SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
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FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
Date of report (Date of earliest event reported) FEBRUARY 13, 1998
LEXFORD, INC.
(Exact Name of Registrant as Specified in Charter)
OHIO 0-21670 31-4427382
(State or Other Jurisdiction (Commission (IRS Employer
of Incorporation) File Number) Identification No.)
41 SOUTH HIGH STREET, SUITE 2410 COLUMBUS 43215
(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number, including area code (614)242-3850
Page 1 of 12 Pages
Exhibit Index on Page 7
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ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS
This Current Report on Form 8-K is being filed in order to report the
acquisition by Lexford, Inc. (the "Registrant") of all third party partners'
interests in 107 limited partnerships (collectively, the "Consolidating
Partnerships") previously held by partners unrelated to the Registrant
(collectively, the "Outside Partner Interests").
Each of the Consolidated Partnerships owns and operates a multi-family
residential apartment community developed by the Registrant's predecessor,
Cardinal Industries, Inc. A list of the Consolidated Partnerships involved in
the subject transactions and data concerning the apartment communities owned by
each such Consolidated Partnership are set forth in Table 1 appearing
hereinbelow.
The Consolidating Partnerships' real estate assets include 6,212
apartment units which, collectively, generated about $28.8 million in Total
Revenue, and approximately $14.7 million in net operating income, for the year
ended December 31, 1997, according to unaudited results. The aggregate mortgage
debt of the Consolidating Partnerships is approximately $100.9 million, of
which, as of March 2, 1998, over $40.0 million is prepayable without substantial
penalty or premium. Combined with the Registrant's other wholly-owned real
estate assets, the Registrant now has outstanding over $160.0 million of
prepayable mortgage debt on a consolidated basis. That amount is expected to
increase as the Registrant continues to seek to consolidate ownership of
additional partnerships in which it presently has a minority equity interest.
The Registrant and/or one or more of its wholly owned subsidiary
corporations serves as the managing general partner of each Consolidated
Partnership. The acquisition of the Outside Partner Interests in the
Consolidated Partnerships was accomplished by a merger of a general or limited
partnership in which the Registrant and its wholly owned subsidiary, Cardinal
Industries Development Corporation, were the sole partners formed solely for the
purpose of effecting the merger (in each case, a "Merger Partnership"). In each
instance, the Merger Partnership was merged with and into the subject
Consolidated Partnership with the subject Consolidated Partnership surviving the
merger.
Pursuant to the terms of the agreement of merger governing each such
merger, the Outside Partner Interest held by each partner of the subject
Consolidated Partnership, other than the Registrant and its wholly owned
affiliates, was canceled and thereafter represented the right solely to receive
a cash payment.
Table 1 also sets forth the merger consideration paid or payable in
respect of each unit of limited Outside Partner Interest, as well as the general
Outside Partner Interest, if any, held by any third party co-general partner in
each Consolidated Partnership. The Registrant and its affiliates have funded, or
will fund, the merger consideration payable to holders of Outside Partner
Interests from internal working capital and the proceeds of borrowings under the
Registrant's revolving credit facility with The Provident Bank.
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Pursuant to the terms of the agreement of limited partnership of
certain of the Consolidating Partnerships (and, when applicable, a separate
agreement between the managing general partner and third party co-general
partner(s)) the Registrant or its wholly owned affiliate, as managing general
partner, solicited the consent (in each case, the "Consent Solicitation") of the
holders of the Outside Partner Interests to effect the merger.
In accordance with the terms of the Consent Solicitation, holders of
Outside Partner Interests who executed and delivered their consent by the date
specified in the Consent Solicitation materials became entitled to a voluntary
payment from the Registrant separate and apart from the merger consideration
payable to all holders of Outside Partner Interests. The amount of voluntary
payment per unit of limited Outside Partner Interest payable to consenting
holders is set forth in Table 1. The Registrant has funded, or will fund, all
such voluntary payments from internal working capital and the proceeds of
borrowings under the Registrant's revolving credit facility with The Provident
Bank.
The agreement of limited partnership of the remaining Consolidating
Partnerships (the "Non Consent Partnerships") authorized the managing general
partner to transfer the Property owned by the Non Consent Partnership without
soliciting the consent of the holders of Outside Partner Interests. In the case
of the Non Consent Partnerships, each holder of Outside Partner Interests
received, or will receive, the merger consideration per unit shown on Table 1,
which amount the Registrant believes is in excess of such holder's allocable
ownership interest in the Non Consent Partnership's equity in the Non Consent
Partnership's property. The Registrant provided each holder of Outside Partner
Interests in the Non Consent Partnerships with advance notice of its intent to
cause the transfer of such Partnership's property by letter substantially in the
form attached to this Form 8-K as Exhibit 2.3.
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<TABLE>
<CAPTION>
TABLE 1 Total
Limited Merger Voluntary Payment
Transaction Apartment Partner Consideration Payment Co-GP to Outside
Date Partnership Name Units Units Per LP Unit Per LP Unit Payment Partners
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<S> <C> <C> <C> <C> <C> <C> <C>
02/13/98 Apple Ridge Apartments of Circleville III, Ltd. 30 35 2,134 530 0 93,251
02/13/98 Apple Run Apartments of Columbus, II, Ltd. 50 90 0 292 0 26,280
02/13/98 Applewood Apartments, Ltd. 69 90 0 635 0 57,150
02/13/98 Applewood Apartments,II, Ltd. 92 35 0 1,778 0 62,230
02/13/98 Bayside Apartments, Ltd. 59 90 0 574 0 51,660
02/13/98 Branchwood Apartments, Ltd. 116 90 1,111 613 0 155,119
02/13/98 Brandywyne Apartments East, Ltd. 38 90 0 470 0 42,300
02/13/98 Cedarwood Apartments of Belpre, Ltd. 44 90 682 75 0 68,166
02/13/98 Concord Square Apartments of Lawrenceburg, Ltd. 49 35 346 994 539 47,452
02/13/98 Concord Square Apartments of Ontario II, Ltd. 31 35 0 410 0 14,350
02/13/98 Concord Square Apartments of Ontario, Ltd. 41 90 311 181 0 44,284
02/13/98 Countryside Apartments II, Ltd. 96 90 3,499 766 0 383,841
02/13/98 Countryside Apartments, Ltd. 59 90 0 75 0 6,750
02/13/98 Dartmouth Place Apartments of Kent, Ltd. 53 35 8,283 1,009 12,885 338,116
02/13/98 Deerwood Apartments, Ltd. 50 35 0 1,272 0 44,520
02/13/98 Elmwood Apartments, Ltd. 52 35 0 1,094 0 38,290
02/13/98 Hampshire Apartments of Bluffton, Ltd. 45 10 0 2,529 0 16,439
02/13/98 Hidden Pines, Ltd. 56 90 1,119 301 0 127,837
02/13/98 Independence Village Apartments, Ltd. 123 180 0 227 0 40,860
02/13/98 London Lamplight Apartments, Limited Partnership 54 90 2,676 75 0 247,585
02/13/98 Meadowood Apartments of Crawfordsville, LP 63 35 0 872 0 29,648
02/13/98 Meadowood Apartments of Mansfield, Ltd. 50 35 0 690 0 24,150
02/13/98 Morningside Apartments, II, Ltd. 182 40 0 2,179 0 80,623
02/13/98 Nova Glen Apartments, Ltd. 61 35 0 1,225 0 40,425
02/13/98 Novawood Apartments, I, Ltd. 57 81 0 339 0 27,290
02/13/98 Oakwood Manor Apartments, Ltd. 63 35 0 200 0 7,000
02/13/98 Palm Place Apartments, Ltd. 80 30 0 1,610 0 48,300
02/13/98 Parkville Apartments of Parkersburg, LP 49 35 0 883 0 30,905
02/13/98 Pine Lake Apartments, Ltd. 41 35 0 846 0 29,610
02/13/98 Pinellas Pines Apartments, Ltd. 68 35 0 1,237 5,142 45,963
02/13/98 Plumwood Apartments of Chesterfield, Ltd. 39 90 939 75 0 91,461
02/13/98 Sandpiper Apartments II, Ltd. 66 35 0 1,524 0 53,340
02/13/98 Shadow Bay Apartments, Ltd. 53 51 0 716 0 36,516
02/13/98 Shadow Ridge Apartments, Ltd. 61 35 0 1,486 9,542 61,552
02/13/98 Shadowood Apartments, Ltd. 69 35 4,103 1,253 0 182,113
02/13/98 Springwood Apartments of Austintown II, Ltd. 43 35 0 667 0 23,345
02/13/98 Suffolk Grove Apartments of Grove City, Ltd. 71 1 70,000 0 0 70,000
02/13/98 Sunnyside Apartments, Ltd. 72 35 0 876 0 28,908
02/13/98 Turkscap Apartments, Ltd. 49 90 240 75 0 28,360
02/13/98 Windwood Apartments, II, Ltd. 64 420 0 30 0 12,000
02/13/98 Woodlands Apartments of Columbus, Ltd. 88 243 598 141 0 179,664
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02/13/98 41 Partnerships 2,596 3,037,653
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</TABLE>
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<TABLE>
<CAPTION>
TABLE 1 Total
Limited Merger Voluntary Payment
Transaction Apartment Partner Consideration Payment Co-GP to Outside
Date Partnership Name Units Units Per LP Unit Per LP Unit Payment Partners
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
02/20/98 Amberwood Apartments, Ltd. 49 98 0 464 0 41,760
02/20/98 Andover Court Apartments of Mt. Vernon, Ltd. 51 35 0 751 0 23,281
02/20/98 Apple Run Apartments of Hillsdale, Ltd. 38 35 0 557 0 18,938
02/20/98 Apple Run Apartments of Trumbull County, Ltd. 47 115 0 252 0 28,980
02/20/98 Applegate Apartments of Chillicothe, II, Ltd. 41 35 0 641 0 22,435
02/20/98 Applegate Apartments of Lordstown, Ltd. 38 5 0 4,027 0 20,135
02/20/98 Ashgrove Apartments of Franklin, Ltd. 63 35 467 649 88 39,148
02/20/98 Ashgrove Apartments of Indianapolis, Ltd. 57 35 1,599 750 311 82,520
02/20/98 Beckford Place Apartments of Wapakoneta, Ltd. 41 35 0 868 0 30,380
02/20/98 Camellia Court Apartments of Dayton, II, Ltd. 53 35 0 961 0 28,830
02/20/98 Camellia Court Apartments of Dayton, Ltd. 58 90 723 262 670 89,320
02/20/98 Camellia Court Apartments of Washington Court House, Ltd. 40 70 0 541 0 35,165
02/20/98 Candlelight Apartments, Ltd. 51 35 0 1,469 0 51,415
02/20/98 Cedargate Apartments of Lancaster II, Ltd. 47 35 0 595 0 20,825
02/20/98 Cedarwood Apartments II, Ltd. 39 95 0 75 0 7,125
02/20/98 Cedarwood Apartments of Sabina, Ltd. 32 10 0 2,262 0 22,620
02/20/98 Cedarwood Apartments, Ltd. 55 90 712 163 0 78,772
02/20/98 Dogwood Terrace Apartments of Lancaster, Ltd. 110 50 0 1,109 0 55,450
02/20/98 Garden Terrace Apartments II, Ltd. 65 35 0 2,190 0 76,650
02/20/98 Greenglen Apartments of Allen County II, Ltd. 54 35 590 1,018 0 56,286
02/20/98 Greenglen Apartments of Toledo, II, Ltd. 59 35 0 1,152 0 40,320
02/20/98 Hampshire Apartments of Elyria, II, Ltd. 57 54 0 1,116 0 60,822
02/20/98 Hartwick Apartments of Tipton, Ltd. 45 35 425 820 0 43,569
02/20/98 Heathmoore Apartments of Jefferson County, Ltd. 62 35 0 1,043 0 36,505
02/20/98 Heathmoore Apartments of Macomb County, Ltd. 72 35 325 965 0 45,153
02/20/98 Hickory Mill Apartments of Hurricane, Ltd. 48 35 0 575 0 20,125
02/20/98 Hickory Place Apartments, Ltd. 70 35 0 1,539 0 53,865
02/20/98 Larkspur Apartments of Moraine, Ltd. 29 35 0 687 0 24,045
02/20/98 Meadowood Apartments of Flatwoods, Ltd. 52 35 0 824 0 28,840
02/20/98 Meadowood Apartments of Lexington, Ltd. 51 35 0 606 0 19,998
02/20/98 Meadowood Apartments of Norcross II, Ltd. 51 35 1,842 843 0 88,594
02/20/98 Millburn Court Apartments of Dayton, II, Ltd. 51 30 0 1,973 0 59,190
02/20/98 Millston Apartments of Aberdeen, II, Ltd. 39 21 0 1,910 0 40,110
02/20/98 Millston Apartments of Aberdeen, Ltd. 55 90 0 75 0 6,750
02/20/98 Mosswood Apartments, II, Ltd. 89 86 0 856 0 73,188
02/20/98 Mosswood Apartments, Ltd. 58 86 0 430 0 36,765
02/20/98 Northrup Court Apartments of Allegheny County, II, Ltd. 49 238 15 44 0 7,735
02/20/98 Novawood Apartments II, Ltd. 61 86 0 75 0 6,413
02/20/98 Palatka Oaks Apartments II, Ltd. 23 90 0 75 0 6,750
02/20/98 Palatka Oaks Apartments, Ltd. 34 90 0 75 0 6,750
02/20/98 Parkville Apartments of Gas City, Ltd. 49 35 0 803 0 28,105
02/20/98 Parkville, Ltd. 100 90 805 225 0 92,690
02/20/98 Plumwood Apartments of Ft. Wayne, Ltd. 55 22 0 2,311 0 50,611
02/20/98 Princeton Court Apartments of Evansville, Ltd. 63 35 0 331 0 10,758
02/20/98 Ramblewood Apartments, II, Ltd. 28 35 0 680 0 23,800
02/20/98 Sandalwood Apartments of Toledo, Ltd. 50 35 0 431 0 13,792
02/20/98 Sanford Court Investors, Ltd. 106 33 0 955 0 31,515
02/20/98 Shadowood Apartments, II, Ltd. 70 35 0 1,294 0 45,290
02/20/98 Stillwater Apartments, Ltd. 53 35 0 985 0 34,475
02/20/98 Stonehenge Apartments of Jefferson County, Ltd. 61 35 0 705 0 22,560
02/20/98 Stonehenge Apartments of Ottawa, Ltd. 36 35 0 572 0 18,876
02/20/98 Strawberry Place Apartments, Ltd. 55 90 0 550 0 49,500
02/20/98 Sugartree Apartments, Ltd. 60 35 0 894 0 31,290
02/20/98 The Birches of Lima, Ltd. 58 90 0 212 0 19,080
02/20/98 The Landings Apartments, Ltd. 60 35 0 1,335 0 46,725
02/20/98 The Willows Apartments of Delaware, II, Ltd. 41 34 0 1,612 0 54,808
02/20/98 Turkscap Apartments, III, Ltd. 50 35 0 1,189 0 41,615
02/20/98 West of Eastland Apartments of Columbus, Ltd. 124 35 0 605 0 20,570
02/20/98 Westwood Apartments of Newark, Ltd. 14 90 0 75 0 6,750
02/20/98 Willow Run Apartments of New Albany, Ltd. 64 35 1,219 777 0 63,872
02/20/98 Willow Run Apartments of Willard, Ltd. 61 35 0 955 0 33,425
02/20/98 Willowood Apartments of Milledgeville, Ltd. 61 138 0 233 0 17,009
02/20/98 Willowood Apartments of Wooster, Ltd. 51 35 0 564 0 19,740
02/20/98 Wood Valley Apartments of Calhoun County, Ltd. 69 35 0 300 0 5,100
02/20/98 Woodbine Apartments of Portsmouth, Ltd. 41 90 0 187 0 16,830
02/20/98 Woodside Apartments, Ltd. 52 35 0 992 0 31,744
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02/20/98 66 Partnerships 3,616 2,366,052
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</TABLE>
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The acquisitions reported in this Form 8-K are a part of the
Registrant's plan to acquire third party limited partner or other equity
interests in a substantial majority of the real estate limited partnerships in
which the Registrant owns less than 100% equity interest (the "Consolidation
Plan"). The Registrant previously announced the Consolidation Plan in its press
release dated November 12, 1997, and in its joint proxy statement/prospectus for
its special shareholders meeting to be held on March 3, 1998. This is the second
Form 8-K the Registrant has filed in connection with the transactions
consummated pursuant to the Consolidation Plan. The Registrant filed its first
Form 8-K in connection with the Consolidation Plan on February 17, 1998, in
order to report its acquisition of outside partner interests in 180 limited
partnerships. Accordingly, through the date of the last transaction reported on
this Form 8-K, the Registrant has acquired the outside partner interests in an
aggregate of 287 limited partnerships. The Registrant intends to continue the
ownership and operation of the apartment communities owned by each of the
Consolidated Partnerships in substantially the same manner as previously
conducted.
The foregoing information set forth in this Item 2 includes certain
forward looking statements regarding the Registrant's plans to acquire equity
interests in additional limited partnerships in which it currently owns only a
minority equity interest, as well as a resulting increase in amounts of
consolidated, prepayable mortgage indebtedness associated with such limited
partnerships. All such forward looking statements are subject to uncertainty.
There can be no assurance that the Registrant will be successful in
consolidating the equity ownership of any such limited partnerships. Actual
results may differ from the forward looking statements due to, among other
things, unavailability or unattractive terms of potential financing necessary to
consolidate the ownership of the additional limited partnerships, as well as the
Registrant's potential inability to obtain the requisite consent of the current
holders of equity interests in, or current mortgage lenders to, such additional
limited partnerships.
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ITEM 7. FINANCIAL STATEMENTS, PRO-FORMA FINANCIAL INFORMATION AND EXHIBITS
(a) Pursuant to Item 7(a)(4) of Form 8-K the Registrant will file the
financial statements and pro-forma financial information required by this Item 7
not later than April 20, 1998 (sixty days from the February 17 filing of the
Registrant's initial report on Form 8-K).
(c)
EXHIBIT INDEX
EXHIBIT NO. DESCRIPTION SEQUENTIAL PAGE
2.1 Representative form of consent Incorporated by reference
solicitation materials furnished to from Form 8-K filed
holders of Outside Partner Interests February 17, 1998
2.2 Representative form of agreement Incorporated by reference
and plan of merger from Form 8-K filed
February 17, 1998
2.3 Representative form of notice of 9
intent to transfer to holders of
Outside Partner Interests in
Non Consent Partnerships
27.1 Financial data schedule*
99.1 Financial statements and pro-forma
financial information*
*To be filed by amendment.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
Lexford, Inc.
By: /s/ Mark D. Thompson
----------------------
Mark D. Thompson
Executive Vice President
and Chief Financial Officer
Date: March 2, 1998
8
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[LEXFORD Letterhead]
6954 AMERICANA PARKWAY
REYNOLDSBURG, OHIO 43068
PHONE: 614/575-5202 FAX: 614/575-5217
[DATE]
NOTICE OF POTENTIAL SALE RESULTING IN CASH DISTRIBUTION OF $[X,XXX]
PER UNIT
Re: [PARTNERSHIP NAME] (the "Partnership")
Dear Limited Partner:
Lexford, Inc. (formerly Cardinal Realty Services, Inc.)1, Managing
General Partner of the Partnership, recently announced plans to consolidate
ownership of real estate presently owned by syndicated limited partnerships in
which Lexford, Inc. serves as the general partner. The purpose of this letter is
simply to assist you with your tax planning and notify you that the Partnership
plans to sell its property during 1998. If completed, the proposed transaction
will result in a CASH DISTRIBUTION TO YOU IN THE AMOUNT OF $[X,XXX] PER UNIT of
limited partner interest, which Lexford, Inc. believes is at least equal to any
cash distribution you could receive as a result of any alternatives available to
the Partnership. Section C.1 of the attached Appendix A sets forth the portion
of the cash distribution that represents your equity in the Partnership's
property and Section C.2 of Appendix A sets forth the cash distribution that
Lexford, Inc. will assure will be made to assist you in paying any taxes
relating to the transaction. Additionally, you may be able to utilize any
previously suspended tax benefits depending upon your individual tax situation.
Please consult your tax advisor with regard to actual tax benefits available to
you.
CURRENT FINANCIAL CONDITION OF THE PARTNERSHIP
After many difficult years, our property has finally appreciated to the
point where there is equity for the limited partners as set forth in Section A.7
of the attached Appendix A. Due to the current strong real estate market for
multifamily properties, we believe it is an opportune time to dispose of the
Partnership's property.
TRANSACTION SUMMARY AND BENEFITS
We have determined that it is in the best interests of both the limited
partners and Lexford, Inc. for a Lexford affiliate to purchase the Partnership's
property. The Partnership's Agreement of Limited Partnership authorizes Lexford,
- --------
1 Cardinal Realty Services, Inc. changed its name to Lexford, Inc.
effective October 7, 1997 in order to better reflect its mission under new
management. There was no change of ownership of the company.
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[DATE]
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Inc., the Partnership's general partner, to sell the Partnership's property. It
is our present intention to transfer the Partnership's property during the
second quarter of 1998, with the cash distributions to occur promptly
thereafter. However we reserve the right to change our plans to transfer the
Partnership's property based upon facts and circumstances which may develop
prior to that time.
Benefits to Limited Partners
This transaction will allow limited partners to (i) receive a cash
distribution in the amount of $[X,XXX] per Unit of limited partner interest,
(ii) eliminate the omnipresent specter of future "recapture taxes" (if
applicable) at marginal rates lower than ever before and (iii) rid themselves of
their own tax and investment recordkeeping requirements. Additionally, Section B
of Appendix A may indicate that you will have a tax loss relating to the
transaction. (For further explanation, please see the first paragraph under the
heading "Federal Income Tax Considerations" below.) However, you should consult
your tax advisor with respect to the availability of these tax attributes. If
such a transfer is accomplished, you would receive a final (1998) K-1 in 1999.
Once and for all, the Partnership can be REMOVED FROM YOUR TAX AND ESTATE
PLANNING, along with concerns about possible future phantom (non-cash) income
such as debt discharge income, depreciation recapture, imputed gain on sale
(negative capital account recapture), etc.
Benefits to Lexford
We believe that Lexford, Inc. may derive more favorable economic
benefits from ownership of the Partnership property than a third party because
of the size and uniformity of Lexford, Inc.'s overall portfolio of apartment
complexes. If the proposed transaction occurs, Lexford, Inc. can then seek to
recover its second mortgage or other interests in the Partnership's property
without the cost and administrative burden of limited partner financial and tax
reporting and communications.
FEDERAL INCOME TAX CONSIDERATIONS
While each limited partner's tax situation is unique, we estimate that,
upon disposition of the Partnership's property, a limited partner holding one
Unit of limited partner interest will have an adjusted capital account balance
as set forth under Section B of Appendix A. If a deduction for suspended passive
activity losses is shown on Appendix A, this analysis assumes that passive
activity losses have been disallowed in prior years and carried forward, as
required by law, and have not been utilized in other income offsetting
transactions, in which case, a tax benefit may be available to you upon
disposition. If the adjusted capital account is shown as a deficit, a limited
partner will incur federal "recapture taxes" on amounts claimed (as of December
31, 1996) as losses in previous tax years to the extent such claimed losses
exceed the limited partner's investment in the Partnership, a substantial
portion of which would represent "depreciation recapture" taxes at a "special
rate" of not more than 25% (compared to a rate of up to 39.6% at the current tax
rate on ordinary income). Any remaining taxable income or gain should be taxed
as capital gain (assuming, among other things, you will have been a limited
partner of the Partnership for at least 18 months) at a federal rate of not more
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[DATE]
Page 3
than 20% (compared to a rate of up to 28% under prior law). THERE CAN BE NO
ASSURANCE THAT THESE REDUCED RATES WILL REMAIN IN EFFECT IN FUTURE YEARS.
If you have received debt discharge income in prior years, you may have
elected to defer this income, and instead reduce the basis in your share of the
Partnership's property. In such situations, you may recognize a gain that is
greater than the analysis shows. Please consult your tax advisor on this matter,
both with regard to whether an election has been made in prior years, and with
regard to the tax consequences of the current proposed transaction in light of
any such prior election. Of course, these are only estimates and your personal
income tax situation may vary. Accordingly, we urge you to consult your own tax
advisor for advice specific to your personal tax situation.
If your capital account is shown as a deficit, failure to consummate
this transaction could place you in the position of recognizing non-cash
ordinary income from continuing operations, taxable at rates of up to 39.6%.
Generally, to the extent your tax capital account is negative, federal tax law
will seek ways to impute "recapture" income to you. For example, this income can
arise from any refinancing of the property's debt, especially when debt is
reduced or forgiven. Taxable income will also increase to all partners as
federal tax depreciation is exhausted on the property. Finally, basis for
allocating losses to you may have previously been available to you, by operation
of federal tax law, through your allocation of the basis in the second mortgage.
Regulations developed by the U.S. Department of Treasury will ultimately require
you to recapture any losses previously allowed for your portion of this
obligation.
No action is required by you to receive the cash distribution. If the
transaction is consummated, you will receive your cash distribution promptly
following consummation of the transaction, which is expected to occur in the
second quarter of 1998.
If you have any questions regarding the contents of this letter, feel
free to call our limited partner inquiry line at 614/575-5202 and Jeff Meyer,
Assistant Vice President, Lee Blackburn, Portfolio Manager, or Dana Lochard,
Investor Services Representative, will return your call.
Very truly yours,
LEXFORD, INC.
(formerly known as
Cardinal Realty Services, Inc.)
By: /s/ Paul R. Selid
-----------------
Paul R. Selid
Senior Vice President
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<TABLE>
<CAPTION>
APPENDIX A
NAME OF LIMITED PARTNERSHIP
CURRENT FINANCIAL INFORMATION
Name of Partnership: Name of Limited Partnership ("Partnership")
Name of General Partner: Lexford, Inc. ("General Partner")
SECTION A: VALUATION OF PROPERTY AND LIMITED PARTNER EQUITY
<S> <C> <C> <C>
1. Fair Market Value Estimate of Partnership Property:1 X,XXX,XXX
2. 1st and 2nd Mortgage Indebtedness (owed to non-affiliate of General Partner): X,XXX,XXX
3. 2nd Mortgage and Other Advances (owed to General Partner or its affiliate): XXX,XXX
4. Other Net Liabilities/(Assets): XX,XXX
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5. Total Partnership Obligations: X,XXX,XXX
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6. Net Partnership Equity in Property:2 XXX,XXX
============
7. Average Value of One Limited Partner Investment Unit in Partnership: X,XXX
============
SECTION B: SUMMARY OF SALIENT LIMITED PARTNER TAX INFORMATION
(BASED ON OWNERSHIP OF ONE LIMITED PARTNER INVESTMENT UNIT, ON AVERAGE)3
1. Limited Partner Capital Account Surplus/(Deficit) - Tax Basis: (XX,XXX)
2. Total Potential Distributions to Limited Partners (as set for in Section C.3 below): (X,XXX)
------------
3. Total Projected (Income)/Loss to Limited Partners (XX,XXX)
4. Estimated Suspended Passive Activity Losses:4 XX,XXX
------------
5. Net Taxable Loss/(Gain): (XX,XXX)
Assumed Tax Rate: 31%
------------
6. Estimated Average Limited Partner Tax Benefit/(Liability) per unit (based on
tax rate of 31%): 5 (X,XXX)
============
SECTION C: PROPOSED PAYMENT/DISTRIBUTIONS TO LIMITED PARTNERS
(ALL AMOUNTS PER ONE LIMITED PARTNER INVESTMENT UNIT)
1. Distribution of Limited Partner Equity in Partnership Property: X,XXX
2. Voluntary Payment: X,XXX
------------
3. Total Potential Distributions to Limited Partners: X,XXX
============
</TABLE>
THIS ANALYSIS WAS PREPARED BY THE GENERAL PARTNER. LIMITED PARTNERS ARE URGED TO
CONSULT THEIR OWN REAL ESTATE AND TAX ADVISORS, ATTORNEYS AND ACCOUNTANTS WITH
SPECIFIC REFERENCE TO THE ABOVE ANALYSIS, THEIR OWN TAX SITUATION AND POTENTIAL
CHANGES IN APPLICABLE LAW.
1 The valuation methodology for the estimated fair market value is an accepted
industry valuation model for income-producing real estate, which involves (i)
deriving net operating income over the prior 12 months ended September 30,
1997, (ii) subtracting $300 per unit for a replacement reserve from net
operating income, (iii) applying a capitalization rate of 10.25% to the
result and (iv) subtracting a sales cost of 4%. Capitalization rate is
defined as the present value rate of return of income-producing property
expressed as a percentage. For example, a capitalization rate of 10% applied
to a property producing $10,000 in annual net income results in a present
market value of $100,000.
2 The Partnership's equity in the property is computed by subtracting the
Partnership's liabilities (including mortgage debt and advances from the
General Partner or its affiliate) from the estimated fair market value of the
property.
3 Your actual investment history may differ. Please consult your tax advisor.
4 This amount assumes each Limited Partner has not utilized Passive
Activity Losses on prior tax returns.
5 Assumes federal tax rate of 25% (based on capital gains tax rate applicable
to depreciation recapture) and 6% for state and local taxes. Actual effective
tax rate may be lower for portion of gain in excess of depreciation
recapture. And may be higher for any voluntary payment.
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