UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(Mark One)
/X/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended September 30, 1994, or
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ________ to ________
Commission file number 0-15348
MRI BUSINESS PROPERTIES FUND, LTD. III
(Exact name of Registrant as specified in its charter)
CALIFORNIA 94-2969782
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
5665 Northside Drive, NW, Suite 370
Atlanta, Georigia 30328
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (404) 916-9090
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act: Limited Partnership
Units
Indicate by check mark whether Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that Registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes /X/ No / /
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. /X/
No market for the Limited Partnership Units exists and therefore a market
value for such Units cannot be determined.
DOCUMENTS INCORPORATED HEREIN BY REFERENCE:
(1) Prospectus and all Supplements thereto filed pursuant to Rule 424(b) under
the Securities Act of 1933 and reports on Form 8-K under the Securities Exchange
Act of 1934 incorporated in Parts I, III and IV.
MRI BUSINESS PROPERTIES FUND, LTD. III
(A limited partnership)
PART I
Item 1. Business.
MRI Business Properties Fund, Ltd. III ("Registrant") was organized in
1984 as a California limited partnership under the California Uniform Limited
Partnership Act. The managing general partner of Registrant is Montgomery Realty
Company-85, a California general partnership of which Fox Realty Investors
("FRI"), a California general partnership, is the general partner and Montgomery
Realty Corporation (the "General Partner"), a California corporation, is the
co-general partner. The associate general partner of Registrant is MRI
Associates, Ltd. III, a California limited partnership, of which FRI is the
general partner, and Two Broadway Associates IV, an affiliate of Merrill Lynch,
Pierce, Fenner & Smith Incorporated, is the limited partner.
Registrant's Registration Statement filed, pursuant to the Securities Act
of 1933 (No. 2-98110), was declared effective by the Securities and Exchange
Commission on December 18, 1985. Registrant marketed its securities pursuant to
its Prospectus dated December 18, 1985 which was thereafter supplemented
(hereinafter the "Prospectus"). This Prospectus was filed with the Securities
and Exchange Commission pursuant to Rule 424(b) of the Securities Act of 1933
and such Prospectus as supplemented is incorporated herein by reference.
The principal business of Registrant is to acquire (either primarily or
exclusively through joint ventures), hold for investment, and ultimately sell
hotels. Registrant is a "closed" limited partnership real estate syndicate of
the unspecified asset type. For a further description of Registrant's business,
see the sections entitled "Risk Factors" and "Investment Objectives and
Policies" in the Prospectus.
Beginning in January 1986 through September 5, 1986 Registrant offered and
sold $109,027,000 in Limited Partnership Assignee Units. The net proceeds of
this offering were used to purchase interests in seven income-producing real
properties, which are described in Item 2. Registrant's original portfolio was
geographically diversified with properties acquired in seven states. The
acquisition activities of Registrant were completed on September 30, 1987, and
since that time the principal activity of Registrant has been managing its
portfolio. One of Registrant's properties was acquired by the lender through
foreclosure in fiscal year 1992, and Registrant's joint venture interest in two
other properties were sold in March, 1994.
On March 7, 1994, Registrant sold its sixty percent interest in the Park
Hyatt Water Tower Associates Joint Venture, which owned the Park Hyatt Hotel,
located in Chicago, Illinois, to an affiliate of its joint venture partner. The
sales price of $5,831,000 was comprised of the following: (1) the assumption of
the purchase money note payable to an affiliate of the joint venture partner in
the amount of $2,500,000, (2) accrued and unpaid interest to an affiliate of the
joint venture partner of $1,581,000 assumed by the buyer, and (3) cash of
$1,750,000. The sale resulted in a gain of approximately $543,000.
On March 15, 1994, Registrant sold its sixty five percent interest in the
Washington Park Hotel Associates Joint Venture, which owned the Radisson Park
Terrace Hotel, located in Washington, D.C. for $1,455,000 in cash, to its joint
venture partner. The sale, after expenses, resulted in a gain of approximately
$924,000.
Registrant is involved in only one industry segment, as described above.
Registrant does not engage in any foreign operations or derive revenues from
foreign sources. Registrant's affairs were managed by Metric Management, Inc.
("MMI") or its predecessor from March 1988 to December 1993. On December 16,
1993, the services agreement with MMI was modified and, as a result thereof,
Registrant's general partner assumed responsibility for cash management of
Registrant as of December 23, 1993 and for investor relations services as of
April 1, 1994.
On December 6, 1993, NPI Equity Investments II, Inc. ("NPI Equity II")
became the managing partner of FRI and assumed operational control over Fox
Capital Management Corporation ("FCMC"). As a result, NPI Equity II
1
Item 1. Business. (continued)
became responsible for the operation and management of the business and affairs
of Registrant and the other investment partnerships sponsored by FRI and/or
FCMC. The individuals who had served previously as partners of FRI and as
officers and directors of FCMC contributed their general partnership interests
in FRI to a newly formed limited partnership, Portfolio Realty Associates, L.P.
("PRA"), in exchange for limited partnership interests in PRA. In the foregoing
capacity, such partners continue to hold indirectly certain economic interests
in Registrant and such other investment partnerships, but will cease to be
responsible for the operation and management of Registrant and such other
partnerships.
In connection with the acquisition by NPI Equity II of management and
control of Registrant and such other partnerships, NPI Realty Advisors, Inc.
("NPI Realty"), an affiliate of NPI Equity II, acquired an aggregate of
approximately $10,800,000 of loans made by FRI and FCMC to certain of such other
partnerships (the "Fox Advances"). The aggregate purchase price for such loans
was equal to the sum of the outstanding principal amount of, and all accrued and
unpaid interest on, such loans. The purchase price was paid by a $3,000,000
cash down payment and delivery to FRI and FCMC of two promissory notes due
December 16, 1999 in the aggregate principal amount of $7,796,761.41. The
promissory notes are secured by the Fox Advances and general partner interest of
NPI Equity II in FRI. Interest on the promissory notes accrues at a rate equal
to the lower of 9% per annum or the prime rate of interest as announced from
time to time by Bank of America, N.T. & S.A. As of September 30, 1994, all but
$182,00 of the principal amount of the promissory notes had been paid. The
remaining balance is anticipated to be satisfied in the second quarter of fiscal
year 1995. NPI Equity and NPI Realty are wholly-owned subsidiaries of National
Property Investors, Inc. ("NPI"), a diversified real estate management company
headquartered in Jericho, New York.
Both the income and expenses of operating the properties in which
Registrant has an ownership interest are subject to factors outside of
Registrant's control, such as over-supply of similar properties resulting from
over-building, increases in unemployment, population shifts or changes in
patterns or needs of users. In addition, there are risks inherent in owning and
operating hotels and other lodging facilities because such properties are
management and labor intensive and especially susceptible to the impact of
economic and other conditions outside the control of Registrant.
Expenses, such as local real estate taxes and miscellaneous management
expenses, are subject to change and cannot always be reflected in room rate
increases due to market conditions. The profitability and marketability of
developed real property may be adversely affected by changes in general and
local economic conditions and in prevailing interest rates, and favorable
changes in such factors will not necessarily enhance the profitability or
marketability of such property. Even under the most favorable market conditions
there is no guarantee that any property owned by Registrant can be sold by it
or, if sold, that such sale can be made upon favorable terms.
There have been, and it is possible there may be other Federal, state and
local legislation and regulations enacted relating to the protection of the
environment. The managing general partner is unable to predict the extent, if
any, to which such new legislation or regulations might occur and the degree to
which such existing or new legislation or regulations might adversely affect the
properties owned by Registrant.
Registrant is affected by and subject to the general competitive
conditions of the lodging industry. In addition, each of Registrant's
properties competes in an area which normally contains numerous other properties
which may be considered competitive. In fiscal year 1994 markets in many areas
remained depressed due in part to overbuilding which continues to depress
lodging rental rates. An over-supply of properties, including those held by
banks, savings institutions and the Resolution Trust Corporation, affects the
ability of Registrant to sell such properties and their sales prices. The level
of sales of existing properties and development of new properties have been
affected by the limited availability of financing in real estate markets.
2
Item 1. Business. (continued)
At this time, it appears that the investment objective of capital growth
will not be attained and that a significant portion of invested capital will not
be returned to limited partners. The extent to which invested capital is
returned to limited partners is dependent upon the success of the managing
general partner's strategy as set forth in Item 7 - "Management's Discussion and
Analysis of Financial Condition and Results of Operations", as well as upon
significant improvement in the performance of Registrant's remaining properties
and the markets in which such properties are located and on the sales price of
the remaining properties. In this regard, it is anticipated at this time that
some of the remaining properties will be held longer than originally expected.
Subsequent Events
On October 12, 1994, NPI sold one-third of the stock of NPI to an affiliate
("Apollo") of Apollo Real Estate Advisors, L.P., for $325,000. Apollo is
entitled to designate three of the seven directors of NPI Equity II. In
addition, the approval of certain major actions on behalf of Registrant requires
the affirmative vote of at least five directors of NPI Equity II.
On October 12, 1994, affiliates of Apollo acquired for aggregate
consideration of approximately $14,800,000 (i) one-third of the stock of the
respective general partners of DeForest Ventures I L.P. ("DeForest I") and
DeForest Ventures II L.P. ("DeForest II") and (ii) an additional equity interest
in NPI-AP Management, L.P. ("NPI-AP"), an affiliate of NPI (bringing its total
equity interest in such entity to one-third). NPI-AP is the sole limited
partner of DeForest II and one of the limited partners of DeForest I. DeForest
I was formed for the purpose of making tender offers (the "Tender Offers") for
limited partnership interests in Registrant as well as 11 affiliated limited
partnerships. DeForest II has been formed for the purpose of making tender
offers for limited partnership interest in 7 affiliated limited partnerships.
Pursuant to a Form 13-D filed by DeForest I, on November 30, 1994
DeForest I acquired 26,502 limited partnership units or 24.3% of the total
limited partnership units of Registrant. (See item 12, "Security Ownership of
Certain Beneficial Owners and Management.")
3
Item 2. Properties.
A description of the hotel properties in which Registrant has or has had an
ownership interest is as follows:
Portfolio
Date of Date of Percentage
Name and Location Purchase Sale Rooms (5)
- ----------------- -------- ------- ----- ----------
Holiday Inn Crowne Plaza(1)(2) 03/86 - 492 21
4355 Ashford-Dunwoody Rd.
Atlanta, Georgia
Embassy Suites - Tempe Hotel(3) 12/86 - 224 11
4400 South Rural Road
Tempe, Arizona
Residence Inn - Orlando(3) 09/87 - 176 7
7610 Canada Ave.
Orlando, Florida
Residence Inn - Sacramento(3) 09/87 - 176 7
1530 Howe Ave.
Sacramento, California
Radisson Park Terrace Hotel(4) 09/86 3/94 219 16
1515 Rhode Island Avenue NW
Washington, D.C.
Park Hyatt Hotel(4) 12/86 3/94 255 18
800 N. Michigan
Chicago, Illinois
Troy Hilton Inn(4) 11/86 11/91 401 20
1455 Stephenson Highway
Troy, Michigan
- ----------
(1) Registrant and an affiliated partnership, MRI Business Properties Fund, Ltd.
II, own a joint venture which has a 50 percent interest in this property.
(2) Formerly the Hyatt Regency Ravinia Hotel. The name was changed as a result
of a change in ownership of the hotel which occurred in fiscal year 1991
(see Note 5 to the Consolidated Financial Statements).
(3) The property is owned by Registrant in fee.
(4) The property was owned by a joint venture, in which Registrant had a
controlling interest.
(5) Represents the percentage of original cash invested in the individual
property of the total original cash invested in all properties.
4
Item 2. Properties. (continued)
See the Consolidated Financial Statements in Item 8 for information
regarding any encumbrances to which the properties of Registrant are subject.
An occupancy summary is set forth on the chart following:
MRI BUSINESS PROPERTIES FUND, LTD. III
OCCUPANCY AND ROOM RATE SUMMARY
For the Fiscal Years Ended September 30, 1994, 1993 and 1992
Average Average
Occupancy Rate (%) Daily Room Rate ($)
------------------ ---------------------
1994 1993 1992 1994 1993 1992
---- ---- ---- ---- ---- ----
HOTELS:
Holiday Inn Crowne Plaza (1) 74 68 64 88.32 82.55 78.79
Radisson Park Terrace Hotel (2) 70 76 69 88.84 85.37 83.58
Embassy Suites - Tempe Hotel 84 80 75 80.27 75.69 72.93
Park Hyatt Hotel (3) 58 57 60 148.50 149.25 149.18
Residence Inn - Orlando 72 74 72 79.45 76.84 77.04
Residence Inn - Sacramento 84 80 79 79.10 77.47 77.61
- ----------
(1) Formerly the Hyatt Regency Ravinia Hotel.
(2) Through March 15, 1994, the date Registrant sold its 60% interest in the
property.
(3) Through March 7, 1994, the date Registrant sold its 65% interest in the
property.
Net Project Operations of Consolidated Properties Introduction
The Net Project Operations tables reflect the components of net project
operations for the properties in which Registrant has a controlling ownership
interest and that were consolidated into Registrant's Consolidated Financial
Statements for the fiscal years then ended. Through the use of net project
operations, it is possible to determine which properties are generating the cash
to support fund liquidity. The tables present:
Net operating income (loss) is operating revenues less operating expenses
(exclusive of noncash items such as depreciation, amortization and long term
deferred operating expenses) for the consolidated properties.
Project operations are the net operating income (loss) less the related
debt service (principal and interest on an accrual basis, excluding deferred
interest).
Net project operations are the amounts that were included in Registrant's
Consolidated Statements of Operations in Item 8 except that net project
operations are net of principal reductions (exclusive of balloon and refinancing
payments and before elimination of intercompany transactions).
To determine net project operations, project operations may have been
adjusted for the following items:
o Decreased for amortization of deferred financing costs.
o Decreased for deferred interest and deferred operating expenses
recognized as an expense in the Consolidated Statements of Operations.
o Increased for guarantee revenue.
5
Item 2. Properties. (continued)
A reconciliation of Net Project Operations to Loss Before Minority
Interest as shown in the Consolidated Statements of Operations is included.
Funds from net project operations should not be considered by the reader as an
alternative to net loss or as an indicator of Registrant's operating performance
or to cash flows as a measure of liquidity.
MRI BUSINESS PROPERTIES FUND, LTD. III
Net Project Operations(1)
For the Fiscal Year Ended September 30, 1994
------------------------------------------------
Less:
Hotel Net Less:
Operating Operating Operating Debt Project
Revenues Expenses Income Service Operations
--------- --------- --------- ------- ----------
(Amounts in thousands)
Radisson Park Terrace Hotel (2) $ 2,975 $ 2,491 $ 484 $ 103 $ 381
Embassy Suites - Tempe Hotel 6,118 3,818 2,300 378 1,922
Park Hyatt Hotel (3) 6,192 5,082 1,110 11 1,099
Residence Inn - Orlando 3,791 2,686 1,105 622 443
Residence Inn - Sacramento 4,450 2,664 1,786 622 1,164
------- ------- ------ ------ ------
Total $23,226 $16,741 $6,785 $1,776 $5,009
======= ======= ====== ====== ======
- ----------
(1) See preceding Net Project Operations Introduction.
(2) Includes net project operations through March 15, 1994, the date Registrant
sold its 65% interest in this property.
(3) Includes net project operations through March 7, 1994, the date Registrant
sold its 60% interest in the property.
MRI BUSINESS PROPERTIES FUND, LTD. III
Net Project Operations(1)
For the Fiscal Year Ended September 30, 1993
-------------------------------------------------------------------
Less:
Hotel Net Less: Net
Operating Operating Operating Debt Project Adjust- Project
Revenues Expenses Income Service Operations ments Operations
--------- --------- --------- ------- ---------- ------- ----------
(Amounts in thousands)
Radisson Park
Terrace Hotel $ 7,071 $ 5,695 $1,376 $ 456 $ 920 $(292) $ 628
Embassy Suites -
Tempe Hotel 5,350 3,491 1,859 640 1,219 - 1,219
Park Hyatt Hotel 13,155 12,550 605 693 (88) (44) (132)
Residence Inn -
Orlando 3,848 2,656 1,192 826 366 (16) 350
Residence Inn -
Sacramento 4,147 2,533 1,614 671 943 (12) 931
------- ------- ------ ------ ------ ----- ------
Total $33,571 $26,925 $6,646 $3,286 $3,360 $(364) $2,996
======= ======= ====== ====== ====== ===== ======
- ----------
(1) See preceding Net Project Operations Introduction.
6
Item 2. Properties. (continued)
MRI BUSINESS PROPERTIES FUND, LTD. III
Net Project Operations(1)
For the Fiscal Year Ended September 30, 1992
-------------------------------------------------------------------
Less:
Hotel Net Less: Net
Operating Operating Operating Debt Project Adjust- Project
Revenues Expenses Income Service Operations ments Operations
--------- --------- --------- ------- ---------- ------- ----------
(Amounts in thousands)
Radisson Park
Terrace Hotel $ 6,384 $ 5,900 $ 484 $1,003 $(519) $(439) $(958)
Troy Hilton
Inn (2) - - - - - - -
Embassy Suites -
Tempe Hotel 4,865 3,429 1,436 641 795 - 795
Park Hyatt Hotel 13,820 13,209 611 1,386 (775) (185) (960)
Residence Inn -
Orlando 3,761 2,593 1,168 820 348 (16) 332
Residence Inn -
Sacramento 4,132 2,446 1,686 827 859 (11) 848
------- ------- ------ ------ ----- ----- -----
Total $32,962 $27,577 $5,385 $4,677 $ 708 $(651) $ 57
======= ======= ====== ====== ===== ===== =====
- ----------
(1) See preceding Net Project Operations Introduction.
(2) The property was acquired by the lender through foreclosure in November
1991.
MRI BUSINESS PROPERTIES FUND, LTD. III
Reconciliation of Net Project Operations
to Loss Before Minority Interest
For the Fiscal Year
Ended September 30,
-------------------------
1994 1993 1992
---- ---- ----
(Amounts in thousands)
Net Project Operations $5,009 $2,996 $ 57
Less:
Depreciation and amortization 1,707 2,663 4,316
Equity in unconsolidated joint venture's operations 342 1,370 2,266
General and administrative expenses 469 415 483
Provision for impairment of value - - 11,353
Interest expense on note payable to affiliate of
joint venture partner - - 275
Plus:
Interest and other income 205 329 932
Principal payments in debt service 277 152 170
Gain on Sale of Joint Venture Interests 1,467 - -
------ ------ --------
Loss Before Minority Interest $4,440 $ (971) $(17,534)
7
Item 2. Properties. (continued)
The operations of the joint venture, in which Registrant with an affiliated
partnership own a 50 percent interest in the Holiday Inn Crowne Plaza, are
presented below as supplemental information.
MRI BUSINESS PROPERTIES COMBINED FUND NO. 1
Net Project Operations (1)
For the Fiscal Year Ended September 30, 1994
------------------------------------------------
Less:
Hotel Net Less: Net
Operating Operating Operating Debt Project
Revenues Expenses Income Service Operations
--------- --------- --------- ------- ----------
(Amounts in thousands)
Holiday Inn Crowne Plaza (2) $19,380 $15,871 $3,509 $3,187 $ 322
======= ======= ====== ======
Plus: Interest income 22
Minority interest in joint venture's operations 681
Less: Depreciation and amortization 1,709
------
MRI Business Properties Combined Fund No. 1 Net Loss $ (684)
======
Allocation of Net Loss:
MRI BPF, Ltd. II $ (342)
MRI BPF, Ltd. III (342)
------
Total $( 684)
======
- ----------
(1) See preceding Net Project Operations Introduction.
(2) Performance guarantee in the amount of $5,000,000 was exhausted in July
1993.
8
Item 2. Properties. (continued)
MRI BUSINESS PROPERTIES COMBINED FUND NO. 1
Net Project Operations (1)
For the Fiscal Year Ended September 30, 1993
-------------------------------------------------------------------
Less:
Hotel Net Less: Net
Operating Operating Operating Debt Project Adjust- Project
Revenues Expenses Income Service Operations ments Operations
--------- --------- --------- ------- ---------- ------- ----------
(Amounts in thousands)
Holiday Inn Crowne Plaza (2) $17,340 $14,691 $2,649 $3,188 $(539) $(384) $ (923)
======= ======= ====== ====== ===== =====
Plus: Interest income 17
Minority interest in
joint venture's
operations 135
Less: Depreciation and
amortization 1,644
General and
administrative
expenses 17
-------
MRI Business Properties
Combined Fund No. 1 Net Loss $(2,432)
=======
Allocation of Net Loss:
MRI BPF, Ltd. II $(1,062)
MRI BPF, Ltd. III (1,370)
-------
Total $(2,432)
=======
- ----------
(1) See preceding Net Project Operations Introduction.
(2) Performance guarantee in the amount of $5,000,000 was exhausted in July
1993.
9
Item 2. Properties. (continued)
MRI BUSINESS PROPERTIES COMBINED FUND NO. 1
Net Project Operations (1)
For the Fiscal Year Ended September 30, 1992
-------------------------------------------------------------------
Less:
Hotel Net Less: Net
Operating Operating Operating Debt Project Adjust- Project
Revenues Expenses Income Service Operations ments Operations
--------- --------- --------- ------- ---------- ------- ----------
(Amounts in thousands)
Holiday Inn Crowne Plaza (2) $16,451 $15,473 $978 $3,187 $(2,209) $(230) $(2,439)
======= ======= ==== ====== ======= =====
Plus: Interest income 68
Minority interest in
joint venture's
operations 4,627
Less: Depreciation and
amortization 2,440
Provision for
impairment of value 4,311
General and
administrative
expenses 38
-------
MRI Business Properties
Combined Fund No. 1 Net Loss $(4,533)
=======
Allocation of Net Loss:
MRI BPF, Ltd. II $(2,267)
MRI BPF, Ltd. III (2,266)
-------
Total $(4,533)
=======
- ----------
(1) See preceding Net Project Operations Introduction.
(2) Guarantee amount was contributed by an affiliate of the joint venture
partnership for up to $5,000,000 or until the maximum expiration date of
9/30/96.
Item 3. Legal Proceedings.
Lawrence M. Whiteside, on behalf of himself and all others similarly
situated, v. Fox Capital Management Corporation et, al., Superior Court of the
State of California, San Mateo County, Case No. 390018.
In November, 1994, Lawrence Whiteside, a limited partner of Century
Properties Fund XIX, a limited partnership affiliated with Registrant, commenced
an action in the Superior Court of California, County of San Mateo, against,
among others, the Managing General Partner, FRI and certain of their
affiliates. The action alleges, among other things, that the Tender Offers
constitute (a) a breach of the fiduciary duty owed to the limited partners of
Registrant, and (b) a breach of, or an inducement to breach, the provisions of
the Partnership Agreement of Registrant. The action, which has been brought as
a class action on behalf of limited partners, sought to enjoin the Tender Offers
as well as monetary damages in an unspecified amount. On November 3rd the
Superior Court denied plaintiff's motion for a temporary restraining order with
respect to the Tender Offers and on November 18th the Superior Court denied
plaintiff's motion for a preliminary injunction. The Managing General Partner
believes that the action is without merit and intends to vigorously defend this
action.
10
Item 3. Legal Proceedings. (continued)
Bonnie L. Ruben and Sidney Finkel, on behalf of themselves and all others
similarly situated, v. DeForest Ventures I L.P., DeForest Capital I Corporation,
MRI Business Properties Fund, Ltd. II, MRI Business Properties Fund, Ltd. III,
NPI Equity Investments II, Inc., Montgomery Realty Company-84, MRI Associates,
Ltd. II, Montgomery Realty Company-85 and MRI Associates, Ltd. III, United
States District Court, Northern District of Georgia, Atlanta Division, Case No.
1-94-CV-2983-JEC.
In November, 1994, Bonnie L. Ruben and Sidney Finkel, limited partners of
MRI Business Properties Fund, Ltd. II and Registrant respectively, commenced an
action in the United States District Court, Northern District of Georgia,
against, among others, Registrant and Managing General Partner. The action
alleges, among other things, that the Tender Offers constitute (a) a breach of
the fiduciary duty owed to the limited partners of Registrant, and (b) a breach
of, or an inducement to breach, the provisions of the Partnership Agreement of
Registrant. The action, which has been brought as a class action on behalf of
limited partners, sought to enjoin the Tender Offers as well as monetary damages
in an unspecified amount. The plaintiffs subsequently withdrew their request for
a preliminary injunction but are still seeking monetary damages. The Managing
General Partner believes that the action is without merit and intends to
vigorously defend this action.
Roger L. Vernon, individually and on behalf of all similarly situated
persons v. DeForest Ventures I L.P. et. al., Circuit Court of Cook County,
County Departments, Chancery Division, Case No. 94CH0100592.
In November 1994, Roger L. Vernon, a limited partner of Century Properties
Fund XVIII, a limited partnership affiliated with Registrant, commenced an
action in the Circuit Court of Cook County, County Department, Chancey Division
against, among others, the Managing General Partner and FRI. The action
alleges, among other things, that the Tender Offers constitute (a) a breach of
the fiduciary duty owed to the limited partners of Registrant, and (b) misuse of
Registrant assets. The action, which has been brought as a class action on
behalf of limited partners, sought to enjoin the Tender Offers as well as
monetary damages in an unspecified amount. The plaintiffs request for a
preliminary injunction was not timely as the action was commenced after the
consummation of the Tender Offers. The Managing General Partner believes that
the action is without merit and intends to vigorously defend this action.
James Andrews, et al., on behalf of themselves and all others similarly
situated v. Fox Capital Management Corporation, et al., United States District
Court, Northern District of Georgia, Atlanta Division, Case No.
1-94-CV-3351-JEC.
In December 1994, James Andrews, a limited partner of Century Properties
Fund XV, a limited partnership affiliated with Registrant, commenced an action
in the United States District Court, Northern District of Georgia, against,
among others, the Managing General Partner. The action alleges, among other
things, that the tender offers constitute (a) breach of the fiduciary duty owed
to the limited partners of Registrant, and (b) a breach of, and an inducement to
breach, the provisions of the Partnership Agreement of Registrant. The action,
which has been brought as a class action on behalf of limited partners seeks
monetary damages in an unspecified amount. The Managing General Partner
believes the action is without merit and intends to vigorously defend this
action.
Item 4. Submission of Matters to a Vote of Security Holders.
No matter was submitted to a vote of security holders during the period
covered by this Report.
11
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters.
The Limited Partnership Assignee Unit holders are entitled to certain
distributions as provided in Registrant Agreement. No market for Limited
Partnership Assignee Units exists, nor is expected to develop.
As of September 30, 1994, the approximate number of holders of Limited
Partnership Assignee Units was as follows:
Number of
Record
Title of Class Holders*
- -------------- ---------
Limited Partnership Assignee Units 7,818
- ----------
* Number of Investments.
12
Item 6. Selected Financial Data.
The following represents selected financial data for MRI Business
Properties Fund, Ltd. III for the fiscal years ended September 30, 1994, 1993,
1992, 1991 and 1990. The data should be read in conjunction with the
consolidated financial statements included elsewhere herein. This data is not
covered by the independent auditors' report.
For the Fiscal Year Ended September 30,
-------------------------------------------------
1994 1993 1992 1991 1990
---- ---- ---- ---- ----
(Amounts in thousands except per unit data)
TOTAL REVENUES $25,198 $33,900 $ 33,894 $ 37,356 $ 45,196
======= ======= ======== ======== ========
INCOME (LOSS) BEFORE
MINORITY INTEREST IN JOINT
VENTURES' OPERATIONS $ 4,440 $ (971) $(17,534) $(10,140) $(24,614)
MINORITY INTEREST IN JOINT
VENTURES' OPERATIONS (404) 28 651 (236) 626
------- ------- -------- -------- --------
NET INCOME (LOSS) $ 4,036 $ (943) $(16,883) $(10,376) $(23,988)
======= ======= ======== ======== ========
NET INCOME (LOSS) PER LIMITED
PARTNERSHIP ASSIGNEE UNIT(1) $36 $(8) $(152) $(93) $(216)
=== === ===== ==== =====
TOTAL ASSETS $37,756 $77,611 $ 77,690 $123,151 $135,769
======= ======= ======== ======== ========
LONG TERM OBLIGATIONS:
Notes payable $15,791 $51,799 $ 51,220 $ 67,582 $ 67,712
Note payable to affiliate
of joint venture partner - 2,500 2,500 2,500 2,500
------- ------- -------- -------- --------
TOTAL $15,791 $54,299 $ 53,720 $ 70,082 $ 70,212
======= ======= ======== ======== ========
CASH DISTRIBUTIONS PER
LIMITED PARTNERSHIP
ASSIGNEE UNIT (actual
amount based on date of
admission to partnership) $ - $ - $ - $ - $ 15
======= ======= ======== ======== ========
- ----------
(1) $1,000 original contribution per unit after giving effect to the net loss
allocated to the general partner.
13
Item 7. Management's Discussion and Analysis of
Financial Condition and Results of Operations.
Liquidity and Capital Resources
All of Registrant's properties are hotels. Registrant receives hotel
operating revenues and is responsible for operating expenses, administrative
expenses, capital improvements and debt service payments. Registrant uses
working capital reserves provided from any undistributed cash flow from
operations and sales proceeds as its primary source of liquidity. During the
year ended September 30, 1994, all of Registrant's hotels generated positive
cash flow, except for the Holiday Inn Crowne Plaza, the unconsolidated joint
venture. The Holiday Inn Crowne Plaza spent $1,438,000 during the year ended
September 30, 1994 for guest room renovations. Management anticipates spending
an additional $1,000,000 to complete the renovations. On June 2, 1994,
Registrant prepaid, in full satisfaction, the note encumbering its Embassy
Suites property in the amount of $7,000,000. The note had been accruing
interest at prime plus 1% and was due to mature in December 1996. To preserve
working capital reserves required for necessary capital improvements to
properties and provide resources for debt refinancings, cash distributions
remained suspended during the year ended September 30, 1994. The Managing
General Partner will evaluate future cash distributions based on the capital
needs of Registrant.
The level of liquidity based upon cash and cash equivalents experienced a
$1,043,000 decrease at September 30, 1994, as compared to September 30, 1993.
Registrant's $7,277,000 used in financing activities was partially offset by
$2,011,000 from investing activities and $4,223,000 from operating activities.
Net cash provided by operating activities increased at September 30, 1994, as
compared to 1993, due to improved operations at all of Registrant's remaining
properties. Accounts payable and other liabilities decreased due to the payment
of prior years accrued property taxes relating to Registrant's Park Hyatt
hotel. Cash provided by investing activities consisted of $3,467,000 of net
cash from the liquidation of Registrant's investments and $2,000 of net cash
from the sale of Registrant's joint venture interests, which was only partially
offset by $1,308,000 of fixed asset purchases and $150,000 to fund operating
deficits at the Holiday Inn Crowne Plaza. Financing activities consisted of
$277,000 of note principal payments and $7,000,000 in satisfaction of the note
encumbering Registrant's Embassy Suites property. Mortgage principal payments
increased primarily due to Registrant's Residence Inn - Orlando property loan,
which started principal amortization during November 1993. All other increases
(decreases) in certain assets and liabilities are the result of the timing of
receipts and payments of various operating activities.
On November 30, 1994, DeForest I acquired 26,502 limited partnership units
or 24.3% of total limited partnership units of Registrant. The purchase is not
expected to have a significant impact on the operations or liquidity of
Registrant.
Working capital reserves are invested in money market accounts, United
States Treasury bills and repurchase agreements secured by United States
Treasury obligations. The Managing General Partner believes that, if market
conditions remain relatively stable, cash flow from operations, when combined
with working capital reserves, will be sufficient to fund essential capital
improvements and debt service payments in 1995 and the foreseeable future.
Mortgages encumbering Registrant's properties mature in September 1997 and
October 1997 with balloon payments in the amount of $7,569,000 and $7,301,000,
respectively. Management is confident that there will be sufficient cash flow
generated by the remaining properties to continue operations, in the event that
any of the properties are lost through foreclosure. The Managing General
Partner believes, however, that each property generates sufficient cash flow to
allow all mortgages to be refinanced in an orderly fashion.
At this time, it appears that the investment objective of capital growth
will not be attained and that a significant portion of invested capital will not
be returned to limited partners. The extent to which invested capital is
returned to limited partners is dependent upon the performance of Registrant's
remaining properties and the markets in which such properties are located and on
the sales price of the remaining properties. In this regard, it is anticipated
at this time that some of the remaining properties will be held longer than
originally expected. The ability to hold and operate these properties is
dependent on Registrant's ability to obtain refinancing or debt modification as
required.
Real Estate Market
The income and expenses of operating the properties owned by Registrant are
subject to factors outside of Registrant's control, such as over-supply of
similar properties resulting from over-building, increases in unemployment,
population shifts or changes in patterns or needs of users. Expenses, such as
local real estate taxes and miscellaneous expenses, are subject to change and
cannot always be reflected in room rate increases due to market conditions. In
addition, there are risks inherent in owning and operating lodging facilities
because such
14
Item 7. Management's Discussion and Analysis of
Financial Condition and Results of Operations. (continued)
properties are management and labor intensive and especially susceptible to the
impact of economic and other conditions outside the control of Registrant.
There have been, and it is possible there may be other Federal, state and
local legislation and regulations enacted relating to the protection of the
environment. Registrant is unable to predict the extent, if any, to which such
new legislation or regulations might occur and the degree to which such existing
or new legislation or regulations might adversely affect the properties still
owned by Registrant.
Results of Operations
Fiscal Year 1994 ("1994") Compared to Fiscal Year 1993 ("1993")
Operating results, before the minority interest in joint venture
operations, improved by $5,411,000 for the year ended September 30, 1994, as
compared to 1993, due to a decrease in revenues of $8,702,000 and a decrease in
expenses of $14,113,000. Operating results improved primarily due to the sale
of Registrant's joint venture interests. With respect to the remaining
properties, operating results improved by $2,485,000 for the year ended
September 30, 1994, as compared to 1993, due to an increase in revenues of
$922,000 and a decrease in expenses of $1,563,000.
Revenues decreased by $8,702,000 for the year ended September 30, 1994, as
compared to 1993, due to the sale of Registrant's joint venture interests. With
respect to the remaining properties, revenues increased by $922,000, due to
increases in room revenue of $937,000 and other operating revenue of $77,000,
which was only partially offset by a decrease in interest and other income of
$92,000.
Room revenue increased at all of Registrant's remaining properties, except
for the Residence Inn - Orlando, which declined slightly. The largest increase
was at Registrant's Embassy Suites - Tempe property, due to increases in
occupancy and average daily room rates. Other operating revenues increased due
to an increase in other income at Registrant's Embassy Suites property coupled
with an increase in telephone revenue at Registrant's Residence Inn - Orlando
property. Interest income decreased due to a decline in average working capital
reserves available for investment.
Expenses declined by $14,113,000, for the year ended September 30, 1994, as
compared to 1993, primarily due to the sale of Registrant's joint venture
interests. With respect to the remaining properties, expenses decreased by
$1,563,000. The decreases in depreciation and amortization expense of $480,000,
equity in unconsolidated joint venture's operations of $1,028,000 and interest
expense of $601,000, were only partially offset by increases in room expenses of
$66,000, other operating expenses of $426,000 and general and administrative
expenses of $54,000.
The increase in room expenses is attributable to the increase in occupancy
at Registrant's Embassy Suites Hotel. Other operating expenses increased at all
Registrant's remaining properties. The largest increase was at Registrant's
Embassy Suites property. General and administrative expenses increased
primarily due to costs associated with the management transition. Depreciation
and amortization expense decreased due to a significant portion of Registrant's
assets becoming fully depreciated in the prior year. The loss from Registrant's
unconsolidated joint venture (Holiday Inn Crowne Plaza) decreased due to
improved operations at the hotel. Interest expense decreased primarily due to
the reduction in the interest rate on the loan encumbering Registrant's
Residence Inn - Orlando property (from 10 percent to 6.50 percent) and
Registrant prepaying on June 2, 1994, in full satisfaction, the note encumbering
Registrant's Embassy Suites property.
Fiscal Year 1993 ("1993") Compared to Fiscal Year 1992 ("1992")
Room revenue increased $611,000 and other operating revenues increased
$136,000 in 1993 compared to 1992 due to increased occupancy and room rates,
primarily at the Radisson Park Terrace and Embassy Suites - Tempe Hotels which
more than offset the decrease in room revenue at the Park Hyatt Hotel due to a
decrease in occupancy.
Interest and other income decreased $603,000 in 1993 compared to 1992,
primarily as a result of the collection of the Park Hyatt Hotel's note
receivable from an affiliate of the joint venture partner in 1992.
Room, food and beverage expenses decreased $399,000 in 1993 compared to
1992 due to certain properties operating more efficiently combined with a
decrease in occupancy at the Park Hyatt Hotel.
15
Item 7. Management's Discussion and Analysis of
Financial Condition and Results of Operations. (continued)
Other operating expenses decreased $226,000 in 1993 compared to 1992 as a
result of the cessation of accruing property taxes at the Park Hyatt Hotel and
the overall decrease in property tax expenses at certain properties due to lower
tax assessments which more than offset costs incurred for a national advertising
assessment relating to the Park Hyatt Hotel.
Depreciation and amortization expenses decreased $1,653,000 in 1993
compared to 1992 due to the suspension of depreciation and the allowance for
impairment of value relating to the Park Hyatt Hotel recognized in 1992.
Interest expense decreased $1,813,000 in 1993 compared to 1992 due to the
cessation of accruing interest expense in April 1993 at the Radisson Park
Terrace and Park Hyatt Hotels.
Unconsolidated Joint Venture Operations
(MRI BPF Combined Fund No. 1)
During fiscal years 1994, 1993 and 1992, Registrant was allocated losses
from the unconsolidated joint venture which owns the Holiday Inn Crowne Plaza
(formerly the Hyatt Regency Ravinia Hotel). The Consolidated Financial
Statements for the unconsolidated joint venture are presented in Item 8,
Financial Statements and Financial Statement Schedules. A discussion of its
Results of Operations follows:
Fiscal Year 1994 ("1994") Compared to Fiscal Year 1993 ("1993")
Operating results, prior to minority interest, improved by $1,202,000, for
the year ended September 30, 1994, as compared to 1993, as revenues increased by
$2,045,000 and expenses increased by $843,000. The significant increase in
revenue is attributable to both higher occupancy and average room rates. The
increase in expenses is attributable to the increase in occupancy at the hotel.
In addition, under the terms of the joint venture agreement, the loss from
the Holiday Inn Crowne Plaza was allocated in different proportions during the
year ended September 30, 1994, as compared to 1993. This combined with improved
operations, resulted in a smaller loss being allocated to Registrant.
Fiscal Year 1993 ("1993") Compared to Fiscal Year 1992 ("1992")
Room revenue increased $1,021,000 in 1993 compared to 1992 due to an
increase in average occupancy and daily room rates while room and other
operating expenses decreased $192,000 in 1993 compared to 1992 due to cost
control measures at the hotel.
Food and beverage expenses decreased $435,000 in fiscal year 1993 compared
to fiscal year 1992 primarily due to cost control measures implemented at the
hotel and to the closure of the hotel's restaurant.
Depreciation and amortization expense decreased $796,000 in 1993, compared
to 1992 as a result of the provision for impairment of value recognized in 1992.
16
Item 8. Financial Statements and Supplementary Data.
MRI BUSINESS PROPERTIES FUND, LTD. III
CONSOLIDATED FINANCIAL STATEMENTS
YEAR ENDED SEPTEMBER 30, 1994
INDEX
MRI BUSINESS PROPERTIES FUND, LTD. III
(A LIMITED PARTNERSHIP)
Page
----
Independent Auditors' Reports 18
Consolidated Financial Statements:
Balance Sheets at September 30, 1994 and 1993 20
Statements of Operations for the Years Ended September 30, 1994, 1993
and 1992 21
Statements of Partners' Equity for the Years Ended September 30, 1994,
1993 and 1992 22
Statements of Cash Flows for the Years Ended September 30, 1994, 1993
and 1992 23
Notes to Consolidated Financial Statements 24
Financial Statement Schedules:
Schedule X - Consolidated Statements of Operations Information for the
Years Ended September 30, 1994, 1993 and 1992 32
Schedule XI - Real Estate and Accumulated Depreciation at September 30,
1994 33
MRI BUSINESS PROPERTIES COMBINED FUND NO. 1
(A GENERAL PARTNERSHIP)
Independent Auditors' Reports 36
Consolidated Financial Statements:
Balance Sheets at September 30, 1994 and 1993 37
Statements of Operations for the Years Ended September 30, 1994, 1993
and 1992 38
Statements of Partners' Equity (Deficit) for the Years Ended
September 30, 1994, 1993 and 1992 39
Statements of Cash Flows for the Years Ended September 30, 1994, 1993
and 1992 40
Notes to Consolidated Financial Statements 41
Financial Statement Schedules:
Schedule X - Consolidated Statements of Operations Information for the
Years Ended September 30, 1994, 1993 and 1992 46
Schedule XI - Real Estate and Accumulated Depreciation at September 30,
1994 47
Financial statements and financial schedules not included have been omitted
because of the absence of conditions under which they are required or because
the information is included elsewhere in this Report.
17
To the Partners
MRI Business Properties Fund, Ltd. III
Atlanta, Georgia
Independent Auditors' Report
We have audited the accompanying consolidated balance sheet of MRI Business
Properties Fund, Ltd. III (a limited partnership) (the "Partnership"), and its
consolidated joint ventures as of September 30, 1993, and the related
consolidated statements of operations, partners' equity and cash flows for the
years ended September 30, 1993 and 1992. Our audits also included the financial
statement schedules supplied pursuant to Item 14(a)(2). These consolidated
financial statements and financial statement schedules are the responsibility of
the Partnership's management. Our responsibility is to express an opinion on
these consolidated financial statements and financial statement schedules 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 consolidated financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the consolidated financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in all
material respects, the financial position of the Partnership and its
consolidated joint ventures as of September 30, 1993, and the results of their
operations and their cash flows for the years ended September 30, 1993 and 1992,
in conformity with generally accepted accounting principles. Also, in our
opinion, such financial statement schedules, when considered in relation to the
basic consolidated financial statements taken as a whole, present fairly in all
material respects the information shown therein.
Deloitte & Touche LLP
San Francisco, California
December 17, 1993
18
To the Partners
MRI Business Properties Fund, Ltd. III
Atlanta, Georgia
Independent Auditors' Report
We have audited the accompanying consolidated balance sheet of MRI Business
Properties Fund, Ltd. III (a limited partnership) (the "Partnership"), as of
September 30, 1994, and the related consolidated statements of operations,
partners' equity and cash flows for the year then ended. Our audit also
included the additional information supplied pursuant to Item 14(a)(2). These
consolidated financial statements are the responsibility of the Partnership's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the consolidated financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the consolidated financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of MRI Business
Properties Fund, Ltd. III as of September 30, 1994, and the results of its
operations and its cash flows for the year then ended in conformity with
generally accepted accounting principles. Also, in our opinion, such financial
statement schedules, when considered in relation to the basic consolidated
financial statements taken as a whole, present fairly in all material respects
the information shown therein.
Imowitz Koenig & Company
Certified Public Accountants
New York, N.Y.
December 2, 1994
19
MRI BUSINESS PROPERTIES FUND, LTD. III
CONSOLIDATED BALANCE SHEETS
SEPTEMBER 30,
----------------------------
1994 1993
------------ ------------
ASSETS
Cash and cash equivalents $ 4,045,000 $ 5,088,000
Cash investments - 3,467,000
Accounts receivable and other assets 791,000 2,939,000
Real Estate:
Real estate 48,352,000 110,924,000
Accumulated depreciation (15,432,000) (30,459,000)
Allowance for impairment of value - (14,348,000)
------------ ------------
Real estate, net 32,920,000 66,117,000
------------ ------------
Total assets $ 37,756,000 $ 77,611,000
============ ============
LIABILITIES AND PARTNERS' EQUITY
Accounts payable and other liabilities $ 1,240,000 $ 5,678,000
Payable to affiliate of joint venture
partner - 1,581,000
Due to unconsolidated joint venture 339,000 147,000
Note payable to affiliate of joint
venture partner - 2,500,000
Notes payable 15,791,000 51,799,000
------------ ------------
Total liabilities 17,370,000 61,705,000
------------ ------------
Minority interest in joint ventures - (444,000)
------------ ------------
Commitments and Contingencies
Partners' Equity:
General partners (deficit) (1,933,000) (2,014,000)
Limited partners equity (109,027
assignee units outstanding at
September 30, 1994 and 1993) 22,319,000 18,364,000
------------ ------------
Total partners' equity 20,386,000 16,350,000
------------ ------------
Total liabilities and partners' equity $ 37,756,000 $ 77,611,000
============ ============
See notes to consolidated financial statements.
20
MRI BUSINESS PROPERTIES FUND, LTD. III
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED SEPTEMBER 30,
----------------------------------------
1994 1993 1992
----------- ----------- ------------
Revenues:
Room revenue $19,544,000 $25,748,000 $ 25,137,000
Food and beverage revenue 2,593,000 5,848,000 5,986,000
Other operating revenue 1,389,000 1,975,000 1,839,000
Interest and other income 205,000 329,000 932,000
Gain on sale of joint
venture interests 1,467,000 - -
----------- ----------- ------------
Total revenues 25,198,000 33,900,000 33,894,000
Expenses (including
$683,000, $1,227,000 and
$1,625,000 paid to an
affiliate of a joint
venture partner, general
partner and affiliates in
1994, 1993 and 1992):
Room expenses 4,720,000 6,810,000 6,953,000
Food and beverage expenses 2,331,000 5,491,000 5,890,000
Other operating expenses 9,690,000 14,624,000 14,850,000
Depreciation 1,679,000 2,663,000 4,316,000
Equity in unconsolidated
joint ventures' operations 342,000 1,370,000 2,266,000
Interest 1,527,000 3,498,000 5,317,000
General and administrative 469,000 415,000 483,000
Provision for impairment of
value - - 11,353,000
----------- ----------- ------------
Total expenses 20,758,000 34,871,000 51,428,000
----------- ----------- ------------
Income (loss) before minority
interest in joint ventures'
operations 4,440,000 (971,000) (17,534,000)
Minority interest in joint
ventures' operations (404,000) 28,000 651,000
----------- ----------- ------------
Net income (loss) $ 4,036,000 $ (943,000) $(16,883,000)
=========== =========== ============
Net income (loss) per
limited partnership
assignee unit $ 36 $ (8) $ (152)
=========== =========== ============
See notes to consolidated financial statements.
21
MRI BUSINESS PROPERTIES FUND, LTD. III
CONSOLIDATED STATEMENTS OF PARTNERS' EQUITY
YEARS ENDED SEPTEMBER 30, 1994, 1993 AND 1992
General Limited Total
Partners' Partners' Partners'
(Deficit) Equity Equity
----------- ------------ ------------
Balance - October 1, 1991 $(1,657,000) $ 35,833,000 $ 34,176,000
Net (loss) (338,000) (16,545,000) (16,883,000)
----------- ------------ ------------
Balance - September 30, 1992 (1,995,000) 19,288,000 17,293,000
Net (loss) (19,000) (924,000) (943,000)
----------- ------------ ------------
Balance - September 30, 1993 (2,014,000) 18,364,000 16,350,000
Net income 81,000 3,955,000 4,036,000
----------- ------------ ------------
Balance - September 30, 1994 $(1,933,000) $ 22,319,000 $ 20,386,000
=========== ============ ============
See notes to consolidated financial statements.
22
MRI BUSINESS PROPERTIES FUND, LTD. III
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED SEPTEMBER 30,
---------------------------------------
1994 1993 1992
----------- ----------- ------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ 4,036,000 $ (943,000) $(16,883,000)
Adjustments to reconcile net income
(loss) to net cash provided by
operating activities:
Depreciation and amortization 1,707,000 2,697,000 4,356,000
Deferred interest added to note
payable principal - 292,000 -
Provision for impairment of value - - 11,353,000
Provision for doubtful receivables (5,000) 9,000 (14,000)
Minority interest in joint ventures'
operations 404,000 (28,000) (651,000)
Equity in unconsolidated joint
ventures' operations 342,000 1,370,000 2,266,000
Gain on sale of joint venture
interests (1,467,000) - -
Interest on note receivable from
affiliate of joint venture partner - - (478,000)
Changes in operating assets and
liabilities:
Accounts receivable and other
assets 285,000 (237,000) 23,000
Receivable from an affiliate of
joint venture partner - - 59,000
Accounts payable and other
liabilities (1,079,000) 605,000 1,173,000
Payable to affiliate of joint
venture partner - - 275,000
----------- ----------- ------------
Net cash provided by operating
activities 4,223,000 3,765,000 1,479,000
----------- ----------- ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Properties and improvements additions (1,308,000) (1,767,000) (1,466,000)
Unconsolidated joint venture
contributions (150,000) - (35,000)
Unconsolidated joint venture
distributions - - 75,000
Proceeds from cash investments 5,842,000 4,758,000 4,718,000
Purchase of cash investments (2,375,000) (6,739,000) (4,249,000)
Net proceeds from sale of joint
venture interests 2,000 - -
----------- ----------- ------------
Net cash provided by (used in)
investing activities 2,011,000 (3,748,000) (957,000)
----------- ----------- ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Joint venture partner contributions - - 596,000
Interest on note receivable from
affiliate of joint venture partner - - 478,000
Joint venture partner distributions - - (13,478,000)
Note receivable from affiliate of
joint venture partner - - 13,000,000
Note payable proceeds - - 23,000
Notes payable principal payments (277,000) (152,000) (170,000)
Satisfaction of note payable (7,000,000) - -
----------- ----------- ------------
Cash (used in) provided by
financing activities (7,277,000) (152,000) 449,000
----------- ----------- ------------
Net (Decrease) Increase in Cash
and Cash Equivalents (1,043,000) (135,000) 971,000
Cash and Cash Equivalents at
Beginning of Year 5,088,000 5,223,000 4,252,000
----------- ----------- ------------
Cash and Cash Equivalents at the
End of Year $ 4,045,000 $ 5,088,000 $ 5,223,000
=========== =========== ============
Supplemental Disclosure of Cash
Flow Information:
Interest paid $ 1,526,000 $ 2,684,000 $ 4,593,000
=========== =========== ============
Supplemental Disclosure of Non-Cash
Investing and Financing Activities:
Deferred interest added to note
payable principal $ - $ 439,000 $ -
=========== =========== ============
Gain on sale of joint venture
interests - See Note 11.
Foreclosure of hotel property
in fiscal year 1992 - See Note 9.
See notes to consolidated financial statements.
23
MRI BUSINESS PROPERTIES FUND, LTD. III
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED SEPTEMBER 30, 1994, 1993 AND 1992
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization
MRI Business Properties Fund, Ltd. III (the "Partnership") is a limited
partnership organized under the laws of the State of California to acquire, hold
for investment, and ultimately sell income-producing hotel properties. The
managing general partner is Montgomery Realty Company-85, a California general
partnership, and the associate general partner is MRI Associates, Ltd. III
("MRI"), a limited partnership. The general partners of Montgomery Realty
Company-85 are Fox Realty Investors ("FRI"), a California general partnership,
and Montgomery Realty Corporation, a California Corporation. The Partnership
was organized on June 28, 1984, but did not commence operations until December
1985. The capital contributions of $109,027,000 ($1,000 per unit) were made by
the limited partners.
On December 6, 1993, NPI Equity Investments II, Inc. ("MGP") became the
managing partner of FRI and assumed operational control over Fox Capital
Management Corporation ("FCMC"). As a result, MGP became responsible for the
operation and management of the business and affairs of the Partnership and the
other investment partnerships sponsored by FRI and/or FCMC. The individuals who
had served previously as partners of FRI and as officers and directors of FCMC
contributed their general partnership interests in FRI to a newly formed limited
partnership, Portfolio Realty Associates, L.P. ("PRA"), in exchange for limited
partnership interests in PRA. In the foregoing capacity, such partners will
continue to hold indirectly certain economic interests in the Partnership and
such other investment partnerships, but will cease to be responsible for the
operation and management of the Partnership and such other partnerships.
On October 12, 1994, National Property Investors, Inc. ("NPI"), the parent
of MGP sold one-third of the stock of NPI to an affiliate of Apollo Real Estate
Advisors, L.P. ("Apollo"). Also, on October 12, 1994, affiliates of Apollo
acquired (I) one-third of the stock of the respective general partners of
DeForest Ventures I L.P. ("DeForest I") and DeForest Ventures II L.P. ("DeForest
II") and (ii) an additional equity interest in NPI-AP Management, L.P.
("NPI-AP"), an affiliate of NPI (bringing its total equity interest in such
entity to one-third.) NPI-AP is the sole limited partner of DeForest II and one
of the limited partners of DeForest I. DeForest I has been formed for the
purpose of making tender offers for limited partnership interests in the
Partnership as well as 11 affiliated limited partnerships. DeForest II has been
formed for the purpose of making tender offers for limited partnership interests
in 7 affiliated limited partnerships (see Note 13).
Consolidation
The consolidated financial statements include the Partnership and joint
ventures in which the Partnership has a controlling interest. All significant
intercompany transactions and balances have been eliminated. The investment in
the unconsolidated joint venture is accounted for under the equity method of
accounting (see Note 5).
New Accounting Pronouncements
In December 1991, the Financial Accounting Standards Board (FASB) issued
Statement No. 107, "Disclosures About Fair Value of Financial Instruments".
This Statement will not affect the financial position or results of operations
of the Partnership but will require additional disclosure on the fair value of
certain financial instruments for which it is practicable to estimate fair
value. Disclosures under this statement will be required in the fiscal year
1996 financial statements.
Cash and Cash Equivalents
The Partnership considers cash investments with a maturity of three months
or less at the time of purchase to be cash equivalents.
24
MRI BUSINESS PROPERTIES FUND, LTD. III
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED SEPTEMBER 30, 1994, 1993 AND 1992
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Concentration of Credit Risk
The Partnership maintains cash balances at institutions insured up to
$100,000 by the Federal Deposit Insurance Corporation (FDIC). Balances in
excess of $100,000 are invested in United States Treasury bills and repurchase
agreements, which are collateralized by United States Treasury obligations.
Cash balances during the year exceeded insured levels.
Inventories and Operating Supplies
Inventories and operating supplies, including linen, china and glassware,
are stated generally at the lower of first-in, first-out cost or market.
Real Estate
Real estate properties and improvements are stated at cost. A provision
for impairment of value is recorded when a decline in the value of a property is
determined to be other than temporary as a result of one or more of the
following: (1) a property is offered for sale at a price below its current
carrying value, (2) a property has significant balloon payments due within the
foreseeable future for which the Partnership does not have the resources to
meet, and anticipates it will be unable to obtain replacement financing or debt
modification sufficient to allow a continued hold of the property over a
reasonable period of time, (3) a property has been, and is expected to continue,
generating significant operating deficits and the Partnership is unable or
unwilling to sustain such deficit results of operations, and has been unable to,
or anticipates it will be unable to, obtain debt modification, financing or
refinancing sufficient to allow a continued hold of the property for a
reasonable period of time or, (4) a property's value has declined based on
management's expectations with respect to projected future operational cash
flows and prevailing economic conditions. An impairment loss is indicated when
the undiscounted sum of estimated future cash flows from an asset, including
estimated sales proceeds, and assuming a reasonable period of ownership up to
five years, is less than the carrying amount of the asset. The impairment loss
is measured as the difference between the estimated fair value and the carrying
amount of the asset. In the absence of the above circumstances, properties and
improvements will continue to be carried in the financial statements at cost.
Acquisition fees are capitalized as a cost of properties and improvements.
Properties which were contributed to the joint ventures by the minority joint
venture partners are stated at amounts agreed upon among the partners at the
date of acquisition or contribution which approximated fair market value. Upon
acquisition of the properties, the Partnership contributed cash to the joint
ventures equal to its proportionate ownership interest in the joint ventures.
Certain payments received from the sellers pursuant to performance guarantee
agreements in excess of the hotels' operating income are applied as a reduction
of the cost of the related hotel.
Depreciation
Depreciation is computed using the straight-line method, based on the
estimated useful lives ranging from 5 years to 39 years. Properties for which a
provision for impairment of value has been recorded and are expected to be
disposed of within the next year are not depreciated.
Deferred Financing Costs
Financing costs are deferred and amortized over the lives of the related
loans, or expensed, if financing is not obtained.
25
MRI BUSINESS PROPERTIES FUND, LTD. III
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED SEPTEMBER 30, 1994, 1993 AND 1992
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Net Income (Loss) Per Limited Partnership Assignee Unit
Net income (loss) per limited partnership assignee unit is computed by
dividing net income (loss) allocated to the limited partners by 109,027 assignee
units outstanding.
Income Taxes
No provision for Federal and state income taxes has been made in the
financial statements because income taxes are the obligation of the partners.
Reclassification
Certain amounts have been reclassified to conform to the 1994
presentation.
2. TRANSACTIONS WITH THE GENERAL PARTNER AND AFFILIATES
In accordance with the Partnership Agreement, the Partnership may be
charged by the general partner and affiliates for services provided to the
Partnership. From March 1988 to December 1992 such amounts were assigned
pursuant to a services agreement by the general partner and affiliates to Metric
Realty Services, L.P. ("MRS"), which performed partnership management and other
services for the Partnership. On January 1, 1993, Metric Management, Inc.,
predecessor to MRS, a company which is not affiliated with the general partner,
commenced providing certain property and portfolio management services to the
Partnership under a new services agreement. As provided in the new services
agreement effective January 1, 1993, no reimbursements were made to the general
partner and affiliates after December 31, 1992. Subsequent to December 31,
1992, reimbursements were made to Metric Management, Inc. On December 16, 1993,
the service agreement with Metric Management, Inc. was modified and, as a result
thereof, the Partnership's general partner assumed responsibility for various
partnership services between December 23, 1993 and April 1, 1994. Related party
expenses for the years ended September 30, 1994, 1993 and 1992 are as follows:
1994 1993 1992
-------- ------- --------
Reimbursement of expenses:
Partnership accounting and investor services $102,000 $52,000 $218,000
Professional services 12,000 11,000 44,000
-------- ------- --------
Total $114,000 $63,000 $262,000
======== ======= ========
In accordance with the Partnership Agreement, the general partner receives
cash distributions as follows: (1) a Partnership management incentive equal to
an allocation of ten percent determined on a cumulative, noncompounded basis, of
cash available for distribution (as defined in the Partnership Agreement) which
is distributed to partners, and (2) a continuing interest representing two
percent of cash available for distribution distributed to partners remaining
after the allocation of the Partnership management incentive. Subsequent to
December 31, 1986, the Partnership management incentive is subordinated to
certain cash distributions to the unit holders. There were no cash
distributions to the general partner for the years ended September 30, 1994,
1993 and 1992.
In accordance with the Partnership Agreement, the general partner is
entitled to receive an allocation of net income (loss) and taxable income (loss)
of two percent.
26
MRI BUSINESS PROPERTIES FUND, LTD. III
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED SEPTEMBER 30, 1994, 1993 AND 1992
3. RELATED PARTY TRANSACTIONS
Apart from the reimbursements paid to the general partner and affiliates
as set forth above, the Partnership has or had agreements with affiliates of its
joint venture partners, otherwise non-affiliated third parties, which provide
for the management and operation of the joint venture properties. Fees paid
pursuant to these agreements are generally based on a percentage of gross
revenues from operations of the properties and were $569,000, $1,164,000 and
$1,088,000 in 1994, 1993 and 1992.
4. PAYMENT OF NOTE RECEIVABLE FROM AFFILIATE OF JOINT VENTURE PARTNER
In January 1992 the joint venture owning the Park Hyatt Hotel received
$13,000,000 from an affiliate of the joint venture partner in satisfaction of
its note receivable from the joint venture affiliate. According to the joint
venture agreement, the joint venture is required to distribute these funds to
the joint venture partner. In this respect, the joint venture distributed the
proceeds to the joint venture partner in January 1992.
5. INVESTMENT IN UNCONSOLIDATED JOINT VENTURE
In February 1986, the Partnership acquired a 50 percent ownership interest
in MRI Business Properties Combined Fund No. 1 ("Combined Fund"), a joint
venture with MRI Business Properties Fund, Ltd. II, a California limited
partnership affiliated with the Partnership's general partner. The Combined
Fund acquired a majority interest in a joint venture, MRI Ravinia Associates,
which on March 13, 1986, acquired the Hyatt Regency Ravinia Hotel. In fiscal
year 1991 the Combined Fund effected a change in the joint venture ownership
(see discussion below). The Partnership's interest in the Combined Fund is
reported using the equity method of accounting.
In fiscal year 1990, the joint venture partner at the Hyatt Regency Ravinia
Hotel indicated it would not contribute its 50 percent share to fund deficit
operations at the hotel. Consequently, in fiscal year 1991, the Partnership and
MRI Business Properties Fund Ltd. II, each funded $1,060,000 to the hotel, of
which $530,000 from each was funded on behalf of the joint venture partner.
Accordingly, the joint venture partner was not allocated loss in fiscal year
1991.
Formal notice of deficiency was sent placing the joint venture partner in
default. As a result of such default, in fiscal year 1991 the Combined Fund
effected a change in the joint venture ownership by amending their agreement
with the joint venture partner and forming a new joint venture with an affiliate
of Holiday Inns, Inc. ("Holiday"). The new joint venture entered into a new
management agreement with Holiday. As consideration for a 50 percent interest
in the new joint venture Holiday has agreed to pay for the costs to terminate
the Hyatt Management Agreement, the conversion costs associated with the change
to a Holiday Inn Crowne Plaza and the coverage of operational losses up to
$5,000,000 for up to the first 5 years of the new joint venture. As a result of
the new joint venture, which included Combined Fund's surrender of certain
priority returns, there was a reduction, through provision for impairment of
value, to the book basis of the property of the Combined Fund of approximately
$7.7 million which was recognized in June 1991. In July 1993, the guarantee was
exhausted and the Combined Fund and its joint venture partner are now jointly
responsible for their share of the operational losses. In October 1993 the
Combined Fund and Holiday each contributed $300,000 to cover operational
losses. The Partnership intends to continue funding operational losses, if
necessary.
In connection with the above transaction the Partnership finalized an
agreement with the lender on the $34,000,000 note payable to extend the current
provision for interest only mortgage payments (which had been scheduled to begin
amortizing at higher monthly debt service payments in August 1991) through June
1995. In addition the Partnership has the option to extend the modification
agreement and the maturity date of the note for an additional four year period
through June 1999.
27
MRI BUSINESS PROPERTIES FUND, LTD. III
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED SEPTEMBER 30, 1994, 1993 AND 1992
5. INVESTMENT IN UNCONSOLIDATED JOINT VENTURE (continued)
During fiscal year 1992, the Combined Fund determined that based upon the
continuing deterioration of the economic market in Atlanta, Georgia and
projected operational cash flows, the decline in value of the Holiday Inn Crowne
Plaza is other than temporary and the recovery of its carrying value is not
likely. Accordingly, an additional provision for impairment of value of
$4,311,000 was recognized in fiscal year 1992.
6. REAL ESTATE
Hotel properties and improvements at September 30, 1994 and 1993 are
summarized as follows:
1994 1993
------------ ------------
Land $ 8,294,000 $ 21,743,000
Building and improvements 30,227,000 65,631,000
Furnishings 9,831,000 23,550,000
------------ ------------
Total 48,352,000 110,924,000
Accumulated depreciation (15,432,000) (30,459,000)
Allowance for impairment of value - (14,348,000)
------------ ------------
Net real estate $ 32,920,000 $ 66,117,000
============ ============
For details of the properties with an allowance for impairment of value
see Note 11.
7. NOTE PAYABLE TO AFFILIATE OF JOINT VENTURE PARTNER
This note was secured by a collateral assignment of certain cash
distributions from the joint venture which owned the Park Hyatt Hotel. The note
required annual interest only payments at 11 percent, payable only to the extent
the Partnership received certain distributions. The Partnership stopped
accruing interest on the note in fiscal year 1993 when it appeared unlikely that
the Partnership would receive any distributions due to the continuing deficit
operations at the Park Hyatt Hotel. The note was assumed upon the sale of the
Partnership's joint venture interest (see Note 11). Interest accrued and unpaid
on the note payable during 1992 totaled $275,000. Interest accrued but unpaid
was $1,581,000 at September 30, 1993.
8. NOTES PAYABLE
The Partnership's Residence Inn properties (Orlando and Sacramento) are
pledged as collateral for the related notes payable. The notes currently bear
interest at rates from 6.11 percent to 6.50 percent and are payable monthly.
The interest rate on the note encumbering the Partnership's Residence Inn -
Sacramento property fluctuates monthly.
On June 2, 1994, the Partnership prepaid, in full satisfaction, the note
encumbering its Embassy Suites property in the amount of $7,000,000. The note
had been accruing interest at prime plus 1 percent and was due to mature in
December 1996.
28
MRI BUSINESS PROPERTIES FUND, LTD. III
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED SEPTEMBER 30, 1994, 1993 AND 1992
8. NOTES PAYABLE (continued)
The final payments due on notes payable which are not self liquidating:
Date of
Property Final Payment Maturity
-------------------------- ------------- --------
Residence Inn - Orlando $7,569,000 9/97
Residence Inn - Sacramento 7,301,000 10/97
The following is a summary of the anticipated future principal payments on
the notes and capital leases:
Year Ending
September 30, Amount
------------- -----------
1995 $ 293,000
1996 304,000
1997 15,194,000
-----------
Total $15,791,000
===========
9. FORECLOSURE OF HOTEL PROPERTY
On February 6, 1992, the Partnership was informed that the Troy Hilton
Inn, located in Troy, Michigan, was acquired through foreclosure on November 26,
1991 by the holder of the first note. Accordingly, the Partnership was relieved
of its liability for the first note payable of $16,010,000 (which had been due
in 1990) and accrued and deferred interest payable of $132,000. The loss on
disposition was $11,715,000 which had been recognized in prior years. The
consolidated financial statements for fiscal year 1992 do not include operating
results of the Troy Hilton Inn as the Partnership relinquished control of the
property upon appointment of a receiver to operate the property in February
1991.
10. RENTAL COMMITMENTS
The Partnership satisfied all rental commitments on operating leases
during fiscal year 1994.
Rental expenses for all operating leases were $28,000, $142,000 and
$193,000 in 1994, 1993 and 1992, respectively.
11. GAIN ON SALE OF JOINT VENTURE INTERESTS
On March 7, 1994, the partnership sold its 60 percent interest in the Park
Hyatt Water Tower Associates Joint Venture, which owned the Park Hyatt Hotel,
located in Chicago, Illinois to an affiliate of the joint venture partner. The
sales price of $5,831,000 is comprised of the following: (1) the assumption of
the purchase money note payable to an affiliate of the joint venture partner in
the amount of $2,500,000, (2) accrued and unpaid interest to an affiliate of the
joint venture partner of $1,581,000 assumed by the buyer, and (3) cash of
$1,750,000. The sale resulted in a gain of approximately $543,000. The
Partnership had recorded a provision for impairment of value of $6,985,000
during fiscal year 1992.
29
MRI BUSINESS PROPERTIES FUND, LTD. III
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED SEPTEMBER 30, 1994, 1993 AND 1992
11. GAIN ON SALE OF JOINT VENTURE INTERESTS (continued)
On March 15, 1994, the Partnership sold its 65 percent interest in the
Washington Park Hotel Associates Joint Venture, which owned the Radisson Park
Terrace Hotel, located in Washington, D.C. for $1,455,000 in cash, to its joint
venture partner. The sale, after expenses, resulted in a gain of approximately
$924,000. The Partnership had recorded a provision for impairment of value of
$7,363,000, of which $2,755,000 was recognized in fiscal year 1990 and the
remaining $4,608,000 was recognized in fiscal year 1992.
12. RECONCILIATION TO INCOME TAX METHOD OF ACCOUNTING
The differences between the method of accounting for income tax reporting
and the accrual method of accounting used in the financial statements are as
follows:
1994 1993 1992
------------ ----------- ------------
Net income (loss) - financial
statements $ 4,036,000 $ (943,000) $(16,883,000)
Differences resulted from:
Provision for impairment of value - - 11,593,000
Depreciation and amortization (423,000) (1,150,000) 454,000
Minority interest in joint
ventures' operations (1,584,000) (22,000) (2,875,000)
Equity in unconsolidated joint
venture's operations (612,000) 340,000 1,684,000
Loss on property disposition (13,525,000) - (8,164,000)
Interest and financing costs 12,000 (1,133,000) 340,000
Other (8,000) 610,000 119,000
------------ ----------- ------------
Net (loss) - income tax method $(12,104,000) $(2,298,000) $(13,732,000)
============ =========== ============
Taxable (loss) per limited
partnership assignee unit after
giving effect to the allocation
to the general partner $ (109) $ (21) $ (123)
============ =========== ============
1994 1993 1992
----------- ----------- -----------
Partners' equity - financial
statements $20,386,000 $16,350,000 $17,293,000
Differences resulted from:
Deferred sales commissions and
organization costs 11,309,000 11,309,000 11,309,000
Provision for impairment of value - 14,348,000 14,348,000
Depreciation and amortization (1,754,000) (1,331,000) (181,000)
Minority interest in joint
ventures' operations (1,635,000) (51,000) (29,000)
Equity in unconsolidated joint
venture's operations 8,970,000 9,582,000 9,242,000
Sale of joint venture interests 823,000 - -
Interest and financing costs (523,000) (535,000) 598,000
Other 1,735,000 1,743,000 1,133,000
----------- ----------- -----------
Partners' equity - income tax method $39,311,000 $51,415,000 $53,713,000
=========== =========== ===========
30
MRI BUSINESS PROPERTIES FUND, LTD. III
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED SEPTEMBER 30, 1994, 1993 AND 1992
13. SUBSEQUENT EVENT - TENDER AND LITIGATION
On November 30, 1994, DeForest I acquired 26,502 limited partnership units
or 24.3% of total limited partnership units of the Partnership (see Note 1).
In November 1994, Bonnie L. Ruben and Sidney Finkel, limited partners of
MRI Business Properties Fund, Ltd. III and MRI Business Properties Fund, Ltd.
II, commenced an action in the United States District Court, Northern District
of Georgia, against, among others, MGP. The action alleges, among other things,
that the tender offer constitutes (a) a breach of the fiduciary duty owed to the
limited partners of the Partnership, and (b) a breach of, or an inducement to
breach, the provisions of the Partnership Agreement of the Partnership. The
action, which has been brought as a class action on behalf of limited partners,
sought to enjoin the tender offer as well as monetary damages in an unspecified
amount. The plaintiffs subsequently withdrew their request for a preliminary
injunction but are still seeking monetary damages. MGP believes that the action
is without merit and intends to vigorously defend this action.
In addition, limited partners in certain affiliated limited partnerships
have instituted lawsuits against, among others, MGP and FRI, relating to the
tender offer (see Note 1). MGP believes these lawsuits are without merit.
31
SCHEDULE X
MRI BUSINESS PROPERTIES FUND, LTD. III
CONSOLIDATED STATEMENTS OF OPERATIONS INFORMATION
FOR THE YEARS ENDED SEPTEMBER 1994, 1993 AND 1992
COLUMN A COLUMN B
Charged to Expenses
------------------------------------
Item 1994 1993 1992
---- ---------- ---------- ----------
1. Depreciation (1) $1,679,000 $2,663,000 $4,316,000
========== ========== ==========
2. Maintenance and repairs $1,296,000 $1,945,000 $2,064,000
========== ========== ==========
3. Advertising $2,652,000 $3,950,000 $3,556,000
========== ========== ==========
4. Property taxes (2) $ 675,000 $1,438,000 $2,099,000
========== ========== ==========
As to items omitted, amounts did not exceed one percent of total revenues.
(1) The Partnership stopped recording depreciation on Radisson Park Terrace
Hotel and Park Hyatt Hotel since October 1991 and April 1993, respectively.
(2) The Partnership ceased accruing property taxes on the Park Hyatt Hotel
totaling $570,000 beginning in April 1993.
32
SCHEDULE XI
MRI BUSINESS PROPERTIES FUND, LTD. III
REAL ESTATE AND ACCUMULATED DEPRECIATION
SEPTEMBER 30, 1994
COLUMN COLUMN COLUMN COLUMN COLUMN COLUMN COLUMN COLUMN
A B C D E F G H
Cost Capitalized Gross Amount at Which
Initial Cost Subsequent Carried at
to Partnership to Acquisition Close of Period (1)
----------------- ------------------- ---------------------------- Accumu-
Buildings Buildings lated Year Date
Encum- and and Deprecia- of of
brances Improve- Improve- Carrying Improve- tion Construc- Acqui-
Description (5) Land ments ments Costs (6) Land ments Total (2) (3)(4) tion sition
- ----------- ------- ------ --------- -------- --------- ------ --------- --------- --------- --------- ------
(Amounts in thousands)
PARTNERSHIP:
Embassy Suites -
Tempe Hotel
Tempe, Arizona $ - $2,522 $12,440 $2,782 $2,522 $15,222 $17,744 $ 6,829 1984 12/86
Residence Inn -
Orlando
Orlando, Florida 8,027 1,927 12,373 1,372 $(300) 1,927 13,445 15,372 4,472 1984 9/87
Residence Inn -
Sacramento
Sacramento,
California 7,764 3,844 10,615 920 (143) 3,845 11,391 15,236 4,131 1986 9/87
------- ------ ------- ------ ----- ------ ------- ------- -------
Total Partnership $15,791 $8,293 $35,428 $5,074 $(443) $8,294 $40,058 $48,352 $15,432
======= ====== ======= ====== ===== ====== ======= ======= =======
See accompanying notes.
33
SCHEDULE XI
MRI BUSINESS PROPERTIES FUND, LTD. III
REAL ESTATE AND ACCUMULATED DEPRECIATION
SEPTEMBER 30, 1994
NOTES:
(1) The aggregate cost for Federal income tax purposes is $48,389,000.
(2) Balance, October 1, 1991 $143,957,000
Improvements capitalized subsequent to acquisition 1,466,000
Cost of property disposition (36,266,000)
------------
Balance, September 30, 1992 109,157,000
Improvements capitalized subsequent to acquisition 1,767,000
------------
Balance, September 30, 1993 110,924,000
Improvements capitalized subsequent to acquisition 1,308,000
Sale of Joint Venture Interest - Park Hyatt Hotel (37,456,000)
Sale of Joint Venture Interest - Radisson Park Terrace Hotel (26,424,000)
------------
Balance, September 30, 1994 $ 48,352,000
============
(3) Balance, October 1, 1991 $ 31,757,000
Additions charged to expense 4,315,000
Accumulated depreciation on property dispositions (8,276,000)
------------
Balance, September 30, 1992 27,796,000
Additions charged to expense 2,663,000
------------
Balance, September 30, 1993 30,459,000
Additions charged to expense 1,679,000
Sale of Joint Venture Interest - Park Hyatt Hotel (10,738,000)
Sale of Joint Venture Interest - Radisson Park Terrace Hotel (5,968,000)
------------
Balance, September 30, 1994 $ 15,432,000
============
(4) Depreciation is computed on lives ranging from 5 to 39 years.
(5) Encumbrances shown include capital lease obligations.
(6) Certain revenues received from the original sellers in excess of the
properties net operating income for a specified period of time after
acquisition, have been applied as a reduction of the cost of the related
property.
34
MRI BUSINESS PROPERTIES COMBINED FUND NO. 1
CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED SEPTEMBER 30, 1994 AND 1993
35
INDEPENDENT AUDITORS' REPORT
MRI Business Properties Combined Fund No. 1
We have audited the accompanying consolidated balance sheet of MRI Business
Properties Combined Fund No. 1 (a general partnership) and its joint venture as
of September 30, 1994, and the related consolidated statements of operations,
partners' equity (deficiency) and cash flows for the year then ended. Our audit
also included the consolidated statement of operations information (Schedule X)
for the year ended September 30, 1994 and the schedule of real estate and
accumulated depreciation (Schedule XI) as of September 30, 1994. These
financial statements and financial statement schedules are the responsibility of
the partnership's management. Our responsibility is to express an opinion on
these financial statements and financial statement schedules based upon our
audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
assurance about whether the financial statements are free of material
misstatement. An audit also includes assessing the accounting principles used
and significant estimates made by management, as well as evaluating the overall
financial statements presentation. We believe our audit provides a reasonable
basis for our opinion.
In our opinion, the 1994 financial statements referred to above present fairly,
in all material respects, the financial position of MRI Business Properties
Combined Fund No. 1 as of September 30, 1994, and the results of its operations
and its cash flows for the year then ended in conformity with generally accepted
accounting principles. Also, in our opinion, the financial statement schedules
referred to above, when considered in relation to the basic consolidated
financial statements taken as a whole, present fairly in all material respects
the information shown therein.
TAUBER & BALSER, P.C.
Atlanta, Georgia
November 1, 1994
36
MRI BUSINESS PROPERTIES COMBINED FUND NO. 1
CONSOLIDATED BALANCE SHEETS
SEPTEMBER 30, 1994 AND 1993
ASSETS
1994 1993
------------ ------------
Cash and cash equivalents $ 561,000 $ 302,000
Restricted cash 564,000 739,000
Accounts receivable, less allowance
for uncollectible accounts of
$39,000 for each year 1,132,000 1,132,000
Inventory 74,000 92,000
Prepaid expenses and other 27,000 26,000
Property and improvements 62,898,000 72,212,000
Accumulated depreciation (16,335,000) (25,472,000)
Allowance for impairment of value (11,962,000) (11,962,000)
------------ ------------
Net property and improvements 34,601,000 34,778,000
Deferred financing costs, net - 45,000
Organization costs, net 90,000 139,000
------------ ------------
TOTAL ASSETS $ 37,049,000 $ 37,253,000
============ ============
LIABILITIES AND PARTNERS' DEFICIENCY
Accounts payable $ 507,000 $ 796,000
Accrued interest 266,000 266,000
Accrued property taxes 151,000 45,000
Other liabilities 1,396,000 1,076,000
Management fee payable to
affiliate 964,000 550,000
Due to affiliates 1,131,000 1,121,000
Note payable 34,000,000 34,000,000
------------ ------------
Total liabilities 38,415,000 37,854,000
Joint venturer's interest (689,000) (308,000)
------------ ------------
Partners' deficiency
MRI BPF, Ltd. II (338,000) (146,000)
MRI BPF, Ltd. III (339,000) (147,000)
------------ ------------
(677,000) (293,000)
------------ ------------
TOTAL LIABILITIES AND PARTNERS'
DEFICIENCY $37,049,000 $37,253,000
============ ============
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
37
MRI BUSINESS PROPERTIES COMBINED FUND NO. 1
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED SEPTEMBER 30,
1994 1993 1992
----------- ----------- -----------
Revenues:
Rooms $12,037,000 $10,065,000 $ 9,044,000
Food and beverage 6,602,000 6,687,000 6,730,000
Other 741,000 588,000 677,000
Interest 22,000 17,000 68,000
----------- ----------- -----------
Total revenues 19,402,000 17,357,000 16,519,000
Expenses (including $2,374,000,
$2,001,000 and $1,741,000 paid or
payable to an affiliate of the
joint venture partner in 1994,
1993, and 1992):
Rooms 3,158,000 2,705,000 2,843,000
Food and beverage 5,268,000 5,428,000 5,863,000
Other operating 7,445,000 6,882,000 6,936,000
Depreciation and amortization 1,709,000 1,644,000 2,440,000
Interest 3,187,000 3,248,000 3,248,000
General and administrative - 17,000 38,000
Provision for impairment of
value - - 4,311,000
----------- ----------- -----------
Total expenses 20,767,000 19,924,000 25,679,000
----------- ----------- -----------
LOSS BEFORE JOINT VENTURER'S INTEREST
IN OPERATIONS (1,365,000) (2,567,000) (9,160,000)
JOINT VENTURER'S INTEREST IN
OPERATIONS 681,000 135,000 4,627,000
----------- ----------- -----------
NET LOSS $ (684,000) $(2,432,000) $(4,533,000)
=========== =========== ===========
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
38
MRI BUSINESS PROPERTIES COMBINED FUND NO. 1
CONSOLIDATED STATEMENTS OF PARTNERS' EQUITY (DEFICIENCY)
FOR THE YEARS ENDED SEPTEMBER 30, 1994, 1993 AND 1992
MRI Business MRI Business
Properties Fund, Properties Fund,
Ltd. II Ltd. III Total
---------------- ---------------- -----------
Balance, October 1, 1991 $ 3,223,000 $ 3,529,000 $ 6,752,000
Capital contributions 35,000 35,000 70,000
Distributions (75,000) (75,000) (150,000)
Net loss (2,267,000) (2,266,000) (4,533,000)
----------- ----------- -----------
Balance, September 30, 1992 916,000 1,223,000 2,139,000
Net loss (1,062,000) (1,370,000) (2,432,000)
----------- ----------- -----------
Balance, September 30, 1993 (146,000) (147,000) (293,000)
Capital contributions 150,000 150,000 300,000
Net loss (342,000) (342,000) (684,000)
----------- ----------- -----------
Balance, September 30, 1994 $ (338,000) $ (339,000) $ (677,000)
=========== =========== ===========
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
39
MRI BUSINESS PROPERTIES COMBINED FUND NO. 1
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED SEPTEMBER 30,
1994 1993 1992
----------- ----------- -----------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (684,000) $(2,432,000) $(4,533,000)
Adjustments to reconcile net loss
to net cash provided (used) by
operating activities:
Depreciation and amortization 1,709,000 1,704,000 2,501,000
Provision for impairment of value - - 4,311,000
Provision for doubtful receivables - 2,000 50,000
Joint Venturer's interest in
operations (681,000) (135,000) (4,627,000)
Net changes in:
Accounts receivable - (118,000) 128,000
Inventory 18,000 11,000 6,000
Prepaid expenses and other (1,000) 27,000 14,000
Accounts payable, accrued
expenses and other liabilities 551,000 60,000 184,000
----------- ----------- -----------
Net cash provided (used) by
operating activities 912,000 (881,000) (1,966,000)
----------- ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of property and equipment (1,438,000) (2,372,000) (1,043,000)
Release from restricted cash 175,000 489,000 63,000
Organization costs paid - - (50,000)
----------- ----------- -----------
Net cash used by investing activities (1,263,000) (1,883,000) (1,030,000)
----------- ----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Capital contributions 600,000 - 70,000
Increase in due to affiliates 10,000 1,121,000 -
Joint venture partner contributions - 1,700,000 2,600,000
Distributions - - (150,000)
----------- ----------- -----------
Net cash provided by financing
activities 610,000 2,821,000 2,520,000
----------- ----------- -----------
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS 259,000 57,000 (476,000)
CASH AND CASH EQUIVALENTS:
BEGINNING OF YEAR 302,000 245,000 721,000
----------- ----------- -----------
END OF YEAR $ 561,000 $ 302,000 $ 245,000
=========== =========== ===========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION:
Interest paid $ 3,188,000 $ 3,188,000 $ 3,187,000
=========== =========== ===========
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
40
MRI BUSINESS PROPERTIES COMBINED FUND NO. 1
NOTES TO CONSOLIDATED FINANCIAL STATEMENT
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION AND NATURE OF THE BUSINESS
MRI Business Properties Combined Fund No. 1 ("Partnership") is a general
partnership organized February 18, 1986 under the laws of the State of
California to obtain a 50 percent interest in a Joint Venture which acquired the
Ravinia Hotel. The general partners of the Partnership are MRI Business
Properties Fund, Ltd. II ("MRI BPF, Ltd. II") and MRI Business Properties Fund,
Ltd. III ("MRI BPF, Ltd. III") which are California limited partnerships
affiliated through their managing general partners.
The Partnership is a 50 percent owner in a joint venture with Holiday Inn
Ravinia, Inc., a wholly-owned subsidiary of Holiday Inn Worldwide, Inc. This
joint venture owns a 495-room hotel operated as the Holiday Inn Crowne Plaza
Ravinia in Atlanta, Georgia. Losses of the joint venture are allocated to its
owners pursuant to the venture agreement based on ownership.
CONSOLIDATION
The consolidated financial statements include the Partnership and a joint
venture in which the Partnership has a 50 percent interest. The Joint Venture's
fiscal year ends on the Thursday prior to September 30 of each year. The year
ended September 29, 1994 contained 53 weeks. All significant intercompany
transactions and balances have been eliminated.
CASH AND CASH EQUIVALENTS
The Partnership considers all highly liquid investments with a maturity
of three months or less when purchased to be "cash equivalents".
INVENTORIES
Inventories consist of operating supplies (including linen, china and
glassware) and are recorded under the first-in, first-out method and are
generally stated at the lower of cost or market.
ORGANIZATION COSTS
Organization costs are deferred and amortized over five years using the
straight-line method.
DEFERRED FINANCING COSTS
Deferred financing costs are deferred and amortized over five years using
the straight-line method.
41
MRI BUSINESS PROPERTIES COMBINED FUND NO. 1
NOTES TO CONSOLIDATED FINANCIAL STATEMENT
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
PROPERTY AND IMPROVEMENTS AND DEPRECIATION
Property and improvements are stated at cost. A provision for impairment
of value was recorded for the property since the property's value had declined
based on management's expectations with respect to projected future operational
cash flows and prevailing economic conditions. In the absence of the above
circumstances, property and improvements are stated at cost. Acquisition fees
are capitalized as a cost of property and improvements.
Depreciation is computed by the straight-line method over estimated
useful lives of 27-40 years for building and improvements and 5-6 years for
furnishings.
INCOME TAXES
MRI Business Properties Combined Fund No. 1 is not subject to income taxes,
because it is a Partnership. Instead, each partner is taxed on its share of the
Partnership's taxable income, whether or not distributed, and is entitled to
deduct on its own income tax return its share of the Partnership net losses to
the extent of their tax basis in the partnership.
RECLASSIFICATION OF FINANCIAL STATEMENT PRESENTATION
Certain reclassifications have been made to the 1993 financial statements
to conform with the 1994 financial statement presentation. Such
reclassifications have had no effect on net loss as previously reported.
NOTE 2 - RESTRICTED CASH
Restricted cash represents monies maintained in an account in accordance
with the management agreement on the Holiday Inn Crowne Plaza Ravinia in order
to meet future capital requirements. Pursuant to the management agreement,
monthly funding is required by the property in the amount of 5 percent of
monthly Adjusted Gross Revenues.
NOTE 3 - ACCOUNTS RECEIVABLE
Accounts receivable consists of trade receivables due the hotel from
guests, corporations, associations and governments.
42
MRI BUSINESS PROPERTIES COMBINED FUND NO. 1
NOTES TO CONSOLIDATED FINANCIAL STATEMENT
NOTE 4 - PROPERTY AND IMPROVEMENTS
Hotel property and improvements at September 30, 1994 are summarized as
follows:
1994 1993
------------ ------------
Land $ 9,108,000 $ 9,108,000
Building and improvements 45,179,000 45,069,000
Furnishings 8,611,000 18,035,000
------------ ------------
62,898,000 72,212,000
Accumulated depreciation (16,335,000) (25,472,000)
Allowance for impairment
of value (see Note 5) (11,962,000) (11,962,000)
------------ ------------
Net property and improvements $ 34,601,000 $ 34,778,000
============ ============
Differences exist between financial statement and federal income tax
bases as a result of accelerated depreciation methods. The depreciable property
basis used for tax purposes as of September 30, 1994 and 1993 is $37,617,000 and
$36,398,000 along with accumulated depreciation of $7,546,000 and $5,004,000,
respectively. Depreciation expense for tax purposes as of September 30, 1994,
1993, and 1992 amounts to $3,617,000, $3,317,000, and $2,674,000, respectively.
NOTE 5 - PROVISION FOR IMPAIRMENT OF VALUE
The impairment of value (see Note 4) is a result of a reduction in the book
basis of the hotel in the amounts of $4,311,000 and $7,651,000 in 1992 and
1991, respectively. For these years, the joint venture determined that based
upon the continuing deterioration of the economic market in Atlanta, Georgia and
projected operational cash flows, the decline in value of the hotel was other
than temporary and that recovery of its carrying value was not likely.
NOTE 6 - DUE TO AFFILIATES
Of the $1,131,000 due to affiliates, $10,000 is due to an affiliate of the
Partnership while the remainder represents a non-interest bearing advance from
Holiday Inn Worldwide, Inc. issued in 1993. These advances are unsecured.
43
MRI BUSINESS PROPERTIES COMBINED FUND NO. 1
NOTES TO CONSOLIDATED FINANCIAL STATEMENT
NOTE 7 - NOTE PAYABLE
Property and improvements are pledged as collateral for the note payable of
$34,000,000 which bears interest at 9.375% per annum. The note requires monthly
payments of interest only with a balloon payment in July 1995 of all outstanding
principal and unpaid interest. The agreement also provides the joint venture
with an option for an extension of the maturity date until June 1999. The
interest rate applicable to the extended period is determined in accordance with
the loan agreement on the date the option is exercised. It is management's
intent to exercise this option.
NOTE 8 - CAPITAL CONTRIBUTIONS
In October 1993, the Partnership and Holiday Inn Ravinia, Inc.
contributed a total of $600,000 to fund the operations of the Holiday Inn Crowne
Plaza Ravinia. The Joint Venture expects to continue to receive funding from
its joint venture partners, if necessary.
RELATED PARTY TRANSACTIONS
The Partnership has an agreement with Holiday Inn Worldwide, Inc. to
provide for the management and operation of the joint venture property. Fees
paid or payable pursuant to these agreements are based on a percentage of gross
revenues from operations of the property. The percentages used for these fees,
per the related agreement, are 4% of Adjusted Gross Revenues and 10% of Gross
Operating Profit, as defined in the contract.
1994 1993 1992
----------- ----------- -----------
Adjusted Gross Revenues $19,375,000 $17,258,000 $16,325,000
Basic Management Fee 775,000 690,000 653,000
Gross Operating Profit $ 4,705,000 $ 3,242,000 $ 1,689,000
Incentive Management Fee 471,000 324,000 169,000
Pursuant to the management agreement, incentive management fees are
accrued at year-end, if unpaid. Accrued incentive management fees amounted to
$964,000 and $493,000 for the fiscal years ended 1994 and 1993, respectively and
are included in other liabilities.
44
MRI BUSINESS PROPERTIES COMBINED FUND NO. 1
NOTES TO CONSOLIDATED FINANCIAL STATEMENT
NOTE 8 - RELATED PARTY TRANSACTIONS (continued)
In addition, Holiday Inn Worldwide, Inc. provides certain services to the
Partnership at cost reimbursement. The services provided and the related
expenses to the Partnership were, exclusive of management fees, for the years
ended September 30:
1994 1993 1992
---------- -------- --------
Administrative services $ 149,000 $139,000 $ 71,000
Advertising services 360,000 274,000 274,000
Reservation services 121,000 100,000 91,000
Insurance (Property,
Liability, and Workmen's
Compensation) 498,000 474,000 483,000
---------- -------- --------
$1,128,000 $987,000 $919,000
========== ======== ========
In addition, Holiday Inn Worldwide, Inc. provides payroll and asset
acquisition services for the Partnership which are included in the basic
management fee. Amounts due to Holiday Inn Worldwide, Inc. for these services
as of September 30, 1994 and 1993 are $492,000 and $60,000, respectively,
45
MRI BUSINESS PROPERTIES COMBINED FUND NO.1
CONSOLIDATED STATEMENTS OF OPERATIONS INFORMATION
FOR THE YEARS ENDED SEPTEMBER 30,
SCHEDULE X
COLUMN A COLUMN B
- -------- ------------------------------------
Item 1994 1993 1992
- ---- ---------- ---------- ----------
1. Depreciation $1,614,000 $1,594,000 $2,390,000
2. Maintenance and repairs $983,000 $947,000 $1,025,000
3. Advertising $1,261,000 $1,284,000 $1,495,000
4. Property taxes $535,000 $421,000 $639,000
As to items omitted, amounts did not exceed one percent of total revenues.
46
MRI BUSINESS PROPERTIES COMBINED FUND NO. 1
REAL ESTATE AND ACCUMULATED DEPRECIATION
SEPTEMBER 30, 1994
SCHEDULE XI
COLUMN COLUMN COLUMN COLUMN COLUMN COLUMN COLUMN COLUMN
A B C D E F G H
Cost Capitalized Gross Amount at Which
Initial Cost Subsequent Carried at
to Partnership to Acquisition Close of Period (1)
----------------- ------------------- ---------------------------- Accumu-
Buildings Buildings lated Year Date
Encum- and and Deprecia- of of
brances Improve- Improve- Carrying Improve- tion Construc- Acqui-
Description (5) Land ments ments Costs (6) Land ments Total (2) (3)(4) tion sition
- ----------- ------- ------ --------- -------- --------- ------ --------- --------- --------- --------- -------
(Amounts in thousands)
JOINT VENTURE:
Holiday Inn
Crowne Plaza (5)
Atlanta, Georgia $34,000 $9,108 $47,321 $6,469 - $9,108 $53,790 $62,898 $28,297 1986 3/13/86
======= ====== ======= ====== ======= ====== ======= ======= =======
NOTES:
(1) The aggregate cost for Federal income tax purposes is $65,630,000.
(2) Balance, October 1, 1991 $ 68,797,000
Improvements capitalized subsequent to acquisition 1,043,000
------------
Balance, September 30, 1992 69,840,000
Improvements capitalized subsequent to acquisition 2,372,000
------------
Balance, September 30, 1993 72,212,000
Improvements capitalized subsequent to acquisition 1,437,000
Write off of fully depreciated assets (10,751,000)
------------
Balance, September 30, 1994 $ 62,898,000
============
(3) Balance, October 1, 1991 $ 29,139,000
Additions charged to expense 2,390,000
Allowance for impairment of value 4,311,000
------------
Balance, September 30, 1992 35,840,000
Additions charged to expense 1,594,000
------------
Balance, September 30, 1993 37,434,000
Additions charged to expense 1,614,000
Write off of fully depreciated assets (10,751,000)
------------
Balance, September 30, 1994 $ 28,297,000
============
(4) Depreciation is computed on lives ranging from five to forty years.
(5) Formerly Hyatt Regency Ravinia Hotel.
47
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure.
Effective April 22, 1994, Registrant dismissed its prior Independent
Auditors, Deloitte & Touche ("Deloitte") and retained as its new Independent
Auditors, Imowitz Koenig & Company. Deloitte's Independent Auditors' Report on
Registrant's financial statements for fiscal years ended September 30, 1993 and
1992 did not contain an adverse opinion or a disclaimer of opinion, and were not
qualified or modified as to uncertainty, audit scope or accounting principles.
The decision to change Independent Auditors was approved by the Managing General
Partner's Directors. During fiscal years ended 1992, 1993 and through April 22,
1994 there were no disagreements between Registrant and Deloitte on any matter
of accounting principles or practices, financial statement disclosure, or
auditing scope of procedure which disagreements if not resolved to the
satisfaction of Deloitte, would have caused it to make reference to the subject
matter of the disagreements in connection with its reports.
Effective April 22, 1994, Registrant engaged Imowitz Koenig & Company as
its Independent Auditors. During the last two fiscal years and through April
22, 1994, Registrant did not consult Imowitz Koenig & Company regarding any of
the matters or events set forth in Item 304(a)(2)(i) and (ii) of Regulation S-K.
PART III
Item 10. Directors and Executive Officers of the Registrant.
Neither the Registrant, Montgomery Realty Company-85 (MRC), the general
partner of Registrant, nor FRI, the general partner of MRC, has any officers or
directors. NPI Equity Investments II, Inc. (NPI Equity II), the Managing
General Partner of FRI, manages and controls substantially all of Registrants
affairs and has general responsibility and ultimate authority in all matters
affecting its business. NPI Equity is a wholly owned subsidiary of National
Property Investors, Inc. (NPI). NPI Equity II and its affiliates also control,
or act as, the managing general partner of 30 other public limited
partnerships. All of these partnerships are engaged in the acquisition, leasing
and disposition of real estate. As of December 1, 1994, the names, ages and
positions held by the officers and directors of NPI Equity II are as follows:
Has served as a Director
and/or Officer of NPI
Name and Age Positions Held Equity II
- ------------ ---------------------- ------------------------
Michael L. Ashner (42) President and Director 12/93
Martin Lifton (62) Chairman and Director 12/93
Arthur N. Queler (48) Secretary/Treasurer 12/93
and Director
G. Bruce Lifton (30) Vice President 12/93
Steven Lifton (33) Vice President and 12/93 (Director
Director 10/94)
W. Edward Scheetz (29) Director 10/94
Ricardo Koenigsberger (28) Director 10/94
Lee Neibart (44) Director 10/94
48
Item 10. Directors and Executive Officers of the Registrant. (continued)
Michael L. Ashner has been President and Director of NPI and a Director
of NPI Property Management Corporation (NPI Management) since their formation in
1984. As the President and a Director of NPI, Mr. Ashner has been involved with
the sponsoring of approximately 35 limited partnerships. Mr. Ashner is also the
President and Director of NPI Equity Investments, Inc. (NPI Equity) and NPI
Equity II, each a wholly owned subsidiary of NPI. NPI Equity and NPI Equity II
control, or are, the managing general partners of 31 public partnerships. In
addition, since 1981 Mr. Ashner has been President of Exeter Capital
Corporation, a firm which has organized and administered real estate limited
partnerships. Prior to forming NPI, in 1984, Mr. Ashner served as a general
partner of seven real estate limited partnerships that were formed by Exeter
Capital Corporation to own and operate income producing real estate, including
apartments, commercial office space and retail space. He received his A.B.
degree cum laude from Cornell University and received a J.D. degree magna cum
laude from the University of Miami School of Law, where he was an editor of the
law review.
Martin Lifton is the Chairman of NPI and a Director of NPI Equity, NPI
Equity II and NPI Management. In addition, Mr. Lifton is Chairman and President
of The Lifton Company, a real estate investment firm. Since entering the real
estate business over 35 years ago, Mr. Lifton has engaged in a wide range of
real estate activities, including the purchase of apartment complexes and other
properties in the New York City metropolitan area and in the southeastern United
States. Mr. Lifton's firm currently owns several apartment buildings in New
York City and Mr. Lifton is a partner in four industrial warehouse buildings in
California and an office building in Baltimore. In partnership with NPI, Mr.
Lifton has purchased interests in five apartment complexes since 1988. Mr.
Lifton was also one of the founders of The Bank of Great Neck located in Great
Neck, New York, of which he currently is Chairman. Mr. Lifton received his B.S.
degree from the New York University.
Arthur N. Queler is a co-founder of NPI of which he has been Executive Vice
President, Treasurer, Secretary and Director since 1984. Mr. Queler is also the
Vice President, Secretary, Treasurer and Director of NPI Management, NPI Equity
and NPI Equity II. In addition, since 1983, Mr. Queler has been President of
ANQ Securities, Inc., a NASD registered broker-dealer firm which has been
responsible for supervision of licensed brokers and coordination with a
nationwide broker-dealer network for the marketing of NPI investment programs.
Mr. Queler is a certified public accountant. He received his B.A. and M.B.A.
degrees from the City College of New York.
G. Bruce Lifton was appointed a Vice President of NPI in January 1991 and
has been a director since 1992. Mr. Lifton is also a director of NPI
Management. He is also a Vice President of The Lifton Company, in which
position he has served for over five years with responsibility for supervising
the rehabilitation of several large apartment complexes. As an officer of The
Lifton Company, Mr. Lifton has been involved in a wide range of matters,
including apartment management, refinancing and cooperative conversion. Mr.
Lifton holds an A.B. degree from Tulane University as well as a B.S.M. degree
from the Freeman School of Business. He is a son of Martin Lifton and the
brother of Steven Lifton.
Steven Lifton is a Vice President of NPI having been appointed to this
position in January 1991 and has been a director since 1992. In addition, he is
a Senior Vice President of The Lifton Company. With The Lifton Company he has
had extensive involvement in the budgeting, refinancing, rehabilitation and
overall operation of several thousand apartment units. Mr. Lifton has also
supervised the operation of other companies affiliated with The Lifton Company
which are engaged in the business of real estate brokerage, second mortgage
financing, land development and other real estate related activities. Mr.
Lifton received his B.B.A. degree from The George Washington University Business
School. He is a Director of The Bank of Great Neck. He is a son of Martin
Lifton and the brother of G. Bruce Lifton.
W. Edward Scheetz has been a Director of NPI and NPI Equity since October
1994. Since May 1993, Mr. Scheetz has been a limited partner of Apollo Real
Estate Advisors, L.P. (Apollo), the managing general partner of Apollo Real
Estate Investment Fund, L.P., a real estate investment company since January
1994, and as a Director of Capital Apartment Properties, Inc., a multi-family
residential real estate investment trust, since
49
Item 10. Directors and Executive Officers of the Registrant. (continued)
January 1994. From 1989 to May 1993, Mr. Scheetz was a principal of Trammel
Crow Ventures, a national real estate investment firm. Mr. Scheetz received an
A.B. in Economics, Magna Cum Laude, from Princeton University in 1986.
Ricardo Koenigsberger has been a Director of NPI and NPI Equity since
October 1994. Since October 1990, Mr. Koenigsberger has been an associate of
Apollo and of Lion Advisors, L.P., which acts as financial advisor to and
representative for certain institutional investors with respect to securities
investments. For more than one year prior thereto, Mr. Koenigsberger was an
associate with Drexel Burnham Lambert Incorporated.
Lee Neibart has been a Director of NPI and NPI Equity since October 1994.
Mr. Neibart has also been an associate of Apollo since December 1993. From 1986
to 1993, Mr. Neibart also served as Executive Vice President of the Robert
Martin Company, a private real estate development and management firm based in
Westchester County, New York, and from 1982 to 1985, Mr. Neibart served as
President of the New York Chapter of the National Association of Industrial
Office Parks, a professional real estate organization. Mr. Neibart holds a B.A.
from the University of Wisconsin and an M.B.A. from New York University.
Messrs. Ashner, Lifton and Queler currently are the beneficial owners of
66 2/3% of the outstanding stock of NPI.
Item 11. Executive Compensation.
Registrant is not required to and did not pay any compensation to the
officers or directors of NPI Equity II. NPI Equity II does not presently pay
any compensation to any of its officers or directors. (See Item 13, Certain
Relationships and Related Transactions)
Item 12. Security Ownership of Certain Beneficial Owners and Management.
Registrant is a limited partnership and has no officers or directors. The
Managing General Partner has discretionary control over most of the decisions
made by or for Registrant in accordance with the terms of the Partnership
Agreement.
The following table sets forth certain information regarding limited
partnership units of Registrant owned by each person who is known by Registrant
to own beneficially or exercise voting or dispositive control over more than 5%
of Registrants limited partnership units, by each of NPI Equity IIs directors
and by all directors and executive officers of NPI Equity II as a group as of
December 1, 1994.
50
Item 12. Security Ownership of Certain Beneficial Owners and Management.
(continued)
Name and address of Amount and nature of
Beneficial Owner Beneficial Owner % of Class
- ------------------- -------------------- ----------
DeForest Ventures I L.P. (1) 26,502 (2) 24.3
Michael Ashner (3) 76 (4) *
Martin Lifton (3) 76 (4) *
Arthur Queler (1) 76 (4) *
Steven Lifton (3) 76 (4) *
G. Bruce Lifton (1) 76 (4) *
Ricardo Koenigsberger (5) - -
Lee Neibart (5) - -
W. Edward Scheetz (5) - -
All directors and executive
officers as a group (eight persons) 76 (4) *
- ----------
* Less than 1%
(1) Each of such persons may be reached at 5665 Northside Drive, N.W., Atlanta,
Georgia 30328.
(2) Based upon information supplied to Registrant by DeForest Ventures I L.P.
on December 1, 1994.
(3) Each of such persons may be reached at 100 Jericho Quadrangle, Jericho,
New York 11753.
(4) Includes 76 units held by QAL Associates a general partnership in which,
among others, Messrs. Ashner, Martin Lifton, Queler, Steven Lifton and G.
Bruce Lifton are partners.
(5) Each of such persons may be reached at 1301 Avenue of the Americas, New
York, New York 10038.
In connection with the admittance of NPI Equity II as the managing
partner of FRI, and the assumption of operational control over FCMC, PRA
reserved the right to remove NPI from its position as managing partner of FRI
and to terminate its operational control over FCMC if certain events occur, such
as an event of bankruptcy or the failure to maintain an adequate net worth. In
such event, PRA may, but is not required to, assume the position of managing
partner of FRI.
In connection with a loan made by Kidder Peabody Mortgage Capital
Corporation to DeForest Ventures I L.P. (DeForest I) and DeForest Ventures II
L.P. (DeForest II) in connection with the consummation of a tender offer for
limited partnership units in 19 affiliated public limited partnerships, NPI
pledged, as collateral for the loan, all of the issued and outstanding capital
stock of NPI Equity II. Accordingly, if either DeForest I or DeForest II were
unable to satisfy their loan obligations and the lender was to foreclose on its
collateral, the lender would become the sole shareholder of NPI Equity II.
Item 13. Certain Relationships and Related Transactions.
The Partnership Agreement provides that the general partner will be
reimbursed for actual expenses incurred in providing services required by
Registrant. From March 1988 to December 1992 such amounts were assigned
pursuant to a services agreement by the general partner and affiliates to Metric
Realty Services, L.P. (MRS), which performed partnership management and other
services for Registrant. On January 1, 1993, Metric Management, Inc.,
predecessor to MRS, a company which is not affiliated with the general partner,
commenced providing certain property and portfolio management services to
Registrant under a new services agreement. As provided in the new services
agreement, effective January 1, 1993, no reimbursements were made to the general
partner and affiliates after December 31, 1992. Subsequent to December 31,
1992, reimbursements were made to Metric Management, Inc. On December 16, 1993,
the services agreement with Metric Management, Inc. was
51
Item 13. Certain Relationships and Related Transactions. (continued)
modified and, as a result thereof, Registrant's general partner assumed
responsibility for cash management of Registrant as of December 23, 1993 and for
day to day management of Registrants affairs, including portfolio management,
accounting, and investor relations services as of April 1, 1994. Related party
expenses for the years ended September 30, 1994, 1993 and 1992 were as follows:
1994 1993 1992
-------- ------- --------
Reimbursement of expenses:
Partnership accounting and investor services $102,000 $52,000 $218,000
Professional services 12,000 11,000 44,000
-------- ------- --------
Total $114,000 $63,000 $262,000
======== ======= ========
The general partner is entitled to receive an allocation of ten percent
determined on a cumulative, non compounded basis of cash available for
distribution (as defined in the Partnership Agreement) which is distributed to
Partners in an effort to defray some of the expenses related to non-reimbursed
expenses and services provided by the general partner and not reimbursed by
Registrant. No distribution was made in fiscal years ended September 30, 1994,
1993 and 1992.
The general partner is also entitled to its continuing interest of (i) two
percent of Net Income and Net Loss, Taxable Income and Taxable Loss and
Distribution of Cash Available for Distribution provided however that 20% of
realized gains from the sale or other disposition of properties is allocated to
the general partner until such time as it does not have a deficit capital
account, and (ii) two percent of Cash From Sales or Refinancing and Working
Capital Reserve which is subordinate to certain cash distributions to Limited
Partners as set forth in the Partnership Agreement. No distributions were made
in fiscal year ended September 30, 1994.
See "Item 1. Business." for information relating to the acquisition by NPI
Equity II of management and control of Registrant.
PART IV
Item 14. Exhibits, Financial Statements Schedules, and Reports on Form 8-K.
(a) 1., 2. and 3. See Item 8 of this Form 10-K for Consolidated Financial
Statements of Registrant, Notes thereto, and Financial Statement Schedules.
(A table of contents to Consolidated Financial Statements and Financial
Statement Schedules is included in Item 8 and incorporated herein by
reference.) Exhibits required by Item 601 of Regulation S-K are listed in
(c) below.
(b) The following report on Form 8-K was required to be filed during the last
quarter of the period covered by this Report:
Date of Item
Reportable Number
Month Filed Event Reported Description
----------- ---------- -------- ------------
August 8/10/94 5 Other Events
(c) List of Exhibits (numbered in accordance with Item 601 of Regulation S-K):
3. Partnership Agreement included in Prospectus filed pursuant to Rule
424(b) of the Securities Act of 1933 and incorporated herein by
reference.
(d) Financial Statement schedules, if required by Regulation S-K, are included
in Item 8.
52
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this Report to be signed on
its behalf by the undersigned, thereunto duly authorized.
REGISTRANT
MRI BUSINESS PROPERTIES FUND, LTD. III
By: Montgomery Realty Company-85,
its Managing General Partner
By: Fox Realty Investors,
the managing general partner of
the Managing General Partner
By: NPI Equity Investments II, Inc. ("NPI")
managing partner
By: /s/ Michael L. Ashner
Michael L. Ashner
President
Date: December 28, 1993
Pursuant to the requirements of the Securities Exchange Act of 1934, this
Report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the date indicated.
Signature/Name Title Date
- ----------------- -------------------------------- -----------------
Michael L. Ashner President and Director December 28, 1994
Michael L. Ashner (Principal Executive Officer)
Martin Lifton Chairman and Director December 28, 1994
Martin Lifton
Arthur N. Queler Secretary/Treasurer and Director December 28, 1994
Arthur N. Queler (Principal Financial Officer)
Steven J. Lifton Vice President and Director December 28, 1994
Steven J. Lifton
Date: December 28, 1993
53