<PAGE> 1
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
SCHEDULE 14D-1
TENDER OFFER STATEMENT PURSUANT TO SECTION 14(D)(1)
OF THE SECURITIES EXCHANGE ACT OF 1934
AMERICAN RETIREMENT VILLAS PROPERTIES II
(NAME OF SUBJECT COMPANY)
ARV ASSISTED LIVING, INC.
(BIDDER)
LIMITED PARTNERSHIP UNITS
(TITLE OF CLASS OF SECURITIES)
-----------
(CUSIP NUMBER OF CLASS OF SECURITIES)
SHEILA M. MULDOON
VICE PRESIDENT AND GENERAL COUNSEL
ARV ASSISTED LIVING, INC.
245 FISCHER AVENUE, D-1
COSTA MESA, CA 92626
(714) 751-7400
(NAME, ADDRESS AND TELEPHONE NUMBER OF PERSON AUTHORIZED
TO RECEIVE NOTICES AND COMMUNICATIONS ON BEHALF OF BIDDER)
COPIES TO:
WILLIAM J. CERNIUS
LATHAM & WATKINS
650 TOWN CENTER DRIVE, SUITE 2000
COSTA MESA, CALIFORNIA 92626
(714) 540-1235
CALCULATION OF FILING FEE
<TABLE>
<CAPTION>
======================================================================================================
TRANSACTION VALUATION* AMOUNT OF FILING FEE
<C> <C>
$25,117,590.24............................................................................. $8,662.00
======================================================================================================
</TABLE>
* For purposes of calculating amount of filing fee only. This amount
assumes the purchase of 34,855.542 Units (the "Units"), at a price per
Unit of $720 in cash. Pursuant to, and as provided by, Rule 0-11(d), the
amount being paid with the filing of this Schedule 14D-1 is $5,024.00.
Check box if any part of the fee is offset as provided by Rule
0-11(a)(2) and identify the filing with which the offsetting fee was
previously paid. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
Amount Previously Paid: None Filing Party: N/A
Form or Registration No.: N/A Date Filed: N/A
===============================================================================
<PAGE> 2
14D-1
<TABLE>
CUSIP No.
- -----------------------------------------------------------------------------------------
<S> <C> <C>
1 NAME OF REPORTING PERSON AND S.S. OR
I.R.S. IDENTIFICATION NO. OF ABOVE PERSON
ARV ASSISTED LIVING, INC. (33-0160968)
- -----------------------------------------------------------------------------------------
2 CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP (a) / /
(b) / /
- -----------------------------------------------------------------------------------------
3 SEC USE ONLY
- -----------------------------------------------------------------------------------------
4 SOURCES OF FUNDS
WC
- -----------------------------------------------------------------------------------------
5 CHECK IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT
TO ITEMS 2(e) OR 2(f) / /
- -----------------------------------------------------------------------------------------
6 CITIZENSHIP OR PLACE OF ORGANIZATION
CALIFORNIA
- -----------------------------------------------------------------------------------------
7 AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING
PERSON
APPROXIMATELY 109.5 UNITS
- -----------------------------------------------------------------------------------------
8 CHECK IF THE AGGREGATE AMOUNT IN ROW (7) EXCLUDES CERTAIN
UNITS / /
- -----------------------------------------------------------------------------------------
9 PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (7)
.3%
- -----------------------------------------------------------------------------------------
10 TYPE OF REPORTING PERSON CO
- -----------------------------------------------------------------------------------------
</TABLE>
2
<PAGE> 3
ITEM 1. SECURITY AND SUBJECT COMPANY.
(a) The information set forth on the cover page and in "THE OFFER" --
Section 8 ("Certain Information Concerning the Partnership") of the Offer to
Purchase is incorporated herein by reference.
(b) The information set forth on the cover page and in the INTRODUCTION
of the Offer to Purchase is incorporated herein by reference.
(c) The information set forth in "THE OFFER" -- Section 6 ("Market
Prices of the Units") of the Offer to Purchase is incorporated herein by
reference.
ITEM 2. IDENTITY AND BACKGROUND.
(a)-(d), (g) This Statement is being filed by ARV Assisted
Living, Inc. (the "Purchaser"). The information set forth on the cover page and
in the INTRODUCTION, "THE OFFER" -- Section 9 ("Certain Information Concerning
the Company") and Schedule I of the Offer to Purchase is incorporated herein by
reference.
(e)-(f) Neither the Company nor, to the best of its knowledge,
any of the persons listed in Schedule I of the Offer to Purchase has during the
last five years (i) been convicted in a criminal proceeding (excluding traffic
violations or similar misdemeanors), or (ii) been a party to a civil proceeding
of a judicial or administrative body of competent jurisdiction and as a result
of such proceeding was or is subject to a judgment, decree or final order
enjoining future violations of, or prohibiting activities subject to, federal or
state securities laws or finding any violation of such laws.
ITEM 3. PAST CONTACTS, TRANSACTIONS OR NEGOTIATIONS WITH THE SUBJECT
COMPANY.
(a)-(b) The information set forth in the INTRODUCTION, "SPECIAL FACTORS
- -- Background of the Offer," "SPECIAL FACTORS -- Interests of Certain Persons"
and "THE OFFER" -- Section 9 ("Certain Information Concerning the Company") of
the Offer to Purchase is incorporated herein by reference.
ITEM 4. SOURCE AND AMOUNT OF FUNDS OR OTHER CONSIDERATION.
(a) The information set forth on the cover page and in the INTRODUCTION,
"SPECIAL FACTORS -- Source and Amount of Funds" and "THE OFFER" -- Section 15
("Fees and Expenses") of the Offer to Purchase is incorporated herein by
reference.
(b) Not applicable.
(c) Not applicable.
ITEM 5. PURPOSE OF THE TENDER OFFER AND PLANS OR PROPOSALS OF THE BIDDER.
(a)-(g) The information set forth in the INTRODUCTION, "SPECIAL FACTORS
- -- Purpose and Structure of the Offer," "SPECIAL FACTORS -- Plans for the
Partnership after the Offer," "SPECIAL FACTORS -- Interests of Certain Persons,"
"THE OFFER" -- Section 7 ("Effects of the Offer on Non- Tendering Unitholders")
and "THE OFFER" -- Section 9 ("Certain Information Concerning the Company") of
the Offer to Purchase is incorporated herein by reference.
3
<PAGE> 4
ITEM 6. INTEREST IN SECURITIES OF THE SUBJECT COMPANY.
(a)-(b) The information concerning the ownership and transactions in the
Units set forth on the cover page and in the INTRODUCTION, "SPECIAL FACTORS --
Interests of Certain Persons" and "THE OFFER" -- Section 9 ("Certain Information
Concerning the Company") of the Offer to Purchase is incorporated herein by
reference.
ITEM 7. CONTRACTS, ARRANGEMENTS, UNDERSTANDINGS OR RELATIONSHIPS WITH
RESPECT TO THE SUBJECT COMPANY'S SECURITIES.
Not applicable.
ITEM 8. PERSONS RETAINED, EMPLOYED OR TO BE COMPENSATED.
The information set forth in the INTRODUCTION, "SPECIAL FACTORS --
Background of the Offer" and "THE OFFER" -- Section 15 ("Fees and Expenses") of
the Offer to Purchase is incorporated herein by reference.
ITEM 9. FINANCIAL STATEMENTS OF CERTAIN BIDDERS.
Not applicable. Certain information with respect to the ability of the
Purchaser to finance the Offer is set forth in "SPECIAL FACTORS -- Source and
Amount of Funds" of the Offer to Purchase and is incorporated herein by
reference. The incorporation by reference herein of the above referenced
information does not constitute an admission that such information is material
to a decision by a Unitholder of the Partnership as to whether to sell, tender
or hold Units being bought in the Offer.
ITEM 10. ADDITIONAL INFORMATION.
(a) None.
(b)-(d) The information set forth in "THE OFFER" -- Section 11 ("Certain
Legal Matters and Regulatory Approvals") of the Offer to Purchase is
incorporated herein by reference.
(e) None.
(f) The information set forth in the Offer to Purchase, the Letter of
Transmittal and the Press Release of May 16, 1996, copies of which are attached
hereto as Exhibits (a)(1), (a)(2) and (a)(6), respectively, is incorporated
herein by reference.
ITEM 11. MATERIAL TO BE FILED AS EXHIBITS.
99.1 Offer to Purchase dated May 16, 1996.
99.2 Letter of Transmittal.
99.3 Form of Letter to Unitholders.
99.4 Letter from the Company to Brokers, Dealers, Banks, Trust
Companies and Other Nominees.
99.5 Letter to Clients for use by Brokers, Dealers, Banks, Trust
Companies and Other Nominees.
99.6 Text of Press Release dated May 16, 1996.
4
<PAGE> 5
Signature
After due inquiry and to the best of my knowledge and belief, I
certify that the information set forth in this statement is true, complete and
correct.
Dated: May 16, 1996
ARV ASSISTED LIVING, INC.
BY /s/ GARY L. DAVIDSON
---------------------------------
NAME: GARY L. DAVIDSON
TITLE: CHAIRMAN OF THE BOARD
5
<PAGE> 6
EXHIBIT INDEX
<TABLE>
<CAPTION>
Sequentially
Exhibit Numbered
Number Description Page
- ------ ----------- ----
<S> <C> <C>
99.1 Offer to Purchase dated May 16, 1996.
99.2 Letter of Transmittal.
99.3 Form of Letter to Unitholders.
99.4 Letter from the Company to Brokers, Dealers, Banks, Trust Companies and
Other Nominees.
99.5 Letter to Clients for use by Brokers, Dealers, Banks, Trust Companies
and Other Nominees.
99.6 Text of Press Release dated May 16, 1996.
</TABLE>
<PAGE> 1
Exhibit 99.1
Offer to Purchase for Cash
All of the Limited Partnership Units
of
AMERICAN RETIREMENT VILLAS PROPERTIES II
at
$720 Net Per Unit
by
ARV ASSISTED LIVING, INC.
================================================================================
THE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 10:00 P.M., DALLAS, TEXAS TIME,
ON FRIDAY, JUNE 14, 1996, UNLESS EXTENDED.
================================================================================
------------------------
ARV ASSISTED LIVING, INC., A CALIFORNIA CORPORATION (THE "COMPANY"), IS OFFERING
TO PURCHASE ALL OF THE LIMITED PARTNERSHIP UNITS (THE "UNITS") IN AMERICAN
RETIREMENT VILLAS PROPERTIES II, A CALIFORNIA LIMITED PARTNERSHIP (THE
"PARTNERSHIP"), AT A NET CASH PRICE PER UNIT OF $720 (THE "OFFER PRICE"). THE
OFFER IS NOT CONDITIONED UPON A MINIMUM NUMBER OF UNITS BEING VALIDLY TENDERED,
BUT IT IS SUBJECT TO CERTAIN TERMS AND CONDITIONS DESCRIBED IN THIS OFFER TO
PURCHASE. See "The Offer" -- Section 12.
------------------------
THE GENERAL PARTNERS OF THE PARTNERSHIP ARE GARY L. DAVIDSON, THE CHAIRMAN OF
THE BOARD OF THE COMPANY, JOHN A. BOOTY, THE PRESIDENT OF THE COMPANY, JOHN S.
JASON, A SHAREHOLDER OF THE COMPANY, TONY ROTA, A SHAREHOLDER OF THE COMPANY,
AND THE COMPANY (THE "GENERAL PARTNERS"). THE COMPANY IS THE MANAGING PARTNER OF
THE PARTNERSHIP. THE GENERAL PARTNERS BELIEVE THE OFFER PRICE IS FAIR AND IN THE
BEST INTERESTS OF UNITHOLDERS. THE GENERAL PARTNERS HAVE CONFLICTS OF INTEREST
IN THIS TRANSACTION. See "Special Factors -- Unitholder Considerations."
The Offer involves certain risk factors and detriments that
should be considered by Unitholders, including the following:
- - The Offer Price has been established by the Company, which has
substantial conflicts of interest. The General Partners have not
retained an unaffiliated person to represent the Unitholders. See
"Special Factors -- Unitholder Considerations."
<PAGE> 2
- - Based on overall increases in net operating income, the General
Partners believe that the Partnership's properties have increased in
value over the last several years and, although there can be no
assurance, may continue to appreciate in value. See "Special Factors --
Unitholder Considerations."
- - As alternatives to tendering their Units, holders of Units could retain
their Units until liquidation of the Partnership or seek a private sale
of their Units now or later. See "Special Factors -- Unitholder
Considerations."
------------------------
THIS TRANSACTION HAS NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION (THE "COMMISSION") NOR HAS THE COMMISSION PASSED UPON THE
FAIRNESS OR MERITS OF SUCH TRANSACTION NOR UPON THE ACCURACY OR ADEQUACY OF THE
INFORMATION CONTAINED IN THIS DOCUMENT. ANY REPRESENTATION TO THE CONTRARY IS
UNLAWFUL.
------------------------
May 16, 1996
<PAGE> 3
IMPORTANT
Any Unitholder desiring to tender all or any portion of his or her
Units should either (1) complete and sign the Letter of Transmittal or a
facsimile copy thereof in accordance with the instructions in the Letter of
Transmittal and mail or deliver it with any other required documents to the
Depositary or (2) request his or her broker, dealer, commercial bank, trust
company or other nominee to effect the transaction for him or her. Unitholders
having Units registered in the name of a broker, dealer, commercial bank, trust
company or other nominee must contact such broker, dealer, commercial bank,
trust company or other nominee if they desire to tender such Units.
Questions and requests for assistance may be directed to the
Information Agent at its address and telephone number set forth on the back
cover of this Offer to Purchase. Requests for additional copies of this Offer to
Purchase and the Letter of Transmittal may be directed to the Information Agent.
A Unitholder may also contact brokers, dealers, commercial banks and trust
companies for assistance concerning the Offer.
------------------------
The Company and the Partnership are subject to the informational
requirements of the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), and in accordance therewith file reports and other information with the
Commission. Reports and other information filed by the Company and the
Partnership may be inspected and copied at the public reference facilities
maintained by the Commission at Room 1024, 450 Fifth Street N.W., Washington,
D.C. 20549, as well as at the Regional Offices of the Commission at the New York
Regional Office, 7 World Trade Center, 12th Floor, New York, New York 10007, and
the Chicago Regional Office, Northwestern Atrium Center, 500 West Madison
Street, Suite 1400, Chicago, Illinois 60661- 2511. Copies of such information
can also be obtained by mail from the Public Reference Section of the Commission
at 450 Fifth Street N.W., Washington, D.C. 20549 at prescribed rates. Such
information for the Company can also be inspected at The Nasdaq Stock Market,
Reports Section, 1735 K Street N.W., Washington, D.C. 20006. The Company's
Commission File Number is 0-26980 and the Partnership's Commission File Number
is 0-26468.
The Company has filed with the Commission a Transaction Statement on
Schedule 13E-3 (the "Schedule 13E-3") pursuant to Rule 13e-3 under the Exchange
Act and a Tender Offer Statement on Schedule 14D-1 (the "Schedule 14D-1")
pursuant to Rule 14d-3 under the Exchange Act furnishing certain information
with respect to the Offer. Pursuant to Rules 14d-9 and 14e-2 under the Exchange
Act, the Partnership has filed with the Commission a statement on Schedule 14D-9
(the "Schedule 14D-9") furnishing certain information with respect to its
position concerning the Offer. Such Schedules and any amendments thereto should
be available for inspection and copying as set forth above (except that such
Schedules and any amendments thereto will not be available at the regional
offices of the Commission).
<PAGE> 4
<TABLE>
<CAPTION>
TABLE OF CONTENTS
[Needs to be renumbered]
Page
----
<S> <C>
INTRODUCTION.................................................................................................... 1
The Offer.............................................................................................. 1
SPECIAL FACTORS................................................................................................. 2
Unitholder Considerations.............................................................................. 2
Conflicts of Interest......................................................................... 2
No Arms' Length Negotiation................................................................... 2
Possible Increase in Value.................................................................... 3
Alternatives to Tendering Units............................................................... 3
Background of the Offer................................................................................ 3
The Partnership............................................................................... 3
The Company as Managing Partner............................................................... 3
Exit Strategies/Proposed Sale of the Fee Properties........................................... 4
Fairness of the Offer; Position of the General Partners................................................ 7
Appraisals............................................................................................. 8
Real Estate Appraisals........................................................................ 8
Summary of Methodology........................................................................ 9
Conclusions as to Value....................................................................... 12
Assumptions, Limitations, and Qualification of the Appraisals................................. 12
Compensation and Material Relationships....................................................... 12
Purpose and Structure of the Offer..................................................................... 12
Plans for the Partnership After the Offer.............................................................. 13
Interests of Certain Persons........................................................................... 13
Affiliation with the Company.................................................................. 13
Management Fees and Expense Reimbursement..................................................... 13
Interest of General Partners in the Partnership................................................13
Ownership of Units by the General Partners.................................................... 14
Source and Amount of Funds............................................................................. 14
Certain Federal Income Tax Consequences................................................................ 14
Tax Consequences to Tendering Unitholders..................................................... 15
Tax Consequences to Non-Tendering and Partially-Tendering Unitholders......................... 16
THE OFFER....................................................................................................... 18
1. Terms of the Offer............................................................................ 18
2. Acceptance for Payment and Payment of Purchase Price.......................................... 18
3. Procedure for Accepting the Offer and Tendering Units......................................... 19
Valid Tender.................................................................................. 19
4. Determination of Validity; Rejection of Units; Waiver of Defects.............................. 20
5. Withdrawal Rights............................................................................. 21
6. Market Prices of the Units.................................................................... 21
7. Effects of the Offer on Non-Tendering Unitholders............................................. 25
Effect on Trading Market...................................................................... 25
</TABLE>
i
<PAGE> 5
<TABLE>
<S> <C>
Partnership Status............................................................................ 25
Partnership Business.......................................................................... 25
Registration of the Units......................................................................25
8. Certain Information Concerning the Partnership................................................ 25
Certain Financial Information................................................................. 26
9. Certain Information Concerning The Company.................................................... 27
10. Certain Legal Matters and Regulatory Approvals................................................ 28
State Takeover Laws........................................................................... 29
Antitrust..................................................................................... 29
Margin Requirements........................................................................... 30
11. Extension of the Offer Period; Termination and Amendment...................................... 30
12. Certain Conditions of the Offer............................................................... 31
13. Dissenters' Rights and Investors Lists........................................................ 32
14. Distributions................................................................................. 33
15. Fees and Expenses............................................................................. 34
16. Miscellaneous................................................................................. 35
Schedule I -- Directors and Executive Officers of ARV Assisted Living, Inc.
Schedule II -- Summaries of American Senior Living Valuation Services, Inc.
Appraisals
Schedule III -- Financial Statements of American Retirement Villas Properties II
Schedule IV -- Management's Discussion and Analysis of Financial Condition and Results
of Operations of American Retirement Villas Properties II
</TABLE>
ii
<PAGE> 6
INTRODUCTION
To the Holders of Units of
American Retirement Villas Properties II:
THE OFFER
The Company hereby offers to purchase all of the outstanding Units of
the Partnership, at a price of $720 per Unit, net to the seller in cash and
without interest, upon the terms and subject to the conditions set forth in this
Offer to Purchase and in the related Letter of Transmittal. The Offer to
Purchase and such Letter of Transmittal are hereinafter collectively referred to
as the "Offer." Tendering Unitholders will not be obligated to pay brokerage
fees or commissions or, except as provided in Instruction 4 of the Letter of
Transmittal, any transfer taxes with respect to purchases of Units pursuant to
the Offer. The Company will pay all charges and expenses of The Herman Group,
Inc., as the Depositary and the Information Agent, incurred in connection with
the Offer. See "The Offer" -- Section 15.
THE OFFER IS NOT CONDITIONED UPON A MINIMUM NUMBER OF UNITS BEING
VALIDLY TENDERED. THE OFFER IS SUBJECT TO CERTAIN TERMS AND CONDITIONS DESCRIBED
IN THIS OFFER TO PURCHASE. See "The Offer" -- Section 12. THE COMPANY EXPRESSLY
RESERVES THE RIGHT, IN ITS SOLE DISCRETION AND FOR ANY REASON, TO WAIVE ANY AND
ALL OF THE CONDITIONS OF THE OFFER.
THE GENERAL PARTNERS OF THE PARTNERSHIP ARE GARY L. DAVIDSON, THE
CHAIRMAN OF THE BOARD OF THE COMPANY, JOHN A. BOOTY, THE PRESIDENT OF THE
COMPANY, JOHN S. JASON, A SHAREHOLDER OF THE COMPANY, TONY ROTA, A SHAREHOLDER
OF THE COMPANY, AND THE COMPANY (THE "GENERAL PARTNERS"). THE COMPANY IS THE
MANAGING PARTNER OF THE PARTNERSHIP. THE GENERAL PARTNERS BELIEVE THE OFFER
PRICE IS FAIR AND IN THE BEST INTERESTS OF UNITHOLDERS. THE GENERAL PARTNERS
HAVE CONFLICTS OF INTEREST IN THIS TRANSACTION. See "Special Factors --
Unitholder Considerations." THEREFORE, THE GENERAL PARTNERS MAKE NO
RECOMMENDATION TO ANY UNITHOLDER WHETHER OR NOT TO PARTICIPATE IN THE OFFER.
The purpose of the Offer is to provide the Company with the opportunity
to increase its investment in assisted living facilities. The Offer allows
Unitholders an opportunity to liquidate their investment and obtain a return of
cash in the time frame anticipated (five to seven years) when the Units were
initially issued. Each Unitholder has the opportunity to make an individual
decision on whether or not to tender his or her Units in the Offer. The Offer is
not expected to have a material effect on the Partnership's financial condition
or results of operations.
1
<PAGE> 7
If the Company acquires 90% or more of the Units pursuant to the Offer,
it plans to promptly thereafter merge the Partnership into the Company or a
subsidiary of the Company. If the Company acquires less than 90% of the Units,
it may seek to acquire for its own account the remaining Units or the assets of
the Partnership in a subsequent transaction or it may seek to have the
Partnership sell certain or all of its assets to an unaffiliated third party, in
which case the Company may lease back such assets from such purchaser. Although,
as described below, the Company, in its role as Managing Partner, has engaged in
discussions (and in one case, entered into an arrangement) regarding the sale of
certain of the Partnership's properties, the Company does not intend to pursue
any further discussions until after the Offer has been completed. There can be
no assurance, however, that the Company will initiate or complete, or will cause
the Partnership to initiate or complete, any subsequent transaction during any
specific time period following the expiration of the tender period or at all.
As of April 30, 1996, there were 3,501 Unitholders of record owning
34,995 Units. The Company owns approximately 109 Units in the Partnership
(approximately .3% of the outstanding Units). The four individual General
Partners do not hold any Units.
All information contained in this Offer to Purchase concerning the
Partnership has been supplied by the Partnership or is based upon publicly
available documents on file with the Commission. Except as otherwise indicated
in this Offer to Purchase, all other information contained in this Offer to
Purchase has been supplied by the Company.
HOLDERS OF UNITS ARE URGED TO READ CAREFULLY THIS OFFER TO PURCHASE
INCLUDING THE MATTERS DISCUSSED UNDER "SPECIAL FACTORS," AND THE ACCOMPANYING
LETTER OF TRANSMITTAL BEFORE DECIDING WHETHER TO TENDER THEIR UNITS.
SPECIAL FACTORS
UNITHOLDER CONSIDERATIONS
In their evaluation of the Offer, Unitholders should carefully consider
the following:
Conflicts of Interest. Because Gary L. Davidson, the Chairman of the
Board of the Company, John A. Booty, the President of the Company, John S.
Jason, a shareholder of the Company, Tony Rota, a shareholder of the Company,
and the Company are the General Partners, and the Company is the Managing
Partner, of the Partnership, the General Partners have substantial conflicts of
interest with respect to the Offer. The four individual General Partners owned
approximately 35% of the shares of common stock of the Company as of March 31,
1996.
No Arms' Length Negotiation. The Offer Price has been established by
the Company, which has substantial conflicts of interest as described above. The
General Partners have not retained any unaffiliated person to represent the
Unitholders. If an unaffiliated person had been engaged to represent the
Unitholders, the terms of the Offer might have been different, and the
unaffiliated person might have been able to negotiate a higher Offer Price. The
Company, one of the largest owners of assisted living facilities in the United
States based on the number of
2
<PAGE> 8
residents, believes that the Offer presents an opportunity to increase its
investment in assisted living properties.
Possible Increase in Value. Based on increases in net operating income,
the General Partners believe that the Partnership's properties have increased in
value over the last several years and, although there can be no assurance, may
continue to appreciate in value.
Alternatives to Tendering Units. As alternatives to tendering their
Units, Unitholders could retain their Units until liquidation of the Partnership
or seek private sales of their Units now or later. Under the Partnership
Agreement, a liquidation of the Partnership or a removal of the General Partners
can be initiated by limited partners and would require approval by holders of
more than 50% of the outstanding Units in the Partnership at a meeting of
limited partners or without a meeting by written consent. Meetings of limited
partners may be called at any time by the General Partners or by one or more
limited partners holding 10% or more of the outstanding Units by delivering
written notice to the General Partner.
BACKGROUND OF THE OFFER
The Partnership. The Partnership is a California limited partnership
formed in February 1988. The Partnership raised approximately $35 million from
the sale of approximately 35,000 Units at $1,000 per Unit in a registered public
offering completed in October 1989. The Partnership received net proceeds from
that offering totalling approximately $30 million, all of which were invested in
fee interests in four residential care facilities for the elderly/assisted
living ("RCFE/AL") facilities, Montego Heights Lodge, Retirement Inn of Daly
City, Retirement Inn of Fullerton and the Valley View Lodge of Rossmoor
(collectively, the "Fee Properties"), and leasehold interests in six additional
RCFE/AL facilities, Covina Villa, Retirement Inn of Burlingame, Retirement Inn
of Campbell, Retirement Inn of Freemont, Retirement Inn of Sunnyvale and The Inn
at Willow Glen (collectively, the "Leasehold Properties") (the Fee Properties
and the Leasehold Properties are referred to collectively as the "Properties"
and individually as a "Property").
The Company as Managing Partner. Under the terms of the Partnership
Agreement, the Company, as Managing Partner, is responsible for managing the
business and affairs of the Partnership. The Company currently manages the
Properties for a monthly fee (the "Property Management Fee") equal to five
percent of the gross revenue from operations of such properties. In 1995, 1994
and 1993, the Company received Property Management Fees of $849,033, $800,197
and $754,329, respectively, for managing the Properties. As of March 31, 1996,
the Partnership had paid Property Management Fees of approximately $215,212 for
the 1996 calendar year. In addition, the Company is entitled to receive a
partnership management fee (the "Partnership Management Fee") of 10% of cash
flow before distribution, but such fee is subordinated to a quarterly,
noncumulating distribution to Unitholders of an amount equal to an annualized
return of 7.5% of capital contributions allocated to each Property. Partnership
Management Fees of $95,018, have been paid through March 31, 1996 for the 1996
calendar year. In 1995, 1994 and 1993, the Company received Partnership
Management Fees of $329,905, $251,969 and $227,719, respectively, for managing
the Partnership. The Company is also reimbursed by the Partnership for
administrative services necessary to the prudent operation of the Partnership,
provided that such reimbursement is at the lower of the Company's
3
<PAGE> 9
actual cost or the amount which the Partnership would be required to pay to
independent parties for comparable administrative services in the same
geographic location. During calendar years 1995, 1994, 1993 and the first
quarter of 1996, the Partnership reimbursed the Company $5,647,746, $5,611,925,
$5,141,800, and $1,589,303, respectively, for expenses incurred in connection
with administration of the Partnership.
Exit Strategies/Proposed Sale of the Fee Properties. During 1995 the
Company considered various exit strategies and means of obtaining liquidity for
Unitholders. At the time the Units were sold, the Partnership was expected to
operate the RCFE/AL facilities for five to seven years from their acquisition by
the Partnership. The liquidity and exit strategies identified by the Company
during 1995 included various combinations of the following options: (i) selling
some or all of the Properties; (ii) making a tender offer for the Units; (iii)
assigning for consideration one or more of the leaseholds on the Leasehold
Properties; (iv) not renewing one or more of the leaseholds on the Leasehold
Properties; (v) refinancing the Properties; and (vi) renegotiation of lease
terms, including rent and duration of leases. The Company has most fully
analyzed and considered the first two of these options. As discussed below, the
Company had reached an agreement to sell the Fee Properties and was prepared to
solicit the consent of the Unitholders to such sale in February 1996. Certain
intervening events described below caused the Company to conclude that this
Offer provided Unitholders with a better exit strategy and opportunity to
achieve liquidity.
Between May and October 1995, other limited partnerships managed by the
Company sold RCFE/AL facilities to a health care real estate investment trust
("REIT"), which, in turn, leased the RCFE/AL facilities to the Company. Because
the limited partners of those limited partnerships had voted in favor of selling
their facilities, the Company decided to explore offering the same opportunity
for liquidity to the Unitholders. In June 1995, the Company entered into
negotiations with two health care REITs, Health Care Property Investors, Inc., a
Maryland corporation, ("HCPI") and Meditrust, a Delaware corporation.
Both HCPI and Meditrust tendered term sheets to the Partnership which
set forth certain parameters under which an offer would be made. Negotiations
with both parties were conducted through a series of telephone calls and
meetings. Both parties were interested in purchasing the Fee Properties only.
The term sheet from HCPI, however, included an offer to loan the Company
$6,500,000 in order for the Company to purchase the leasehold interests in five
of the six Leasehold Properties from the Partnership. The Company could not
evaluate the merits of this part of HCPI's term sheet because the Company was
(and continues to be) in the process of negotiating renewal terms of certain of
the leases. Until these negotiations are complete, the value of the leasehold
interests on the Leasehold Properties could not (and cannot) be established and
there was no means to compare HCPI's financing offer to the Partnership's
continued ownership of the leasehold interests. As a result, the Company decided
to pursue negotiations with the two parties on the Fee Properties only.
Both Meditrust and HCPI offered to purchase the Fee Properties for the
lesser of $25,000,000 or fair market value as established by their own
appraisers. Both also offered terms for long-term operating leases on the Fee
Properties to the Company, whereby the Company would lease the Fee Properties
from the purchaser of the Fee Properties, and manage and operate the Fee
Properties for its own account. Both parties included various other terms
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<PAGE> 10
which were essentially the same, but Meditrust included a provision outside of
its term sheet which conditioned the purchase of the Fee Properties on the
completion of an unrelated project between Meditrust and the Company (the
purchase of undeveloped land by Meditrust and the construction of an RCFE/AL
facility under the Company's supervision, which facility the Company would
subsequently lease from and operate for Meditrust). Once the Company determined
that Meditrust would not purchase the Fee Properties without this unrelated
condition, the Company decided not to pursue further discussions with Meditrust.
In the course of evaluating the merits of selling the Fee Properties,
the Company obtained independent appraisals (the "1995 Appraisals") from Senior
Living Valuation Services, Inc. (the "Appraisal Firm") in July 1995. The
Appraisal Firm estimated the market value of each of the Fee Properties as a
going concern based on its investigation of the general economy of the industry,
supply and demand factors, comparable land and property sales, competitive
property rents and occupancy and consideration of the value of each of the Fee
Properties under the Cost Approach, Income Approach and Sales Comparison
Approach, as each of those approaches are defined by the Uniform Standards of
Professional Appraisal Practice ("USPAP"). The Appraisal Firm estimated that the
total going concern value of each of the Fee Properties as of July 1995 was as
follows:
<TABLE>
<S> <C>
Montego Heights Lodge $ 8,825,000
Retirement Inn of Daly City $ 3,025,000
Retirement Inn of Fullerton $ 2,350,000
Valley View Lodge at Rossmoor $10,375,000
TOTAL $24,575,000
</TABLE>
Unitholders may review the 1995 Appraisals by visiting the Company's primary
business offices in Costa Mesa, California during regular business hours. A copy
of the 1995 Appraisals will be transmitted by the Company to any Unitholder or
his or her representative who has been so designated in writing upon written
request and at the expense of the requesting Unitholder.
The Company and HCPI ultimately signed an agreement among HCPI, the
Partnership and the Company dated as of December 6, 1995, for HCPI to purchase
the Fee Properties (the "Transaction") for an aggregate price of $25,000,000
(the "Purchase Price"). The Fee Properties would have been leased to the Company
concurrently with the close of the sale to HCPI. In accordance with the
Partnership Agreement, the Proceeds of Sale (as defined in the Partnership
Agreement) available for distribution would have totalled approximately
$18,069,000 after deducting approximately $6,931,000 for mortgage debt,
reserves, expenses and other Partnership liabilities from the Purchase Price.
The Proceeds of Sale would have been distributed 99% to the Unitholders and 1%
to the General Partners in accordance with the Partnership Agreement, which
would have resulted in Unitholders receiving approximately $17,888,310 (or
approximately $510.80 per Unit) and the General Partners receiving $180,690. The
actual distribution would have depended on the actual expenses incurred by the
Partnership and the outstanding Partnership liabilities on the date on which the
Transaction closed.
The Company solicited and received only the two offers to purchase the
Fee Properties as discussed above. If additional offers had been solicited or
received it is possible that a higher
5
<PAGE> 11
price might have been obtained. In addition, the rent to be paid by the Company
to HCPI under its long-term leases of the Fee Properties was tied to the
Purchase Price, which created a conflict of interest for the Company in
maximizing the Purchase Price. No independent person represented the Partnership
in the negotiations described above.
The Partnership engaged the services of Robert A. Stanger & Co., Inc.
("Stanger") to render an opinion regarding whether the consideration to be paid
for the Fee Properties by HCPI was fair from a financial point of view. Stanger
did not ultimately render a written fairness opinion because the Transaction was
not consummated for the reasons described below.
If the Transaction had been consummated, the Partnership would have
continued to operate the Partnership with the Leasehold Properties only. The
Partnership would not have received any income from the Fee Properties but also
would not have borne any expenses for the Fee Properties. Partnership expenses
such as the cost of preparing audits and tax returns, filings with the
Commission, and mailings and communications with Unitholders would not have been
significantly reduced by the Transaction. The net effect of the Transaction
would have caused the Partnership to reduce distributions to Unitholders
substantially and possibly operate at a net loss going forward.
The Transaction required the consent of the Unitholders. The Company
prepared a Preliminary Consent Solicitation Statement (the "Solicitation
Statement") designed to seek the required Unitholder consent, and filed the
Solicitation Statement for review with the Commission on December 19, 1995. The
normal course of review by the Commission was not completed before the time in
which the Solicitation Statement was required to be updated with audited
year-end financial statements for the Partnership. This updating delayed the
date the Company planned to seek Unitholder consent and close the Transaction.
During the time the year-end financial statements were being prepared
and audited, the Company asked the Appraisal Firm to prepare appraisal reports
(the "1996 Appraisals") updating the 1995 Appraisals. As of March 29, 1996
(April 5, 1996 for the Retirement Inn of Fullerton), the Appraisal Firm
estimated that the market value of each of the Fee Properties had increased to
the following:
<TABLE>
<S> <C>
Montego Heights Lodge $ 8,975,000
Retirement Inn of Daly City $ 3,475,000
Retirement Inn of Fullerton $ 2,425,000
Valley View Lodge at Rossmoor $10,925,000
TOTAL $25,800,000
</TABLE>
After receiving and reviewing the 1996 Appraisals, the Company
contacted HCPI to determine if it was willing to increase its purchase price to
$26,000,000. As of late April 1996, HCPI did not increase its purchase price
above $25,000,000. Therefore, the General Partners decided not to solicit the
consent of the Unitholders for the Transaction.
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<PAGE> 12
During April 1996, the Company considered whether to re-open
negotiations with the REITs or make a tender offer for the Units itself. In late
April 1996, the Company determined that it would be in the best interests of
Unitholders to make the Offer, particularly in light of the relatively faster
time in which Unitholders would receive consideration for their Units as
compared to completing the process of negotiating with a REIT, finalizing the
consent solicitation statements, obtaining a complete review by the Commission
and soliciting the vote of Unitholders.
FAIRNESS OF THE OFFER; POSITION OF THE GENERAL PARTNERS
The information set forth below regarding the analysis by the General
Partners (including the Company) of the Offer was prepared by the Partnership
and incorporated by reference in the Partnership's Schedule 14D-9 filed with the
Commission.
The Offer Price has been established by the Company and is not the
result of arms' length negotiations between the Company and the Partnership. The
General Partners (including the Company) believe the Offer Price is fair and in
the best interests of Unitholders. Since the General Partners have substantial
conflicts of interest with respect to the Offer (See "Special Factors --
Unitholder Considerations"), the General Partners make no recommendations to any
Unitholder to tender or refrain from tendering his or her Units. EACH UNITHOLDER
MUST MAKE HIS OR HER OWN DECISION WHETHER OR NOT TO TENDER, BASED UPON A NUMBER
OF FACTORS, INCLUDING THE UNITHOLDER'S FINANCIAL POSITION, NEED OR DESIRE FOR
LIQUIDITY, OTHER FINANCIAL OPPORTUNITIES AND TAX POSITION. The General Partners
believe that the Offer provides all Unitholders who require or desire liquidity
the opportunity to receive cash for their Units at a price substantially higher
than that currently being paid in the secondary market and without paying the
fees or commissions often paid in connection with transactions through secondary
firms. See "The Offer" -- Section 6.
In determining that the Offer Price is fair to Unitholders, the General
Partners considered a number of factors, including, but not limited to, the
following:
(i) The calculation of the Offer Price, which was based on the
appraised value of the Fee Properties (See "-- Appraisals") according to the
1996 Appraisals plus the capitalized projected net cash flow of the Leasehold
Properties minus the indebtedness of the Partnership as of March 31, 1996 and
the estimated costs of the Offer. The Company believes that basing a portion of
the Offer Price on the appraised value of the Fee Properties is fair because the
appraiser is an independent third party. The Company used a 15% capitalization
rate on the projected net cash flow for the Leasehold Properties for the year
ended December 31, 1996 as compared to an 11.5% capitalization rate used in the
1996 Appraisals of the Fee Properties. The General Partners (including the
Company) believe a higher capitalization rate for the Leasehold Properties is
fair because a fee property is inherently more valuable than a leasehold and
because of the substantial uncertainty regarding the final results of the
negotiations with the Partnership's landlords in respect of the renewal rental
rate of four of the Leasehold Properties;
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<PAGE> 13
(ii) The General Partners' review of the Partnership's current
financial condition and results of operations and its future prospects, and the
current and anticipated developments in the Partnership's industry and the
California real estate market;
(iii) The relationship between the consideration to be received by the
Unitholders pursuant to the Offer and the consideration paid for Units in recent
secondary market transactions known to the Company, including the fact that the
consideration to be received pursuant to the Offer represents a premium of
approximately 17.6% over the highest sales price of a Unit known to the Company
since January 1, 1995 (See "The Offer" -- Section 6);
(iv) The fact that the leases and the related rental rates for two of
the Leasehold Properties are currently under negotiation and are subject to
substantial adverse change, and the further risk that such negotiations could
result in changes in the terms of the leases for two other Leasehold Properties;
(v) The ratio of current assets to current liabilities for the
Partnership, which as of March 31, 1996 was 0.24 to 1, indicating an excess of
liabilities coming due within the next 12 months over assets available to
service those liabilities; and
(vi) The estimated fees and costs of the Offer as set forth in
"The Offer"--Section 15.
Other than as set forth above, in evaluating these factors, the Company
did not quantify or otherwise attach a particular weight to any of the factors
in establishing the Offer Price.
APPRAISALS
Real Estate Appraisals. The Appraisal Firm has prepared and delivered
written reports of its analysis and appraisal as to the fair market value of the
Partnership's Fee Properties as of March 29, 1996 (Montego Heights Lodge,
Retirement Inn of Daly City and Valley View Lodge at Rossmoor) and April 5, 1996
(Retirement Inn of Fullerton). The Company selected the Appraisal Firm to
provide the 1996 Appraisals in conjunction with the proposed Transaction
described above because of its experience and reputation in connection with
appraising assisted living retirement properties and its familiarity with the
Fee Properties. The Appraisal Firm is one of the few appraisal firms in the
country which exclusively specializes in the appraisal of senior housing
properties. The Appraisal Firm has completed full narrative appraisal reports
for nearly 400 senior housing properties.
Summaries of the 1996 Appraisals prepared by the Appraisal Firm, which
contain a description of the assumptions and qualifications made, matters
considered and limitations on the review and analysis, are set forth in Schedule
II and should be read in their entirety. The complete 1996 Appraisals are
available for review at the offices of the Company in Costa Mesa, California
during regular business hours. A copy of the 1996 Appraisals will be transmitted
by the Company to any Unitholder or his or her representative who has been so
designated in writing upon written request and at the expense of the requesting
Unitholder. Certain of the material assumptions, qualifications and limitations
to the 1996 Appraisals are described below.
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<PAGE> 14
The Company used the 1996 Appraisals as one factor in determining the
amount of the Offer.
Summary of Methodology. In connection with the Transaction, the
Appraisal Firm was engaged to inspect and appraise each of the Partnership's Fee
Properties in conformity with USPAP and to estimate the fair market value of the
Partnership's Fee Properties as of April 1995. The Company placed no restriction
or limitations on the 1996 Appraisals, the scope of review and analysis, or the
methodologies employed by the Appraisal Firm to determine the fair market value
of the Fee Properties. The Appraisal Firm had complete and unrestricted access
to all information pertinent to its valuation.
Valuation Approaches Utilized. In appraising the Fee Properties, all
three commonly recognized approaches to valuation were considered and utilized
by the Appraisal Firm: the cost approach, the income approach and the sales
comparison approach. The type and age of a property, market conditions and the
quantity and quality of data affect the applicability of each approach in a
specific appraisal situation.
The "Income Approach" estimates a property's capacity to produce income
through an analysis of the rental market, operating expenses and net income. Net
income may then be processed into a value estimate through either (or a
combination) of two methods: direct capitalization or discounted cash flow
analysis.
The "Sales Comparison Approach" is based on the comparison of the
property to be appraised to the actual sales prices of recently sold comparable
properties. The underlying concept of the Sales Comparison Approach is that a
knowledgeable buyer will pay no more for a property than what other buyers
recently paid for properties of similar size, amenities and utility. The Sales
Comparison Approach is based on the actual behavior of buyers and sellers in the
market under normal conditions. However, this approach to property appraisal is
difficult to apply precisely when appraising a special purpose property for
which there are few or no comparables or where very few sales have occurred
recently in the marketplace.
The "Cost Approach" is based on the principal that a property's value
reflects the value of the land plus the value of the depreciated improvements on
the land. The Cost Approach method of valuation generally consists of five
steps, including: valuation of the land as if it were vacant; estimation of the
replacement costs of the improvements as new construction based on current
prices for labor and materials; estimation of accrued depreciation on the
existing improvements due to physical age and deterioration, functional
obsolescence and economic or locational obsolescence; deduction of the estimated
depreciation from the estimated replacement costs to determine the depreciated
value of the building and other improvements; and the summation of the
depreciated value of the building and improvements with the land value to
determine the estimated present depreciated value of the land, building and
improvements.
In applying the "Income Approach," the Appraisal Firm estimated each
Property's income and expenses for the 12-month period ending June 30, 1996
after reviewing historical and budgeted operating results, discussions with
property management and other pertinent information. The Appraisal Firm
estimated each Property's income for the 12-month period ending June 30, 1996
based upon the review of current rent rolls, an analysis of historical and
9
<PAGE> 15
budgeted income from rents, assisted living and ancillary sources, surveys of
comparable properties and consideration of competitive conditions in local
markets. Expenses were estimated based on historical and budgeted operating
expenses, certain industry expense guidelines, and expenses incurred by
comparable properties. Estimated expenses were then deducted from income to
arrive at each Property's estimated net operating income. Expenses relating
solely to corporate overhead, Partnership administration, and investor reporting
and accounting were excluded.
The Appraisal Firm then employed a direct capitalization analysis to
determine the value of each Property. The direct capitalization rate used by the
Appraisal Firm, 11.5%, was based on current acquisition criteria among
investors, rates reflected in specific sales transactions, and required yields
for debt and equity financing sources for similar properties. Where appropriate,
the capitalization rate used for an individual Property was adjusted to reflect
valuation factors unique to the property and local market conditions.
In applying the "Sales Comparison Approach," The Appraisal Firm
investigated and analyzed the sale of similar senior housing projects to the Fee
Properties within California during the last 24 months. These sales were
analyzed as to their conditions of sale, location, age and condition,
competitive market position, occupancy and net income producing ability. From
this analysis, comparative capitalization rates were estimated. Each of the
comparable sales was adjusted for differences in occupancy and net income
producing ability.
In applying the "Cost Approach," the Appraisal Firm estimated the value
of each of the Fee Property sites through comparison and adjustment of recent
comparable vacant land sales in each location. To estimate the replacement cost
new of each of the Fee Properties, including furniture and equipment, the
Marshall Valuation Service, a nationally recognized cost manual, was utilized
and compared to the specific building costs of recently constructed comparable
properties. To these estimates, adjustments were made for indirect costs and
entrepreneurial profit to arrive at an estimated total replacement cost new at
the appraisal date for each of the Fee Properties. Deductions for depreciation
were made considering each Property's age, condition, and highest and best use.
The Appraisal Firm reconciled the values indicated from the cost, sales
comparison and income approach to arrive at a final valuation conclusion. The
Appraisal Firm gave primary emphasis to the income approach, an emphasis deemed
most appropriate based on acquisition criteria currently employed by buyers and
sellers of properties in the retirement housing market.
Local Market Research and Property Review. In performing the 1996
Appraisals the Appraisal Firm analyzed the individual properties and local
market conditions for each property. The Appraisal Firm performed site
inspections of each Fee Property during July 1995 and March 1996 (April 1996 for
the Retirement Inn of Fullerton). During these visits, the Appraisal Firm
inspected the physical facilities, obtained current income, occupancy and
resident census and rent roll information, gathered information on competing
properties, and interviewed each local property administrator concerning
performance of the subject property, competitive conditions, area trends and
other factors. Such inquiries included ascertaining for each individual property
any deferred maintenance, capital budget issues, status of on-going or planned
improvements, licensing issues and other factors affecting the property. The
Appraisal Firm's analysis also
10
<PAGE> 16
included, among other things: (a) reviewing each property's previous three
years' operating statements; (b) reviewing information submitted to the
Appraisal Firm by the Partnership which included rental and occupancy data,
subject facility descriptions, area trends and other factors; (c) developing
information from a variety of sources about market conditions for each
individual property that included population, employment and housing trends
within the neighborhood; (d) considering income and expense data for comparable
facilities; (e) considering supply/demand conditions for assisted living
facilities in each local market based on identification and surveys of competing
properties and market saturation analyses; and (f) contacting local and state
authorities to determine tax rates, zoning, any planned development of competing
properties, and licensing of the subject and competing properties.
To assess each Fee Property's competitive position, the Appraisal Firm
considered such variables as property income growth patterns and potential,
quality of location and construction, tenant appeal, property appearance,
security and potential competition, and assisted living services and
utilization.
The Appraisal Firm also interviewed management personnel responsible
for the Partnership's properties to discuss competitive conditions, area
economic trends and industry trends affecting the Fee Properties, historical and
budgeted operating revenues and expenses, business and marketing plans for each
of the Fee Properties, occupancy rates, and assisted living services
utilization. These interviews included ascertaining information on items of
deferred maintenance, planned capital improvements and other factors affecting
the physical condition of the Fee Properties.
The Appraisal Firm also evaluated each Fee Property's highest and best
use both as currently improved and as vacant. In each instance the highest and
best use, as improved, of the Fee Properties was their continued use as licensed
assisted living retirement properties.
Other Market Research. Each year the Appraisal Firm conducts a survey
the results of which are tabulated in the Senior Housing Investment Survey, a
newsletter of industry capitalization and discount rates, which is requested and
distributed to over 200 senior housing lenders, investors, owner/operators and
other appraisers. To define the occupancy, income and expense, and valuation
parameters to be used in developing income and cash flow projections and
valuations, the Appraisal Firm reviewed the acquisition criteria and projection
parameters in use in the marketplace by major investors, owners, operators,
appraisers and financing sources for assisted living facilities. To obtain such
data, the Appraisal Firm conducted a survey of approximately 300 owners,
operators, appraisers and brokers of senior housing during April 1995. The
survey provides other information such as capitalization rates, operating
expense ratios and cash flow growth factors which was used by the Appraisal Firm
in evaluating the Fee Properties.
In addition, the Appraisal Firm reviewed other published information
concerning acquisition and financing criteria in use by property investors and
lenders during 1995. Further, the Appraisal Firm screened tax records and
interviewed various sources in regional markets to identify sales of retirement
housing properties within the past 24 months in order to derive certain
valuation indicators. Sources for data concerning such transactions included
appraisers, property owners, real estate brokers, tax assessors and others.
These sales of similar improved
11
<PAGE> 17
properties were one of the more important factors used by the Appraisal Firm in
evaluating proper capitalization rates for the Fee Properties. The Appraisal
Firm has reviewed information compiled by the Company identifying sales and
acquisitions of retirement housing properties.
Conclusions as to Value. Based on the valuation methodology described
above, the Appraisal Firm determined that the total market value of the Fee
Properties is $25,800,000.
Assumptions, Limitations, and Qualification of the Appraisals. The 1996
Appraisals reflect the Appraisal Firm's valuation of the Partnership's real
estate assets as of April 1996, and is based on information available as of such
date. Events occurring after April 1996 and before the closing of the Offer
could affect the Fee Properties or assumptions used in preparing the 1996
Appraisals. The Appraisal Firm has no obligation to update the Appraisals on the
basis of subsequent events.
In appraising the Fee Properties, the Appraisal Firm made certain
standard assumptions and operated under standard limiting conditions which are
listed in the 1996 Appraisals. Included in those limiting conditions was the
fact that the Appraisal Firm had not been given title reports on three of the
Fee Properties and had received a 1989 title report on the fourth Fee Property.
The Company has received current title reports and has determined that there
were no exceptions to title which would limit the use of the Fee Properties as
appraised. In addition, the Appraisal Firm noted that each Fee Property is
licensed as a residential care facility for the elderly (assisted living) with
the California Department of Social Services. The Appraisal Firm assumes that
the Fee Properties meet all physical plant and operating requirements as
assisted living facilities. Finally, the estimates of market value set forth in
the 1996 Appraisals are partially based on current rent rolls, historical
operating statements and limited building drawings and building statistical data
provided by the Company.
Compensation and Material Relationships. The Partnership paid a fee of
$18,000 to the Appraisal Firm for preparing the 1995 Appraisals and subsequently
paid a fee of $8,000 to the Appraisal Firm for preparing the 1996 Appraisals,
and reimbursed the Appraisal Firm for all related out-of-pocket expenses. The
Appraisal Firm is also entitled to indemnification against certain liabilities
by the Partnership. The fee was negotiated with the Appraisal Firm by the
Company and payment is not dependent upon the closing of the Offer. The
Appraisal Firm has previously prepared appraisals for the Company and its
affiliates, and is likely to be engaged to prepare similar appraisals in the
future for RCFE/AL facilities owned by or to be acquired by the Company and its
affiliates. With the exception of one appraisal of the Montego Heights Lodge
done in 1990 in connection with the acquisition of the Property by the
Partnership (to establish the fair market value as it related to the purchase
price), no previous appraisals have been prepared for the Partnership or
concerning any of the Partnership Properties.
PURPOSE AND STRUCTURE OF THE OFFER
The purpose of the Offer is for the Company ultimately to increase its
investment in assisted living facilities. The Company also believes that it will
benefit from ownership of Units acquired in the Offer and from distributions
attributable to them. The Company believes that the acquisition of Units through
the Offer represents a good investment to the Company.
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<PAGE> 18
The Offer has been structured as a cash tender offer in order to
expedite the receipt by the selling Unitholders of cash for their Units. The
primary benefit of the Offer to the Unitholders is the opportunity to sell their
Units at a price which, in the opinion of the Company, is fair to such
Unitholders and which represents a premium over recent prices paid for the Units
in trades which have been reported and of which the Company has knowledge. See
"The Offer" -- Section 6. Also, the Offer allows Unitholders an exit strategy to
receive cash for their Units within the five to seven year time frame
anticipated (five to seven years) when the Units were originally sold. The
Company does not believe that alternative exit strategies, including those
discussed in "Special Factors -- Background of the Offer," would be
significantly more advantageous, if at all, to the Unitholders. Each Unitholder
has the opportunity to make an individual decision on whether or not to tender
his or her Units in the Offer.
PLANS FOR THE PARTNERSHIP AFTER THE OFFER
The Offer is not expected to have a material effect on the
Partnership's financial condition or results of operations. If the Company
acquires 90% or more of the Units, it plans to promptly thereafter merge the
Partnership into the Company or a subsidiary of the Company. If the Company
acquires less than 90% of the Units, it may seek to acquire for its own account
the remaining Units or the assets of the Partnership in a subsequent transaction
or it may seek to have the Partnership sell certain or all of its assets to an
unaffiliated third party, in which case the Company may lease back such assets
from such purchaser. Although, as described above, the Company, in its role as
Managing Partner, has engaged in discussions (and in one case, entered into an
arrangement) regarding the sale of certain of the Partnership's properties, the
Company does not intend to pursue any further discussions until after the Offer
has been completed. There can be no assurance, however, that the Company will
initiate or complete, or will cause the Partnership to initiate or complete, any
subsequent transaction during any specific time period following the expiration
of the tender period or at all.
INTERESTS OF CERTAIN PERSONS
In considering whether to tender Units, Unitholders should be aware
that the General Partners have interests which present them with actual or
potential conflicts in connection with the Transaction.
Affiliation with the Company. The Company is the Managing Partner of
the Partnership. Gary L. Davidson and John A. Booty, both individual general
partners, are the Chairman of the Board and the President of the Company,
respectively. Each of the individual General Partners are shareholders of the
Company and, collectively, owned approximately 35% of the shares of common stock
of the Company as of March 31, 1996.
Management Fees and Expense Reimbursement. The Company receives certain
fees and is reimbursed for certain expenses for managing the business and
affairs of the Partnership. See "Special Factors -- Background of the Offer."
Interest of General Partners in the Partnership. The Partnership
Agreement provides that the General Partners own a one percent interest in the
Partnership's profits, losses and
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<PAGE> 19
distributions, but it does not specify how that interest is to be divided among
the General Partners. By agreement of the General Partners, the four individual
General Partners each own a .2475% interest in the Partnership's profits, losses
and distributions and the Company owns a .01% interest in the Partnership's
profits, losses and distributions.
Ownership of Units by the General Partners. Of the 34,995 Units
outstanding, the Company owns a total of approximately 109 Units (approximately
.3%). The four individual General Partners do not hold any Units. The Company
acquired all of the Units it currently owns in two secondary market
transactions. The first of these transactions was a purchase of 3.5 Units from
an unaffiliated limited partner in September 1994 for $1,750 ($500 per Unit).
The second transaction was a purchase of approximately 105 Units from American
Senior Housing Fund, a California limited partnership ("ASHF"), in November
1995 for $64,870.30 ($612.23 per Unit). Certain of the General Partners and
other affiliates of the Company were partners of ASHF, which was recently
dissolved.
SOURCE AND AMOUNT OF FUNDS
The total amount of funds required by the Company to acquire 34,885.542
Units (100% of the outstanding Units not owned by the Company) pursuant to the
Offer is expected to be approximately $25 million. The Company also expects that
it will require approximately $178,000 to pay fees and expenses to be incurred
in connection with the completion of the Offer. The Company expects to pay for
all the Units tendered and all fees and expenses of the Offer with cash on hand.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The following is a summary of the material federal income tax
consequences to Unitholders relating to the Offer. This discussion is based on
the Internal Revenue Code of 1986, as amended (the "Code"), existing and
proposed Treasury Regulations thereunder, and current administrative
interpretations and court decisions. State, local and foreign tax consequences,
and the tax consequences to certain types of investors (including insurance
companies, financial institutions or broker-dealers, tax-exempt organizations
and, except to the limited extent described below under "Withholding," foreign
corporations and persons who are not citizens or residents of the United States)
subject to special treatment under the federal income tax laws are not
considered in this discussion.
This discussion addresses the material federal income tax
considerations that are generally applicable to all Unitholders. The specific
tax consequences relating to the Offer will vary for each Unitholder, however,
depending on each Unitholder's personal investment and tax circumstances. It is
not possible or practical to discuss here all aspects of federal income tax law
that may have relevance with respect to the transactions described herein based
on the individual circumstances of particular Unitholders in light of their
personal investment or tax circumstances. The following description is general
in nature, and is not exhaustive of all possible tax considerations. This
analysis is not tax advice to specific investors, and is not intended as a
substitute for careful tax planning.
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<PAGE> 20
The discussion set forth below is based upon the assumption that Units
held by the Unitholders constitute capital assets in the hands of such investors
and that the Partnership is classified for federal income tax purposes as a
partnership, rather than an association taxable as a corporation. Upon the
formation of the Partnership in 1988, the Partnership received an opinion of its
tax counsel, Donald J. Regan, P.C., that the Partnership was properly classified
as a partnership for federal income tax purposes. The Partnership did not
request a ruling from the Internal Revenue Service as to its tax status as a
partnership, however. Moreover, the opinion of counsel referred to above was and
is subject to the continuous satisfaction by the Partnership of certain factual
conditions. If, for any reason, the Partnership is or was classified for tax
purposes as an association taxable as a corporation, the tax consequences of the
proposed transactions would differ materially from that described below.
UNITHOLDERS ARE URGED TO CONSULT THEIR OWN TAX ADVISORS WITH RESPECT TO
THE FEDERAL, STATE, LOCAL AND FOREIGN TAX CONSEQUENCES TO THEM OF THE
TRANSACTIONS DESCRIBED HEREIN IN LIGHT OF THEIR OWN CIRCUMSTANCES AND
WITH RESPECT TO POTENTIAL CHANGES IN APPLICABLE LAW.
Tax Consequences to Tendering Unitholders.
Sale of Units. The sale of Units by a Unitholder to the Company will be
a fully taxable transaction in which the Unitholder will recognize taxable gain
or loss in an amount equal to the difference between the amount realized and the
Unitholder's adjusted tax basis in the transferred Units. In addition, a selling
Unitholder will be allocated taxable income and losses of the Partnership deemed
to accrue in the relevant period up to the sale of the Units. The amount
realized on a sale of Units equals the amount of cash received in the Offer plus
the Unitholder's share of the Partnership's liabilities. If the Unitholder's
adjusted tax basis is less than his or her share of the Partnership's
liabilities (e.g., as a result of the effect of net loss allocations and
distributions exceeding the cost of his or her Units) the Unitholder's gain
would exceed the cash proceeds realized upon the sale of Units.
Gain or loss recognized on the sale of Units held for more than twelve
months will generally be taxable as long-term capital gain or loss. A Unitholder
will recognize ordinary income or loss, however, in an amount equal to the
difference between (i) the portion of the amount realized by the Unitholder that
is attributable to his or her share of the Partnership's "unrealized
receivables" and "substantially appreciated inventory items" (including
depreciation recapture), as such terms are defined in Section 751 of the Code
and (ii) the portion of the Unitholder's tax basis in his or her Units that is
attributable to such Section 751 property of the Partnership.
Gain or loss recognized on the sale of Units will generally be treated
as passive activity income or loss, under the passive activity loss rules of
Section 469 of the Code, for Unitholders who do not materially participate in
the activity in which the Partnership is engaged. The passive activity loss
rules of the Code provide that certain taxpayers (including individuals) may not
deduct their "passive activity loss" for a taxable year (i.e., the amount by
which their aggregate losses from all passive activities for the taxable year
exceed their aggregate income
15
<PAGE> 21
from all such activities for such year). A Unitholder with available carry
forwards of suspended passive activity losses may be able to offset all or a
portion of any gain recognized on the sale of Units with such losses. Based on
Partnership operations through December 31, 1995, and without giving effect to
Partnership operations since then, the Company estimates that a taxable
Unitholder subject to the passive activity loss rules who acquired his or her
Units on January 1, 1989 would have suspended passive activity losses of
approximately $175 per Unit (subject to reduction to the extent such Unitholder
used any of such losses to offset passive activity income from other
investments). Under certain circumstances, Unitholders who dispose of their
entire interest in the Partnership may be permitted to use carry forwards to
offset other (non- passive) taxable income if the holder owns no other interest
in the type of passive activity engaged in by the Partnership. The application
of the passive activity loss rules will vary based on the particular tax
circumstances of each Unitholder. Unitholders are advised to consult their own
tax advisors concerning the application to them of the passive activity loss
rules.
Withholding. As noted in the discussion below under the heading "The
Offer -- Procedures for Accepting the Offer and Tendering Units" a Unitholder
(other than certain types of "exempt recipients" including a corporation) that
receives cash in exchange for Units may be subject to United States federal
backup withholding tax at a rate equal to 31% unless such Unitholder provides
its taxpayer identification number and certifies that such Unitholder is not
subject to backup withholding tax by submitting a completed Substitute Form W-9
to the Depositary. Accordingly, each Unitholder should review, complete, sign
and submit the Substitute Form W-9 included as part of the Letter of Transmittal
in order to avoid the imposition of such backup withholding tax.
Special rules were added to the Code by the Foreign Investment in Real
Property Tax Act of 1980 ("FIRPTA"). Those rules generally subject foreign
investors to United States taxation at regular United States rates on the gain
from the sale or other disposition of United States real property interests
which include interests in certain entities (including partnerships) holding
United States real estate. Those rules also impose withholding on such sales or
other dispositions. Under FIRPTA, foreign Unitholders who tender Units in the
Offer will generally be subject to withholding on the gross amount realized at a
rate of 10%.
Tax Consequences to Non-Tendering and Partially-Tendering Unitholders.
Termination of the Partnership. Section 708 of the Code provides that
if, within any 12- month period, there is a sale or exchange of 50% or more of
the total interest in capital and profits of a partnership, such partnership
will be treated as terminated for federal income tax purposes. If the purchase
of Units by the Company results in a termination of the Partnership, the
Partnership's taxable year will close for all Unitholders, the Partnership will
be deemed to have distributed its assets to the Company and the remaining
Unitholders in proportion to their respective interests in the Partnership and,
immediately thereafter, the Company and the other remaining Unitholders will be
deemed to have contributed such assets to the Partnership which will then be
treated as a new partnership. In the case of a non-tendering or partially
tendering Unitholder reporting on a tax year other than a calendar year, the
closing of a tax year of the Partnership may result in more than 12 months'
taxable income or loss of the Partnership being includable in his or her taxable
income for the year of termination. In addition, each non- tendering or
partially tendering Unitholder will recognize taxable gain to the extent that
any
16
<PAGE> 22
money considered distributed to him (including any net reduction in his or her
share of Partnership liabilities) exceeds the adjusted tax basis of his or her
Units. Other consequences of a constructive termination of the Partnership are:
(i) the reconstituted partnership's tax basis for its properties may change and
(ii) new tax elections required to be made at the partnership level must be made
by the reconstituted partnership. Any such technical termination may also
subject the property in the Partnership to extended depreciable lives as
compared with the depreciable lives currently applicable to the Partnership,
which would increase the taxable income or decrease the taxable loss otherwise
allocable to each non-tendering or partially tendering Unitholder.
Publicly Traded Partnership. Section 7704 of the Code provides
generally that certain "publicly traded partnerships" will be treated as
corporations for federal income tax purposes. A partnership is a publicly traded
partnership if (1) interests in such partnership are actually traded on an
established securities market or (2) interests in such partnership are "readily
tradable on a secondary market (or the substantial equivalent thereof)."
Treasury Regulations provide that interests in a partnership are readily
tradable on a secondary market or the substantial equivalent thereof if (a)
interests in the partnership are regularly quoted by any person, such as a
broker or dealer, making a market in the interests; (b) any person regularly
makes available to the public bid or offer quotes with respect to interests in
the partnership and stands ready to effect buy or sell transactions at the
quoted prices; (c) the holder of an interest in the partnership has a readily
available, regular, and ongoing opportunity to sell or exchange the interest
through a public means of obtaining or providing information of offers to buy,
sell, or exchange interests in the partnership; or (d) prospective buyers and
sellers otherwise have the opportunity to buy, sell, or exchange interests in
the partnership in a time frame and with the regularity and continuity that is
comparable to that described in (a), (b), or (c) above.
The Treasury Regulations provide a number of "safe harbors" pursuant to
which certain transfers ("Private Transfers") are disregarded in determining
whether interests in a partnership are readily tradable on a secondary market or
the substantial equivalent thereof. Private Transfers include, among others,
transfers by one or more partners of interests representing in the aggregate 50%
or more of the total interests in partnership capital and profits in one
transaction or a series of related transactions. Therefore if, pursuant to the
Offer, the Company acquires 50% or more of the Units, such transfers will be
disregarded in determining whether interests in the Partnership are readily
tradable on a secondary market or the substantial equivalent thereof. If,
however, the Company acquires less than 50% of the Units pursuant to the Offer,
such transfers will not be disregarded in determining whether interests in the
Partnership are readily tradable on a secondary market, and the Partnership will
not fall within the safe harbor set forth in the Treasury Regulations.
The Treasury Regulations provide that the fact that a transfer of a
partnership interest is not within one or more of the safe harbors is
disregarded in determining whether interests in the partnership are readily
tradable on a secondary market or the substantial equivalent thereof. Therefore,
even if the Company acquires less than 50% of the Units, the Partnership will
not necessarily be taxable as a publicly traded partnership, in particular
because the Offer is a one-time only event that does not give the Unitholders an
ongoing regular opportunity to sell their Units.
17
<PAGE> 23
If, however, the Offer were to cause the Partnership to be treated as a
publicly traded partnership, then unless certain requirements concerning the
nature of the Partnership's gross income have been satisfied, the Partnership
would be taxable on its net income at regular corporate income tax rates, which
would reduce the cash available for distribution to Unitholders. Moreover, in
such a case distributions to Unitholders would be taxable as ordinary dividend
income (qualifying, with respect to corporate Unitholders, for the dividends
received deduction, subject to the exceptions and restrictions concerning such
deduction as set forth in the Code) to the extent of current or accumulated
earnings and profits of the Partnership. Distributions in excess of current or
accumulated earnings and profits would not be currently taxable to Unitholders
to the extent that such distributions were not in excess of the adjusted tax
basis of holder's Units, but rather would reduce the adjusted tax basis of such
Units. To the extent that such distributions exceeded the adjusted basis of a
holder's Units, they would be included in income as long-term capital gain (or
short-term capital gain if the Units were held for one year or less).
Unitholders would not be permitted to include in their individual income tax
returns any net operating losses or capital losses of the Partnership.
THE OFFER
1. TERMS OF THE OFFER. Upon the terms and subject to the conditions of
the Offer, the Company will accept for payment and purchase all of the Units
which are validly tendered prior to the Expiration Date (as defined in the
following sentence) and not properly withdrawn in accordance with "The Offer" --
Section 5. The term "Expiration Date" shall mean 10:00 p.m., Dallas, Texas time,
on Friday, June 14, 1996, unless and until the Company, in its sole discretion,
shall have extended the period of time for which the Offer is open, in which
event the term "Expiration Date" shall mean the latest time and date at which
the Offer, as so extended by the Company, shall expire. See "The Offer" --
Section 11 for a description of the Company's rights to extend the period of
time during which the Offer is open and to terminate the Offer.
The Partnership will provide the Company with the Partnership's
Unitholder list, a non- objecting beneficial owners list, if any, and security
position listings for the purpose of disseminating the Offer to holders of
Units. The Offer to Purchase and the related Letter of Transmittal will be
mailed by the Company to record holders of Units and will be furnished to
brokers, dealers, commercial banks, trust companies and similar persons whose
names, or the names of whose nominees, appear on the Partnership's Unitholder
list or, if applicable, who are listed as participants in a clearing agency's
security position listing, for subsequent transmittal to beneficial owners of
Units.
2. ACCEPTANCE FOR PAYMENT AND PAYMENT OF PURCHASE PRICE. Upon the terms
and subject to the conditions of the Offer (including, if the Offer is extended
or amended, the terms and conditions of any such extension or amendment), the
Company will accept for payment, and will pay for, all of the Units validly
tendered and not properly withdrawn prior to the Expiration Date promptly after
the later to occur of (i) the Expiration Date and (ii) the satisfaction or
waiver of the conditions to the Offer set forth in "The Offer" -- Section 12.
For purposes of the Offer, the Company shall be deemed to have accepted
for payment (and thereby purchased) all Units properly tendered to the Company
and not withdrawn if, as
18
<PAGE> 24
and when the Company gives oral or written notice to the Depositary of the
Company's acceptance of such Units for payment pursuant to the Offer. Payment
for Units accepted for payment pursuant to the Offer will be made through the
Depositary, which will act as agent for the tendering Unitholders for the
purpose of receiving payment from the Company and transmitting payments to
tendering Unitholders.
UNDER NO CIRCUMSTANCES WILL INTEREST BE PAID ON THE PURCHASE PRICE OF
THE UNITS TO BE PAID BY THE COMPANY, REGARDLESS OF ANY DELAY IN MAKING SUCH
PAYMENT. UPON THE DEPOSIT OF FUNDS WITH THE DEPOSITARY FOR THE PURPOSE OF MAKING
PAYMENTS TO TENDERING UNITHOLDERS, THE COMPANY'S OBLIGATION TO MAKE SUCH
PAYMENTS SHALL BE SATISFIED AND TENDERING UNITHOLDERS MUST THEREAFTER LOOK
SOLELY TO THE DEPOSITARY FOR PAYMENT OF AMOUNTS OWED TO THEM BY REASON OF THE
ACCEPTANCE FOR PAYMENT OF UNITS PURSUANT TO THE OFFER.
If any tendered Units are not accepted for payment pursuant to the
terms and conditions of the Offer, the Letter of Transmittal with respect to
such Units not purchased will be destroyed by the Depositary. If, for any reason
whatsoever, acceptance for payment of, or payment for, any Units tendered
pursuant to the Offer is delayed or the Company is unable to accept for payment,
purchase or pay for Units tendered pursuant to the Offer, then, without
prejudice to the Company's rights under the Offer (but subject to compliance
with Rule 14e-1(c) under the Exchange Act), the Depositary may, nevertheless, on
behalf of the Company, retain tendered Units, subject to any limitations of
applicable law, and such Units may not be withdrawn except to the extent that
the tendering Unitholders are entitled to withdrawal rights as described in the
Offer.
If, on or prior to the Expiration Date, the Company increases the
consideration offered to holders of Units pursuant to the Offer, such increased
consideration will be paid to all holders of Units that are accepted for payment
pursuant to the Offer.
The Company reserves the right to transfer or assign, in whole or in
part, to one or more affiliates or direct or indirect subsidiaries of the
Company, the right to purchase Units tendered pursuant to the Offer, but no such
transfer or assignment will relieve the Company of its obligations under the
Offer or prejudice the rights of tendering Unitholders to receive payment for
Units validly tendered and accepted for payment pursuant to the Offer.
3. PROCEDURE FOR ACCEPTING THE OFFER AND TENDERING UNITS.
Valid Tender. In order for a holder of Units to validly tender Units
pursuant to the Offer, the Letter of Transmittal (or a facsimile thereof),
properly completed and duly executed, together with any other documents required
by the Letter of Transmittal, must be received by the Depositary at its address
set forth on the back cover of this Offer to Purchase on or prior to the
expiration date.
19
<PAGE> 25
In order for a tendering Unitholder to participate in the Offer, Units
must be validly tendered and not withdrawn prior to the Expiration Date, which
is 10:00 p.m., Dallas, Texas time, on June 14, 1996 (unless extended).
THE METHOD OF DELIVERY OF THE LETTER OF TRANSMITTAL AND ALL OTHER
REQUIRED DOCUMENTS IS AT THE OPTION AND RISK OF THE TENDERING UNITHOLDER. IF
DELIVERY IS BY MAIL, REGISTERED MAIL WITH RETURN RECEIPT REQUESTED, PROPERLY
INSURED, IS RECOMMENDED. SUFFICIENT TIME SHOULD BE ALLOWED TO ASSURE TIMELY
DELIVERY TO THE DEPOSITARY. EXCEPT AS OTHERWISE PROVIDED IN THE LETTER OF
TRANSMITTAL, THE DELIVERIES REFERRED TO ABOVE WILL BE DEEMED MADE ONLY WHEN
ACTUALLY RECEIVED BY THE DEPOSITARY.
By executing the Letter of Transmittal as set forth above, a tendering
Unitholder irrevocably appoints designees of the Company as such Unitholder's
attorneys-in-fact and proxies, each with full power of substitution, in the
manner set forth in the Letter of Transmittal, to the full extent of such
Unitholder's rights with respect to the Units tendered by such Unitholder and
accepted for payment by the Company. All such powers of attorney and proxies
shall be considered coupled with an interest in the tendered Units. Such
appointment will be effective when, and only to the extent that, the Company
accepts such Units for payment. Upon such acceptance for payment, all prior
powers of attorney and proxies given by such Unitholder with respect to such
Units will be revoked without further action, and no subsequent proxies nor any
subsequent written consent executed by such Unitholder with respect thereto may
be given (and, if given or executed, will not be deemed to be effective). The
designees of the Company will, with respect to the Units for which the
appointment is effective, be empowered to exercise all voting and other rights
of such Unitholder as they in their sole discretion may deem proper at any
meeting of the Partnership's Unitholders (whether annual or special and whether
or not an adjourned meeting), by written consent in lieu of any such meeting or
otherwise. The Company reserves the right to require that, in order for Units to
be deemed validly tendered, the Company must be able to exercise full voting
rights with respect to such Units immediately upon the Company's acceptance for
payment of such Units.
A tender of Units pursuant to any of the procedures described above
will constitute a tendering Unitholder's acceptance of the terms and conditions
of the Offer and a binding agreement between the tendering Unitholder and the
Company upon the terms and subject to the conditions of the Offer.
TO PREVENT FEDERAL INCOME TAX BACKUP WITHHOLDING WITH RESPECT TO
PAYMENT OF THE PURCHASE PRICE OF UNITS PURCHASED PURSUANT TO THE OFFER, A
UNITHOLDER MUST PROVIDE THE DEPOSITARY WITH SUCH UNITHOLDER'S CORRECT TAXPAYER
IDENTIFICATION NUMBER AND CERTIFY THAT SUCH UNITHOLDER IS NOT SUBJECT TO BACKUP
FEDERAL INCOME TAX WITHHOLDING BY COMPLETING THE SUBSTITUTE FORM W-9 IN THE
LETTER OF TRANSMITTAL. OTHERWISE, UNDER THE BACKUP WITHHOLDING PROVISIONS OF THE
FEDERAL INCOME TAX LAWS, UNLESS AN EXCEPTION APPLIES UNDER APPLICABLE LAWS AND
REGULATIONS, THE DEPOSITARY WILL BE REQUIRED TO WITHHOLD 31% OF THE AMOUNT OF
ANY PAYMENTS MADE TO UNITHOLDERS PURSUANT TO THE OFFER. SEE
20
<PAGE> 26
INSTRUCTION 4 OF THE LETTER OF TRANSMITTAL. See "Special Factors -- Certain
Federal Income Tax Consequences."
4. DETERMINATION OF VALIDITY; REJECTION OF UNITS; WAIVER OF DEFECTS.
All questions as to the validity, form, eligibility (including time of receipt)
and acceptance for payment of any tender of Units will be determined by the
Company in its sole discretion, which determination shall be final and binding.
The Company reserves the absolute right to reject any and all tenders determined
by it not to be in proper form or the acceptance for payment of which may, in
the opinion of its counsel, be unlawful. The Company also reserves the absolute
right to waive any condition of the Offer, or any defect or irregularity in the
tender of any Units of any particular Unitholder, whether or not similar defects
or irregularities are waived in the case of other Unitholders. No tender of
Units will be deemed to have been validly made until all defects and
irregularities have been cited or waived. None of the Company, the Depositary,
the Information Agent or any other person will be under any duty to give
notification of any defects or irregularities in tenders or incur any liability
for failure to give any such notification. The Company's interpretation of the
terms and conditions of the Offer (including the Letter of Transmittal and the
instructions thereto) will be final and binding.
5. WITHDRAWAL RIGHTS. Tenders of Units made pursuant to the Offer are
irrevocable, except that such Units may be withdrawn at any time prior to the
Expiration Date and, unless theretofore accepted for payment by the Company
pursuant to the Offer, may also be withdrawn at any time after July 15, 1996. If
the Company extends the Offer, is delayed in its acceptance for payment of Units
or is unable to accept Units for payment pursuant to the Offer for any reason,
then, without prejudice to the Company's rights under the Offer, the Depositary
may nevertheless, on behalf of the Company, retain tendered Units, and such
Units may not be withdrawn except to the extent that tendering Unitholders are
entitled to withdrawal rights as described in this Section 5, subject to Rule
14e-1(c) under the Exchange Act. Any such delay will be accompanied by an
extension of the Offer to the extent required by law.
For a withdrawal to be effective, a written or facsimile transmission
notice of withdrawal must be timely received by the Depositary at its address
set forth on the back cover page of this Offer to Purchase. Any such notice of
withdrawal must specify the name(s) of the person(s) who tendered the Units to
be withdrawn, the number of Units to be withdrawn and the name(s) of the
registered holder(s) of such Units, if different from that of the person(s) who
tendered such Units. The signature(s) on the notice of withdrawal must be
guaranteed by a bank, broker, dealer, credit union, savings association or other
entity that is a member in good standing of a recognized Medallion Program
approved by The Securities Transfer Association, Inc. (each of the foregoing
being referred to as an "Eligible Institution"), unless such Units have been
tendered for the account of an Eligible Institution.
All questions as to the form and validity (including time of receipt)
of any notice of withdrawal will be determined by the Company, in its sole
discretion, whose determination will be final and binding. None of the Company,
the Depositary, the Information Agent or any other person will be under any duty
to give notification of any defects or irregularities in any notice of
withdrawal or incur any liability for failure to give any such notification.
21
<PAGE> 27
Any Units properly withdrawn will thereafter be deemed not to have been
validly tendered for purposes of the Offer. However, withdrawn Units may be
re-tendered at any time prior to the Expiration Date by following the procedures
described in "The Offer" -- Section 3.
6. MARKET PRICES OF THE UNITS. The Units are not listed on any national
or regional securities exchange or quoted on the NASDAQ system, and there is no
established public trading market for the Units. Secondary sales activity for
the Units has been limited and sporadic. The Company monitors transfers of the
Units (a) because the admission of the transferee as a substitute Limited
Partner requires the consent of the General Partners under the Partnership
Agreement, and (b) in order to track compliance with safe harbor provisions to
avoid treatment as a "publicly traded partnership" for tax purposes.
Set forth in the following tables is certain information regarding sale
transactions in the Units. The information set forth below was obtained from the
sources indicated. The transactions reflected in the tables below represent only
some of the sales transactions in the Units. There have been other secondary
sale transactions in the Units, although specific information regarding such
transactions is not readily available. Because the information regarding sale
transactions in the Units included in the tables below is provided without
verification by the Company and because the information provided does not
reflect sufficient activity to cause the prices shown to be representative of
the values of the Units, such information should not be relied upon as
indicative of the ability of the Unitholders to sell their units in secondary
sale transactions or as to the prices at which such Units may be sold.
Therefore, the information presented should not necessarily be relied upon by
Unitholders in determining whether to tender their Units.
The Company is offering to purchase all of the outstanding Units at a
net cash price of $720 per Unit. The secondary market price per Unit from
January 1, 1995 through March 31, 1996 ranged from $440 to $612. Limited partner
interests are generally traded on a sporadic basis. Sale prices can vary
dramatically based on the number of interests sold at once or over time.
Additionally, the Tax Reform Act of 1986 contained provisions which caused
limited partnerships to place restrictions on transfers of interests in order to
avoid taxation of income at the partnership and partner levels. Accordingly,
secondary sales of limited partnership interests have not been well received by
investors and secondary sale prices have been adversely affected.
While the Company receives some information regarding the prices at
which secondary sale transactions in the Units have been effectuated, the
Company does not receive or maintain comprehensive information regarding the
activities of all broker/dealers and others known to facilitate from time to
time, or on a regular basis, secondary sales of the Units. Therefore, the
details of some transactions may not be reflected in the transfer records of the
Partnership. The Company provides the following information regarding the sale
transactions (i.e., excluding transactions believed to be between related
parties, family members or the same beneficial owner) reported to it by selling
Unitholders:
22
<PAGE> 28
SECONDARY MARKET PARTNERSHIP UNIT SALES
FROM JANUARY 1, 1993 THROUGH MARCH 31, 1996
AS TRACKED BY THE COMPANY
<TABLE>
<CAPTION>
NUMBER OF UNITS
FOR WHICH SALE
TRANSACTION PRICE PER UNIT PRICES WERE TRACKED
PERIOD HIGH LOW
------ ---- ---
<S> <C> <C> <C> <C>
1993 $1,000* $510 67.000
1994 $900** $422 90.500
1995 $612*** $451 213.958
1996**** $580 $540 59.055
</TABLE>
* Only 3 Units were sold for $1,000.
** Only 2 Units were sold for $900.
*** One hundred and five Units were sold for approximately $612. These
Units were sold by American Senior Housing Fund, a partnership of
which certain of the General Partners and other affiliates of the
Company were partners, to the Company in November 1995. See "Special
Factors -- Interests of Certain Persons." The next highest sales
price of a Unit during this period was $520.
**** Through March 31, 1996.
Other Secondary Market Information. The information below was obtained
from Stanger, which maintains the data for publication, and summarizes
secondary-market prices for the Units based on actual transactions during the
reporting periods indicated. When no information is reported for a particular
period, it means that no trade during that period was reported to Stanger. The
Company does not know which of the secondary-market firms reported the
transactions, or the number or size of transactions, or whether the transaction
prices are before or after commissions.
The information set forth below is provided without verification by the
Company and is subject to the following qualifications:
"Limited partnerships are designed as illiquid, long-term investments.
Secondary- market prices generally do not reflect the current value of
partnership assets, nor are they indicative of total return since prior
cash distributions and tax benefits received by the original investor
are not reflected in the price. Transaction prices are not verified by
Robert A. Stanger & Company."
23
<PAGE> 29
<TABLE>
<CAPTION>
TRANSACTION PRICE PER UNIT NUMBER OF
REPORTING PERIOD HIGH LOW UNITS TRADED
---------------- ---- --- ------------
<S> <C> <C> <C>
1991
Quarter 1 $625.00 $440.00 30
Quarter 2 --- --- ---
Quarter 3 $600.00 $425.00 14
Quarter 4 $675.00 $475.00 75
1992
Quarter 1 $550.00 $550.00 3
Quarter 2 $550.00 $450.00 105
Quarter 3 $620.00 $375.00 62
Quarter 4 $600.00 $393.33 63
1993
Quarter 1 $500.00 $462.83 77
Quarter 2 $545.00 $545.00 5
Quarter 3 $545.00 $490.00 40
Quarter 4 $529.70 $385.00 41
1994
Quarter 1 $509.64 $509.64 20
Quarter 2 $540.00 $400.00 75
Quarter 3 $550.00 $410.00 120
Quarter 4 $565.45 $420.00 116
1995
Quarter 1 $480.00 $440.00 81
Quarter 2 $561.67 $460.00 35
Quarter 3 --- --- ---
Quarter 4 $561.76 $490.00 107
1996
Quarter 1* $580.00 $544.94 15
</TABLE>
*Through February 29, 1996
Other Information About the Partnership. The Partnership is subject to
the informational requirements of the Securities Exchange Act of 1934, as
amended, and in accordance therewith files reports, proxy statements and other
information with the Securities and Exchange Commission (the "Commission").
Reports, proxy statements and other information filed by the Partnership may be
inspected and copied at the public reference facilities maintained by the
Commission at Room 1024, 450 Fifth Street N.W., Washington, D.C. 20549 and its
regional offices. Copies of such information also can be obtained by mail from
the Public Reference
24
<PAGE> 30
Section of the Commission at 450 Fifth Street N.W., Washington, D.C. 20549 at
rates prescribed by the Commission. The Partnership's Commission file number is
0-26468.
7. EFFECTS OF THE OFFER ON NON-TENDERING UNITHOLDERS.
Effect on Trading Market. There is no established public trading market
for the Units, and, therefore, a reduction in the number of Unitholders should
not materially further restrict the Unitholders' ability to find purchasers for
their Units. See "The Offer--Section 6" for certain limited information
regarding secondary sales of the Units.
Partnership Status. The Company believes the purchase of Units by the
Company, as proposed, should not adversely affect the issue of whether the
Partnership is classified as a partnership for federal income tax purposes.
Partnership Business. The Offer will not materially affect the
operation of the properties owned by the Partnership since the Properties will
continue to be managed by the Company.
Registration of the Units. The Units are currently registered under the
Exchange Act. Such registration may be terminated upon application of the
Partnership to the Commission if the Units are neither listed on a national
securities exchange nor held by 300 or more holders of record of the Units. The
termination of the registration of the Units under the Exchange Act would
substantially reduce the information required to be furnished by the Partnership
to the Unitholders and to the Commission and would render inapplicable certain
provisions of the Exchange Act, including requirements that the Partnership file
periodic reports and furnish Unitholders with proxy materials regarding meetings
of Unitholders of the Partnership, the requirements of Rule 13e-3 under the
Exchange Act with respect to "going private" transactions, requirements that the
Partnership's executive officers, directors and ten-percent Unitholders file
certain reports concerning ownership of the Partnership's equity securities and
provisions that any profit by such officers, directors and Unitholders through
purchases and sales of the Partnership's equity securities within any six-month
period may be recaptured by the Partnership. In addition, the ability of
"affiliates" of the Partnership and other persons to dispose of Units which are
"restricted securities" under Rule 144 of the Securities Act of 1933, as
amended, may be impaired or eliminated. The Purchaser intends to seek to cause
the Partnership to make an application for termination of registration of the
Units under the Exchange Act as soon after consummation of the Offer as the
requirements for termination of registration of the Units have been satisfied.
8. CERTAIN INFORMATION CONCERNING THE PARTNERSHIP. The Partnership is a
California limited partnership formed in February 1988. The principal offices of
the Partnership are located at 245 Fischer Avenue, Suite D-1, Costa Mesa,
California 92626. Except as otherwise indicated herein, the information
concerning the Partnership contained in this Offer to Purchase has been
furnished by the Partnership or has been taken from or is based upon publicly
available documents on file with the Commission and other public records. The
Company does not assume any responsibility for the accuracy or completeness of
the information concerning the Partnership furnished by the Partnership or
contained in such documents and records or for any failure by the Partnership to
disclose events which may have occurred and
25
<PAGE> 31
may affect the significance or accuracy of such information but which
are unknown to the Company.
Certain Financial Information. The following selected consolidated
financial information relating to the Partnership has been taken or derived from
the audited consolidated financial statements contained in the Partnership's
Annual Report on Form 10-K for the year ended December 31, 1995 and the
Partnership's Quarterly Report on Form 10-Q for the three months ended March 31,
1996, and other public documents of the Partnership. More comprehensive
financial information is contained in Schedule III hereto which contains
excerpts of the 1995 Form 10-K and March 31, 1996 Form 10-Q, and the financial
information below is qualified by reference to such Schedule and the financial
information contained therein. Such reports and other documents may be examined
and copies may be obtained from the offices of the Commission as described on
the cover page hereof.
26
<PAGE> 32
AMERICAN RETIREMENT VILLAS PROPERTIES II
SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
For the three months
ended For the years ended December 31,
-------------------------- ---------------------------------------------------------
3/31/96 3/31/95 1995 1994 1993 1992
------------ ----------- ------------ ------------- ------------ --------------
<S> <C> <C> <C> <C> <C> <C>
Revenue:
Rent $ 3,695,509 $ 3,696,826 $14,768,855 $ 14,055,979 $13,578,122 $13,036,104
Assisted Living 555,018 495,679 2,018,661 1,728,953 1,307,323 867,583
Interest 4,230 3,998 20,434 14,577 15,704 22,687
Other 48,268 58,714 174,347 203,248 183,435 180,026
-------------------------------------------------------------------------------------
Total Revenue 4,303,025 4,255,217 16,982,297 16,002,757 15,084,584 14,106,400
-------------------------------------------------------------------------------------
Costs and Expenses:
Rental property operations 2,182,267 2,256,135 9,993,572 10,001,328 9,326,559 8,706,574
Assisted Living 240,401 204,209 859,322 748,148 577,606 420,187
General and administrative 465,770 454,862 800,482 695,970 725,814 707,148
Facilities rent 292,805 286,699 1,178,331 1,175,414 1,155,307 1,147,426
Depreciation and amortization 478,391 526,902 2,076,480 2,359,826 2,713,413 2,683,267
Property taxes 98,921 128,343 487,722 434,178 533,019 516,023
Advertising 30,548 31,433 141,031 112,348 117,961 131,432
Interest 148,384 147,550 572,061 583,017 606,699 567,589
-------------------------------------------------------------------------------------
Total costs and 3,937,487 4,036,133 16,109,001 16,110,229 15,756,378 14,879,646
expenses
-------------------------------------------------------------------------------------
Net income (loss) $ 365,538 $ 219,084 $ 873,296 ($ 107,472) ($671,794 ) ($773,246 )
-------------------------------------------------------------------------------------
Net income (loss) per
Unit $ 10.34 $ 6.19 $ 24.71 ($ 3.04) ($19.00 ) ($21.87 )
=====================================================================================
Balance Sheet Data:
Total Assets $21,058,149 $22,287,569 21,523,874 $ 22,764,837 $24,627,621 $26,956,737
Notes Payable 6,847,192 6,660,629 7,211,460 7,189,166 7,305,980 7,416,777
Partners' Capital 12,609,571 14,326,673 12,818,856 13,764,639 15,832,217 18,184,070
Distribution per Unit $ 16.69 $ 15.86 $ 64.28 $ 55.45 $ 47.53 $ 55.43
Return of Capital per Unit $ 6.36 $ 9.67 $ 39.57 $ 55.45 $ 47.53 $ 55.43
=====================================================================================
</TABLE>
<TABLE>
<CAPTION>
1991
----------------
Revenue:
<S> <C>
Rent $ 12,417,377
Assisted Living 322,647
Interest 51,401
Other 253,069
------------
Total Revenue 13,044,494
------------
Costs and Expenses:
Rental property operations 7,894,180
Assisted Living 183,453
General and administrative 794,910
Facilities rent 1,119,671
Depreciation and amortization 3,702,879
Property taxes 534,514
Advertising 127,276
Interest 544,345
------------
Total costs and 14,901,228
expenses
------------
Net income (loss) ($1,856,734)
------------
Net income (loss) per
Unit ($52.53)
============
Balance Sheet Data:
Total Assets $ 29,574,874
Notes Payable 7,415,662
Partners' Capital 20,916,769
Distribution per Unit $ 63.28
Return of Capital per Unit $ 63.28
============
</TABLE>
9. CERTAIN INFORMATION CONCERNING THE COMPANY. The Company was
incorporated under the laws of the State of California in December 1985. The
principal offices of the Company are located at 245 Fischer Avenue, Suite D-1,
Costa Mesa, California 92626. The Company is one of the largest operators of
licensed assisted living facilities in the United States based on the number of
residents. The Company currently operates 37 assisted living facilities
containing 4,636 units. Specifically, the Company operates 17 assisted living
facilities under long-term operating leases with publicly-traded health care
REITs and also manages 13 assisted living facilities which are owned by
affiliated limited partnerships, for which the Company serves as managing
general partner and facility manager. In addition, the Company owns fee title to
seven assisted living facilities. The Company's Common Stock is traded on The
Nasdaq National Market under the symbol "ARVI."
27
<PAGE> 33
The name, business address, current principal occupation or employment,
five-year employment history and citizenship of each executive officer and
director of the Company are set forth in Schedule I hereto.
Except as set forth in this Offer to Purchase, none of the Company nor,
to the best knowledge of the Company, any person listed on Schedule I hereto, or
any majority-owned subsidiary or associate of the Company or of any person so
listed, beneficially owns or has a right to acquire any equity securities of the
Partnership, nor, except as set forth in this Offer to Purchase, has the Company
or, to the best knowledge of the Company, any of the persons or entities
referred to above, or any of the respective executive officers, directors or
subsidiaries of any of the foregoing, effected any transactions in the Units of
the Partnership during the past 60 days.
Except as described in this Offer to Purchase, neither the Company nor,
to the best knowledge of the Company, any person listed on Schedule I hereto,
has any present or proposed contract, arrangement, understanding or relationship
with any other person with respect to any securities of the Partnership,
including, but not limited to, any contract, arrangement, understanding or
relationship concerning the transfer or the voting of any securities of the
Partnership, joint ventures, loan or option arrangements, puts or calls,
guaranties of loans, guaranties against loss or the giving or withholding of
proxies. Except as disclosed herein, there have been no contacts, negotiations
or transactions since January 1, 1993 between the Company or, to the best
knowledge of the Company, any person listed on Schedule I hereto, on the one
hand, and the Partnership or its affiliates, on the other hand, concerning a
merger, consolidation or acquisition, a tender offer or other acquisition of
securities, an election of directors or a sale or other transfer of a material
amount of assets. Except as set forth herein, none of the Company nor, to the
best knowledge of the Company, the persons listed on Schedule I hereto, has had
any business relationships or has entered into any transactions with the
Partnership or the General Partner or affiliates which are required to be
disclosed herein pursuant to the rules and regulations of the Commission.
10. CERTAIN LEGAL MATTERS AND REGULATORY APPROVALS. Except as described
in this Section 10, the Company is not aware of any license or other regulatory
permit which appears to be material to the business of the Partnership and its
subsidiaries taken as a whole and which is likely to be adversely affected by
the Company's acquisition of Units pursuant to the Offer or of any approval or
other action by any domestic or foreign governmental or administrative agency
that would be required prior to the acquisition of Units by the Company pursuant
to the Offer. Should any approval or other action be required, the Company
presently intends to seek such approval or take such action (except as described
below under "State Takeover Laws"). The Company does not presently intend to
delay the purchase of Units tendered pursuant to the Offer pending the outcome
of any such action or receipt of such approval (subject to the Company's right
to decline to purchase Units if any of the conditions in "The Offer" -- Section
12 shall have occurred). There can be no assurance that any such approval or
action, if needed, would be obtained, or, if obtained, that it will be obtained
without substantial conditions, or that adverse consequences might not result to
the Partnership's or its affiliates' businesses, or that certain parts of the
Partnership's or its affiliates' businesses might not have to be disposed of or
other substantial conditions might not have to be complied with in order to
obtain such approval or other action in the event that such approvals were not
obtained or such
28
<PAGE> 34
other actions were not taken. The Company's obligations under the Offer are
subject to certain conditions, among them conditions which might not be
satisfied if there were a failure to obtain regulatory approval and such failure
were material. See "The Offer" -- Section 12.
State Takeover Laws. A number of other states have adopted laws and
regulations applicable to attempts to acquire securities of corporations which
are incorporated, or have substantial assets, stockholders, principal executive
offices or principal places of business, or whose business operations otherwise
have substantial economic effects, in such states. In Edgar v. MITE Corp., the
Supreme Court of the United States invalidated on constitutional grounds the
Illinois Business Takeover Statute, which, as a matter of state securities law,
made takeovers of corporations meeting certain requirements more difficult.
However, in 1987 in CTS Corp. v. Dynamics Corp. of America, the Supreme Court
held that the State of Indiana may, as a matter of corporate law and, in
particular, with respect to those aspects of corporate law concerning corporate
governance, constitutionally disqualify a potential acquiror from voting on the
affairs of a target corporation without the prior approval of the remaining
stockholders. The state law before the Supreme Court was by its terms applicable
only to corporations that had a substantial number of stockholders in the state
and were incorporated there.
The Partnership was formed under the laws of the State of California,
which currently has no statute applicable to partnerships that is similar to
that approved in the CTS Corp. case, and the Company does not expect any such
statute to be enacted in that state during the pendency of the Offer. There can
be no assurance, however, that California will not, prior to the completion of
the Offer, adopt such a statute which impairs the ability of the Company to vote
its Units. The Company does not believe any of the statutes adopted by states in
which the Partnership conduct business by their terms apply to the Offer, and
the Company has not complied with any state takeover law.
Antitrust. Under the Hart-Scott-Rodino Antitrust Improvements Act of
1976, amended (the "HSR Act"), and the rules that have been promulgated
thereunder by the Federal Trade Commission (the "FTC"), certain acquisition
transactions may not be consummated unless certain information has been
furnished to the Antitrust Division of the Department of Justice (the "Antitrust
Division") and the FTC and certain waiting period requirements have been
satisfied. Under the provisions of the HSR Act applicable to the purchase of
Units pursuant to the Offer, if 100% of the Units are tendered to the Company,
the Offer cannot be consummated until the expiration of a 15-day waiting period
after the date on which certain required information and documentary material is
furnished to the Antitrust Division and the FTC with respect to the Offer,
unless both the Antitrust Division and the FTC terminate the waiting period
prior thereto. If, within such 15-day waiting period, either the Antitrust
Division or the FTC requests additional information or documentary material
relevant to the Offer, the waiting period will be extended for an additional
period of ten calendar days following the date of substantial compliance with
such request. Thereafter, the waiting period could only be extended by court
order or with the consent of the filing party.
If it appears that 100% of the Units will be tendered, the Company will
promptly file with the Antitrust Division and the FTC certain required
information and documentary material with respect to the Offer. The required
waiting period would expire at 11:59 p.m., New York City time, on the fifteenth
day following such filing date, unless a request has been made
29
<PAGE> 35
pursuant to the HSR Act for early termination of the waiting period applicable
to the Offer. There can be no assurance, however, that the 15-day HSR Act
waiting period would be terminated early. If 100% of the Units are tendered, the
Company will not accept for payment Units tendered pursuant to the Offer unless
and until the waiting period requirements imposed by the HSR Act have been
satisfied.
The Antitrust Division and the FTC frequently scrutinize the legality
under the antitrust laws of transactions such as the acquisition of Units
pursuant to the Offer. At any time before or after the Company's acquisition of
Units pursuant to the Offer, the Antitrust Division or the FTC could take such
action under the antitrust laws as it deems necessary or desirable in the public
interest, including seeking to enjoin the purchases of Units pursuant to the
Offer or seeking divestiture of the Units so acquired or divestiture of
substantial assets of the Partnership, Company or its respective subsidiaries.
Private parties and state attorneys general may also bring legal action under
the antitrust laws under certain circumstances.
The Company believes that the acquisition of Units pursuant to the
Offer will not violate the antitrust laws. However, there can be no assurance
that a challenge to the Offer on antitrust grounds will not be made, or if such
a challenge is made, what the result will be. See "The Offer" -- Section 12 for
certain conditions of the Offer, including conditions with respect to litigation
and certain governmental actions.
Margin Requirements. The Units are not "margin securities" under the
regulations of the Board of Governors of the Federal Reserve System and,
accordingly, such regulations generally are not applicable to the Offer.
11. EXTENSION OF THE OFFER PERIOD; TERMINATION AND AMENDMENT. The
Company expressly reserves the right (but will not be obligated), in its sole
discretion, at any time or from time to time, to extend the period of time
during which the Offer is open by giving oral or written notice of such
extension to the Depositary and by making a public announcement of such
extension. During any such extension, all Units previously tendered and not
accepted for payment or withdrawn will remain subject to the Offer and may be
accepted for payment by the Company at the conclusion of the Offer, except to
the extent such Units may be withdrawn as set forth in "The Offer" -- Section 5.
There can be no assurance that the Company will exercise its right to extend the
Offer. In addition, the Offer may be extended, amended or terminated upon the
occurrence of any event described in "The Offer" -- Section 12.
If the Company shall decide, in its sole discretion to establish a
limit for or increase or decrease the number of Units being sought (in the case
of an increase by more than 2% of the outstanding Units) or to increase or
decrease the consideration offered in the Offer to holders of Units and, at the
time that notice of such increase or decrease is first published, sent or given
to holders of Units in the manner specified below, the Offer is scheduled to
expire at any time earlier than the expiration of a period ending on the tenth
business day following, and including, the date that such notice is first so
published, sent or given, then the Offer will be extended until the expiration
of such period of ten business days.
The Company also expressly reserves the right (i) to terminate the
Offer and not accept for payment or pay for any Units not theretofore accepted
for payment or paid for or to delay
30
<PAGE> 36
the acceptance for payment of, or payment for, any Units validly tendered and
not withdrawn, upon the occurrence of any of the conditions specified in Section
12, by giving oral or written notice of such termination or delay to the
Depositary and (ii) at any time, or from time to time, to amend the Offer in any
respect. Any extension, delay in payment, termination or amendment will be
followed as promptly as practicable by public announcement thereof, such
announcement in the case of an extension to be issued no later than 9:00 a.m.,
Dallas, Texas time, on the next business day after the previously scheduled
Expiration Date in accordance with the public announcement requirements of Rule
14d-4(c) and Rule 14d-6(d) under the Exchange Act. Without limiting the
obligations of the Company under such rules or the manner in which the Company
may choose to make any public announcement, the Company currently intends to
make announcements by issuing a release to the Dow Jones New Service and making
any appropriate filing with the Commission.
If the Company extends the Offer or if the Company is delayed in its
acceptance for payment of, or payment for, Units or is unable to accept for
payment or pay for Units pursuant to the Offer for any reason, then, without
prejudice to the Company's rights pursuant to the Offer (including without
limitation, as set forth in "The Offer" -- Sections 11 and 12), the Depositary
may nevertheless, on behalf of the Company, retain tendered Units subject to
withdrawal rights as described in "The Offer" -- Section 5. The ability of the
Company to delay payment for Units which it has accepted for payment is limited
by Rule 14e-1(c) under the Exchange Act, which requires any person making a
tender offer to pay the consideration offered or return the tendered securities
promptly after the termination or withdrawal of a tender offer.
12. CERTAIN CONDITIONS OF THE OFFER. Notwithstanding any other
provision of the Offer, the Company shall not be required to accept for payment,
purchase or pay for any Units tendered and, in its sole discretion, may postpone
the purchase of or payment for Units tendered and to be purchased by the
Company, and, in its sole discretion, may terminate or amend the Offer if on or
after May 16, 1996 and at or before payment for any such Units (whether or not
any Units have theretofore been accepted for payment or paid for pursuant to the
Offer) any of the following shall occur:
(a) There shall be threatened, instituted or pending any
action or proceeding before any domestic or foreign court or
governmental agency or other regulatory or administrative agency or
commission (i) challenging the acquisition by the Company of the Units,
seeking to restrain or prohibit the making or consummation of the
Offer, seeking to obtain any material damages or otherwise directly or
indirectly relating to the transactions contemplated by the Offer, (ii)
seeking to prohibit or restrict the Company's ownership or operation of
any material portion of the Company's business or assets, or to compel
the Company to dispose of or hold separate all or any material portion
of its business or assets as a result of the Offer, (iii) seeking to
make the purchase of, or payment for, some or all of the Units illegal,
(iv) resulting in a delay in the ability of the Company to accept for
payment or pay for some or all of the Units, (v) imposing material
limitations on the ability of the Company effectively to acquire or
hold or to exercise full rights of ownership of the Units, including,
without limitation, the right to vote the Units purchased by the
Company on all matters properly presented to the limited partners of
the Partnership, (vi) which, in the sole judgment of the Company, could
materially and adversely affect the treatment of the Offer for federal
income tax
31
<PAGE> 37
purposes, (vii) which otherwise is reasonably likely to materially
adversely affect the Partnership or value of the Units or (viii) which
imposes any material condition unacceptable to the Company;
(b) Any statute, rule, regulation or order shall be enacted,
promulgated, entered or deemed applicable to the Offer, any legislation
shall be pending, or any other action shall have been taken, proposed
or threatened, by any domestic government or governmental authority or
by any court, domestic or foreign, which, in the sole judgment of the
Company, is likely, directly or indirectly, to result in any of the
consequences referred to in paragraph (a) above; or
(c) There shall have occurred (i) any general suspension of,
or limitation on prices for, trading in securities on the Nasdaq
National Market, (ii) the declaration of a banking moratorium or any
suspension of payments in respect of banks in the United States, (iii)
the commencement of a war, armed hostilities or other international or
national calamity materially affecting the United States, (iv) any
limitation by any governmental authority or any other event which is
reasonably likely to affect the extension of credit by banks or other
leading institutions in the United States, (v) any material decline in
security prices on the Nasdaq National Market or (vi) in the case of
any of the foregoing existing at the time of the Offer, any material
worsening thereof;
which, in the sole judgment of the Company, in any such case and regardless of
the circumstances (including any action or inaction by the Company giving rise
to any such condition) makes it inadvisable to proceed with such acceptance for
payment or payment.
The foregoing conditions are for the sole benefit of the Company any
may be asserted regardless of the circumstances giving rise to any such
conditions (including without limitation any action or inaction by the Company)
or may be waived by the Company in whole or in part at any time or from time to
time at the in the sole discretion of the Company. The failure by the Company at
any time to exercise any of the foregoing rights shall not be deemed a waiver of
any such right, the waiver of any such right with respect to any particular
facts or circumstances shall not be deemed a waiver with respect to any other
facts or circumstances and each right shall be deemed a continuing right which
may be asserted at any time and from time to time. Any determination by the
Company with respect to the foregoing conditions shall be final and binding.
13. DISSENTERS' RIGHTS AND INVESTORS LISTS. Neither the Partnership
Agreement nor California law provides any right for Unitholders to have their
respective Units appraised or redeemed in connection with or as a result of the
Offer. Each Unitholder has the opportunity to make an individual decision on
whether or not to tender in the Offer. Under the Partnership Agreement, any
Unitholder is entitled, upon reasonable request, to inspect the books and
records of the Partnership during normal business hours. Any Unitholder is
entitled to a copy of the list of names and addresses of limited partners of the
Partnership, including the number of Units held by each of them.
32
<PAGE> 38
14. DISTRIBUTIONS. For the period from inception of the Partnership
through March 31, 1996, cash distributions from operations have totalled $401.10
per Unit based on the weighted number of Units outstanding over the life of the
Partnership. A summary of distributions is as follows.
Annual Distributions Paid Per Unit.
<TABLE>
<CAPTION>
====================================================================================================================================
6/1/88- 4TH
9/30/89 QUARTER
(1) 1989(2) 1990 1991 1992 1993 1994 1995 1996(3)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
DISTRIBUTIONS(4) $28.45 $12.50 $57.49 $63.28 $55.43 $47.53 $55.45 $64.28 $16.69
- ------------------------------------------------------------------------------------------------------------------------------------
RETURN OF CAPITAL (5) $28.45 $12.50 $57.49 $63.28 $55.43 $47.53 $55.45 $39.57 $6.36
====================================================================================================================================
</TABLE>
(1) Based on the weighted number of Units outstanding during years 1988 and
1989.
(2) Fourth quarter distribution only.
(3) First quarter distribution only.
(4) Distributions per weighted average of all Units outstanding.
(5) $366.06 of distributions per Unit from 1988 through March 31, 1996
represented a return of capital on a GAAP basis, while $35.04 of the
distributions made in 1995 and 1996 represent a distribution of
earnings on a GAAP basis.
The numbers set forth above are for an average Unit and reflect actual cash
distributions made by the Partnership for the periods represented. Due to
differences in timing between declarations of distributions and payment thereof,
payments to individual Unitholders may be more or less than as set forth above.
Unitholders entitled to quarterly distributions will receive a distribution
equal to $16.25 per Unit for the first quarter of 1996 on or around May 15,
1996. The discrepancy between the quarterly distribution and the amount noted
above results from additional distributions made to Unitholders receiving
monthly distributions in order to equalize Unitholder distributions for calendar
year 1995 (during which Unitholders receiving quarterly distributions received
amounts in excess of those paid to Unitholders receiving monthly distributions).
The sum of $401.10 per Unit distributions from operations since the
inception of the Partnership (based on the weighted number of Units) outstanding
over the life of the Partnership and the Offer Price of $720 net cash per Unit
will result in a return of approximately $1,121.10 on the original $1,000
investment per Unit invested by each initial Unitholder.
If, on or after May 16, 1996, the Partnership should (i) split, combine
or otherwise change the Units or its capitalization, (ii) issue or sell any
additional securities of the Partnership or otherwise cause an increase in the
number of outstanding securities of the Partnership, or (iii) acquire currently
outstanding Units or otherwise cause a reduction in the number of outstanding
Units, then, without prejudice to the Company's rights under Sections 1 and 12,
the Company, in its discretion, may make such adjustments in the purchase price
and the other terms of the Offer as it deems appropriate to reflect such split,
combination or other change, including the amount and type of securities offered
to be purchased.
33
<PAGE> 39
If, on or after May 16, 1996, the Partnership should declare or pay any
distribution on the Units (other than any distribution declared and unpaid which
was accrued during the first calendar quarter of 1996) or make any distribution
(including, without limitation, the issuance of additional Units pursuant to a
Unit distribution or Unit split, the issuance of other securities or the
issuance of rights of the purchase of any securities) with respect to the Units,
that is payable or distributable to Unitholders of record on a date prior to the
transfer to the name of the Company or its nominee or transferee on the
Partnership's Unit transfer records of the Units purchased pursuant to the
Offer, then, without prejudice to the Company's rights under Section 12, (i) the
purchase price per Unit payable by the Company pursuant to the Offer shall be
reduced by the amount of any such cash dividend or cash distribution and (ii)
the whole of any non-cash dividend, distribution or right (including additional
Units or rights as aforesaid) to be received and held by a tendering Unitholder
will be received and held by the tendering Unitholders for the account of the
Company and will be required to be promptly remitted and transferred by the
tendering Unitholder to the Depositary for the account of the Company,
accompanied by appropriate documentation of transfer. Pending such remittance or
appropriate assurance thereof, the Company shall be entitled, subject to
applicable law, to all rights and privileges as owner of any such non-cash
dividend, distribution or right and may withhold the entire purchase price or
deduct from the purchase price the amount or value thereof, as determined by the
Company in its sole discretion. Distributions declared and unpaid which were
accrued during the first calendar quarter of 1996 shall be paid to each
Unitholder without reducing the purchase price per Unit payable to such
Unitholder.
15. FEES AND EXPENSES. Except as set forth below, the Company will not
pay any fees or commissions to any broker, dealer or other person for soliciting
tenders of units pursuant to the Offer. The Company will reimburse the prior
approved expenses of brokers, dealers, commercial banks and trust companies for
customary handling and mailing expenses incurred in forwarding the Offer to
their customers.
Estimated costs and fees in connection with the Offer and the related
transactions are as follows:
<TABLE>
<S> <C>
Legal Fees........................................... $ 90,000
Accounting Fees...................................... 10,000
Printing, Mailing and Solicitation Services.......... 65,000
Filing Fees.......................................... 5,024
Depositary and Tax Reporting......................... 7,500
--------
Total........................................... 177,524
</TABLE>
The Company has retained The Herman Group, Inc. to act as the
Information Agent and Depositary in connection with the Offer. The Information
Agent may contact holders of Units by mail, telephone, telex, telegraph and
personal interview and may request brokers, dealers and other nominee
Unitholders to forward materials relating to the Offer to beneficial owners of
the Units. The Information Agent and the Depositary each will receive reasonable
and customary compensation for their services in connection with the Offer, will
be reimbursed for their reasonable out-of-pocket expenses and will be
indemnified by the Company against certain
34
<PAGE> 40
liabilities and expenses in connection with the Offer, including certain
liabilities under the Federal securities laws.
16. MISCELLANEOUS. The Offer is being made to all holders of Units. The
Company is not aware of any state where the making of the Offer is prohibited by
administrative or judicial action pursuant to a state statute. If the Company
becomes aware of any state where the making of the Offer is so prohibited, the
Company will make a good faith effort to comply with any such statute or seek to
have such statute declared inapplicable to the Offer. If, after such good faith
effort, the Company cannot comply with any applicable statute, the Offer will
not be made to (nor will tenders be accepted from or on behalf of) the holders
of Units in such state.
No person has been authorized to give any information or make any
representation on behalf of the Company or Parent not contained in this Offer,
and, if given or made, such information or representation must not be relied
upon as having been authorized.
In those jurisdictions where securities, blue sky or other laws require
the Offer to be made by a licensed broker or dealer, the Offer shall be deemed
to be made on behalf of the Company by one or more registered brokers or dealers
licensed under the laws of such jurisdiction.
35
<PAGE> 41
SCHEDULE I
DIRECTORS AND EXECUTIVE OFFICERS
OF ARV ASSISTED LIVING, INC.
The following table sets forth the name, business address,
principal occupation or employment at the present time and during the last five
years, and the name, principal business and address of any corporation or other
organization in which such occupation or employment is or was conducted, of the
directors and executive officers of the Company, all of whom are citizens of the
United States. Except as otherwise noted, the address of each such corporation
or organization listed and the business address of such person is the address of
the Company, 245 Fischer Avenue, Suite D-1, Costa Mesa, California 92626. Except
as otherwise noted, each person has had the principal occupation or employment
listed for more than the past five years.
<TABLE>
<CAPTION>
Name Company/Address/ Office and Date of Election
- ---- ---------------- ---------------------------
Description of Business
-----------------------
<S> <C> <C>
Gary L. Davidson ARV Assisted Living, Inc. Chairman of the Board and Director
(1985- present)
John A. Booty ARV Assisted Living, Inc. President and Director (1985-present)
David P. Collins ARV Assisted Living, Inc. Senior Executive Vice-President and
Director (1985-present)
Graham P. Espley-Jones ARV Assisted Living, Inc. Chief Financial Officer (1989-present)
R. Bruce Andrews ARV Assisted Living, Inc. Director
Nationwide Health Properties President, Chief Executive Officer and
4675 MacArthur, St. 1170 Director
Newport Beach, CA 92660
Maurice J. DeWald ARV Assisted Living, Inc. Director
Verity Financial Group Chairman and Chief Executive Officer
19200 Von Karman Avenue (1992-present)
Suite 400
Irvine, CA 92715
KPMG Peat Marwick Various positions including Managing
Three Chestnut Ridge Rd. Partner and Director (1962-1991)
Montvale, NJ 07645
James M. Peters ARV Assisted Living, Inc. Director
Peters-Hover Company, Inc. Founder, Chairman of the Board and
3501 Jamboree #2000 Director (1994-present)
Newport Beach, CA 92660
J.M. Peters Company Founder, President and Chief Executive
3501 Jamboree #2000 Officer (1975-1993)
Newport Beach, CA 92660
</TABLE>
I - 1
<PAGE> 42
<TABLE>
<CAPTION>
Name Company/Address/ Office and Date of Election
- ---- ---------------- ---------------------------
Description of Business
-----------------------
<S> <C> <C>
John J. Rydzewski Benedetto, Gartland & Green, Inc. Member (1993-present)
1330 Avenue of the Americas
29th Floor
New York, NY 10019
Four Winds, Inc. Executive Vice President and Chief
Katonah, New York Financial Officer (1992-1993)
Kidder Peabody & Co. Vice President (1987-1992)
New York, NY
</TABLE>
I - 2
<PAGE> 43
SCHEDULE II
SUMMARIES OF AMERICAN SENIOR
LIVING VALUATION SERVICES, INC. APPRAISALS
<TABLE>
<CAPTION>
Page
Reference
---------
<S> <C>
Montego Heights Lodge II-1
Valley View Lodge II-3
Retirement Inn of Fullerton II-5
Retirement Inn of Daly City II-7
</TABLE>
<PAGE> 44
[letterhead]
SENIOR LIVING VALUATION SERVICES, INC.
April 4, 1996
American Retirement Villas Properties II, L.P.
c/o ARV Assisted Living
245 Fischer Avenue, Suite D-1
Costa Mesa, California 92626
Attention: Ms. Sheila Muldoon
Re: Montego Heights Lodge
1400 Montego Drive
Walnut Creek, California
SLVS File No. 96-04-30.1
Ladies and Gentlemen:
In accordance with your request, we have conducted the required investigation,
gathered the necessary data, and made certain analyses that have enabled us to
form an opinion of the market value of the above captioned property. This report
has been prepared to be in compliance with the requirements of the Uniform
Standards of Professional Appraisal Practice as a restricted appraisal report.
This letter report updates a full narrative appraisal report prepared by our
firm and dated July 14, 1995. The full narrative report discusses the subject
region, neighborhood, site, improvements and market in detail. Therefore, this
letter should be used in conjunction with the full narrative appraisal report.
This report is intended for use by the client only. This letter report cannot be
fully understood properly without a review of the previous full narrative
appraisal report and additional information currently contained in the work file
of the appraiser.
AS IS @ 3/29/96
Based on an inspection of the property and the investigation and analysis
undertaken, we have formed the opinion, subject to the assumptions and limiting
conditions set forth in this report, that as of March 29, 1996, the fee simple
total going concern interest of the subject, as is, including the value of
favorable financing, has a market value of:
EIGHT MILLION NINE HUNDRED SEVENTY FIVE THOUSAND ($8,975,000)
DOLLARS
II - 1
<PAGE> 45
Ms. Sheila Muldoon
April 4, 1996
Page 2
This total going concern value estimate can be allocated to the following
components:
<TABLE>
<CAPTION>
Market Value
As Is -
3/29/96
-------
<S> <C>
Real Estate Value $7,250,000
Furniture, Fixtures & Equipment 200,000
Business Value 1,250,000
-----------
Total Going Concern Valuation $8,700,000
==========
Plus: Favorable Financing $ 275,000
----------
Total Reported Valuation $8,975,000
==========
</TABLE>
As required by the Uniform Standards of Professional Appraisal Practice for a
restricted appraisal report, the pages that follow set forth the identification
of the property, property rights appraised, assumptions and limiting conditions,
the scope of appraisal procedures followed in this restricted appraisal report,
discussion and summary of cash flow projections and certification page.
Respectfully submitted,
SENIOR LIVING VALUATION SERVICES, INC.
/s/ MICHAEL G. BOEHM
- -----------------------------
Michael G. Boehm, MAI
President
II - 2
<PAGE> 46
[letterhead]
SENIOR LIVING VALUATION SERVICES, INC.
April 4, 1996
American Retirement Villas Properties II, L.P.
c/o ARV Assisted Living
245 Fischer Avenue, Suite D-1
Costa Mesa, California 92626
Attention: Ms. Sheila Muldoon
Re: Valley View Lodge
1228 Rossmoor Parkway
Walnut Creek, California
SLVS File No. 96-04-30.2
Ladies and Gentlemen:
In accordance with your request, we have conducted the required investigation,
gathered the necessary data, and made certain analyses that have enabled us to
form an opinion of the market value of the above captioned property. This report
has been prepared to be in compliance with the requirements of the Uniform
Standards of Professional Appraisal Practice as a restricted appraisal report.
This letter report updates a full narrative appraisal report prepared by our
firm and dated July 14, 1995. The full narrative report discusses the subject
region, neighborhood, site, improvements and market in detail. Therefore, this
letter should be used in conjunction with the full narrative appraisal report.
This report is intended for use by the client only. This letter report cannot be
fully understood properly without a review of the previous full narrative
appraisal report and additional information currently contained in the work file
of the appraiser.
Based on an inspection of the property and the investigation and analysis
undertaken, we have formed the opinion, subject to the assumptions and limiting
conditions set forth in this report, that as of March 29, 1996, the fee simple
total going concern interest of the subject, as is, including the value of
favorable financing, has a market value of:
TEN MILLION NINE HUNDRED TWENTY FIVE THOUSAND ($10,925,000)
DOLLARS
II - 3
<PAGE> 47
Ms. Sheila Muldoon
April 4, 1996
Page 2
This total going concern value estimate can be allocated to the following
components:
<TABLE>
<CAPTION>
Market Value
As Is -
3/29/96
-------
<S> <C>
Real Estate Value $ 9,475,000
Furniture, Fixtures & Equipment 150,000
Business Value 1,250,000
------------
Total Going Concern Valuation $10,875,000
============
Plus: Favorable Financing $ 50,000
------------
Total Reported Valuation $10,925,000
============
</TABLE>
As required by the Uniform Standards of Professional Appraisal Practice for a
restricted appraisal report, the pages that follow set forth the identification
of the property, property rights appraised, assumptions and limiting conditions,
the scope of appraisal procedures followed in this restricted appraisal report,
discussion and summary of cash flow projections and certification page.
Respectfully submitted,
SENIOR LIVING VALUATION SERVICES, INC.
/s/ MICHAEL G. BOEHM
- ------------------------------
Michael G. Boehm, MAI
President
II - 4
<PAGE> 48
[letterhead]
SENIOR LIVING VALUATION SERVICES, INC.
April 5, 1996
American Retirement Villas Properties II, L.P.
c/o ARV Assisted Living
245 Fischer Avenue, Suite D-1
Costa Mesa, California 92626
Attention: Ms. Sheila Muldoon
Re: Retirement Inn - Fullerton
1621 East Commonwealth Avenue
Fullerton, California
SLVS File No. 96-04-30.3
Ladies and Gentlemen:
In accordance with your request, we have conducted the required investigation,
gathered the necessary data, and made certain analyses that have enabled us to
form an opinion of the market value of the above captioned property. This report
has been prepared to be in compliance with the requirements of the Uniform
Standards of Professional Appraisal Practice as a restricted appraisal report.
This letter report updates a full narrative appraisal report prepared by our
firm and dated August 1, 1995. The full narrative report discusses the subject
region, neighborhood, site, improvements and market in detail. Therefore, this
letter should be used in conjunction with the full narrative appraisal report.
This report is intended for use by the client only. This letter report cannot be
fully understood properly without a review of the previous full narrative
appraisal report and additional information currently contained in the work file
of the appraiser.
Based on an inspection of the property and the investigation and analysis
undertaken, we have formed the opinion, subject to the assumptions and limiting
conditions set forth in this report, that as of April 5, 1996, the fee simple
total going concern interest of the subject, as is, has a market value of:
TWO MILLION FOUR HUNDRED TWENTY FIVE THOUSAND ($2,425,000)
DOLLARS
II - 5
<PAGE> 49
Ms. Sheila Muldoon
April 5, 1996
Page 2
This total going concern value estimate can be allocated to the following
components:
<TABLE>
<CAPTION>
Market Value
As Is -
4/5/96
------------
<S> <C>
Real Estate Value $1,750,000
Furniture, Fixtures & Equipment 125,000
Business Value 550,000
----------
Total Going Concern Valuation $2,425,000
==========
</TABLE>
As required by the Uniform Standards of Professional Appraisal Practice for a
restricted appraisal report, the pages that follow set forth the identification
of the property, property rights appraised, assumptions and limiting conditions,
the scope of appraisal procedures followed in this restricted appraisal report,
discussion and summary of cash flow projections and certification page.
Respectfully submitted,
SENIOR LIVING VALUATION SERVICES, INC.
/s/ MICHAEL G. BOEHM
- ----------------------------
Michael G. Boehm, MAI
President
II - 6
<PAGE> 50
[letterhead]
SENIOR LIVING VALUATION SERVICES, INC.
April 4, 1996
American Retirement Villas Properties II, L.P.
c/o ARV Assisted Living
245 Fischer Avenue, Suite D-1
Costa Mesa, California 92626
Attention: Ms. Sheila Muldoon
Re: Retirement Inn - Daly City
501 King Drive
Daly City, California
SLVS File No. 96-04-30.4
Ladies and Gentlemen:
In accordance with your request, we have conducted the required investigation,
gathered the necessary data, and made certain analyses that have enabled us to
form an opinion of the market value of the above captioned property. This report
has been prepared to be in compliance with the requirements of the Uniform
Standards of Professional Appraisal Practice as a restricted appraisal report.
This letter report updates a full narrative appraisal report prepared by our
firm and dated July 13, 1995. The full narrative report discusses the subject
region, neighborhood, site, improvements and market in detail. Therefore, this
letter should be used in conjunction with the full narrative appraisal report.
This report is intended for use by the client only. This letter report cannot be
fully understood properly without a review of the previous full narrative
appraisal report and additional information currently contained in the work file
of the appraiser.
Based on an inspection of the property and the investigation and analysis
undertaken, we have formed the opinion, subject to the assumptions and limiting
conditions set forth in this report, that as of March 29, 1996, the fee simple
total going concern interest of the subject, as is, has a market value of:
THREE MILLION FOUR HUNDRED SEVENTY FIVE THOUSAND ($3,475,000)
DOLLARS
II - 7
<PAGE> 51
Ms. Sheila Muldoon
April 4, 1996
Page 2
This total going concern value estimate can be allocated to the following
components:
<TABLE>
<CAPTION>
Market Value
As Is -
3/29/96
-------
<S> <C>
Real Estate Value $2,880,000
Furniture, Fixtures & Equipment 120,000
Business Value 475,000
----------
Total Going Concern Valuation $3,475,000
==========
</TABLE>
As required by the Uniform Standards of Professional Appraisal Practice for a
restricted appraisal report, the pages that follow set forth the identification
of the property, property rights appraised, assumptions and limiting conditions,
the scope of appraisal procedures followed in this restricted appraisal report,
discussion and summary of cash flow projections and certification page.
Respectfully submitted,
SENIOR LIVING VALUATION SERVICES, INC.
/s/ MICHAEL G. BOEHM
- --------------------------------
Michael G. Boehm, MAI
President
II - 8
<PAGE> 52
SCHEDULE III
FINANCIAL STATEMENTS OF
AMERICAN RETIREMENT VILLAS PROPERTIES II
<TABLE>
<CAPTION>
Page
References
----------
<S> <C>
Report of Independent Auditors........................................ F- 2
Balance sheets at December 31, 1995 and 1995.......................... F- 3
For the years ended December 31, 1995, 1994 and 1993
Statements of Operations........................... F- 4
Statements of Partners' Capital.................... F- 5
Statements of Cash Flows........................... F- 6
Notes to Financial Statements......................................... F- 7
Schedule of Real Estate and Related Accumulated Depreciation
and Amortization - December 31, 1995 F-14
Balance Sheets at March 31, 1996 (Unaudited) and
December 31, 1995 ................................. F-15
Statements of Operations for three months ended
March 31, 1996 and 1995 (Unaudited)................ F-16
Statements of Cash Flows for the three months ended
March 31, 1996 and 1995 (Unaudited)................ F-17
Notes to Financial Statements......................................... F-18
</TABLE>
F-1
<PAGE> 53
[KPMG Peat Marwick LLP LETTERHEAD]
INDEPENDENT AUDITORS' REPORT
To ARV Assisted Living, Inc. as the Managing General Partner of
American Retirement Villas Properties II:
We have audited the financial statements of American Retirement Villas
Properties II, a California limited partnership, listed in the accompanying
index. In connection with our audits of the financial statements, we have also
audited the financial statement schedule listed in the accompanying index. These
financial statements and financial statement schedule are the responsibility of
the Partnership's management. Our responsibility is to express an opinion on
these financial statements and financial statement schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of American Retirement Villas
Properties II as of December 31, 1995 and 1994, and the results of its
operations and its cash flows for each of the years in the three-year period
ended December 31, 1995, in conformity with generally accepted accounting
principles. Also, in our opinion, the related financial statement schedule, when
considered in relation to the basic financial statements taken as a whole,
presents fairly, in all material respects, the information set forth therein.
KPMG Peat Marwick LLP
Orange County, California
March 20, 1996
F-2
<PAGE> 54
AMERICAN RETIREMENT VILLAS PROPERTIES II
(A California Limited Partnership)
Balance Sheets
December 31, 1995 and 1994
<TABLE>
<CAPTION>
ASSETS 1995 1994
----------- ----------
<S> <C> <C>
Properties, at cost (notes 4 and 5):
Land $ 2,902,684 2,902,684
Buildings and improvements, less accumulated depreciation
of $4,579,333 in 1995 and $3,865,219 in 1994 15,179,456 15,669,092
Leasehold property and improvements, less accumulated
depreciation of $6,590,424 in 1995 and $5,595,821 in 1994 825,432 1,764,926
Furniture, fixtures and equipment, less accumulated
depreciation of $863,537 in 1995 and $1,108,392 in 1994 937,861 692,250
---------- ----------
Net properties 19,845,433 21,028,952
Cash 488,582 605,100
Other assets, including impound accounts of $625,615 in 1995
and $724,494 in 1994 1,189,859 1,130,785
----------- ----------
$21,523,874 22,764,837
=========== ==========
LIABILITIES AND PARTNERS' CAPITAL
Notes payable (note 5) $ 7,211,460 7,189,166
Accounts payable and accrued expenses 758,240 772,228
Amounts payable to affiliate (note 3) 155,155 494,423
Distributions payable to Partners 580,163 544,381
----------- ----------
Total liabilities 8,705,018 9,000,198
----------- ----------
Partners' capital (deficit) (note 2):
General partners' capital (deficit) 276,099 (162,861)
Limited partners' capital, 34,995 limited partnership units
authorized, issued and outstanding 12,542,757 13,927,500
----------- ----------
Total partners' capital 12,818,856 13,764,639
----------- ----------
$21,523,874 22,764,837
=========== ===========
</TABLE>
See accompanying notes to financial statements.
F-3
<PAGE> 55
AMERICAN RETIREMENT VILLAS PROPERTIES II
(A California Limited Partnership)
Statements of Operations
Years ended December 31, 1995, 1994 and 1993
<TABLE>
<CAPTION>
1995 1994 1993
----------- ---------- ----------
<S> <C> <C> <C>
Revenues:
Rent $14,768,855 14,055,979 13,578,122
Assisted living 2,018,661 1,728,953 1,307,323
Interest 20,434 14,577 15,704
Other 174,347 203,248 183,435
----------- ---------- ----------
Total revenues 16,982,297 16,002,757 15,084,584
----------- ---------- ----------
Costs and expenses:
Rental property operations (including
$5,514,253, $5,277,461 and $4,932,920
related to affiliates in 1995, 1994 and
1993, respectively) (note 3) 9,993,572 10,001,328 9,326,559
Assisted living (all related to
affiliates)(note 3) 859,322 748,148 577,606
General and administrative (including
$453,110, $638,482 and $613,322
related to affiliates in 1995, 1994 and
1993, respectively) (note 3) 800,482 695,970 725,814
Facilities rent (note 4) 1,178,331 1,175,414 1,155,307
Depreciation and amortization 2,076,480 2,359,826 2,713,413
Property taxes 487,722 434,178 533,019
Advertising 141,031 112,348 117,961
Interest (note 5) 572,061 583,017 606,699
----------- ---------- ----------
Total costs and expenses 16,109,001 16,110,229 15,756,378
----------- ---------- ----------
Net income (loss) $ 873,296 (107,472) (671,794)
=========== ========== ==========
Net income (loss) per limited partner unit $ 24.71 (3.04) (19.00)
=========== ========== ==========
</TABLE>
See accompanying notes to financial statements.
F-4
<PAGE> 56
AMERICAN RETIREMENT VILLAS PROPERTIES II
(A California Limited Partnership)
Statements of Partners' Capital
Years ended December 31, 1995, 1994 and 1993
<TABLE>
<CAPTION>
TOTAL
GENERAL LIMITED PARTNERS'
PARTNERS PARTNERS CAPITAL
--------- ---------- ----------
<S> <C> <C> <C>
Balance (deficit) at December 31, 1992 $(118,666) 18,302,736 18,184,070
Distribution to partners ($47.53 per limited
partner unit) (16,801) (1,663,258) (1,680,059)
Net loss (6,718) (665,076) (671,794)
--------- ---------- ----------
Balance (deficit) at December 31, 1993 (142,185) 15,974,402 15,832,217
Distribution to partners ($55.45 per limited
partner unit) (19,601) (1,940,505) (1,960,106)
Net loss (1,075) (106,397) (107,472)
--------- ---------- ----------
Balance (deficit) at December 31, 1994 (162,861) 13,927,500 13,764,639
Distribution to partners ($64.28 per limited
partner unit) (22,720) (2,249,306) (2,272,026)
Capital contribution - cancelation of
indebtedness (note 8) 452,947 -- 452,947
Net income 8,733 864,563 873,296
--------- ---------- ----------
Balance at December 31, 1995 $ 276,099 12,542,757 12,818,856
========= ========== ==========
</TABLE>
See accompanying notes to financial statements.
F-5
<PAGE> 57
AMERICAN RETIREMENT VILLAS PROPERTIES II
(A California Limited Partnership)
Statements of Cash Flows
Years Ended December 31, 1995 and 1994
<TABLE>
<CAPTION>
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss) $ 873,296 (107,472) (671,794)
Adjustments to reconcile net loss to net cash
provided by operating activities:
Depreciation and amortization 2,076,480 2,359,826 2,713,413
Change in assets and liabilities:
Decrease (increase) in other assets (60,695) 107,570 (19,243)
Increase (decrease) in accounts payable and
accrued expenses (13,988) 127,393 67,969
Increase in amounts payable to affiliate
113,679 63,126 53,689
---------- --------- ---------
Net cash provided by operating
activities 2,988,772 2,550,443 2,144,034
---------- --------- ---------
Cash flows used in investing activities - capital
expenditures (891,340) (389,342) (310,783)
---------- --------- ---------
Cash flows from financing activities:
Principal repayments on notes payable (131,316) (116,814) (110,797)
Increase in long-term debt 153,610 -- --
Borrowings on line of credit 1,225,000 1,735,000 500,000
Repayments on line of credit (1,225,000) (1,735,000) (500,000)
Payment of loan fees -- -- (2,500)
Distributions paid (2,236,244) (1,829,017) (1,668,183)
--------- --------- ---------
Net cash used in financing
activities (2,213,950) (1,945,831) (1,781,480)
---------- --------- ---------
Net increase (decrease) in cash and cash
equivalents (116,518) 215,270 51,771
Cash at beginning of year 605,100 389,830 338,059
---------- --------- --------
Cash at end of year $ 488,582 605,100 389,830
========== ========= =========
Supplemental disclosure of cash flow information:
Cash paid during the year for:
Interest $ 572,061 583,017 607,142
========== ========= =========
Supplemental disclosure of noncash financing activities:
Distributions accrued to partners $ 35,782 544,381 413,292
Cancelation of indebtedness 452,947 -- --
========== ========= =========
</TABLE>
See accompanying notes to financial statements.
F-6
<PAGE> 58
AMERICAN RETIREMENT VILLAS PROPERTIES II
(A California Limited Partnership)
Notes to Financial Statements
December 31, 1995 and 1994
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF ACCOUNTING
American Retirement Villas Properties II (the Partnership) maintains its
records on the accrual method of accounting for financial reporting and
Federal and state tax purposes.
CARRYING VALUE OF REAL ESTATE
Properties are recorded at cost less accumulated depreciation.
Depreciation is computed using the straight-line method over the
estimated useful lives of buildings and improvements, furniture,
fixtures and equipment, ranging from 3 to 27-1/2 years. Leasehold
property and improvements are amortized on a straight-line basis over
the lesser of the lease term or the estimated useful life of the assets.
In March 1995, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards No. 121 (SFAS No. 121),
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to Be Disposed of." SFAS No. 121 requires the Partnership to adopt
the provisions of the new statement no later than fiscal 1996. SFAS 121
requires an impairment loss to be recorded as a reduction to operating
income if the sum of the expected undiscounted cash flows derived from an
asset is less than the asset's carrying value. The Partnership adopted
SFAS 121 in fiscal year 1994 without an impact to the financial
statements.
IMPOUND ACCOUNTS
Other assets includes funds held in impound accounts with the U.S.
Department of Housing and Urban Development (HUD) for payment of property
taxes, insurance and future property improvements (replacement reserves)
on certain properties with HUD financing.
LOAN FEES
Loan fees are amortized using the interest method over the term of the
notes payable and are included in other assets.
RENTAL INCOME
Rent agreements with tenants are on a month-to-month basis. Advance
deposits are applied to the first month's rent.
INCOME TAXES
Under provisions of the Internal Revenue Code and the California Revenue
and Taxation Code, partnerships are generally not subject to income
taxes. For tax purposes, any income or losses realized are those of the
individual partners, not the Partnership.
F-7
<PAGE> 59
AMERICAN RETIREMENT VILLAS PROPERTIES II
(A California Limited Partnership)
Notes to Financial Statements, Continued
The Partnership has not requested a ruling from the Internal Revenue
Service to the effect that it will be treated as a partnership and not an
association taxable as a corporation for Federal income tax purposes. The
Partnership has received an opinion of counsel as to its tax status prior
to its effectiveness for the offering of limited partnership units, but
such opinion is not binding upon the Internal Revenue Service. Following
are the Partnership's assets and liabilities as determined in accordance
with generally accepted accounting principles (GAAP) and for Federal
income tax reporting purposes at December 31:
<TABLE>
<CAPTION>
1995 1994
--------------------------------- --------------------------------
GAAP BASIS TAX BASIS (1) GAAP BASIS TAX BASIS (1)
---------- ------------- ---------- -------------
<S> <C> <C> <C> <C>
Total assets $21,523,874 26,665,564 22,764,837 27,639,670
Total liabilities 8,705,018 8,666,678 9,000,198 8,905,271
</TABLE>
Following are the differences between the financial statement and tax
return income (loss):
<TABLE>
<CAPTION>
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Net income (loss) per financial
statements $ 873,296 (107,472) (671,794)
Cancelation of indebtedness income
(note 8) 452,947 -- --
Depreciation differences on property (1) (636,838) (322,865) 67,565
Amortization differences on intangible
assets (1) 884,481 752,562 584,567
Other (1) (14,601) 11,824 39,781
---------- -------- ------
Taxable income (loss) per Federal
tax return (1) $1,559,285 334,049 20,119
========== ======== ======
</TABLE>
(1) Unaudited
NET LOSS PER LIMITED PARTNER UNIT
Net loss per limited partner unit was based on the weighted average
number of limited partner units outstanding of 34,995 in 1995, 1994 and
1993.
RECLASSIFICATIONS
Certain 1994 and 1993 amounts have been reclassified to conform to the
1995 presentation.
F-8
<PAGE> 60
AMERICAN RETIREMENT VILLAS PROPERTIES II
(A California Limited Partnership)
Notes to Financial Statements, Continued
(2) ORGANIZATION AND PARTNERSHIP AGREEMENT
The Partnership was formed on February 9, 1988 for the purpose of
acquiring, developing and operating residential retirement facilities.
The term of the Partnership is 59 years and may be dissolved earlier
under certain circumstances.
Limited Partner units (minimum of 2 units per investor for Individual
Retirement Accounts, KEOGH'S and pension plans and 5 units for all other
investors) were offered for sale to the general public. A maximum number
of 35,000 units were offered at $1,000 per unit. The Partnership was
initially capitalized by a $1,000 contribution from a Limited Partner
and a $500 contribution from the General Partners. The Partnership
reached its maximum capitalization in October 1989, representing a total
capital investment of $35,000,000. In June 1990, the Partnership
repurchased and effectively retired 5 units for $4,600 (the balance of
unreturned initial contributions) from a Limited Partner. No additional
capital contributions will be required from any Limited Partner. Under
the Partnership Agreement, the maximum liability of the Limited Partners
is the amount of their capital contributions.
The Managing General Partner is ARV Assisted Living, Inc. (ARVAL), a
California corporation, and the individual General Partners are John A.
Booty, John S. Jason, Gary L. Davidson and Tony Rota. The individual
General Partners are shareholders of the Managing General Partner. The
General Partners are not required to make capital contributions to the
Partnership.
Profits and losses for financial and income tax reporting purposes shall
generally be allocated, other than cost recovery deductions (as defined
in the Partnership Agreement), 1% to the General Partners and 99% to the
Limited Partners. Cost recovery deductions for each year are allocated
1% to the General Partners and 99% to the Limited Partners who are
taxable investors.
Cash available for distribution from operations is to be distributed 1%
to the General Partners and 99% to the Limited Partners.
Upon any sale, refinancing or other disposition of the Partnership's
real properties, distributions will be made 1% to the General Partners
and 99% to the Limited Partners until the Limited Partners have received
an amount equal to 100% of their capital contributions plus an amount
ranging from 8% to 10% (depending upon the timing of the Limited
Partner's investment) of their capital contributions per annum,
cumulative but not compounded, from the date of each Partner's
investment. The cumulative return will be reduced, but not below zero,
by the aggregate amount of prior distributions from all sources.
Thereafter, distributions are to be 15% to the General Partners and 85%
to the Limited Partners, except that after the sale of the properties,
the proceeds of sale of any last remaining assets owned by the
Partnership shall be distributed in accordance with positive capital
account balances.
(3) TRANSACTIONS WITH AFFILIATES
The Partnership has an agreement with ARVAL providing for a property
management fee of 5% of gross revenues and a Partnership management fee
of 10% of cash flow before distribution, as defined in the Partnership
Agreement, amounting to $849,033, $800,197, $754,329 and $329,905,
$251,969, $227,719, respectively, at December 31, 1995, 1994 and 1993,
respectively.
F-9
<PAGE> 61
AMERICAN RETIREMENT VILLAS PROPERTIES II
(A California Limited Partnership)
Notes to Financial Statements, Continued
Payment of the Partnership management fee out of cash flow is subordinated
to a quarterly noncumulating distribution from each property to the
Limited Partners of an amount equal to an annualized return, per quarter,
of 7.5% of Capital Contributions allocated to each property.
ARVAL pays certain expenses such as repairs and maintenance, supplies,
payroll and retirement benefit expenses on behalf of the Partnership and
is subsequently reimbursed by the Partnership. The retirement benefit
expense of $27,527, $133,540 and $127,090 for the years ended December 31,
1995, 1994 and 1993, respectively, consists of contributions made to an
employee stock ownership plan (ESOP). The total reimbursements to ARVAL,
including the retirement benefit expense, are included in rental property
operations and general and administrative expenses in the accompanying
statements of operations and amounted to $5,647,746, $5,611,925 and
$5,141,800 for the years ended December 31, 1995, 1994 and 1993,
respectively.
In consideration for services rendered with respect to property
acquisitions, the Managing General Partner was paid an investment advisory
fee of a maximum of 2% of the gross offering proceeds. In addition, the
Managing General Partner was entitled to a development and processing fee
of a maximum of 5.5% of gross offering proceeds allocated to a particular
project. Investment advisory and development and processing fees were
capitalized to properties to the extent that gross offering proceeds were
allocated to the respective properties acquired.
Amounts payable to affiliate at December 31, 1995 and 1994 includes
expense reimbursements and accrued property management and partnership
management fees.
(4) PROPERTIES
COVINA VILLA
In October 1988, the Partnership purchased Covina Villa, an existing
assisted living facility in Covina, California. In conjunction with the
acquisition, the Partnership assumed a ground lease, expiring in 2037,
covering the land on which the facility is built. Pledged as collateral
for the ground lease is a security interest in the facility property and
in all furniture, fixtures and equipment which the Partnership places in
the facility. Rent expense under the ground lease for 1995, 1994 and 1993
was $102,570, $114,540 and $82,871, respectively.
RETIREMENT INNS OF AMERICA
In April 1989, the Partnership acquired the operations of eight existing
assisted living facilities located throughout California from Retirement
Inns of America, Inc. As part of the purchase agreement, the Partnership
acquired certain assets and assumed certain liabilities relating to the
operations of the facilities. The Partnership purchased three of the
facilities and assumed a tenant's position under long-term operating
leases for the other five facilities. Rent expense under the operating
leases for 1995, 1994 and 1993 was $1,070,614, $1,060,874 and $1,072,436,
respectively. The expiration dates for the leases range from August 1995
to November 1997 and have options to extend for two additional ten-year
terms.
MONTEGO HEIGHTS
In November 1989, the Partnership purchased Montego Heights, an existing
assisted living facility and related assets in Walnut Creek, California.
F-10
<PAGE> 62
AMERICAN RETIREMENT VILLAS PROPERTIES II
(A California Limited Partnership)
Notes to Financial Statements, Continued
Future minimum lease payments under all ground and facility leases which
are treated as operating leases are as follows:
<TABLE>
<CAPTION>
MINIMUM
LEASE
PAYMENTS
-----------
<S> <C>
Year ending December 31:
1996 $ 1,145,933
1997 903,497
1998 556,141
1999 556,141
2000 556,141
Thereafter 5,998,636
----------
$ 9,716,489
==========
</TABLE>
Pursuant to the Partnership agreement, the expiration of the minimum
holding period (5-7 years) is approaching. The Managing General Partner is
beginning to explore potential disposition strategies for the
Partnership's assets.
(5) NOTES PAYABLE
At December 31, 1995 and 1994, notes payable included the following:
<TABLE>
<CAPTION>
1995 1994
----------- ----------
<S> <C> <C>
HUD financed note payable, bearing interest
at 7.5%; monthly principal and interest
payments of $26,171; due August 1, 2018;
secured by deed of trust on the Montego
Heights property. $ 3,418,404 3,473,805
HUD financed note payable, bearing interest
at 8.25%; monthly principal and interest
payments of $23,468; due November 1, 2016;
secured by deed of trust on the Valley View
Lodge property. 2,802,113 2,850,371
Notepayable to bank, secured by deed of trust
on the Fullerton property, bearing interest
at 1% in excess of the bank's prime rate
(8.5% at December 31, 1995); monthly
principal payments of $1,333 plus interest;
all unpaid principal and interest is due on
December 1, 1996. 337,333 353,333
</TABLE>
F-11
<PAGE> 63
AMERICAN RETIREMENT VILLAS PROPERTIES II
(A California Limited Partnership)
Notes to Financial Statements, Continued
<TABLE>
<CAPTION>
1995 1994
---------- ---------
<S> <C> <C>
Revolving line of credit (maximum $500,000),
guaranteed by the General Partners, bearing
interest at 1.25% in excess of the bank's
prime rate (8.5% at December 31, 1995). The
revolving line of credit expires on January
15, 1996. The line was extended through
October 15, 1996. $ 500,000 500,000
Various notes payable, bearing interest at
rates from 8.67% to 10.39%, payable in
monthly principal and interest installments;
all unpaid principal and interest due on or
before November 15, 2000; secured by
equipment. 153,610 --
Notepayable, bearing interest at 10.25%,
payable in monthly principal and interest
installments of $537; all unpaid principal
and interest was paid September 29, 1995. -- 11,657
----------- ---------
$7,211,460 7,189,166
=========== ==========
</TABLE>
The annual principal payments of the notes payable are as follows:
<TABLE>
<S> <C>
Year ending December 31:
1996 $ 984,430
1997 155,910
1998 169,451
1999 180,417
2000 160,229
Thereafter 5,561,023
----------
$7,211,460
==========
</TABLE>
The Partnership's revolving line of credit was paid off in January 1996.
(6) ESOP
ARVAL offers an Employee Stock Ownership Plan (ESOP) to all eligible
employees which includes the employees of the Partnership. The amount of
stock contributed annually to the ESOP is at the discretion of ARVAL.
During 1994 and 1993, ARVAL's Board of Directors declared a contribution
that approximated 3% of each employee's payroll expense. During 1995,
ARVAL's Board of Directors declared a contribution in only the first
quarter of the year and that contribution approximated 3% of each
employee's payroll expense. The Partnership's expense was $27,527,
$133,540 and $127,090 for the ESOP (as a reimbursement to ARVAL) in 1995,
1994 and 1993, respectively.
F-12
<PAGE> 64
AMERICAN RETIREMENT VILLAS PROPERTIES II
(A California Limited Partnership)
Notes to Financial Statements, Continued
(7) DISCLOSURES ABOUT THE FAIR VALUE OF FINANCIAL INSTRUMENTS
The following disclosure of the estimated fair value of financial
instruments is made in accordance with the requirements of Statement of
Financial Accounting Standards No. 107 (SFAS 107), "Disclosures about Fair
Value of Financial Instruments." The estimated fair value amounts have
been determined using available market information and appropriate
valuation methodologies. However, considerable judgment is necessarily
required to interpret market data to develop the estimates of fair value.
Accordingly, the estimates presented herein are not necessarily indicative
of the amounts that could be realized in a current market exchange. The
use of different market assumptions or estimation methodologies may have a
material impact on the estimated fair value amounts.
Fair value information related to financial instruments is as follows:
<TABLE>
<CAPTION>
DECEMBER 31, 1995
----------------------------
FINANCIAL INSTRUMENT BOOK VALUE FAIR VALUE
-------------------- ---------- ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Cash $ 489 489
Notes payable 7,211 6,464
</TABLE>
CASH
The carrying amount for cash approximates fair value because these
instruments are demand deposits and do not present unanticipated interest
rate or credit concerns.
NOTES PAYABLE
For notes payable with variable interest rates, fair value is the amount
reported as payable in the financial statements. For notes payable with
fixed rates of interest, fair value is estimated using the rates currently
offered for bank borrowings with similar terms.
(8) CANCELATION OF INDEBTEDNESS
On March 31, 1995, ARVAL, the Managing General Partner of the Partnership,
decided to cancel indebtedness owed to it by the Partnership in the amount
of $452,947. This indebtedness related to accrued Partnership management
fees accumulated in prior years. As discussed at note 3, the Partnership
agreement provides that the payment of a Partnership management fee is
subordinate to a quarterly noncumulating distribution from each property
to the Limited Partners of an amount equal to an annualized return, per
quarter, of 7.5% of capital contributions allocated to each property.
ARVAL canceled the indebtedness as collection appeared unlikely.
F-13
<PAGE> 65
Schedule III
AMERICAN RETIREMENT VILLAS PROPERTIES II
(A California Limited Partnership)
Real Estate and Related Accumulated Depreciation and Amortization
December 31, 1995
<TABLE>
<CAPTION>
INITIAL COST
-------------------------------------- COSTS
BUILDINGS LEASEHOLD CAPITALIZED
AND PROPERTY AND SUBSEQUENT TO
DESCRIPTION ENCUMBRANCES LAND IMPROVEMENTS IMPROVEMENTS ACQUISITION
- ---------------- ------------ --------- ------------ ------------- -------------
<S> <C> <C> <C> <C> <C>
Covina Villa $ 3,630 -- 1,850,000 -- 498,908
Retirement Inns:
Burlingame 29,636 -- -- 937,724 509,411
Campbell -- -- -- 814,059 402,482
Daly City 29,636 500,000 1,179,185 -- 519,032
Fremont 29,636 -- -- 566,727 356,588
Fullerton 337,333 500,000 981,583 -- 612,758
Willow Glen 29,636 -- -- 1,011,390 434,473
Sunnyvale 16,068 -- -- 1,431,320 951,682
Valley View 2,817,496 1,000,000 4,017,624 -- 975,959
Montego Heights 3,418,404 900,000 7,800,000 -- 1,323,740
---------- --------- ---------- --------- ----------
$6,711,475 2,900,000 15,828,392 4,761,220 6,585,033
========== ========= ========== ========= ==========
<CAPTION>
GROSS AMOUNT
------------------------------------------------
LEASEHOLD DEPRECIABLE
BUILDINGS AND PROPERTY AND ACCUMULATED DATE OF LIVES
DESCRIPTION LAND IMPROVEMENTS IMPROVEMENTS TOTAL(1) DEPRECIATION ACQUISITION (YEARS)
- ---------------- ------- ------------- ------------ --------- ------------ ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Covina Villa -- 2,348,908 -- 2,348,908 613,180 10/88 27.5
Retirement Inns:
Burlingame -- -- 1,447,135 1,447,135 1,095,606 4/89 8.5(2)
Campbell -- -- 1,216,541 1,216,541 1,212,883 4/89 6.3(2)
Daly City 500,000 1,698,217 -- 2,198,217 472,548 4/89 27.5
Fremont -- -- 923,315 923,315 789,420 4/89 7.8(2)
Fullerton 500,000 1,594,341 -- 2,094,341 388,459 4/89 27.5
Willow Glen -- -- 1,445,863 1,445,863 1,132,021 4/89 8.7(2)
Sunnyvale -- -- 2,383,002 2,383,002 2,305,024 4/89 7.0(2)
Valley View 1,000,000 4,993,583 -- 5,993,583 1,190,106 4/89 27.5
Montego Heights 902,684 9,123,740 -- 10,026,424 1,970,510 11/89 27.5
--------- ---------- --------- ---------- ----------
2,902,684 19,758,789 7,415,856 30,077,329 11,169,757
========= ========== ========= ========== ==========
</TABLE>
Following is a summary of investment in properties for the years ended December
31, 1995, 1994 and 1993:
<TABLE>
<CAPTION>
1995 1994 1993
----------- ---------- ----------
<S> <C> <C> <C>
Balance at beginning of year $29,797,742 29,660,641 29,621,332
Improvements 279,587 137,101 39,309
----------- ---------- ----------
Balance at end of year $30,077,329 29,797,742 29,660,641
=========== ========== ==========
</TABLE>
Following is a summary of accumulated depreciation and amortization of
investment in properties for the years ended December 31, 1995, 1994 and 1993:
<TABLE>
<CAPTION>
1995 1994 1993
----------- --------- ---------
<S> <C> <C> <C>
Balance at beginning of year $ 9,461,040 7,723,848 6,013,365
Additions charged to expense 1,708,717 1,737,192 1,710,483
----------- --------- ---------
Balance at end of year $11,169,757 9,461,040 7,723,848
=========== ========= =========
</TABLE>
(1) Aggregate cost for Federal income tax purposes is $30,954,179 at December
31, 1995.
(2) Leasehold property and improvements are amortized over remaining terms of
ground leases, which are shorter than the estimated useful lives.
F-14
<PAGE> 66
PART I - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
American Retirement Villas Properties II
(a California limited partnership)
Balance Sheets
(Unaudited)
<TABLE>
<CAPTION>
March 31, 1996 December 31, 1995
(unaudited) (Audited)
-------------- -----------------
<S> <C> <C>
ASSETS
Properties, at cost (notes 3,4 and 5)
Land . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 2,902,684 $ 2,902,684
Buildings and improvements, less accumulated depreciation of
$5,570,491 in 1996 and $5,361,962 in 1995 . . . . . . . . . . 15,049,473 15,179,456
Leasehold property and improvements, less accumulated
amortization of $5,984,429 in 1996 and $5,807,795 in 1995 . . 578,599 825,432
Furniture, fixtures and equipment, less accumulated
depreciation of $1,037,746 in 1996 and $1,108,392 in 1995 . . 903,303 937,861
----------- -----------
Net Properties . . . . . . . . . . . . . . . . . . 19,434,059 19,845,433
Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . 320,935 488,582
Loan fees, less accumulated amortization of $9,524 in 1995 and
$9,119 in 1995 . . . . . . . . . . . . . . . . . . . . . . . 1,080 1,486
Other assets . . . . . . . . . . . . . . . . . . . . . . . . 1,302,075 1,188,373
----------- -----------
Total Assets . . . . . . . . . . . . . . . . . . . $21,058,149 $21,523,874
=========== ===========
LIABILITIES AND PARTNERS' CAPITAL
Notes Payable (note 5) . . . . . . . . . . . . . . . . . . . $ 6,847,192 $ 7,211,460
Accounts payable and accrued expenses . . . . . . . . . . . . 869,690 758,240
Amounts payable to affiliates (note 3) . . . . . . . . . . . 165,094 155,155
Distributions payable to partners . . . . . . . . . . . . . . 566,602 580,163
----------- -----------
Total Liabilities . . . . . . . . . . . . . . . . . 8,448,578 8,705,018
----------- -----------
Partners' capital
General partners' capital . . . . . . . . . . . . . . . . . 274,006 276,099
Limited partners' capital, 34,995 units outstanding . . . . 12,335,565 12,542,757
----------- -----------
Total liabilities and partners' capital . . . . . . $21,058,149 $21,523,874
=========== ===========
</TABLE>
See accompanying notes to financial statements (unaudited).
F-15
<PAGE> 67
American Retirement Villas Properties II
(a California limited partnership)
Statements of Operations
(Unaudited)
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED
------------------------------
MARCH 31, 1996 MARCH 31, 1995
-------------- --------------
<S> <C> <C>
Revenues:
Rent . . . . . . . . . . . . . . . . . . . . . . . . . . . . $3,695,509 $3,696,826
Assisted living . . . . . . . . . . . . . . . . . . . . . . . 555,018 495,679
Interest . . . . . . . . . . . . . . . . . . . . . . . . . . 4,230 3,998
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48,268 58,714
---------- ----------
Total revenues 4,303,025 4,255,217
---------- ----------
Costs and expenses (note 3):
Rental property operations . . . . . . . . . . . . . . . . . 2,182,267 2,256,135
Assisted living . . . . . . . . . . . . . . . . . . . . . . . 240,401 204,209
General and administrative . . . . . . . . . . . . . . . . . 465,770 454,862
Facilities rent (note 4) . . . . . . . . . . . . . . . . . . 292,805 286,699
Depreciation and amortization . . . . . . . . . . . . . . . . 478,391 526,902
Property taxes . . . . . . . . . . . . . . . . . . . . . . . 98,921 128,343
Advertising . . . . . . . . . . . . . . . . . . . . . . . . . 30,548 31,433
Interest . . . . . . . . . . . . . . . . . . . . . . . . . . 148,384 147,550
---------- ----------
Total costs and expenses . . . . . . . . . . . . . 3,937,487 4,036,133
========== ==========
Net income . . . . . . . . . . . . . . . . . . . . $ 365,538 $ 219,084
========== ==========
Net income to General Partner . . . . . . . . . . . $ 3,655 $ 2,191
========== ==========
Net income to Limited Partner . . . . . . . . . . . $ 361,883 $ 216,893
========== ==========
Net income per Limited Partner unit . . . . . . . . $ 10.34 $ 6.19
========== ==========
</TABLE>
See accompanying notes to financial statements (unaudited).
F-16
<PAGE> 68
American Retirement Villas Properties II
(a California limited partnership)
Statements of Cash Flow
(Unaudited)
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED
--------------------------------
March 31, 1996 March 31, 1995
-------------- --------------
<S> <C> <C>
Cash flows from operating activities:
Net income . . . . . . . . . . . . . . . . . . . . . . . . $ 365,538 $ 219,086
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization . . . . . . . . . . . . 478,391 526,902
Change in assets and liabilities:
Decrease in loan fees . . . . . . . . . . . . . . 406 905
(Increase) in other assets . . . . . . . . . . . . (113,702) (69,126)
Increase in accounts payable and accrued expenses 111,450 152,771
Increase in amounts payable to affiliates . . . . 9,939 83,923
--------- ---------
Net cash provided by operating activities . . 852,022 914,461
--------- ---------
Cash flows used in investing activities
Capital expenditures . . . . . . . . . . . . . . . . . . (66,610) (269,507)
--------- ---------
Cash flows from financing activities:
Borrowings on line of credit . . . . . . . . . . . . . . . 400,000 150,000
Principal repayments on line of credit . . . . . . . . . . (725,000) (650,000)
Principal repayments on notes payable . . . . . . . . . . (39,268) (28,537)
Borrowings on capital leases . . . . . . . . . . . . . . . 0 156,196
Distributions paid . . . . . . . . . . . . . . . . . . . . (588,791) (561,124)
--------- ---------
Net cash used by financing activities . . . . (953,059) (933,465)
--------- ---------
Net decrease in cash . . . . . . . . . . . . . . . . . . . . (167,647) (288,512)
Cash at beginning of period . . . . . . . . . . . . . . . . . 488,582 605,100
--------- ---------
Cash at end of period . . . . . . . . . . . . . . . . . . . . $ 320,935 $ 316,588
========= =========
</TABLE>
See accompanying notes to financial statements (unaudited).
F-17
<PAGE> 69
PART I - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS (CONTINUED)
American Retirement Villas Properties II
(a California limited partnership)
Notes to Financial Statements (Unaudited)
March 31, 1996 and 1995
(1) SIGNIFICANT ACCOUNTING POLICIES
BASIS OF ACCOUNTING
Pursuant to Regulation S-X Rule 10-1(5), the material stated in the December 31,
1995 Form 10-K is incorporated by this reference. The financial statements
reflect all adjustments and disclosures which are, in the opinion of management,
necessary for a fair presentation. All such adjustments are of a normal
recurring nature.
CARRYING VALUE OF REAL ESTATE
Pursuant to Regulation S-X Rule 10-1(5), the material stated in the December 31,
1995 Form 10-K is incorporated by this reference.
LOAN FEES
Pursuant to Regulation S-X Rule 10-1(5), the material stated in the December 31,
1995 Form 10-K is incorporated by this reference.
RENTAL INCOME
Pursuant to Regulation S-X Rule 10-1(5), the material stated in the December 31,
1995 Form 10-K is incorporated by this reference.
INCOME TAXES
Pursuant to Regulation S-X Rule 10-1(5), the material stated in the December 31,
1995 Form 10-K is incorporated by this reference.
NET INCOME PER LIMITED PARTNER UNIT
Pursuant to Regulation S-X Rule 10-1(5), the material stated in the December 31,
1995 Form 10-K is incorporated by this reference.
CASH
Pursuant to Regulation S-X Rule 10-1(5), the material stated in the December 31,
1995 Form 10-K is incorporated by this reference.
F-18
<PAGE> 70
PART I - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS (CONTINUED)
American Retirement Villas Properties II
(a California limited partnership)
Notes to Financial Statements (Unaudited) (Continued)
March 31, 1996 and 1995
RECLASSIFICATIONS
Pursuant to Regulation S-X Rule 10-1(5), the material stated in the December
31, 1995 Form 10-K is incorporated by this reference.
(2) ORGANIZATION AND PARTNERSHIP AGREEMENT
Pursuant to Regulation S-X Rule 10-1(5), the material stated in the December
31, 1995 Form 10-K is incorporated by this reference.
(3) TRANSACTIONS WITH AFFILIATES
Pursuant to Regulation S-X Rule 10-1(5), the material stated in the December
31, 1995 Form 10-K is incorporated by this reference, and is supplemented as
follows. For the quarter ended March 31, 1996, property management fees and
partnership administration fees of $212,761 and $76,492, respectively, were
paid or accrued to the Managing General Partner.
During the quarter ending March 31, 1995, the Managing General Partner made a
non-cash contribution of $452,947 to the Partnership consisting of forgiveness
of fees owed to the Managing General Partner. Such fees had been recognized as
expenses of the Partnership in prior periods.
(4) PROPERTIES
Pursuant to Regulation S-X Rule 10-1(5), the material stated in the December
31, 1995 Form 10-K is incorporated by this reference.
(5) NOTES PAYABLE
Pursuant to Regulation S-X Rule 10-1(5), the material stated in the December
31, 1995 Form 10-K is incorporated by this reference.
(6) ESOP
Pursuant to Regulation S-X Rule 10-1(5), the material stated in the December
31, 1995 Form 10-K is incorporated by this reference.
F-19
<PAGE> 71
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
(1) LIQUIDITY
The General Partners expect that the cash to be generated from operations of
all the Registrant's properties will be adequate to pay operating expenses,
make necessary capital improvements, make required principal reductions, and
provide distributions to the Partners. On a long-term basis, the Registrant's
liquidity is sustained primarily from cash flow provided by operating
activities. During the three months ended March 31, 1996, cash provided by
operating activities was $852,000 compared to cash provided by operating
activities of $914,000 for the three months ended March 31, 1995.
During the three months ended March 31, 1996, the Registrant used net cash in
investing activities of $67,000 compared to $270,000 for the three months ended
March 31, 1995. The Registrant's investing activities consisted of capital
improvements made on its ten facilities.
During the three months ended March 31, 1996, the Registrant used net cash in
financing activities of $953,000 compared to $933,000 for the three months
ended March 31, 1995. The Registrant's financing activities consisted of net
repayments under its line of credit, principal reduction on notes payable and
distributions paid to the Partners.
The General Partners are not aware of any trends, other than national economic
conditions which have had, or which may be reasonably expected to have, a
material favorable or unfavorable impact on the revenues or income from the
operations or sale of properties. Six of the facilities in the Registrant's
portfolio are leased. The Managing General Partner is negotiating renewal
terms with the landlords of the Campbell and Sunnyvale properties. The rent
for these facilities may change substantially. Negotiation of the lease terms
for the Sunnyvale and Campbell facilities may also result in changes in the
terms of the Fremont and Burlingame facilities leases. Increases in rent for
the facilities may not be offset by an increase in rental and assisted living
rates and may result in a decrease in revenues or income from the operations of
the facilities. The General Partners believe that if expenses increase as a
result of inflation,they will be able to pass the subsequent increases in
operating expenses on to the residents of the facilities by way of higher
rental and assisted living rates. The Registrant has long term debt of
$6,847,192 as of March 31, 1996. Of this amount, $175,000 is due October 15,
1996 (pursuant to the terms of the Partnership's revolving line of credit
agreement), $333,333 is due December 1, 1996, and the balance is due through
regularly scheduled payments of principal and interest payments (primarily on
mortgage debt) through August 2018.
(2) CAPITAL RESOURCES
The Registrant contemplates incurring approximately $500,000 for physical
improvements and normal recurring preventative maintenance at its ten
facilities during 1996. Funds for these improvements should be available from
operations.
There are no known material trends, favorable or unfavorable, other than those
disclosed above, in the Registrant's capital resources. There is no expected
change in the mix of such resources.
(3) RESULTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 1996 COMPARED WITH THE THREE MONTHS ENDED MARCH
31, 1995.
Revenue for the three month periods ended March 31, 1996 and 1995 includes
rental income, assisted living income, interest earned on cash balances and
other revenue. Total revenues for the three months ended March 31,
F-20
<PAGE> 72
1996 were $4,303,000, representing an increase of approximately 1% over
revenues of $4,255,000 for the three months ended March 31, 1995.
The largest component of revenue, rental income, remained relatively unchanged
for the three months ended March 31, 1996 from the comparable period in the
prior year. Meanwhile, assisted living revenue increased approximately 12% to
$555,000 for the three months ended March 31, 1996 from $496,000 for the three
months ended March 31, 1995. The increase in assisted living revenue was
primarily the result of an aggressive marketing campaign for assisted living
services and more residents using the services.
Interest income increased approximately 6% to $4,200 for the three months ended
March 31, 1996 from $4,000 for the three months ended March 31, 1995. Other
revenue decreased 18% from $58,700 for the three months ended March 31, 1995 to
$48,300 for the three months ended March 31, 1996, primarily due to a decrease
in processing fees and beauty shop revenue.
Sources of revenue for the three months ended March 31, 1996 and March 31, 1995
are summarized as follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
-------------------------------
MARCH 31, 1996 MARCH 31, 1995
-------------- --------------
<S> <C> <C>
Rent $3,695,509 $3,696,826
Assisted Living 555,018 495,679
Interest 4,230 3,998
Other 48,268 58,715
---------- ----------
Total Revenue 4,303,025 $4,255,218
========== ==========
</TABLE>
Total costs and expenses for the three months ended March 31, 1996 were
$3,937,000, a decrease of 2% compared to costs and expenses of $4,036,000 for
the three months ended March 31, 1995.
The largest component of expenses, rental property operations, consists
primarily of property managements costs, payroll related expenses, utilities,
food expenses and maintenance and supplies. Rental property operations
expenses decreased approximately 3% to $2,182,000 for the three months ended
March 31, 1996 from $2,256,000 for the three months ended March 31, 1995. The
decrease was due primarily to elimination of contributions to the ESOP during
the quarter and decreases in workmen's compensation insurance expenses.
Assisted living expenses consist primarily of the related payroll expense.
This expense increased 17% to $240,000 for the three months ended March 31,
1996 from $204,000 for the three months ended March 31, 1995. The increase
corresponds directly to the increase in assisted living services revenue in the
current year and the staffing required to provide these services.
General and administrative expenses are comprised of, but not limited to, costs
for accounting, partnership administration, bad debt, data processing, investor
relations, insurance and professional services. General and administrative
expenses increased by 2% to $466,000 for the three months ended March 31, 1996
from $455,000 for the three months ended March 31, 1995.
Depreciation and amortization expense decreased by 9% from $527,000 for the
three months ended March 31, 1995 to $478,000 for the three months ended March
31, 1996. The primary reason for this decrease is the full amortization of
assets associated with the currently expired facility operating leases.
Interest expense remained relatively constant for the three months ended March
31, 1996 compared with the three months ended March 31, 1995.
F-21
<PAGE> 73
Selected costs and expenses for the three months ended March 31, 1996 and March
31, 1995 are summarized as follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
-------------------------------
MARCH 31, 1996 MARCH 31, 1995
-------------- --------------
<S> <C> <C>
Rental Property Operations $2,182,267 $2,256,135
Assisted Living 240,401 204,209
General and Administrative 465,770 454,862
Depreciation and amortization 478,391 526,902
Property Taxes 98,921 128,343
Interest 148,384 147,550
</TABLE>
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
None
ITEM 2. CHANGES IN SECURITIES
None
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
ITEM 5. OTHER INFORMATION
None
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
A. Exhibit 27 - Financial Data Schedule
B. None
F-22
<PAGE> 74
SCHEDULE IV
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
OF AMERICAN RETIREMENT VILLAS PROPERTIES II
<TABLE>
<CAPTION>
Page
References
<S> <C>
For the three months ended March 31, 1996 (excerpted from the IV-1
Partnership's Quarterly Report on Form 10-Q for the three months ended
March 31, 1996)
For the years ended December 31, 1995, 1994 and 1993 (excerpted IV-4
from the Partnership's Annual Report on Form 10-K for the year ended December
31, 1996)
</TABLE>
<PAGE> 75
Management's Discussion and Analysis of
Financial Condition and Results of Operations
(excerpted from the Partnership's Form 10-Q for the
three months ended March 31, 1996
LIQUIDITY
The General Partners expect that the cash to be generated from operations of all
the Registrant's properties will be adequate to pay operating expenses, make
necessary capital improvements, make required principal reductions, and provide
distributions to the Partners. On a long-term basis, the Registrant's liquidity
is sustained primarily from cash flow provided by operating activities. During
the three months ended March 31, 1996, cash provided by operating activities was
$852,000 compared to cash provided by operating activities of $914,000 for the
three months ended March 31, 1995.
During the three months ended March 31, 1996, the Registrant used net cash in
investing activities of $67,000 compared to $270,000 for the three months ended
March 31, 1995. The Registrant's investing activities consisted of capital
improvements made on its ten facilities.
During the three months ended March 31, 1996, the Registrant used net cash in
financing activities of $953,000 compared to $933,000 for the three months ended
March 31, 1995. The Registrant's financing activities consisted of net
repayments under its line of credit, principal reduction on notes payable and
distributions paid to the Partners.
The General Partners are not aware of any trends, other than national economic
conditions which have had, or which may be reasonably expected to have, a
material favorable or unfavorable impact on the revenues or income from the
operations or sale of properties. Six of the facilities in the Registrant's
portfolio are leased. The Managing General Partner is negotiating renewal terms
with the landlords of the Campbell and Sunnyvale properties. The rent for these
facilities may change substantially. Negotiation of the lease terms for the
Sunnyvale and Campbell facilities may also result in changes in the terms of the
Fremont and Burlingame facilities leases. Increases in rent for the facilities
may not be offset by an increase in rental and assisted living rates and may
result in a decrease in revenues or income from the operations of the
facilities. The General Partners believe that if expenses increase as a result
of inflation,they will be able to pass the subsequent increases in operating
expenses on to the residents of the facilities by way of higher rental and
assisted living rates. The Registrant has long term debt of $6,847,192 as of
March 31, 1996. Of this amount, $175,000 is due October 15, 1996 (pursuant to
the terms of the Partnership's revolving line of credit agreement), $333,333 is
due December 1, 1996, and the balance is due through regularly scheduled
payments of principal and interest payments (primarily on mortgage debt) through
August 2018.
IV - 1
<PAGE> 76
CAPITAL RESOURCES
The Registrant contemplates incurring approximately $500,000 for physical
improvements and normal recurring preventative maintenance at its ten facilities
during 1996. Funds for these improvements should be available from operations.
There are no known material trends, favorable or unfavorable, other than those
disclosed above, in the Registrant's capital resources. There is no expected
change in the mix of such resources.
RESULTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 1996 COMPARED WITH THE THREE MONTHS ENDED MARCH 31,
1995.
Revenue for the three month periods ended March 31, 1996 and 1995 includes
rental income, assisted living income, interest earned on cash balances and
other revenue. Total revenues for the three months ended March 31, 1996 were
$4,303,000, representing an increase of approximately 1% over revenues of
$4,255,000 for the three months ended March 31, 1995.
The largest component of revenue, rental income, remained relatively unchanged
for the three months ended March 31, 1996 from the comparable period in the
prior year. Meanwhile, assisted living revenue increased approximately 12% to
$555,000 for the three months ended March 31, 1996 from $496,000 for the three
months ended March 31, 1995. The increase in assisted living revenue was
primarily the result of an aggressive marketing campaign for assisted living
services and more residents using the services.
Interest income increased approximately 6% to $4,200 for the three months ended
March 31, 1996 from $4,000 for the three months ended March 31, 1995. Other
revenue decreased 18% from $58,700 for the three months ended March 31, 1995 to
$48,300 for the three months ended March 31, 1996, primarily due to a decrease
in processing fees and beauty shop revenue.
Sources of revenue for the three months ended March 31, 1996 and March 31, 1995
are summarized as follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
-----------------------
MARCH 31, MARCH 31,
1996 1995
---------- ----------
<S> <C> <C>
Rent $3,695,509 $3,696,826
Assisted Living 555,018 495,679
Interest 4,230 3,998
Other 48,268 58,715
---------- ----------
Total Revenue 4,303,025 $4,255,218
========== ==========
</TABLE>
IV - 2
<PAGE> 77
Total costs and expenses for the three months ended March 31, 1996 were
$3,937,000, a decrease of 2% compared to costs and expenses of $4,036,000 for
the three months ended March 31, 1995.
The largest component of expenses, rental property operations, consists
primarily of property managements costs, payroll related expenses, utilities,
food expenses and maintenance and supplies. Rental property operations expenses
decreased approximately 3% to $2,182,000 for the three months ended March 31,
1996 from $2,256,000 for the three months ended March 31, 1995. The decrease was
due primarily to elimination of contributions to the ESOP during the quarter and
decreases in workmen's compensation insurance expenses.
Assisted living expenses consist primarily of the related payroll expense. This
expense increased 17% to $240,000 for the three months ended March 31, 1996 from
$204,000 for the three months ended March 31, 1995. The increase corresponds
directly to the increase in assisted living services revenue in the current year
and the staffing required to provide these services.
General and administrative expenses are comprised of, but not limited to, costs
for accounting, partnership administration, bad debt, data processing, investor
relations, insurance and professional services. General and administrative
expenses increased by 2% to $466,000 for the three months ended March 31, 1996
from $455,000 for the three months ended March 31, 1995.
Depreciation and amortization expense decreased by 9% from $527,000 for the
three months ended March 31, 1995 to $478,000 for the three months ended March
31, 1996. The primary reason for this decrease is the full amortization of
assets associated with the currently expired facility operating leases.
Interest expense remained relatively constant for the three months ended March
31, 1996 compared with the three months ended March 31, 1995.
Selected costs and expenses for the three months ended March 31, 1996 and March
31, 1995 are summarized as follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
-----------------------------
MARCH 31, MARCH 31,
1996 1995
---------- -----------
<S> <C> <C>
Rental Property Operations $2,182,267 $2,256,135
Assisted Living 240,401 204,209
General and Administrative 465,770 454,862
Depreciation and amortization 478,391 526,902
Property Taxes 98,921 128,343
Interest 148,384 147,550
</TABLE>
IV - 3
<PAGE> 78
Management's Discussion and Analysis of
Financial Condition and Results of Operations
(excerpted from the Partnership's Form 10-K for the
year ended December 31, 1995
LIQUIDITY
The General Partners expect that the cash to be generated from operations of all
the Registrant's properties will be adequate to pay operating expenses and
provide distributions to the Partners. On a long-term basis, the Registrant's
liquidity is sustained primarily from cash flow provided by operating
activities. During 1995, net cash provided by operating activities was
approximately $2,989,000 compared to $2,550,000 and $2,144,000 for the years
ended 1994 and 1993, respectively.
During 1995, the Registrant used net cash in investing activities of
approximately $891,000 compared to $389,000 and $311,000 for the years ended
1994 and 1993, respectively. The increase in investing activities was due to the
purchase of vehicles, carpeting and roof replacements. These three items
represent approximately $517,000 of the cash used in investing activities in
1995.
During 1995, the Registrant used net cash in financing activities of
approximately $2,214,000 compared to $1,946,000 and $1,781,000 for the years
ended 1994 and 1993, respectively.
The General Partners are not aware of any trends, other than national economic
conditions, which have had or which may be reasonably expected to have a
material favorable or unfavorable impact on revenues or income from the
operations or sale of properties. The General Partners believe that if the
inflation rate increases they will be able to pass the subsequent increases in
operating expenses onto the residents at the properties by way of higher rental
and Assisted living rates. The Registrant has long term debt of approximately
$7,211,000, as of December 31, 1995 which is due as follows: $500,000 due on
January 15, 1996 (which amount was paid), $337,000 due in December 1, 1996,
$154,000 secured by equipment is due on or before November 15, 2000, $2,802,000
is due in November 1, 2016, and $3,418,000 is due in August 1, 2018. The
$500,000 repaid in January 1996 represents a line of credit which has been
extended through October 15, 1996.
CAPITAL RESOURCES
Registrant contemplates spending approximately $550,000 for capital expenditures
during 1996 for physical improvements at its ten facilities. The Registrant
expects that the funds for these improvements should be available from
operations.
There are no known material trends, favorable or unfavorable, in the
Registrant's capital resources, and there is no expected change in the mix of
such resources.
IV - 4
<PAGE> 79
RESULTS OF OPERATIONS
Revenues for the years ended December 31, 1995, 1994 and 1993, includes rental
income and assisted living revenue from ten facilities, interest earned on cash
balances and other revenue. In 1995 and 1994 the Registrant's rental revenues
increased over prior years due to higher aggregate occupancy levels and rental
rates. Total revenues for the year ended December 31, 1995, were $16,982,000
compared to $16,003,000 and $15,085,000 for the years ended December 31, 1994
and December 31, 1993, respectively. Revenues increased by 6% from 1994 to 1995
and by 6% from 1993 to 1994.
The largest component of revenue, rent, increased by approximately 5% from 1994
to 1995 and by approximately 4% from 1993 to 1994. The increase in rent was due
to an increase of 4% in occupancy and an increase in rental rates of 3% from
1994 to 1995 and an increase of 1% in occupancy and an increase in rental rates
of 2% from 1993 to 1994.
Revenue from assisted living increased by 17% from 1994 to 1995 and 32% from
1993 to 1994. The increase in assisted living was due to aggressive marketing of
the assisted living services and the resulting increase in the number of
residents using the program.
Interest and other revenue decreased by 11% from 1994 to 1995 and increased by
9% from 1993 to 1994. Interest income results from interest earned on cash
deposits. Other revenue generally includes processing fees and beauty shop
revenue.
Sources of revenue for the years ended December 31, 1995, 1994 and 1993 are
summarized as follows:
<TABLE>
<CAPTION>
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Rent $14,768,855 $14,055,979 $13,578,122
Assisted Living 2,018,661 1,728,953 1,307,323
Interest 20,434 14,577 15,704
Other 174,347 203,248 183,435
----------- ----------- -----------
Total Revenue $16,982,297 $16,002,757 $15,084,584
=========== =========== ===========
</TABLE>
Total costs and expenses for the years ended 1995, 1994 and 1993 were
$16,109,001, $16,110,229 and $15,756,378, respectively.
The largest component of expenses , rental property operations, consists
primarily of property management costs, payroll related expenses, utilities,
food expenses and maintenance and supplies. Rental property operations remained
the same from 1994 to 1995 and increased by 7% from 1993 to 1994.
IV - 5
<PAGE> 80
Assisted living expenses consist primarily of the related payroll expense.
Assisted living expenses increased by 15% from 1994 to 1995 and by 30% from 1992
to 1993. Assisted living expenses increased as a result of the increase in the
related staff providing assisted living services. The staff size was increased
due to the increase in the number of residents using the assisted living
services. This increase corresponds with the increase in assisted living
revenue.
General and administrative expenses are comprised of, but not limited to, costs
for accounting, partnership administration, bad debt, data processing, investor
relations, insurance and professional services. General and administrative
expenses increased by 15% from 1994 to 1995 and decreased 4% from 1993 to 1994.
The increase in 1995 was primarily due to the increase in partnership
administration fees due to the higher net operating income generated by the
facilities. The decrease in 1994 was primarily due to the elimination of
marketing commissions by the Registrant.
Depreciation and amortization expense decreased by 12% from 1994 to 1995 and
decreased by 13% from 1993 to 1994. Depreciation and amortization decreased due
to a portion of fixed assets becoming fully depreciated.
Property taxes increased by 12% from 1994 to 1995 and decreased by 19% from 1993
to 1994. The decrease in 1994 was due to lower property tax assessments and a
$45,000 reimbursement for prior years taxes that were overassessed.
Interest expense decreased by 2% from 1994 to 1995 and decreased by 4% from 1993
to 1994. Interest expense is lower due to a decrease in the principal balance
outstanding on the line of credit.
Selected costs and expenses for the years ended December 31, 1995, 1994 and 1993
are as follows:
<TABLE>
<CAPTION>
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Rental Property $9,993,572 $10,001,328 $9,326,559
Operations
Assisted living 859,322 748,148 577,606
Facilities Rent 1,178,331 1,175,414 1,155,307
General and
Administrative 800,482 695,970 725,814
Depreciation and
amortization 2,076,480 2,359,826 2,713,413
Property Taxes 487,722 434,178 533,019
Interest 572,061 583,017 606,699
</TABLE>
IV - 6
<PAGE> 81
FUTURE CASH DISTRIBUTIONS
The General Partners believe that the Registrant's ability to make cash
distributions to limited partners depends on factors such as:
(I) The Registrant's ability to rent the available units and
maintain high occupancies.
(ii) The Registrant's ability to control both operating and
administrative expenses.
(iii) The Registrant's ability to maintain adequate working capital.
(iv) The absence of any losses from uninsured property damage (e.g.,
earthquakes) or future litigation.
(v) The Registrant's ability to generate proceeds from the sales of
its properties.
(vi) The Registrant's ability to renew existing leases under
favorable terms.
IV - 7
<PAGE> 82
Manually signed facsimiles of the Letter of Transmittal will
be accepted. A Letter of Transmittal and any other required documents should be
sent or delivered by each Unitholder or his or her broker, dealer, commercial
bank, trust company or other nominee to the Depositary at one of its addresses
set forth below.
The Depositary for the Offer is:
THE HERMAN GROUP, INC.
By Mail/Hand Delivery: By Facsimile: For Information:
2121 San Jacinto Street (214) 999-9348 (800) 747-2966
26th Floor
Dallas, Texas 75201
Any questions or requests for assistance or additional copies
of this Offer to Purchase and the Letter of Transmittal may be directed to the
Information Agent at its telephone number and location listed below. You may
also contact your broker, dealer, commercial bank or trust company for
assistance concerning this Offer.
The Information Agent for the Offer is:
THE HERMAN GROUP, INC.
By Mail/Hand Delivery: By Facsimile: For Information:
2121 San Jacinto Street (214) 999-9348 (800) 747-2966
26th Floor
Dallas, Texas 75201
<PAGE> 1
Exhibit 99.2
LETTER OF TRANSMITTAL
TO
TENDER LIMITED PARTNERSHIP UNITS
OF
AMERICAN RETIREMENT VILLAS PROPERTIES II
PURSUANT TO THE OFFER TO PURCHASE DATED MAY 16, 1996 AS AMENDED FROM
TIME TO TIME BY
ARV ASSISTED LIVING, INC.
Please indicate changes or corrections to the address printed above.
================================================================================
THE OFFER, AND WITHDRAWAL RIGHTS WILL EXPIRE AT 10:00 P.M. DALLAS TEXAS, TIME,
ON FRIDAY JUNE 14, 1996, (THE "EXPIRATION DATE") UNLESS THE OFFER ARE EXTENDED.
To participate in the Offer, a duly executed copy of this Letter
of Transmittal and any other documents required by this Letter of Transmittal
must be received by the Depository on or prior to the Expiration Date. THE
METHOD OF DELIVERY OF ALL DOCUMENTS IS AT THE ELECTION AND RISK OF THE TENDERING
UNITHOLDER. PLEASE USE THE PRE-ADDRESSED, POSTAGE-PAID ENVELOPE PROVIDED.
DELIVERY OF THIS LETTER OF TRANSMITTAL OR ANY OTHER REQUIRED DOCUMENTS TO AN
ADDRESS OTHER THAN AS SET FORTH BELOW DOES NOT CONSTITUTE VALID DELIVERY.
Capitalized terms used herein and not defined herein have the meanings ascribed
to such terms in the Offer to Purchase.
PLEASE CAREFULLY READ THE ACCOMPANYING INSTRUCTIONS AND THE TAX CERTIFICATION
ON THE REVERSE SIDE
The Undersigned hereby tenders to ARV Assisted Living, Inc., (the
"Purchaser") the number of limited partnership units ("Units") in the
Partnership set forth below at $720.00 PER UNIT, LESS THE AMOUNT OF ANY
DISTRIBUTIONS DECLARED OR MADE WITH RESPECT TO THE UNITS BETWEEN MAY 16, 1996
(the "Offer Date") and the date of payment of the Purchase Price by the
Purchaser, net to the seller in cash, without interest, upon the terms and
subject to the conditions set forth in the Offer to Purchase, dated May 16, 1996
(the "Offer to Purchase"), and this Letter of Transmittal, as each may be
supplemented or amended from time to time (which together constitutes the
"Offer"). Receipt of the Offer to Purchase is hereby acknowledged.
Subject to and effective upon acceptance for payment of any of the
Units tendered hereby in accordance with the terms of the Offer, the undersigned
hereby irrevocably sells, assigns, transfers, conveys and delivers to, or upon
the order of, the Purchaser all rights, title and interest in and to such Units
tendered hereby that are accepted for payment pursuant to the Offer, including,
without limitation, all rights in, and claims to, any Partnership profits and
losses, cash distributions, voting rights, rights to be substituted as a Limited
Partner of the Partnership, and other benefits of any nature whatsoever
distributable or allocable to such tendered Units under the Partnership
Agreement. The undersigned hereby irrevocably constitutes and appoints the
Purchaser and any designees of the Purchaser as the true and lawful agent and
attorney-in-fact of the undersigned with respect to such Units, with the full
power of substitution (such power of attorney being deemed to be an irrevocable
power coupled with an interest), to vote or act in such manner as any such
attorney and proxy or substitute shall, in its sole discretion, deem proper with
respect to such Units, to deliver such Units and transfer ownership of such
Units on the Partnership books maintained by the General Partner, together with
all accompanying evidences of transfer and authenticity to, or upon the order
of, the Purchaser, to sign any and all documents necessary to authorize the
transfer of the Units to the Purchaser including, without limitation, the
"Transferor's (Seller's) Application for Transfer" created by the National
Association of Securities Dealers, if required, and upon receipt by the
Depositary, as the undersigned's agent, of the Purchase Price, to become a
substituted Limited Partner, to receive any and all distributions made by the
Partnership from and after the date of the Offer, and to receive all benefits
and otherwise exercise all rights of beneficial ownership of such Units all in
accordance with the terms of the Offer. NOTWITHSTANDING ANY PROVISION IN THE
APPLICABLE PARTNERSHIP AGREEMENT TO THE CONTRARY, THE UNDERSIGNED HEREBY DIRECTS
THE GENERAL PARTNER TO MAKE ALL DISTRIBUTIONS AFTER THE PURCHASER ACCEPTS THE
TENDERED UNITS FOR PAYMENT TO THE PURCHASER OR ITS DESIGNEE. The Purchaser
reserves the right to transfer or assign, in whole or from time to time in part,
to one or more of its affiliates, the right to Purchase Units tendered pursuant
to the Offer, but any such transfer or assignment will not relieve the Purchaser
of its obligations under the Offer or prejudice the rights of tendering
Unitholders to receive payment for Units validly tendered and accepted for
payment pursuant to the Offer. Subject to and effective upon acceptance for
payment of any Unit tendered hereby, the undersigned hereby requests that the
Purchaser be admitted to the Partnership as a "Substitute Limited Partner" under
the terms of the Partnership Agreement of the Partnership. Upon request, the
undersigned will execute and deliver additional documents deemed by the
Depositary or the Purchaser to be necessary or desirable to complete the
assignment, transfer and purchase of Units tendered hereby and will hold any
distributions received from the Partnership after the Offer Date in trust for
the benefit of the Purchaser and, if necessary, will promptly forward to the
Purchaser any such distributions immediately upon receipt. Upon the purchase of
Units pursuant to the Offer, all prior proxies and consents given by the
undersigned with respect to such Units will be revoked and no subsequent proxies
or consents may be given (and if given will not be deemed effective).
By executing this Letter of Transmittal, the undersigned
represents either (a) the undersigned is not a plan subject to Title I of the
Employee Retirement Income Security Act of 1974, as amended ("ERISA") or Section
4975 of the Internal Revenue Code of 1986, as amended (the "Code"), or an entity
deemed to hold "plan assets" within the meaning of 29 C.F.R. Section 2510.3-101
of any such plan; or (b) the tender and acceptance of Units pursuant to the
Offer will not result in a nonexempt prohibited transaction under Section 406 of
ERISA or Section 4975 of the Code.
The undersigned understands that a tender of Units to the
Purchaser will constitute a binding agreement between the undersigned and the
Purchaser upon the terms and subject to the conditions of the Offer. The
undersigned recognizes that under certain circumstances set forth in the Offer
to Purchase, the Purchaser may not be required to accept for payment any of the
Units tendered hereby. In such event, the undersigned understands that any
Letter of Transmittal for Units not accepted for payment will be destroyed by
the Purchaser. Except as stated in the Offer to Purchase, this tender is
irrevocable, provided Units tendered pursuant to the Offer may be withdrawn at
any time prior to the Expiration Date.
Our records indicate the following with respect to your ownership
of Units in the Partnership. IF NO INDICATION IS MARKED BELOW, ALL UNITS LISTED
WILL BE DEEMED TO HAVE BEEN TENDERED PURSUANT TO THE OFFER.
<TABLE>
<CAPTION>
NUMBER OF NUMBER OF PURCHASE PRICE TOTAL PURCHASE PRICE *
UNITS OWNED UNITS TENDERED PER UNIT IF ALL UNITS TENDERED
<S> <C> <C> <C>
</TABLE>
*Less the amount of any distribution declared or made to the Unitholder between
May 16, 1996 and the date of Payment of the Purchase Price.
================================================================================
SIGNATURE BOX
- --------------------------------------------------------------------------------
Please sign exactly as your name is printed (or corrected) above. For joint
owners, each joint owner must sign. If signed by the registered holder(s) of the
Units and payment is to be made directly to that holder(s) or Eligible
Institution, then no signature guarantee is necessary. In all other cases, all
signatures must be notarized or guaranteed by an Eligible Institution. (See
Instruction 2.) The signatory hereto hereby certifies under penalties of perjury
the Taxpayer I.E. No. furnished in the blank provided above and the statements
in Box A, Box B and, if applicable, Box C. The undersigned hereby represents and
warrants for the benefit of the Partnership and the Purchaser that the
undersigned owns the Units tendered hereby and has full power and authority to
validly tender, sell, assign, transfer, convey and deliver the Units tendered
hereby and that when the same are accepted for payment by the Purchaser, the
Purchaser will acquire good, marketable and unencumbered title thereto, free and
clear of all liens, restrictions, charges, encumbrances, conditional sales
agreements or other obligations relating to the sale or transfer thereof, and
such Units will not be subject to any adverse claims and that the transfer and
assignment contemplated herein are in compliance with all applicable laws and
regulations. All authority herein conferred or agreed to be conferred shall
survive the death or incapacity of the undersigned and any obligations of the
undersigned shall be binding upon the heirs, personal representatives,
successors and assigns of the undersigned. Except as stated in the Offer to
Purchase, this tender is irrevocable.
The signatory hereto hereby certifies under penalties of perjury the statements
in Box A, Box B, and, if applicable, Box C.
X
-------------------------------------------------------------------------------
(Signature of Owner)
X
-------------------------------------------------------------------------------
(Signature of Joint Owner)
Name and Capacity, (If other than individuals)
---------------------------------
(Title)
------------------------------------------
Area Code and Telephone No. (Day)
------------------------------
(Evening)
- -------------------------------------------------------------------
Notarization of Signature
(See Instruction 2)
STATE OF )
-------------------
) ss:
COUNTY OF )
------------------
On this day of , 1996,
----- ----------------
before me came personally
-------------------------------------------------------
(Please Print)
to me known to be the person who executed this Letter of Transmittal.
--------------------------------------------------------------------------
Notary Public
OR
SIGNATURE GUARANTEE
(SEE INSTRUCTION 2)
Name and Address of Eligible Institution
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Authorized Signature
------------------------------------------------------
Title Date
--------------------------------------- --------------------------
================================================================================
FOR INFORMATION AND ASSISTANCE WITH THE OFFER, PLEASE CALL:
THE HERMAN GROUP, INC. (800) 747-2966.
DELIVERY OF THIS ASSIGNMENT OR ANY OTHER REQUIRED DOCUMENTS TO AN ADDRESS OTHER
THAN AS SET FORTH ABOVE WILL NOT CONSTITUTE VALID DELIVERY. WHEN TENDERING BY
FACSIMILE, BOTH THE FRONT AND BACK OF THIS ASSIGNMENT OF PARTNERSHIP INTEREST
SHOULD BE TRANSMITTED.
<PAGE> 2
TAX CERTIFICATIONS
By signing the Letter of Transmittal in the Signature Box on the reverse side,
the Seller(s) certifies under penalty of perjury, the representations in Boxes
A, B or C below. Please refer to the attached Instructions for Completing this
Letter of Transmittal and Boxes A, B or C below.
================================================================================
BOX A
SUBSTITUTE FORM W-9
(See Instruction 4 - Box A)
- --------------------------------------------------------------------------------
The person signing this Letter of Transmittal hereby certifies the following to
the Purchaser under penalties of perjury:
(i) The Taxpayer Identification No. ("TIN") furnished in the space provided for
that purpose on the front of this Letter of Transmittal is the correct TIN of
the Unitholder, unless the Units are held in an Individual Retirement Account
(IRA); or if this box / / is checked, the Unitholder has applied for a TIN. If
the Unitholder has applied for a TIN, a TIN has not been issued to the
Unitholder, and either; (a) the Unitholder has mailed or delivered an
application to receive a TIN to the appropriate IRS Center or Social Security
Administration Office, or (b) the Unitholder intends to mail or deliver an
application in the near future (it being understood that if the Unitholder does
not provide a TIN to the Purchaser, 31% of all reportable payments made to the
Unitholder will be withheld; and
(ii) Unless this box / / is checked, the Unitholder is not subject to backup
withholding either because the Unitholder; (a) is exempt from backup
withholding; (b) has not been notified by the IRS that the Unitholder is subject
to backup withholding as a result of a failure to report all interest or
dividends; or (c) has been notified by the IRS that such Unitholder is no longer
subject to backup withholding.
Note: Place an "X" in the box in (ii) above, only if you are unable to certify
that the Unitholder is not subject to backup withholding.
================================================================================
================================================================================
BOX B
FIRPTA AFFIDAVIT
(See Instruction 4 - Box B)
- --------------------------------------------------------------------------------
Under Section 1445(e)(5) of the Internal Revenue Code and Treas. Reg.
1.1445-11T(d), a transferee must withhold tax equal to 10% of the amount
realized with respect to certain transfers of an interest in a partnership if
50% or more of the value of its gross assets consists of U.S. real property
interests and 90% or more of the value of its gross assets consists of U.S. real
property interests plus cash equivalents, and the holder of the partnership
interest is a foreign person. To inform the Purchaser that no withholding is
required with respect to the Unitholder's interest in the Partnership, the
person signing this Letter of Transmittal hereby certifies the following under
penalties of perjury:
(i) Unless this box / / is checked, the Unitholder, if an individual, is a U.S.
citizen or a resident alien for purposes of U.S. income taxation, and if other
than an individual, is not a foreign corporation, foreign partnership, foreign
estate or foreign trust (as those terms are defined in the Internal Revenue Code
and Income Tax Regulations);
(ii) the Unitholder's U.S. social security number (for individuals) or employer
identification number (for non-individuals) is correct as furnished in the blank
provided for that purpose on the front of the Letter of Transmittal; and
(iii) the Limited Partner 's home address (for individuals), or office address
(for non-individuals), is correctly printed (or corrected) on the front of this
Letter of Transmittal; and if a corporation, the jurisdiction of incorporation
is .
----------------------------------------------
The person signing this Assignment understands that this certification may be
disclosed to the IRS by the Purchaser and that any false statements contained
herein could be punished by fine, imprisonment, or both.
================================================================================
================================================================================
BOX C
SUBSTITUTE FORM W-8
(See Instruction 4 - Box C)
- --------------------------------------------------------------------------------
By checking this box / /, the person signing this Letter of Transmittal hereby
certifies under penalties of perjury that the Unitholder is an "exempt foreign
person" for purposes of the Backup Withholding rules under the U.S. federal
income tax laws, because the Unitholder;
(i) Is a nonresident alien individual or a foreign corporation, partnership,
estate or trust;
(ii) If an individual, has not been and plans not to be present in the U.S. for
a total of 183 days or more during the calendar year; and
(iii) Neither engages, nor plans to engage, in a U.S. trade or business that has
effectively connected gains from transactions with a broker or barter exchange.
================================================================================
FOR INFORMATION OR ASSISTANCE IN COMPLETING THIS LETTER OF TRANSMITTAL, PLEASE
CONTACT THE INFORMATION AGENT
THE HERMAN GROUP, INC.
(800) 747-2966
<PAGE> 3
INSTRUCTIONS FOR COMPLETING LETTER OF TRANSMITTAL
ARV ASSISTED LIVING, INC.
OFFER TO PURCHASE UNITS
OF
AMERICAN RETIREMENT VILLAS PROPERTIES II
================================================================================
1. DELIVERY OF REQUIREMENTS. For convenience in responding to the Offer, a
pre-addressed, postage-paid envelope has been enclosed with the Offer to
Purchase. However, to ensure receipt of the Letter of Transmittal, it is
suggested that you use overnight courier delivery or, if the Letter of
Transmittal is to be delivered by United States mail, that you use
certified or registered mail, return receipt requested. WHEN TENDERING BY
FACSIMILE, PLEASE TRANSMIT BOTH THE FRONT AND THE BACK SIDE OF THE LETTER
OF TRANSMITTAL.
To be effective, a duly completed and signed Letter of Transmittal (or
facsimile thereof) must be received by the Information Agent/Depositary at
the address (or facsimile number) set forth below before the Expiration
Date, 10:00 P.M., Dallas, Texas Time, on Friday, June 14, 1996, unless
extended. LETTERS OF ACCEPTANCE WHICH HAVE BEEN DULY EXECUTED, BUT WHERE
NO INDICATION IS MARKED IN THE "NUMBER OF UNITS TENDERED" COLUMN, SHALL BE
DEEMED TO HAVE TENDERED ALL UNITS PURSUANT TO THE OFFER.
BY MAIL OR THE HERMAN GROUP, INC.
HAND DELIVERY 2121 San Jacinto Street
26th Floor
Dallas, Texas 75201-9821
BY FACSIMILE: (214) 999-9323 or (214) 999-9348
FOR ADDITIONAL INFORMATION CALL: (800) 747-2966
WHEN TENDERING BY FACSIMILE, PLEASE TRANSMIT BOTH THE FRONT AND THE
BACK SIDE OF THE LETTER OF TRANSMITTAL.
THE METHOD OF DELIVERY OF THE LETTER OF TRANSMITTAL AND ALL OTHER REQUIRED
DOCUMENTS IS AT THE OPTION AND RISK OF THE TENDERING UNITHOLDER AND
DELIVERY WILL BE DEEMED MADE ONLY WHEN ACTUALLY RECEIVED BY THE INFORMATION
AGENT/DEPOSITARY. IN ALL CASES, SUFFICIENT TIME SHOULD BE ALLOWED TO ASSURE
TIMELY DELIVERY.
2. SIGNATURE REQUIREMENTS.
INDIVIDUAL AND JOINT OWNERS (INCLUDING IRA ACCOUNTS) - After carefully
reading and completing the Letter of Transmittal, to tender Units,
Unitholders must sign at the "X" in the SIGNATURE BOX on the bottom of the
front page of the Letter of Transmittal. The signature(s) must correspond
exactly with the names printed (or corrected) on the front of the Letter of
Transmittal. If the Letter of Transmittal is signed by the registered
Unitholder, (or beneficial owner in the case of an IRA), no notarization or
signature guarantee on the Letter of Transmittal is required. If any
tendered Units are registered in the names of two or more joint owners, all
such owners must sign this Letter of Transmittal. NOTE: FOR UNITS HELD IN AN
IRA ACCOUNT, THE BENEFICIAL OWNER SHOULD SIGN IN THE SIGNATURE BOX AND NO
NOTARIZATION OR SIGNATURE GUARANTEE IS REQUIRED. Similarly, if Units are
tendered for the account of a member firm of a registered national security
exchange, a member firm of the National Association of Securities Dealers,
Inc. or a commercial bank, savings bank, credit union, savings and loan
association or trust company having an office, branch or agency in the
United States (each an "Eligible Institution"), no notarization or signature
guarantee is required.
TRUSTEES, CORPORATIONS, PARTNERSHIP AND FIDUCIARIES -Trustees, executors,
administrators, guardians, attorneys-in-fact, officers of a corporation,
authorized partners of a partnership or other persons acting in a fiduciary
or representative capacity must sign at the "X" in the SIGNATURE BOX and
have their signatures notarized or guaranteed by an Eligible Institution,
(Also defined in Instruction 3), by completing the Signature Notarization or
Guarantee set forth in SIGNATURE BOX of the Letter of Transmittal. If the
Letter of Transmittal is signed by trustees, administrators, guardians,
attorney-in-fact, officers of corporations, authorized partners of a
partnership or others acting in a fiduciary or representative capacity, such
persons should, in addition to having their signatures guaranteed, indicate
their title in the SIGNATURE BOX 2 and must submit proper evidence
satisfactory to the Purchaser of their authority to so act. (See Instruction
3 below);
3. DOCUMENTATION REQUIREMENTS. In addition to the information required to be
completed on the Letter of Transmittal, additional documentation may be
required by the Purchaser under certain circumstances including, but not
limited to, those listed below. Questions on documentation should be
directed to the Information Agent at (800) 747-2966, Project Administration
Department.
DECEASED OWNER (JOINT TENANT) - Copy of Death Certificate.
DECEASED OWNER (OTHERS) - Copy of Death Certificate. (See also
Executor/Administrator/Guardian below).
EXECUTOR/ADMINISTRATOR/GUARDIAN - Copy of court appointment documents for
Executor or Administrator; and
(a) a copy of applicable provisions
of the Will (Title Page,
Executor(s)' powers, asset
distribution);
OR
(b) Estate distribution documents.
ATTORNEY-IN-FACT - Current Power of Attorney.
CORPORATIONS/PARTNERSHIP - Corporate Resolution(s) or other
evidence of authority to act.
Partnership should furnish copy of the
Partnership Agreement.
TRUST/PENSION PLANS - Unless the Trustee(s) are named in the
registration, a Copy of the cover page
of the Trust or Pension Plan, along with
copy of the section(s) setting forth
names and powers of Trustee(s) and any
amendments to such sections or
appointment of Successor Trustee(s).
<PAGE> 4
4. TAX CERTIFICATIONS. Unitholder(s) tendering Units to the Purchaser pursuant
to the Offer must furnish the Purchaser his, her's or its Taxpayer
Identification Number ("TIN") and certify, under penalties of perjury, the
representations in Boxes A, B and, if applicable, Box C. By signing the
Signature Box, The Unitholder(s) Certify that the TIN as printed (or
corrected) on the front of the Letter of Transmittal and the
representations made in Boxes A, B (and if applicable), Box C are correct.
U.S. PERSONS. A Unitholder who or which is a U. S. citizen OR a resident
alien individual, a domestic corporation, a domestic partnership, a
domestic trust or a domestic estate (collectively, "U.S. Persons") as those
terms are defined in the Internal Revenue Code and Income Tax Regulations,
(the "Code") should follow the instructions below with respect to
certifying Boxes A and B (on the reverse side of the Letter of
Transmittal).
BOX A - SUBSTITUTE FORM W-9.
Part (i), Taxpayer Identification Number - Tendering Unitholders must
certify to the Purchaser the TIN printed on the front of the Letter of
Transmittal. If a correct TIN is not provided, penalties may be imposed by
the Internal Revenue Service ("IRS"), in addition to the Limited Partner
being subject to backup withholding.
Part (ii), Backup Withholding - In order to avoid 31% federal income tax
backup withholding, the tendering Limited Partner must certify, under
penalties of perjury, that such Limited Partner is not subject to backup
withholding. Certain Limited Partners (including, among others, all
corporations and certain exempt non-profit organizations) are not subject
to backup withholding. Backup withholding is not an additional tax. If
withholding results in an overpayment of taxes, a refund may be obtained
from the IRS. DO NOT CHECK THE BOX IN BOX A, PART (II), UNLESS YOU HAVE
BEEN NOTIFIED BY THE IRS THAT YOU ARE SUBJECT TO BACKUP WITHHOLDING.
WHEN DETERMINING THE TIN TO BE FURNISHED, PLEASE REFER TO THE FOLLOWING
AS A GUIDE:
INDIVIDUAL ACCOUNTS - should reflect owner's TIN.
JOINT ACCOUNTS - should reflect the TIN of the owner whose name appears
first.
TRUST ACCOUNTS - should reflect the TIN assigned to the Trust.
IRA CUSTODIAL ACCOUNTS - should reflect the TIN of the Custodian. (Not
necessary to provide).
CUSTODIAL ACCOUNTS FOR THE BENEFIT OF MINORS - should reflect the TIN of
the minor.
CORPORATIONS, PARTNERSHIP OR OTHER BUSINESS ENTITIES - should reflect the
TIN assigned to that entity.
By signing the Signature Box, the Unitholder(s) certify that the TIN as
printed (or corrected) on the front of the Letter of Transmittal is
correct.
BOX B - FIRPTA AFFIDAVIT - Section 1445 of the Code requires that each
Unitholder transferring Units in Partnership with real estate assets
meeting certain criteria certify under penalty of perjury the
representations made in Box B, or be subject to withholding of tax equal to
10% of the Purchase Price for Units purchased. Tax withheld under Section
1445 of the Code is not an additional tax. If withholding results in an
overpayment of tax, a refund may be obtained from the IRS. PART (I) SHOULD
BE CHECKED ONLY IF THE TENDERING UNITHOLDER IS NOT A U.S. PERSON, AS
DESCRIBED THEREIN. CORPORATIONS SHOULD INSERT THE JURISDICTION OF
INCORPORATION IN THE BLANK PROVIDED IN PART (III).
BOX C - FOREIGN PERSONS - In order for a tendering Unitholder, who is a
Foreign Person (i.e., not a U.S. Person as defined above) to qualify as
exempt from 31% backup withholding, such Foreign Unitholder must certify,
under penalties of perjury, the statement in Box C of this Letter of
Transmittal, attesting to that foreign person's status by checking the box
preceding such statement. UNLESS THE BOX IS CHECKED, SUCH UNITHOLDER WILL
BE SUBJECT TO 31% WITHHOLDING OF TAX UNDER SECTION 1445 OF THE CODE.
5. CONDITIONAL TENDERS. No alternative, conditional or contingent tenders
will be accepted.
6. VALIDITY OF LETTER OF TRANSMITTAL. All questions as to the validity, form,
eligibility (including time of receipt) and acceptance of a Letter of
Transmittal will be determined by the Purchaser and such determination will
be final and binding. The Purchaser interpretation of the terms and
conditions of the Offer (including these instructions for the Letter of
Transmittal) will be final and binding. The Purchaser will have the right
to waive any irregularities or conditions as to the manner of tendering.
Any irregularities in connection with tenders, unless waived, must be cured
within such time as the Purchaser shall determine. The Letter of
Transmittal will not be valid until any irregularities have been cured or
waived. Neither the Purchaser nor the Information Agent/Depositary are
under any duty to give notification of defects in a Letter of Transmittal
and will incur no liability for failure to give such notification.
7. ASSIGNEE STATUS. Assignees must provide documentation to the Information
Agent/Depository which demonstrates, to the satisfaction of the Purchaser,
such person's status as an Assignee.
8. TRANSFER TAXES: The Purchaser will pay, or cause to be paid, all transfer
taxes, if any, in respect of the Unit(s) accepted for payment pursuant to
the Offer.
FOR INFORMATION PLEASE CALL:
[THE HERMAN GROUP LOGO]
(800) 747-2966
<PAGE> 1
Exhibit 99.3
[ARV Assisted Living, Inc. Letterhead]
========================================================
IF YOU HAVE ANY QUESTIONS ABOUT THIS OFFER OR IF
YOU NEED HELP IN COMPLETING THE LETTER OF
TRANSMITTAL, PLEASE CALL THE INFORMATION AGENT,
THE HERMAN GROUP, INC., AT (800) 747-2966
========================================================
May 16, 1996
Re: Tender Offer for Any and All Units of
American Retirement Villas Properties II
Dear Unitholder:
ARV Assisted Living, Inc. (the "Company") is offering to
purchase (the "Offer") any and all of the limited partnership units (the
"Units") in American Retirement Villas Properties II, a California limited
partnership (the "Partnership"), at a net cash price per Unit of $720 (the
"Offer Price"). The Offer is not conditioned upon a minimum number of Units
being tendered. There will be no commissions or fees paid by you associated with
the sale. The Offer presents a current opportunity to sell your Units if you
require or desire liquidity.
The general partners of the Partnership are Gary L. Davidson,
the Chairman of the Board of the Company, John A. Booty, the President of the
Company, John S. Jason, a shareholder of the Company, Tony Rota, a shareholder
of the Company, and the Company (the "General Partners"). The Company is the
managing partner of the Partnership. The General Partners believe the Offer
Price is fair and in the best interests of Unitholders. THE GENERAL PARTNERS
HAVE CONFLICTS OF INTEREST IN THIS TRANSACTION.
The Company has enclosed an Offer to Purchase and Letter of
Transmittal which together describe the terms of the Offer. The Company urges
you to read both the Offer to Purchase and the Letter of Transmittal carefully.
If you wish to sell your Units and receive a net cash price of $720 per Unit,
please complete the enclosed Letter of Transmittal and return
<PAGE> 2
it in the enclosed postage-paid envelope to the address set forth on the back
cover of the Offer to Purchase. The Offer will expire on Friday, June 14, 1996,
unless extended.
We thank you for your prompt attention to this matter.
Very truly yours,
ARV ASSISTED LIVING, INC.
By: /s/ GARY L. DAVIDSON
----------------------------
Gary L. Davidson
Chairman of the Board
2
<PAGE> 1
Exhibit 99.4
Offer to Purchase for Cash
All Outstanding Limited Partnership Units
of
AMERICAN RETIREMENT VILLAS PROPERTIES II
at
$720.00 NET PER LIMITED PARTNERSHIP UNIT
by
ARV ASSISTED LIVING, INC.
-----------------------------------------------------------
THE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 10:00
P.M., DALLAS, TEXAS TIME, ON FRIDAY, JUNE 14, 1996,
UNLESS EXTENDED.
------------------------------------------------------------
May 16, 1996
To Brokers, Dealers, Commercial
Banks, Trust Companies and
Other Nominees:
ARV Assisted Living, Inc., a California corporation (the "Company"), is
offering to purchase all outstanding limited partnership units (the "Units") of
American Retirement Villas Properties II, a California limited partnership (the
"Partnership"), at $720.00 per Unit, net to the seller in cash and without
interest, upon the terms and subject to the conditions set forth in the Offer to
Purchase dated May 16, 1996 (the "Offer to Purchase") and in the related Letter
of Transmittal (which together constitute the "Offer").
For your information and for forwarding to your clients for whom you
hold Units registered in your name or in the name of your nominee, we are
enclosing the following documents:
1. Offer to Purchase dated May 16, 1996;
2. Letter of Transmittal to tender Units for your use and for
the information of your clients, together with Guidelines for
Certification of Taxpayer Identification Number on Substitute Form W-9;
<PAGE> 2
3. A form of letter which may be sent to your clients for
whose accounts you hold Units registered in your name or in the name of
your nominee, with space provided for obtaining such clients'
instructions with regard to the Offer; and
4. Return envelope addressed to The Herman Group, Inc. (the
"Depositary").
We are asking you to contact the clients for whom you hold Units
registered in your name (or in the name of a nominee) or who hold Units
registered in their own name. Please bring the Offer to the attention of your
clients as promptly as possible. The Company will not pay any fees or
commissions to any broker or dealer or any other person (other than the
Depositary and the Information Agent) in connection with the solicitation of
tenders of Units pursuant to the Offer. You will be reimbursed by the Company,
upon request, for customary mailing and handling expenses incurred by you in
forwarding any of the enclosed materials to your clients. The Company will pay
or cause to be paid all Unit transfer taxes applicable to the purchases of Units
pursuant to the Offer.
In order to take advantage of the Offer, a duly executed and properly
completed Letter of Transmittal (or a facsimile copy thereof), and any other
required documents, should be sent to the Depositary, in accordance with the
instructions set forth in the Letter of Transmittal and the Offer to Purchase.
YOUR PROMPT ACTION IS REQUESTED. WE URGE YOU TO CONTACT YOUR CLIENTS AS
PROMPTLY AS POSSIBLE. THE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 10:00 P.M.,
DALLAS, TEXAS TIME, ON FRIDAY, JUNE 14, 1996, UNLESS EXTENDED.
Any inquiries you may have with respect to the Offer should be
addressed to, and additional copies of the enclosed materials may be obtained
from, the Information Agent at the address and telephone number set forth on the
back cover of the Offer to Purchase.
Very truly yours,
ARV ASSISTED LIVING, INC.
NOTHING CONTAINED HEREIN OR IN THE ENCLOSED DOCUMENTS SHALL CONSTITUTE
YOU OR ANY OTHER PERSON AS THE AGENT OF THE COMPANY, ANY AFFILIATE OF THE
COMPANY OR THE INFORMATION AGENT, OR AUTHORIZE YOU OR ANY OTHER PERSON TO USE
ANY DOCUMENT OR MAKE ANY STATEMENT ON BEHALF OF ANY OF THEM IN CONNECTION WITH
THE OFFER EXCEPT FOR STATEMENTS EXPRESSLY MADE IN THE OFFER TO PURCHASE OR THE
LETTER OF TRANSMITTAL.
2
<PAGE> 1
Exhibit 99.5
Offer to Purchase for Cash
All Outstanding Limited Partnership Units
of
AMERICAN RETIREMENT VILLAS PROPERTIES II
at
$720.00 NET PER LIMITED PARTNERSHIP UNIT
by
ARV ASSISTED LIVING, INC.
To Our Clients:
Enclosed for your consideration are the Offer to Purchase dated May 16,
1996 and the related Letter of Transmittal (which together constitute the
"Offer") in connection with the offer by ARV Assisted Living, Inc., a California
corporation (the "Company"), to purchase all of the outstanding limited
partnership units ("Units") of American Retirement Villas Properties II, a
California limited partnership (the "Partnership"), at a price of $720.00 per
Unit, net to the seller in cash and without interest (the "Offer Price").
WE ARE THE HOLDER OF RECORD OF UNITS HELD FOR YOUR ACCOUNT. A TENDER OF
SUCH UNITS CAN BE MADE ONLY BY US AS THE HOLDER OF RECORD AND PURSUANT TO YOUR
INSTRUCTIONS. THE SPECIMEN LETTER OF TRANSMITTAL IS FURNISHED TO YOU FOR YOUR
INFORMATION ONLY AND CANNOT BE USED BY YOU TO TENDER UNITS HELD BY US FOR YOUR
ACCOUNT.
We request instructions as to whether you wish us to tender any or all
of the Units held by us for your account, upon the terms and subject to the
conditions set forth in the Offer.
Please note the following:
1. The tender price is $720.00 per Unit, net to you in cash
and without interest.
2. The Offer and withdrawal rights expire at 10:00 p.m.,
Dallas, Texas time, on Friday, June 14, 1996, unless the Offer is
extended.
3. The Offer is not conditioned upon a minimum number of Units
being validly tendered.
<PAGE> 2
4. The general partners of the Partnership are Gary L.
Davidson, the Chairman of the Board of the Company, John A. Booty, the
President of the Company, John S. Jason, a shareholder of the Company,
Tony Rota, a shareholder of the Company, and the Company (the "General
Partners"). The Company is the managing partner of the Partnership. The
General Partners believe the Offer Price is fair and in the best
interests of Unitholders. THE GENERAL PARTNERS HAVE CONFLICTS OF
INTEREST IN THIS TRANSACTION.
5. Tendering Unitholders will not be obligated to pay
brokerage fees or commissions or Unit transfer taxes on the purchase of
Units by the Purchaser pursuant to the Offer.
If you wish to have us tender all or any of the Units held by us for
your account, please so instruct us by completing, executing, detaching and
returning to us the instruction form on the detachable part of this letter. An
envelope to return your instructions to us is enclosed. If you authorize tender
of your Units, all such Units will be tendered unless otherwise specified on the
detachable part of this letter. Your instructions should be forwarded to us in
ample time to permit us to submit a tender on your behalf by the expiration of
the Offer.
The Offer is not being made to, nor will tenders be accepted from or on
behalf of, Unitholders in any jurisdiction in which the making of the Offer or
acceptance thereof would not be in compliance with the laws of such
jurisdiction. In any jurisdiction the securities laws or blue sky laws of which
require the Offer to be made by a licensed broker or dealer, the Offer shall be
deemed to be made on behalf of the Company by one or more registered brokers or
dealers which are licensed under the laws of such jurisdiction.
2
<PAGE> 3
INSTRUCTIONS WITH RESPECT TO
OFFER TO PURCHASE FOR CASH
ALL OUTSTANDING LIMITED PARTNERSHIP UNITS
OF
AMERICAN RETIREMENT VILLAS PROPERTIES II
The undersigned acknowledge(s) receipt of your letter and the enclosed
Offer to Purchase dated May 16, 1996 and the related Letter of Transmittal, in
connection with the offer by ARV Assisted Living, Inc. to purchase all
outstanding limited partnership units (the "Units") of American Retirement
Villas Properties II.
This will instruct you to tender the number of Units indicated below
held by you for the account of the undersigned upon the terms and subject to the
conditions set forth in the Offer to Purchase and the related Letter of
Transmittal.
- ----------------------------------- ------------------------------------------
Number of Units to be tendered: SIGN HERE
Units*
- ---------------------- -----------------------------------
Signature(s)
-----------------------------------
-----------------------------------
-----------------------------------
Please print name(s) and address(s) here
Dated:
- ---------------------- -----------------------------------
Taxpayer identification or
Social Security Number(s)
- ----------------------------------- ------------------------------------------
- --------------------------
* Unless otherwise indicated, it will be assumed that all Units held by us for
your account are to be tendered.
3
<PAGE> 1
Exhibit 99.6
[ARV Assisted Living, Inc. Letterhead]
COSTA MESA, CALIFORNIA. ARV Assisted Living, Inc. announced today that
it is offering to purchase the limited partnership units in American Retirement
Villas Properties II, a California limited partnership. The offer is for any and
all of the 34,885.542 limited partnership units of American Retirement Villas
Properties II not owned by ARV Assisted Living, Inc. at a net cash price per
unit of $720.00.
