of proceeds from the sale and
close-out of the Partnership?
Answer -
As the Consent Statement shows on page 10, in addition to the
quarterly distributions you have already received over nine years,
you will receive approximately $979.25 per $1,000 you invested
from the sale shortly after closing, which is planned for about
May 15.
A final distribution, after all remaining business of the
Partnership is completed, which we currently estimated at
approximately $19.00 per $1,000 invested will be paid by year end
1998 - assuming there are no on-going claims against the
Partnership.
Thus, the combined amount distributed from both the sale and the
close-out of the Partnership will be approximately $999.
2.) Question -
Will there be a distribution for the first or second quarters of
1998?
Answer -
No, the above estimated amounts include all remaining funds
available. Funds produced from operations in 1998 are being used
to settle obligations of the partnership.
3.) Question -
What will my overall return be over the full life of this
investment, after the Partnership is closed-out?
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Answer -
The Partnership paid quarterly distributions over its full life to
date, of about nine years, totaling about $6.6 million or $438 per
$1,000 of investment. This is an average return of approximately
4.9% per year. Since these cash distributions were partially
"sheltered" from taxation, due primarily to depreciation, you may
also have received the benefits of deferred taxation on this
income depending on your own individual tax situation. (This
depreciation is subject to recapture at sale).
In addition to the above quarterly distributions you have already
received over the life of the Partnership, we estimate you will
also receive a return of approximately the same amount you
invested in the Partnership of $999 per $1,000 unit as mentioned
above. Thus, the total returned to investors per $1,000 of
investment will be approximately $1,436.
Distributions paid to date $ 438
Estimated distribution
from sale of Pink Shell
received in June 1998 979
Estimated final distribution
at close-out 19
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Estimated total
per $1,000 investment $ 1,436
4.) Question -
What fees or other amounts, if any, are being paid to the General
Partners from the sale?
Answer -
Nothing, the General Partners will receive no fees or other
proceeds from the sale. The Partnership Agreement provides that
the General Partners may not receive any proceeds or brokerage
commission on property sales until the Limited Partners receive
the full amount of the preference return of 10% per year, plus a
full return of their original invested capital.
5.) Question -
If the Property was originally acquired for $10.0 million and sold
for $21.25 million, why isn't the Partnership returning a profit
from the sale of the Property to the Limited Partners?
Answer -
If approved, there will be a profit on the sale of the Pink Shell.
However this amount is offset by the loss on the shopping center
and the original costs of organizing the Partnership. While the
original purchase price for the Property was $10.0 million, that
was not the only investment made in the Property. Over the years
the Partnership made the following additional investments in the
Property:
/bullet/ Project renovations in 1989 and 1994;
/bullet/ Annual capital improvements to maintain the
property;
/bullet/ Construction of the new 60 unit Sanibel View
building in 1990; and
/bullet/ Purchase of two Bayside Cottages.
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The net total of these investments brings the Partnerships
current total investment in the Property to about $16.3 million
(pre-depreciation) after adding back about $2.3 million in
proceeds from the sale of condominiums in 1994 as well as $1.3
million in principal reductions to the debt balance made from
operations.
Thus, the actual cash gain on the sale (not the same as taxable
gain due to depreciation) is approximately $3.2 million which is
the difference between $19.5 million (the amount achieved from the
sale of $14.4 million plus the payment of $5.1 million to pay off
debt, both amounts shown on Page 10 of Consent Statement) and the
$16.3 million net investment.
This gain is offset by the loss of about $1.8 million in equity
due to the foreclosure on the Walsingham Commons Shopping Center
with the remaining balance of the gain offset primarily by the
original syndication costs of the Partnership of about $1.6
million, leaving the Partnership in about a "break even"
position.
6.) Question -
What happens if the Limited Partners do not approve the sale?
Answer -
The Property will continue to be owned by the Partnership. The
Managing General Partner is recommending approval of a sale now
for the reasons which are contained in the Consent Statement and
as follows:
/bullet/ The original targeted holding period for the
property was 5-7 years. The Partnership has now
owned the property for over nine years.
/bullet/ The Property was aggressively marketed both nationally
and internationally for several months by an
independent, third party, international brokerage
firm.
/bullet/ Several offers were received and the contract on the
Property represents the highest price offered for the
Property by a buyer - who provided credible
evidence of their capability of closing.
/bullet/ The Property will require significant additional
capital investment in the near future to remain
competitive and retain its franchise if it is not
sold. The capital to make these improvements would
only be available from withholding future
distributions from the Limited Partners or borrowing
against the Property which would also reduce the
distributions due to the need to service more debt.
/bullet/ The current market for hospitality properties is
judged to be very good by the Managing General
Partner and we believe the "market risk" that the
price currently offered may not be achieved at a
later date supports a sale of the Property now.
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SUMMARY
We recognize that the overall result for the Partnership is not what we
had all hoped for. We ask you however, to recognize that the loss of
the shopping center is a significant factor in why the Partnership did
not perform as planned. The severely depressed real estate market
during the late 1980's and early 1990's was an important factor in the
loss of the shopping center. The Managing General Partner believes it
is necessary to focus attention on the current proposal as opposed to
the overall results of the Partnership in order to make an appropriate
decision regarding that proposal. That proposal raises the question of
whether or not the price being paid for the property represents the
market price for the Property and whether or not we should accept that
offer now, versus continue to hold the property.
We feel the sale is in the best interests of the Limited Partners. We
recommend that you approve the sale for the reasons noted above and
return your Limited Partner Consent Form marked "Approve Sale" prior to
April 27, 1998.
We hope this information is helpful. However, please refer to the
Consent Statement and/or call Terry Zagaria at (914) 481-5600 ext 413
should you have any further questions.
Sincerely,
/s/ALLEN G. TEN BROEK
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Allen G. Ten Broek
President
Mariner Capital Management, Inc.
Managing General Partner
