As filed with the Securities and Exchange Commission on December 17, 1997
Registration No. 333-
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM S-3
REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OF 1933
------------------------
MID-AMERICA CAPITAL PARTNERS, L.P.
AND
MID-AMERICA FINANCE, INC.
(Exact name of registrants as specified in their charters)
62-1717980
DELAWARE applied for
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Nos.)
C/O CT CORPORATION TRUST COMPANY
1209 ORANGE STREET
WILMINGTON, DELAWARE 19801
(302) 777-0205
(Address, including zip code, and telephone number,
including area code of principal executive office)
C/O CT CORPORATION TRUST COMPANY
1209 ORANGE STREET
WILMINGTON, DELAWARE 19801
(302) 777-0205
(Name and address, including zip code, and telephone number,
including area code, of agent for service)
Copies to:
A. CURTIS GREER II, ESQ.
JOHN A. GOOD, ESQ. MALCOLM P. WATTMAN, ESQ.
BAKER, DONELSON, BEARMAN & CALDWELL CADWALADER, WICKERSHAM & TAFT
165 MADISON AVENUE, SUITE 2000 100 MAIDEN LANE
MEMPHIS, TENNESSEE 38103 NEW YORK, NEW YORK 10038
(901) 577-2148 TELEPHONE (212) 504-6000 TELEPHONE
(901) 577-2303 FACSIMILE (212) 504-6666 FACSIMILE
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: From time to
time after the effective date of this Registration Statement. If the only
securities being registered on this Form are being offered pursuant to
dividend or interest reinvestment plans, please check the following
box. [ ]
If any of the securities being registered on this Form are to be offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or interest
reinvestment plans, check the following box. []
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. []
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. []
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. []
CALCULATION OF REGISTRATION FEE
Amount Proposed Maximum Proposed Maximum Amount of
Title of Securities Being Offering Price Aggregate Registration
Being Registered Registered Per Unit Offering Price Fee
Commercial Mortgage Pass Through Certificates(1). $150,000,000 100%(2) $150,000,000 $44,250
% Bonds, Due 2003 ............................... (1) (2) (1) (1)
================================================= =============== ================= =================== ====================
(1) The Commercial Mortgage Pass Through Certificates will evidence, in the
aggregate, all of the beneficial ownership interests in Mid-America
Mortgage Trust, 1998-1, the only assets of which are the $ aggregate
principal amount of % Bonds, Due 2003 of Mid-America Capital Partners,
L.P.
(2) In no event will the maximum aggregate offering price of all securities
issued pursuant to this Registration Statement exceed $150,000,000.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THIS REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
SUBJECT TO COMPLETION, DATED DECEMBER 17, 1997
PROSPECTUS
$
MID-AMERICA FINANCE, INC.
AS DEPOSITOR
COMMERCIAL MORTGAGE PASS-THROUGH CERTIFICATES, SERIES 1998-1
REPRESENTING BENEFICIAL OWNERSHIP IN
Mid-America Capital Partners, L.P.
% BONDS, DUE 2003
MID-AMERICA MORTGAGE TRUST, 1998-1 (THE "TRUST"), A TRUST CREATED BY
MID-AMERICA FINANCE, INC. (THE "DEPOSITOR"), PURSUANT TO AN AGREEMENT OF TRUST
(THE "TRUST AGREEMENT") BETWEEN THE DEPOSITOR AND LASALLE NATIONAL BANK, AS
TRUSTEE (THE "TRUSTEE"), AT THE DIRECTION OF THE DEPOSITOR WILL ISSUE ITS
COMMERCIAL MORTGAGE PASS-THROUGH CERTIFICATES, SERIES 1998-1 (THE
"CERTIFICATES") IN AN AGGREGATE PRINCIPAL AMOUNT OF U.S. $ . IT IS A CONDITION
TO THE ISSUANCE OF THE CERTIFICATES THAT THEY BE ASSIGNED A RATING OF AT LEAST
"BAA2" BY MOODY'S INVESTORS SERVICE, INC. ("MOODY'S") AND A RATING OF AT LEAST
"BBB" BY STANDARD & POOR'S RATING SERVICES ("S&P").
THE CERTIFICATES WILL EVIDENCE, IN THE AGGREGATE, ALL OF THE BENEFICIAL
OWNERSHIP INTERESTS IN THE TRUST. THE ASSETS OF THE TRUST WILL CONSIST
EXCLUSIVELY OF THE % BONDS, DUE 2003 (THE "BONDS") OF MID-AMERICA CAPITAL
PARTNERS, L.P., A DELAWARE LIMITED PARTNERSHIP (THE "BORROWER"), IN THE
AGGREGATE PRINCIPAL AMOUNT OF U.S. $ . THE CERTIFICATES WILL BE PAYABLE SOLELY
FROM AMOUNTS RECEIVED BY THE TRUSTEE AS PAYMENTS ON THE BONDS. THE BONDS WILL BE
ISSUED PURSUANT TO AN AMENDED AND RESTATED INDENTURE DATED AS OF 1998 (THE
"INDENTURE") AMONG MID-AMERICA APARTMENTS, L.P., A TENNESSEE LIMITED PARTNERSHIP
("MAALP"), THE BORROWER AND LASALLE NATIONAL BANK, AS TRUSTEE (THE "INDENTURE
TRUSTEE"). MAALP IS THE SOLE LIMITED PARTNER OF THE BORROWER AND OWNS A 99%
INTEREST THEREIN.
DISTRIBUTIONS OF INTEREST ON THE BONDS WILL BE MADE ON THE FIRST BUSINESS DAY
OF EACH CALENDAR MONTH COMMENCING ______________ , 1998. THE BONDS ARE NOT
SUBJECT TO A SINKING FUND AND MAY NOT BE REDEEMED OR PREPAID PRIOR TO
_______________, 2003. UNTIL THE SECURITY RELEASE (DEFINED BELOW), THE BONDS
WILL BE SECURED BY FIRST PRIORITY MORTGAGE LIENS (THE "MORTGAGE LIENS") ON 26
APARTMENT COMMUNITIES (THE "MORTGAGED PROPERTIES") LOCATED IN NINE STATES AND
WILL BE THE FULL-RECOURSE OBLIGATIONS OF THE BORROWER; HOWEVER, NO PARTNER OR
AFFILIATE OF THE BORROWER WILL BE LIABLE FOR THE PAYMENT OF INTEREST ON OR
PRINCIPAL OF THE BONDS. THE INDENTURE PROVIDES THAT THE MORTGAGE LIENS WILL BE
SUBJECT TO RELEASE (THE "SECURITY RELEASE") IF AND WHEN EACH OF THE FOLLOWING
CONDITIONS, AMONG OTHERS, OCCURS:(I) THE UNSECURED DEBT OF MAALP, INCLUDING THE
BONDS, IS RATED AT LEAST "BAA3" AND "BBB-" BY MOODY'S AND S&P, RESPECTIVELY, AND
(II) MAALP IS A REPORTING COMPANY UNDER THE SECURITIES EXCHANGE ACT OF 1934, AS
AMENDED (THE "EXCHANGE ACT"), PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT ON
FORM 10 (OR ANY SUCCESSOR FORM). AT LEAST 60 DAYS PRIOR TO THE PERMITTED MERGER
AND SECURITY RELEASE, MAALP WILL DELIVER TO THE CERTIFICATE HOLDERS NOTICE OF
ITS INTENT TO CONSUMMATE THE PERMITTED MERGER AND SECURITY RELEASE, WHICH NOTICE
WILL BE ACCOMPANYED BY MAALP'S EFFECTIVE REGISTRATION STATEMENT ON FORM 10 (OR
ANY SUCCESSOR FORM), MAALP'S PERIODIC REPORTS UNDER THE EXCHANGE ACT, AND AN
INFORMATION STATEMENT IN RESPECT OF THE PERMITTED MERGER PREPARED IN ACCORDANCE
WITH THE EXCHANGE ACT. UPON THE SECURITY RELEASE, THE INDENTURE TRUSTEE WILL
RELEASE THE MORTGAGE LIENS, THE BORROWER WILL MERGE WITH AND INTO MAALP, WITH
MAALP AS THE SURVIVING LIMITED PARTNERSHIP OF THE MERGER (THE "PERMITTED
MERGER"), AND MAALP WILL ASSUME THE OBLIGATIONS UNDER THE BONDS. SIMULTANEOUSLY
WITH THE PERMITTED MERGER, THE TRUST WILL TERMINATE AND THE TRUSTEE WILL DELIVER
THE BONDS TO THE HOLDERS OF THE CERTIFICATES THROUGH THE BOOK-ENTRY FACILITIES
DESCRIBED HEREIN, AS A DISTRIBUTION IN FULL SATISFACTION OF THEIR BENEFICIAL
INTERESTS IN THE TRUST. AT SUCH TIME, THE BONDS WILL BE THE GENERAL UNSECURED
OBLIGATIONS OF MAALP RANKING IN PARITY WITH ALL OTHER UNSECURED DEBT OF MAALP,
AND PERSONS PREVIOUSLY HOLDING CERTIFICATES WILL THEREAFTER HAVE NO CLAIM
AGAINST THE MORTGAGED PROPERTIES OR ANY OTHER PROPERTY OF MAALP EXCEPT AS
GENERAL UNSECURED CREDITORS OF MAALP. MAALP IS THE PRIMARY OPERATING PARTNERSHIP
OF MID-AMERICA APARTMENT COMMUNITIES, INC. ("MAAC"), A REAL ESTATE INVESTMENT
TRUST WHOSE COMMON STOCK IS TRADED ON THE NEW YORK STOCK EXCHANGE. MAAC IS THE
SOLE GENERAL PARTNER OF MAALP AND OWNS AN AGGREGATE APPROXIMATELY 84.5%
PARTNERSHIP INTEREST THEREIN.
SEE "RISK FACTORS" BEGINNING ON PAGE 16 FOR CERTAIN FACTORS THAT SHOULD BE
CONSIDERED IN PURCHASING THE CERTIFICATES
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
----------
Certificate Principal Pass-Through Expected Rating Expected Final Scheduled Final
Amount Rate (Moody's/S&P) Distribution Date (1) Distribution Date (2)
$ % BAA2/BBB , 2003 , 2005
(1)THE "EXPECTED FINAL DISTRIBUTION DATE" WITH RESPECT TO THE CERTIFICATES IS
THE "STATED MATURITY DATE" OF THE BONDS AND IS BASED ON THE ASSUMPTIONS THAT
(I) ALL PAYMENTS OF INTEREST ON THE BONDS ARE TIMELY PAID; (II) THE BONDS ARE
NOT PREPAID AS A RESULT OF ACCELERATION; AND (III) THE PAYMENT OF THE ENTIRE
UNPAID PRINCIPAL OF THE BONDS IS MADE ON THE STATED MATURITY DATE. HOWEVER,
THE ACTUAL PAYMENTS ON THE BONDS MAY DIFFER FROM THESE ASSUMPTIONS.
(2)THE SCHEDULED FINAL DISTRIBUTION DATE IS THE DATE TWO AND ONE-HALF YEARS
AFTER THE EXPECTED FINAL DISTRIBUTION DATE.
------------
THE CERTIFICATES WILL BE PURCHASED BY MORGAN STANLEY & CO. INCORPORATED (THE
"UNDERWRITER") FROM THE DEPOSITOR AND WILL BE OFFERED BY THE UNDERWRITER FROM
TIME TO TIME TO THE PUBLIC IN NEGOTIATED TRANSACTIONS OR OTHERWISE AT VARYING
PRICES TO BE DETERMINED AT THE TIME OF SALE. PROCEEDS TO THE DEPOSITOR FROM THE
SALE OF THE CERTIFICATES WILL BE APPROXIMATELY % OF THE AGGREGATE PRINCIPAL
AMOUNT OF THE CERTIFICATES, PLUS ACCRUED INTEREST, IF ANY, FROM , 1998, BEFORE
DEDUCTING EXPENSES PAYABLE BY THE DEPOSITOR.
THE CERTIFICATES ARE OFFERED BY THE UNDERWRITER SUBJECT TO PRIOR SALE, WHEN,
AS AND IF ISSUED, DELIVERED TO AND ACCEPTED BY THE UNDERWRITER AND SUBJECT TO
THE APPROVAL OF CERTAIN LEGAL MATTERS BY CADWALADER, WICKERSHAM & TAFT, COUNSEL
TO THE UNDERWRITER. IT IS EXPECTED THAT DELIVERY OF THE CERTIFICATES WILL BE
MADE IN BOOK-ENTRY FORM THROUGH THE FACILITIES OF THE DEPOSITORY TRUST COMPANY
IN THE UNITED STATES AND CEDEL BANK, S.A. AND THE EUROCLEAR SYSTEM IN EUROPE ON
OR ABOUT ________, 1998 AGAINST PAYMENT THEREFOR IN IMMEDIATELY AVAILABLE FUNDS.
-----------
MORGAN STANLEY DEAN WITTER
, 1998
ONE CHART SHOWING THE ORGANIZATIONAL STRUCTURE OF THE BORROWER, DEPOSITOR,
TRUST, MAALP AND MAAC PRIOR TO THE PERMITTED MERGER, SECURITY RELEASE AND TRUST
TERMINATION. ONE CHART SHOWING THE ORGANIZATIONAL STRUCTURE OF MAAC AND MAALP
AFTER THE PERMITTED MERGER, SECURITY RELEASE AND TRUST TERMINATION. ONE MAP
SHOWING LOCATIONS OF THE MORTGAGED PROPERTIES.
[GRAPHICS OMITTED}
1
UNTIL , 1998, ALL DEALERS EFFECTING TRANSACTIONS IN THE CERTIFICATES,
WHETHER OR NOT PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A
PROSPECTUS. THIS DELIVERY REQUIREMENT IS IN ADDITION TO THE OBLIGATION OF
DEALERS TO DELIVER A PROSPECTUS WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO
THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS
THAT MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE CERTIFICATES, INCLUDING
SHORT-COVERING TRANSACTIONS IN SUCH CERTIFICATES, AND THE IMPOSITION OF A
PENALTY BID IN CONNECTION WITH THE OFFERING. FOR A DESCRIPTION OF THESE
ACTIVITIES, SEE "PLAN OF DISTRIBUTION."
There is currently no secondary market for the Certificates. The
Underwriter currently expects to make a secondary market in the Certificates,
but has no obligation to do so. There can be no assurance that such a market
will develop or, if it does develop, that it will continue. See "Plan of
Distribution" herein.
The distribution of this Prospectus dated , 1998, and the offer or sale of
Certificates may be restricted by law in certain jurisdictions. Persons into
whose possession this Prospectus or any Certificates come must inform themselves
about, and observe, any such restrictions. In particular, there are restrictions
on the distribution of this Prospectus and the offer or sale of Certificates in
the United Kingdom. See "Plan of Distribution."
No dealer, salesperson or other person has been authorized to give any
information or to make any representations other than those contained or
incorporated by reference in this Prospectus and, if given or made, such
information or representations must not be relied upon as having been authorized
by the Trust or the Borrower. This Prospectus does not constitute an offer to
sell, or a solicitation of an offer to buy, the Certificates, in any
jurisdiction where, or to any person to whom, it is unlawful to make any such
offer or solicitation. Neither the delivery of this Prospectus nor any offer or
sale made hereunder shall, under any circumstances, create an implication that
there has not been any change in the facts set forth in this Prospectus or in
the affairs of the Borrower since the date hereof.
2
TABLE OF CONTENTS
Page
----
Prospectus Summary ........................................................ 4
Risk Factors .............................................................. 16
Description of the Certificates ........................................... 22
Description of the Bonds .................................................. 25
Book-Entry Issuance, Clearance and Settlement ............................. 32
Description of the Mortgaged Properties ................................... 34
Description of the Mortgages .............................................. 40
The Borrower .............................................................. 42
The Depositor ............................................................. 43
Use of Proceeds ........................................................... 43
Selected Financial Information ............................................ 43
Management's Discussion and Analysis of Financial Condition
and Results of Operations ............................................... 46
Management of the Borrower ................................................ 50
Certain Information Regarding MAALP and MAAC .............................. 51
Certain Federal Income Tax Considerations ................................. 55
State, Local and Foreign Taxes ............................................ 61
ERISA Considerations ...................................................... 61
Legal Investment .......................................................... 62
Plan of Distribution ...................................................... 63
Legal Matters ............................................................. 63
Experts ................................................................... 63
Ratings of the Certificates ............................................... 64
Available Information ..................................................... 64
Incorporation by Reference ................................................ 65
3
PROSPECTUS SUMMARY
THE FOLLOWING SUMMARY IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE
MORE DETAILED INFORMATION APPEARING ELSEWHERE IN THIS PROSPECTUS OR INCORPORATED
HEREIN BY REFERENCE. SEE "RISK FACTORS" FOR A DESCRIPTION OF CERTAIN RISKS AND
OTHER SPECIAL CONSIDERATIONS RELEVANT TO AN INVESTMENT IN THE SECURITIES
DISCUSSED HEREIN. CAPITALIZED TERMS SHALL HAVE THE MEANINGS ASCRIBED THERETO IN
THIS PROSPECTUS SUMMARY.
TITLE OF CERTIFICATES.............. Mid-America Mortgage Trust, 1998-1
Commercial Mortgage Pass-Through
Certificates, Series 1998-1 (the
"Certificates").
DESCRIPTION OF CERTIFICATES........ The Certificates will be issued pursuant to
a trust agreement (the "Trust Agreement"),
dated as of , 1998, among Mid-America
Finance, Inc., as depositor (the
"Depositor"), and LaSalle National Bank, as
trustee (together with any successors
thereto, the "Trustee"). See "Description of
the Certificates."
The Certificates will evidence, in the
aggregate, all of the beneficial ownership
interests in the trust established by the
Depositor pursuant to the Trust Agreement
(the "Trust"). The only assets of the Trust
will be $ aggregate principal amount (the
"Principal Amount") of % Bonds, Due 2003
(the "Bonds") of Mid-America Capital
Partners, L.P. (the "Borrower"). See
"Description of Bonds." The Certificates
will be payable solely from the amounts
received by the Trustee as payments on the
Bonds.
DISTRIBUTIONS ON CERTIFICATES: On the first Business Day of each month
beginning , 1998 (each a "Distribution
Date"), funds available to the Trustee from
the interest payments made on the Bonds,
and, after an event of default under any
mortgage or other document evidencing the
Mortgage Liens (individually, a "Mortgage"
and collectively, the "Mortgages"), from
payments in respect of the Bonds or the
liquidation of any of the Mortgaged
Properties, will be distributed to the
holders of the Certificates.
EXPECTED FINAL DISTRIBUTION DATE: The Expected Final Distribution Date for the
Certificates is , 2003 assuming that (i) all
payments of interest under the Bonds are
timely paid; (ii) the Bonds are not prepaid
as a result of acceleration; and (iii) the
payment of the entire unpaid principal of
the Bonds is made on the Stated Maturity
Date.
SCHEDULED FINAL DISTRIBUTION DATE: The Scheduled Final Distribution Date for
the Certificates is , 2005, two and one-half
years after the Expected Final Distribution
Date. If the unpaid principal balance on the
Bonds is paid after the Expected Final
Distribution Date but prior to the Scheduled
Final Distribution Date, the Certificates
are required to be paid on the next Payment
Date. See "Description of Bonds--Payment on
the Bonds."
CERTIFICATE RECORD DATE: The record date for the Certificates with
respect to any Distribution Date will be
the close of business on the Business
4
Day preceding such Distribution Date (a
"Certificate Record Date").
TITLE OF BONDS.................... Mid-America Capital Partners, L.P. % Bonds,
Due 2003.
DESCRIPTION OF BONDS............... The Bonds will be issued pursuant to an
amended and restated indenture (the
"Indenture") dated as of , 1998 by and among
the Borrower, Mid-America Apartments, L.P.
("MAALP") and LaSalle National Bank, as
trustee (the "Indenture Trustee") and will
be limited to an aggregate amount of $ . See
"Description of the Bonds."
INTEREST RATE: The Bonds will bear interest at a fixed rate
of % per annum. Interest on the Bonds will
be computed on the basis of a 360- day year
consisting of twelve 30-day months.
TERM AND PREPAYMENT LOCKOUT: The Bonds are non-callable for a period of 5
years, and the entire unpaid principal
balance of the Bonds will be due and payable
on , 2003 (the "Stated Maturity Date").
There is no sinking fund for the Bonds and
the Bonds are not subject to redemption,
prepayment or principal amortization except
for acceleration upon the occurrence of any
event of default under the Indenture.
DEFEASANCE: The Indenture provides that the Borrower may
defease the Bonds at any time prior to the
Stated Maturity Date. See "Description of
the Bonds--Events of Default and Notice" and
"--Defeasance."
PAYMENT DATES: Interest on the Bonds is payable monthly in
arrears. Interest payments on the Bonds will
be due on the first Business Day of each
month (each a "Payment Date"), commencing ,
1998. A "Business Day" is any day other than
(i) a Saturday or Sunday or (ii) a day that
is either a legal holiday or a day on which
banking institutions in New York, New York,
the State of Illinois or the State of
Tennessee are authorized or obligated by
law, regulation or executive order to be
closed.
SECURITY: COLLATERAL PRIOR TO PERMITTED MERGER AND
SECURITY RELEASE. Until the Permitted Merger
and Security Release, the Bonds will be
secured by (i) first priority mortgage liens
(the "Mortgage Liens") on 26 apartment
communities located in 9 states, including
the Borrower's fee interest in each of the
parcels of real property on which such
apartment communities are situated
(collectively, the "Mortgaged Properties"
and, individually, a "Mortgaged Property") ,
(ii) liens and security interests in all
related assets, including buildings and
improvements thereon, (iii) an assignment of
rents and leases from the Mortgaged
Properties and (iv) the funds and
investments, if any, in all bank accounts of
the Borrower.
Prior to the Permitted Merger and Security
Release, the General Partner will have no
personal liability with respect to the
Bonds, and no Bondholder may claim recourse
against the General
5
Partner or any limited partner (including
MAALP) or officer, director, shareholder or
employee of the Borrower or the General
Partner for any deficiency or personal
judgment after a foreclosure on the
Mortgaged Properties. The Bonds are neither
obligations of nor guaranteed by the General
Partner, MAALP, Mid-America Apartment
Communities, Inc. ("MAAC"), the Depositor,
the Trustee, the Indenture Trustee, the
Underwriter or any of their affiliates, or
insured or guaranteed by any governmental
entity or instrumentality or by any other
person or entity.
NO COLLATERAL AFTER PERMITTED MERGER AND
SECURITY RELEASE. After the Permitted Merger
and Security Release, the Bonds will be the
general unsecured obligations of MAALP
ranking in parity with all other unsecured
indebtedness of MAALP, and persons
previously holding Certificates shall
thereafter have no claim against the
Mortgaged Properties, the rents and leases
derived from the Mortgaged Properties or any
other property of MAALP, except as general
unsecured creditors of MAALP. The Permitted
Merger and Security Release are subject to
certain conditions described below in
"Description of the Bonds --Permitted
Merger; Security Release and Trust
Termination."
ADDITIONAL INDEBTEDNESS: Prior to the Permitted Merger and Security
Release, the Borrower will not incur any
Debt except the Bonds and trade accounts
payable which are paid-in-full no more than
60 days after such trade accounts payable
are incurred.
From and after the Permitted Merger and
Security Release, MAALP (i) is prohibited
from incurring (a) indebtedness in excess of
60% of MAALP's Total Assets (as defined
below) or (b) secured indebtedness in excess
of 40% of MAALP's Total Assets; and (ii) is
required to maintain total unencumbered
assets of not less than 150% of the
aggregate principal amount of all
outstanding unsecured indebtedness. See
"Description of the Bonds -- Restrictive
Covenants."
DEFAULT RATE: Pursuant to the Indenture, if the Permitted
Merger and Security Release do not occur and
the Borrower has not paid the entire
Principal Amount of the Bonds and all other
amounts outstanding thereunder on or before
the Stated Maturity Date, the Borrower will
be required to pay accrued interest on the
unpaid portion of such Principal Amount
outstanding and any other amounts payable
under the Bonds from such date until paid at
a default rate of interest (the "Default
Rate") equal to the greater of (i) the
interest rate on the Bonds plus 2% per annum
or (ii) the 20 Year U.S. Treasury Rate plus
2.8% per annum (the "Default Interest").
Payments of Default Interest received by the
Trustee will be paid to the Certificate
holders.
RECORD DATE: The Record Date for the Bonds with respect
to any Payment Date will be the close of
business on the Business Day preceding such
Payment Date (the "Record Date").
6
PERMITTED MERGER; SECURITY RELEASE;
AND TRUST TERMINATION.............. The Indenture provides that the Mortgage
Liens securing the Bonds will be subject to
release ("Security Release") if and when
each of the following conditions, among
others, occurs: (i) the unsecured debt of
MAALP, including the Bonds, is rated at
least "Baa3" and "BBB-" by Moody's Investors
Service, Inc. ("Moody's") and Standard &
Poor's Rating Services, a division of The
McGraw-Hill Companies ("S&P"), respectively,
and (ii) MAALP is a reporting company under
the Securities Exchange Act of 1934, as
amended (the "Exchange Act"), pursuant to an
effective registration statement on Form 10
(or any successor form). Moody's and S&P are
referred to collectively herein as the
"Rating Agencies."
At least 60 days prior to the Permitted
Merger (as defined below) and Security
Release, MAALP will deliver to the
Certificate holders notice of its intent to
consummate the Permitted Merger and Security
Release, which notice will be accompanyed by
MAALP's effective registration statement on
Form 10 (or any successor form), MAALP's
annual report on Form 10-K (if any) for the
fiscal year immediately preceding the
Permitted Merger and Security Release and
MAALP's quarterly and current reports on
Forms 10-Q (if any) and 8-K (if any) for the
then-current fiscal year as filed under the
Exchange Act (collectively, the "MAALP
Exchange Act Reports"), and an information
statement in respect of the Permitted Merger
prepared in accordanced with the Exchange
Act (the "Information Statement"). Upon
proof of proper notice and delivery of the
MAALP Exchange Act Reports and the
Information Statement, the Indenture Trustee
will release the Mortgage Liens, the
Borrower will merge with and into MAALP,
with MAALP as the surviving limited
partnership of the merger (the "Permitted
Merger"), and MAALP will assume the
obligations under the Bonds.
Simultaneously with the Permitted Merger and
Security Release, the Trust will terminate
(a "Trust Termination"), and the Trustee
will deliver the Bonds to the holders of the
Certificates through the book-entry
facilities described herein, as a
distribution in full satisfaction of their
beneficial interests in the Trust, and the
Global Certificate evidencing the
Certificates will be canceled by the Trustee
and delivered to the Depositor, and will be
of no further force or effect. At such time,
the Bonds will be the general unsecured
obligations of MAALP ranking in parity with
all other unsecured indebtedness of MAALP,
and persons previously holding Certificates
shall thereafter have no claim against the
Mortgaged Properties, the rents and leases
derived from the Mortgaged Properties or any
other property of MAALP except as general
unsecured creditors of MAALP.
DENOMINATIONS...................... Bonds and Certificates will be issuable in
registered form, without interest coupons,
in minimum denominations of $100,000 and
integral multiples of $1,000 in excess
thereof.
CLEARANCE AND SETTLEMENT........... Holders of Certificates (and, after the
Permitted Merger and Security Release,
Bondholders) may hold their Certificates (or
Bonds) through The Depository Trust Company
("DTC") (for United States holders) and
Cedel Bank, S.A. ("CEDEL") and
7
The Euroclear System ("Euroclear") (for
European holders). Transfers within DTC,
CEDEL and Euroclear, as the case may be,
will be in accordance with the usual rules
and operating procedures of the relevant
system. Transfers between persons holding
directly or indirectly through DTC, CEDEL or
Euroclear will be effected in DTC through
the relevant depositories of CEDEL and
Euroclear. To facilitate the foregoing, a
single global certificate (the "Global
Certificate") and a single global bond (the
"Global Bond"), both in definitive, fully
registered form without interest coupons,
will be registered in the name of a nominee
of DTC and deposited with the Trustee (in
the case of the Global Certificate) and the
Indenture Trustee (in the case of the Global
Bond) as custodians for DTC. Owners of
beneficial interests in the Global
Certificate (and, after the Permitted Merger
and Security Release, the Global Bond) will
be entitled to physical delivery of
Certificates (or Bonds, after the Permitted
Merger and Security Release) only under the
limited circumstances described under
"Book-Entry Issuance, Clearance and
Settlement".
THE DEPOSITOR...................... Mid-America Finance, Inc., a special purpose
Delaware corporation. All of the shares of
the Depositor are owned by MAAC.
THE BORROWER....................... Mid-America Capital Partners, L.P., a
special purpose Delaware limited
partnership. MAALP owns a 99% limited
partnership interest in the Borrower. MAACP,
Inc., a special purpose Delaware corporation
(the "General Partner"), and a wholly- owned
subsidiary of MAAC, owns a 1% interest in
the Borrower and is the sole general partner
of the Borrower.
MAAC............................... Mid-America Apartment Communities Inc., a
Tennessee corporation that has elected to be
taxed as a real estate investment trust
("REIT") for federal income tax purposes.
MAAC owns an approximate 84.5% interest in
MAALP and is the sole general partner of
MAALP. MAAC's Common Stock, 9.5% Series A
Cumulative Preferred Stock, and 8 7/8%
Series B Cumulative Preferred Stock are
traded on the New York Stock Exchange under
the symbols "MAA," "MAA PrA," and "MAA PrB,"
respectively. MAAC is the owner of all of
the outstanding capital stock of both the
Depositor and the General Partner.
MAALP.............................. Mid-America Apartments, L.P., a Tennessee
limited partnership. MAALP is the primary
operating partnership of MAAC's umbrella
partnership REIT ("UPREIT") structure. MAALP
owns a 99% limited partnership interest in
the Borrower. Following the Permitted Merger
and Security Release, MAALP will be the sole
obligor on the Bonds.
INDENTURE TRUSTEE AND TRUSTEE...... LaSalle National Bank, a national banking
association. The Indenture Trustee will act
as trustee and paying agent for the benefit
of holders of the Bonds and is the mortgagee
of the Mortgages (or the beneficiary under
the deeds of trust, as
8
applicable), and the secured party, assignee
or beneficiary under other security and
related documents.
In addition, LaSalle National Bank will
serve as Trustee under the Trust Agreement
for the benefit of holders of the
Certificates.
ADVANCES........................... Pursuant to the Indenture, prior to the
Permitted Merger and Security Release the
Indenture Trustee will be obligated to make
an advance on any Payment Date in respect of
any scheduled payment of interest on the
Bonds (an "Interest Advance") to the extent
such payment has not been paid by the
Borrower, subject to certain limitations
more fully described herein. Interest
Advances are intended to maintain a regular
flow of scheduled payments and are not
intended to guarantee or ensure against
payment defaults on the Bonds.
Prior to the Permitted Merger and Security
Release, the Indenture Trustee will be
obligated to make an advance in respect of
any payment of taxes, insurance premiums or
other amounts required under the Mortgages
to be paid with respect to the Mortgaged
Properties (a "Property Advance") and an
advance in respect of any payment of the
fees of the Indenture Trustee, the Trustee
or any servicer appointed by the Indenture
Trustee (a "Fees Advance"), in each case to
the extent that the Indenture Trustee is
notified that these payments have not been
paid by the Borrower, subject to certain
limitations more fully described herein.
Interest Advances, Property Advances, and
Fees Advances are collectively referred to
herein as "Advances" and each as an
"Advance." The Indenture Trustee will be
obligated to make an Advance only if the
Indenture Trustee believes that the amount
to be advanced, together with all previous
Advances and interest thereon, will be
recoverable from subsequent payments or
collections in respect of the Mortgaged
Properties. Advances, together with interest
thereon at a rate per annum equal to the
prime rate of the Indenture Trustee in
effect on the date such Advance is made,
compounded monthly (the "Advance Rate"),
will be reimbursed to the Indenture Trustee
as described herein. The Indenture prohibits
the Permitted Merger and Security Release if
any Advances are outstanding.
After the Permitted Merger and Security
Release, the Indenture Trustee is not
obligated to make any Advances with respect
to the Bonds.
THE MORTGAGED PROPERTIES........... The Mortgaged Properties consist of 26
apartment communities containing 5,947
apartment units. The following table
reflects the metropolitan areas in which the
Mortgaged Properties are located, and the
number of apartment units in each such
Mortgaged Property at September 30, 1997.
The Mortgaged Properties located in DeSoto
County, Mississippi, a suburb of
9
Memphis, Tennessee, are considered by the
Borrower a part of the Memphis, Tennessee
metropolitan area.
MORTGAGED PROPERTY METROPOLITAN AREA NUMBER OF UNITS
- ------------------ ----------------- ---------------
Napa Valley Little Rock, Arkansas 240
Westside Creek I Little Rock, Arkansas 142
Tiffany Oaks Altamonte Springs, Florida 288
Marsh Oaks Atlantic Beach, Florida 120
Lakeside Jacksonville, Florida 416
Belmere Tampa, Florida 210
Hidden Lake II Atlanta, Georgia 160
High Ridge Athens, Georgia 160
Shenandoah Ridge Augusta, Georgia 272
Southland Station I Warner Robins, Georgia 160
Willow Creek Willow Creek, Georgia 285
Lakepointe Lexington, Kentucky 118
The Village Lexington, Kentucky 252
Crosswinds Jackson, Mississippi 360
Pear Orchard Jackson, Mississippi 389
Somerset Jackson, Mississippi 144
Hermitage at Beechtree Cary, North Carolina 194
Fairways at Royal Oak Cincinnati, Ohio 214
Howell Commons Greenville, South Carolina 348
Park Haywood Greenville, South Carolina 208
Park Place Spartanburg, South Carolina 184
Steeplechase Chattanooga, Tennessee 108
Williamsburg Village Jackson, Tennessee 148
Kirby Station Memphis, Tennessee 371
Savannah Creek Memphis, Tennessee 204
Sutton Place Memphis, Tennessee 252
-----
Total apartment units 5,947
UNAUDITED FINANCIAL INFORMATION.... The selected financial information for the
Borrower, the summary consolidated financial
and operating data for MAAC, and the other
property level information included in this
Prospectus are based on operating statements
and other available information that, in
certain instances, are unaudited and were
supplied by MAAC, MAALP or their affiliates.
In other instances such information included
in this Prospectus is based on operating
statements and information that was supplied
by previous owners of certain Mortgaged
Properties. The accuracy of such information
has not been verified.
TOTAL APPRAISED VALUE In connection with the issuance of the
Bonds, the Borrower has obtained an
appraisal of each Mortgaged Property (the
"Appraisals"). The Appraisals estimate the
value of the Mortgaged Properties to be
approximately $240 million, in the
aggregate. Neither the Borrower nor the
Depositor makes any warranty or
representation that the Mortgaged Properties
could be sold at the appraised values. See
"Description of the Mortgaged Properties --
Appraisal Reports."
INITIAL LOAN-TO-VALUE RATIO The initial loan-to-value ratio for the
Bonds is approximately % which represents a
fraction, expressed as a percentage, the
numerator of which is the $ million
Principal Amount of the Bonds, and the
denominator of which is $240 million, which
is the aggregate of the appraised values of
the Mortgaged Properties. The loan-to-value
ratio is not necessarily indicative
10
of the present or future ability of the
Mortgaged Properties to generate sufficient
cash flow to fund required payments on the
Bonds.
INITIAL DEBT SERVICE COVERAGE RATIO Based upon (i) the aggregate pro forma
"Adjusted Cash Flow" generated by the
Mortgaged Properties for the nine months
ended September 30, 1997 and (ii) the pro
forma scheduled payments due during such
period on the Bonds, assuming their issuance
at the beginning of such period, the initial
debt service coverage ratio with respect to
the Bonds is approximately 2.24x. See
"Selected Financial Information." For
purposes of the foregoing, the aggregate
"Adjusted Cash Flow" for the indicated
period equals approximately $16 million,
which is based on (i) all revenue derived
from the Mortgaged Properties for the
indicated period less (ii) all expenses
incurred or accrued in the operation of the
Mortgaged Properties for the indicated
periods, including a management fee equal to
4% of revenue and a $200 per apartment unit
capital expenditure reserve per annum.
MANAGEMENT OF THE MORTGAGED
PROPERTIES......................... Pursuant to a management agreement between
the Borrower and MAALP (the "Management
Agreement"), MAALP is required to operate
and manage the Mortgaged Properties on a
day-to-day basis. MAALP will be paid a fee
under the Management Agreement equal to 4%
of revenue derived from the Mortgaged
Properties.
ACCOUNTS........................... The Borrower has established, in the name of
First Union Bank (the "Account Bank") for
the benefit of the Indenture Trustee, as a
secured party, a segregated cash collateral
account (the "Operating Account") with the
Account Bank. In addition, the Borrower has
established (i) individual operating
accounts for the Mortgaged Properties (the
"Property Accounts") and (ii) in the name of
the Account Bank for the benefit of the
Indenture Trustee, as secured party, three
separate segregated cash collateral accounts
(the "Interest Escrow Account," the
"Mortgage Escrow Account" and the
"Replacement Reserve Account"), which may be
utilized during a Cash Management Period.
See "Description of the Bonds -- Priority of
Payments; Cash Management."
The Borrower has irrevocably instructed the
property manager at each Mortgaged Property
to deposit into the applicable Property
Account (i) all rents due under the Leases;
(ii) all additional amounts, if any, due and
payable under the Leases; and (iii) all
other revenue derived from the Mortgaged
Properties. All funds in each Property
Account are transferred to the Operating
Account on a daily basis.
Prior to a Cash Management Period, all money
from the Operating Account will be
transferred by automated clearing house
transfer to such accounts as the Borrower
may direct on a daily basis in accordance
with its standing instructions to the
11
Account Bank. During a Cash Management
Period which follows an event described in
clause (i) of the next succeeding paragraph,
funds in the Operating Account will be
transferred to such accounts as the Borrower
may direct on the Business Day following
each Account Funding Date (as defined
below). During a Cash Management Period
which follows an event described in clause
(ii) or (iii) below, no funds may be
transferred from the Operating Account
except at the direction of the Indenture
Trustee or its agent.
A "Cash Management Period" is a period
during which (i) the Borrower fails to
maintain a Pre-Permitted Merger Debt Service
Coverage Ratio (as defined below) of at
least 1.30 to 1 or (ii) an event of default
occurs and is continuing under the Bonds,
the Indenture or any Security Document or
(iii) any event has occurred and is
continuing which obligates or permits the
Indenture Trustee to make an Advance. The
term "Pre-Permitted Merger Debt Service
Coverage Ratio" means the ratio of (a) the
excess of all revenue derived from the
Mortgaged Properties for the four most
recent trailing quarters over all expenses
during such period assuming a management fee
of 4% of revenue and a $200 per apartment
unit capital expenditure reserve per annum
to (b) the amount of debt service on the
Bonds then outstanding (based on an assumed
annual debt service constant of 9.25% per
annum).
Pursuant to the Cash Collateral Account
Security, Pledge and Assignment Agreement
among the Borrower, the Indenture Trustee
and the Account Bank (the "Cash Collateral
Agreement"), during any Cash Management
Period, the Borrower has instructed the
Account Bank to withdraw from the Operating
Account, in the priority listed below and to
the extent such funds are available, by
10:00 a.m. New York on the Business Day
preceding each Payment Date (an "Account
Funding Date"), (i) funds in an amount equal
to one-twelfth of the annual amount of
interest on the Bonds outstanding at the
time less the amount of funds on deposit in
the Interest Escrow Account and deposit the
same into the Interest Escrow Account; (ii)
funds in an amount equal to the tax payments
and insurance premiums required to be paid
during the six months following such Account
Funding Date less funds on deposit in the
Mortgage Escrow Account and deposit the same
into the Mortgage Escrow Account; and (iii)
funds in an amount equal to one-half of the
annual amount required to be escrowed during
any Cash Management Period to fund
replacements pursuant to the Mortgages less
the amount on deposit in the Replacement
Reserve Account and deposit the same into
the Replacement Reserve Account.
PRIORITY OF PAYMENTS............... The Indenture provides that the Borrower
will deposit each monthly payment on the
Bonds with the Indenture Trustee by 10:00
a.m. New York time on each Payment Date for
disbursement to holders of the Bonds. The
Indenture also
12
provides that the Indenture Trustee will
apply all amounts so received and any other
amount received pursuant to the Indenture,
excluding fees of the Indenture Trustee
which are paid by the Borrower in a timely
manner, but including, without limitation,
amounts in the Operating Account and the
other Accounts and any payment in respect of
the liquidation of the Mortgaged Properties,
in the following order:
FIRST: to reimburse the Indenture Trustee
for any unreimbursed Advances, plus interest
thereon at the Advance Rate;
SECOND: to make payments, if any are
required, from the Accounts as provided in
the Cash Collateral Agreement;
THIRD: to make payments of interest on the
Bonds in accordance with their terms;
FOURTH: to make payments of principal on the
Bonds, to the extent any such payments are
due;
FIFTH: to make payments of Default Interest
on the Bonds, to the extent any such
payments are due; and
SIXTH: to pay any other amounts due and
owing under the Indenture.
FEDERAL INCOME TAX CONSIDERATIONS
THE CERTIFICATES The Trust will be treated as a grantor trust
and not as an association (or publicly
traded partnership) taxable as a corporation
or a taxable mortgage pool under the
Internal Revenue Code of 1986, as amended
(the "Code"). Under the grantor trust rules,
each Certificate holder will be treated for
federal income tax purposes as having
purchased an undivided interest in the
assets of the Trust to the extent of the
Certificate holder's proportionate interest
in the Trust. In general, the tax
consequences of an investment in the
Certificates will depend on the rules
applicable to the Bonds and, after
foreclosure, the Mortgaged Properties. The
Certificates will represent an undivided
proportionate interest in the Bonds. See
"Certain Federal Income Tax Considerations."
THE BONDS The Bonds will be taxable obligations under
the Code and interest paid or accrued
thereon, including original issue discount,
if any, will be taxable to non-exempt
Certificate holders. Payments on
Certificates held by foreign persons not
engaged in a U.S. trade or business
generally will be exempt from United States
withholding tax, subject to compliance with
applicable certification procedures. No
election will be made to treat the Borrower,
the Mortgaged Properties, or the arrangement
by which the Bonds are issued as a "real
estate mortgage investment conduit"
("REMIC") for federal income tax purposes.
Interest income (including original issue
discount and market
13
discount) will accrue on the Bonds as
described in "Certain Federal Income Tax
Considerations" herein.
ERISA CONSIDERATIONS............... Fiduciaries of employee benefit plans and
certain other retirement plans and
arrangements that are subject to the
Employee Retirement Income Security Act of
1974, as amended ("ERISA"), or corresponding
provisions of the Code, including individual
retirement accounts and annuities, Keogh
plans, and collective investment funds in
which such plans, accounts, annuities, or
arrangements are invested (any of the
foregoing, a "Plan"), persons acting on
behalf of a Plan, or persons using the
assets of a Plan ("Plan Investors") should
review carefully with their legal advisor
whether the purchase or holding of the
Certificates or, upon the Permitted Merger
and Security Release, the Bonds could give
rise to a transaction that is prohibited by
ERISA or the Code. See "ERISA
Considerations."
LEGAL INVESTMENT................... The appropriate characterization of the
Certificates under various legal investment
restrictions, and thus the ability of
investors subject to these restrictions to
purchase the Certificates, may be subject to
significant interpretive uncertainties. The
Certificates will not constitute
"mortgage-related securities" within the
meaning of the Secondary Mortgage Market
Enhancement Act of 1984, as amended
("SMMEA"). Accordingly, investors should
consult with their own legal advisors to
determine whether and to what extent the
Certificates constitute legal investments
for them. See "Legal Investment."
RATINGS OF CERTIFICATES............ It is a condition to the issuance of the
Certificates that they be rated no lower
than "Baa2" by Moody's and rated no lower
than "BBB" by S&P. A credit rating is not a
recommendation to buy, sell or hold
securities and may be subject to downgrade,
withdrawal or qualification at any time by
the assigning rating organization as a
result of changes in, or the unavailability
of, information. Neither Moody's nor S&P is
rating the likelihood of receipt or the
timing of receipt of Default Interest under
the Certificates.
The ratings assigned to the Certificates by
each of the Rating Agencies are based
primarily on its evaluation of the
income-producing ability of the Mortgaged
Properties (including, without limitation,
the ability of the Mortgaged Properties to
produce cash flow) and reflect only the
views of the Rating Agencies. Future events,
such as events affecting the Mortgaged
Properties or the Borrower, could have an
adverse impact on the rating of the
Certificates. Although it is the intent of
the Depositor to retain the Rating Agencies
to perform annual monitoring and to provide
the Rating Agencies with certain financial
and other information in connection
therewith, none of the Depositor, the
Indenture Trustee, the Trustee or the
Borrower is under any obligation to maintain
any particular rating, and the Rating
Agencies are under no obligation whatsoever
to continue to issue any rating. A
downgrade, withdrawal or qualification of a
rating
14
may have an adverse effect on the market
price of the Certificates but will not
constitute an Event of Default under and as
defined in the Mortgages, the Indenture or
the Trust Agreement.
The ratings of the Rating Agencies address
the likelihood of the timely receipt by the
holders of the Certificates of all payments
(other than Default Interest) to which such
holders are entitled, including payment of
all principal (and any other amounts due
under the Security Documents), in the case
of Moody's, by the Scheduled Final
Distribution Date, and, in the case of S&P,
by the Expected Final Distribution Date. The
ratings take into consideration the
characteristics of the Certificates and the
structural and legal aspects thereof. The
ratings do not, however, represent any
assessment of the likelihood or frequency of
principal prepayments on the Bonds or the
corresponding effect on the yield to
investors.
USE OF PROCEEDS.................... The proceeds from the offer and sale of the
Certificates will be utilized by the
Depositor to purchase the Bonds from the
Borrower. The net proceeds of this offering
will be used by the Borrower to repay
certain indebtedness of the Borrower to
Morgan Stanley Mortgage Capital Inc.
pursuant to the terms of a $140 million
promissory note (the "MSMC Loan"). The
proceeds from the MSMC Loan were used to
partially finance the acquisition of
Flournoy Development Company and certain
related limited partnerships and other
entities by MAAC and MAALP on November 25,
1997. See "Certain Information Regarding
MAALP and MAAC -- Overview" and "-- Present
and Anticipated Operating Structure of the
Company." Finally, any remaining net
proceeds of this offering will be
distributed to the partners of the Borrower
and used by such partners for general
corporate purposes, including acquisitions.
15
RISK FACTORS
AN INVESTMENT IN THE CERTIFICATES, AND AFTER THE PERMITTED MERGER AND
SECURITY RELEASE, THE BONDS, INVOLVES VARIOUS RISKS, INCLUDING THOSE DESCRIBED
BELOW. INVESTORS SHOULD CAREFULLY CONSIDER THESE RISK FACTORS TOGETHER WITH ALL
OF THE INFORMATION SET FORTH IN THIS PROSPECTUS IN DETERMINING WHETHER TO
PURCHASE THE CERTIFICATES. INFORMATION CONTAINED IN THIS PROSPECTUS MAY CONTAIN
FORWARD-LOOKING STATEMENTS, WHICH STATEMENTS CAN BE IDENTIFIED BY THE USE OF
FORWARD-LOOKING TERMINOLOGY SUCH AS "MAY," "WILL," "EXPECT," "ANTICIPATE,"
"ESTIMATE," OR "CONTINUE" OR THE NEGATIVE THEREOF OR OTHER COMPARABLE
TERMINOLOGY. THE FOLLOWING MATTERS AND CERTAIN OTHER FACTORS NOTED THROUGHOUT
THIS PROSPECTUS AND THE EXHIBITS HERETO CONSTITUTE CAUTIONARY STATEMENTS
IDENTIFYING IMPORTANT FACTORS WITH RESPECT TO ANY SUCH FORWARD-LOOKING
STATEMENTS, INCLUDING CERTAIN RISKS AND UNCERTAINTIES, THAT COULD CAUSE RESULTS
FROM OPERATIONS OF THE MORTGAGED PROPERTIES TO DIFFER MATERIALLY FROM THOSE
CONTAINED IN ANY SUCH FORWARD-LOOKING STATEMENTS.
NON-DIVERSIFIED COLLATERAL
Payments of interest and principal on the Bonds and, consequently, the
Certificates, before the Permitted Merger and Security Release are dependent
upon the financial performance of the Mortgaged Properties and at all times are
subject to risks inherent in a single industry. Adverse developments in the
apartment industry in general or, before the Permitted Merger and Security
Release, in the financial performance of the Mortgaged Properties, are more
likely to have a material adverse effect on payments with respect to the
Certificates than if the collateral for the Bonds consisted of diversified
assets comprised of several property types.
SOURCES OF PAYMENTS ON THE CERTIFICATES
The Certificates, when issued, will represent all of the beneficial
ownership interests in the Trust, the sole asset of which is the Bonds. None of
the Depositor, the Indenture Trustee, the Trustee, MAALP or MAAC will be
obligated to make any payments on the Certificates. Payments on the Certificates
will be derived solely from payments made by the Borrower on the Bonds. Until
the Permitted Merger and Security Release, the Bonds will represent a
full-recourse obligation of the Borrower (but not the General Partner or MAALP)
secured by the Mortgaged Properties. There can be no assurance that, prior to
the Permitted Merger and Security Release, the proceeds from and value of the
Mortgaged Properties will be sufficient to pay the principal of and interest on
the Bonds. After the Permitted Merger and Security Release, the Bonds will be
the general unsecured obligations of MAALP ranking in parity with all other
unsecured indebtedness of MAALP, and persons previously holding Certificates
shall thereafter have no claim against the Mortgaged Properties, the rents and
leases derived from the Mortgaged Properties, or any other property of MAALP,
except to the extent all general unsecured creditors of MAALP have such claims.
SOURCES OF PAYMENTS ON THE BONDS; LIMITED OBLIGATIONS
PRIOR TO THE PERMITTED MERGER AND SECURITY RELEASE. Prior to the Permitted
Merger and Security Release, neither the General Partner nor MAALP will have any
liability with respect to the Bonds, and no Bondholder may claim recourse
against the General Partner, MAALP or any limited partner or officer, director,
shareholder or employee of the Borrower, MAALP or the General Partner for any
deficiency or personal judgment after a foreclosure on any Mortgaged Property.
Payments on the Bonds are expected to be derived from payments of rent made by
residents under the Leases. There is and can be no assurance that the net cash
flow from the Mortgaged Properties will be sufficient to pay principal and
interest due on the Bonds. In addition, the liquidation value of the Mortgaged
Properties may be adversely affected by risks generally incident to interests in
real property, as described below under "-- Risks Relating to Real Estate
Investments -- General Risks." The Borrower is a limited partnership organized
for the sole purpose of owning, operating and financing the Mortgaged
Properties. The Borrower will have no assets other than the Mortgaged
Properties, certain contract rights related to, and the revenue derived from the
operation of, the Mortgaged Properties. The Bonds are neither insured nor
guaranteed by the Borrower, the General Partner, the Depositor, MAALP, MAAC, the
Trustee, the Indenture Trustee or the Underwriter or any of their respective
affiliates and are not insured or guaranteed by any governmental entity or
instrumentality or by any other person or entity.
16
SUBSEQUENT TO PERMITTED MERGER AND SECURITY RELEASE. Upon the Permitted
Merger and Security Release, the Trust will terminate and the Trustee will cause
the Bonds to be delivered to the holders of Certificates through the book-entry
facilities described herein as a distribution in full satisfaction of their
beneficial interests in the Trust. See "Book-Entry, Clearance and Settlement."
At such time, the Bonds will be the general unsecured obligations of MAALP
ranking in parity with all other unsecured debt of MAALP, and persons previously
holding Certificates shall thereafter have no claim against the Mortgaged
Properties, the leases and rents derived from the Mortgaged Properties, or any
other property of MAALP except to the extent all general unsecured creditors of
MAALP have such claims. The Indenture provides that, after the Permitted Merger
and Security Release, MAALP will be subject to the following financial
covenants:
Total Debt: Not to exceed 60% of total assets (based on
undepreciated book value)
Secured Debt: Not to exceed 40% of total assets
Unencumbered Assets: Not less than 150% of unsecured debt
See "Description of the Bonds -- Restrictive Covenants -- Limitation on Debt
From and After Permitted Merger and Security Release," "-- Limitation on Secured
Debt From and After Permitted Merger and Security Release" and "--Minimum
Unencumbered Assets From and After Permitted Merger and Security Release." The
Rating Agencies may determine that additional covenants or conditions are
required in order to issue the ratings required as conditions to the Permitted
Merger and Security Release. The Indenture provides that if such additional
covenants are requested by the Rating Agencies, MAALP will agree to such other
covenants or conditions. There can be no assurance that MAALP will be able to
meet all of the financial covenants and other covenants and conditions set forth
in the Indenture or required by the Rating Agencies after a Permitted Merger and
Security Release.
INABILITY OF CERTIFICATE HOLDERS TO VOTE ON PERMITTED MERGER AND SECURITY
RELEASE
Holders of the Certificates have no voting or other rights with respect to
matters affecting the Borrower, the Depositor or MAALP. Therefore, Certificate
holders will have no right to approve or disapprove the Permitted Merger and
Security Release, which will occur upon satisfaction of all conditions described
herein or set forth in the Indenture.
REAL ESTATE INVESTMENT RISKS
GENERAL RISKS. Prior to the Permitted Merger and Security Release, the
Borrower's ability to make payments due on the Bonds and the Trust's ability to
make distributions on the Certificates depend primarily on the Borrower's
ability to generate sufficient cash flow from the Mortgaged Properties, which
will be subject to the risks generally associated with real estate investments,
many of which are beyond the control of the Borrower. These risks include an
oversupply of apartments, a reduction in demand for apartments in the Borrower's
markets, the cost of regulation, changes in tax or housing laws, increasing
interest rate levels, the unavailability of financing, adverse changes in
national economic conditions, adverse changes in local market conditions due to
changes in general or local economic conditions and neighborhood
characteristics, competition in local markets, declines in real estate values,
variations in supply and demand in the market for apartments, declines in
occupancy rates, civil unrest, acts of God, including earthquakes and other
natural disasters (which may result in uninsured losses), acts of war, and
adverse changes in zoning laws. Due to these and other factors, the performance
of real estate historically has been cyclical. There can be no assurance that
the markets in which the Mortgaged Properties are located will be strong at the
Stated Maturity Date of the Bonds. Such factors, including general economic
conditions adversely affecting the availability of mortgage financing, may make
it impossible to sell or refinance the Mortgaged Properties when desired or upon
favorable terms. Also, if any major repair or improvement is required at the
Mortgaged Properties, there can be no assurance that the Borrower will be able
to obtain funds to make such repair or improvement. As with all real estate, if
reconstruction (for example, following fire or other casualty) or any major
repair or improvement is required at the Mortgaged Properties, changes in
governmental controls may be applicable and may materially affect the cost to,
or ability of, the Borrower to effect such reconstruction, major repair or
improvement. After the Permitted Merger and Security Release, MAALP's ability to
make payments on the Bonds will be dependent on MAALP's ability to generate cash
flow from operations, which ability may be adversely affected by the factors
described above.
17
GEOGRAPHIC CONCENTRATION. Several Mortgaged Properties are located in
common geographic regions, with two Mortgaged Properties located in each of the
Little Rock, Arkansas, Lexington, Kentucky, and Greenville, South Carolina
metropolitan areas and three Mortgaged Properties located in each of the
Jackson, Mississippi and Memphis, Tennessee metropolitan areas. Economic
downturns, changes in local law or regulation, and similar localized events
could affect the performance of all the Mortgaged Properties that are located in
a common region.
OPERATING RISKS. The Mortgaged Properties are subject to all operating
risks common to apartment communities in general. Such risks include: (i)
competition from other apartment communities and alternative housing; (ii) new
construction of comparable properties or adverse economic conditions in the
areas in which the Mortgaged Properties are located, either of which might
adversely affect apartment occupancy or rental rates; (iii) increases in
operating costs (including real estate taxes) due to inflation and other
factors, which increases may not necessarily be offset by increased rents; (iv)
inability or unwillingness of residents to pay rent increases; and (v) future
enactment of rent control laws or other laws regulating multifamily housing,
including present and possible future laws relating to access by disabled
persons. The local rental market may limit the extent to which rents may be
increased in response to operating expense increases without decreasing
occupancy rates. The Borrower anticipates increased operating expenses in the
third calendar quarter of each year due to planned increases in apartment unit
turnover during such quarter. The ability of the Borrower, and, after the
Permitted Merger and Security Release, MAALP, to make required payments on the
Bonds and, therefore, the ability of the Trustee to make distributions on the
Certificates, could be adversely affected by any of the above-described events.
POSSIBLE LIABILITY RELATING TO ENVIRONMENTAL MATTERS. Under various
federal, state and local laws, ordinances and regulations, an owner or operator
of real property may become liable for the costs of removal or remediation of
certain hazardous substances released on or in its property. Such laws often
impose such liability without regard to whether the owner or operator knew of,
or was responsible for, the release of such hazardous substances. The presence
of such substances, or the failure to properly remediate such substances, when
released, may adversely affect occupancy of the Mortgaged Property affected and
the owner's ability to sell such real estate or to borrow using such real estate
as collateral. In addition to investigation and clean-up actions brought by
federal, state and local agencies, the presence of hazardous wastes on a
property could result in personal injury or similar claims by private
plaintiffs. The Borrower has not been notified by any governmental authority of
any noncompliance, liability or other claim in connection with any of its
Mortgaged Properties or developments, nor is the Borrower aware of any other
material environmental condition with respect to any of the Mortgaged
Properties.
Each of the Mortgaged Properties has been subjected to a Phase I
environmental site assessment ("ESA") (which does not involve invasive
procedures, such as soil sampling or ground water analysis) by independent
environmental consultants. The ESAs have not revealed any significant
environmental liability that would have a material adverse effect on the
Borrower's ability to make required payments on the Bonds. In every instance,
the Phase I ESA included a record search for leaking underground storage tank
sites and sites included on certain environmental databases. In two instances,
the database searches revealed information that led the ESA to recommend a Phase
II ESA (which involves invasive sampling procedures) to determine whether any
contaminants affected the Mortgaged Property. One of these Mortgaged Properties
is within one quarter mile of a hazardous waste site, with relatively flat
topography between that site and the Mortgaged Property. The second of these
Mortgaged Properties is adjacent to a leaking underground storage tank site and
the ESA anticipates that the adjacent contamination will affect the Mortgaged
Property. The Borrower has not performed Phase II ESAs because it believes that,
notwithstanding the results of a Phase II ESA, there will be no material adverse
effect on the Mortgaged Properties taken as a whole as a result of environmental
contamination. In the event that environmental contamination has affected or
will affect the Mortgaged Properties, the Borrower believes that other parties
would be held primarily responsible for any response required and that any
environmental costs or liabilities would not be material. There can be no
assurance that the Borrower is correct in concluding either that other parties
would bear or be able to bear primary responsibility, or that the environmental
costs or liabilities would not be material or would not have a material adverse
effect on the Borrower's ability to make required payments on the Bonds.
Certain environmental and common law principles govern the responsibility
for the removal, encapsulation or disturbance of asbestos containing materials
("ACMs") such as ceiling and floor tiles, when these ACMs are in poor condition
or when a property with ACMs is undergoing renovation or demolition. Such laws
could also be used to
18
impose liability upon owners and operators of real property for the release of
ACMs into the air that cause personal injury or other damage or exceed
permissible levels. At all Mortgaged Properties where ACM has been identified,
the ACM is being managed in place pursuant to ACM Operation and Maintenance
plans. The Borrower believes that ACM at all of the Mortgaged Properties can be
managed or removed adequately and without significant expense. However, there
can be no assurance that the Borrower will not be required to remediate ACM in
the future at significant expense, which could have a material adverse effect on
the Borrower's ability to make required payments on the Bonds.
Beyond statute-based environmental liability, there can be common law
causes of action (for example, actions based on nuisance or on toxic tort
resulting in death, personal injury or damage to property) relating to hazardous
environmental conditions on a property. Unanticipated or uninsured liabilities
of the Borrower may jeopardize the Borrower's ability to make required payments
on the Bonds.
No assurances can be given that all potential environmental liabilities
have been identified or properly quantified or that no prior owner, operator, or
past or current resident has created an environmental condition not known to the
Borrower. Moreover, no assurances can be given that (i) future laws, ordinances
, or regulations will not impose any material environmental liability or (ii)
the current environmental condition of the Mortgaged Properties will not be
affected by the condition of land or operations in the vicinity of the Mortgaged
Properties (such as the presence of underground storage tanks), or by third
parties unrelated to the Borrower. Federal, state and local environmental
regulatory requirements change often. It is possible that compliance with a new
regulatory requirement could impose significant compliance costs on the
Borrower. Such costs may jeopardize the Borrower's ability to make required
payments on the Bonds.
The Indenture provides that the Indenture Trustee will not commence
foreclosure on any of the Mortgaged Properties unless a Phase I ESA (and if
appropriate, a Phase II ESA) is conducted at the expense of the Borrower, and no
material environmental liabilities or potential liabilities are detected
thereby. The procedures required by the Indenture may delay or adversely affect
the Indenture Trustee's ability to foreclose on the Mortgaged Properties.
Moreover, any such ESA may not reveal all potential environmental liabilities to
which such Mortgaged Property may be subject. There can be no assurance that the
requirements of the Indenture, even if fully observed, will in fact insulate the
assets of the Trust from liability for environmental conditions.
COMPLIANCE WITH OTHER LAWS. The Mortgaged Properties must comply with
Title III of the Americans with Disabilities Act (the "ADA") to the extent that
the Mortgaged Properties are "public accommodations" and/or "commercial
facilities" as defined by the ADA. Compliance with the ADA requirements could
require removal of structural barriers to handicapped access in certain public
areas of the Mortgaged Properties, where such removal is readily achievable. The
ADA does not, however, consider residential properties such as apartment
communities to be public accommodations or commercial facilities, except to the
extent portions of such facilities, such as a leasing office, are open to the
public. The Borrower believes that the Mortgaged Properties comply with all
present requirements under the ADA and applicable state laws. Noncompliance with
the ADA could result in imposition of fines or an award of damages to private
litigants.
The Fair Housing Amendments Act of 1988 (the "FHA") requires apartment
communities first occupied after March 13, 1990 to be accessible to the
handicapped. Noncompliance with the FHA could result in the imposition of fines
or an award of damages to private litigants. The Borrower believes that the
Mortgaged Properties that are subject to the FHA are in compliance with such
law.
MANAGEMENT; POTENTIAL CONFLICTS OF INTEREST
The net income realized from operations of the Mortgaged Properties may be
affected by management decisions. The day-to-day management of the Mortgaged
Properties is currently performed by MAALP pursuant to the terms of the
Management Agreement. Because MAALP, MAAC and their affiliates own or operate
apartment communities other than the Mortgaged Properties, potential conflicts
of interest exist. In particular, MAALP, MAAC and their affiliates own and
operate, and in the future may own and operate, apartment communities that
compete directly or indirectly with
19
the Mortgaged Properties. While MAALP and its affiliates are experienced in
managing apartment communities, there can be no assurance that MAALP will be
able to manage the Mortgaged Properties successfully.
APPRAISALS
The Appraisals valued the Mortgaged Properties at $240 million. See "The
Mortgaged Properties -- Appraisal Reports." To the knowledge of the Borrower,
the assumptions on which the Appraisals are based provide, as of the date of
preparation thereof, a reasonable basis for the Appraisals. However, such
assumptions concern the occurrence of a complex series of future events,
including those concerning leasing, occupancy, rental rates, capitalization
rates and expenses of operating the Mortgaged Properties (including, without
limitation, capital expenses) and the tax treatment of various items, all of
which assumptions are subject to various risks and contingencies, including
those set forth herein and many of which are not within the control of the
Borrower. Some of the assumptions inevitably will prove inaccurate, and
unanticipated events and circumstances will occur subsequent to the date of the
Appraisals. Therefore actual results achieved will vary from the Appraisals and
the variations may be material. Appraisals are only estimates of value and
should not be relied upon as measures of realizable value. No assurance is or
can be given as to actual cash flow of the Mortgaged Properties or the actual
value of the Mortgaged Properties during the term of the Bonds or the life of
the Certificates.
NO PRINCIPAL AMORTIZATION
There will be no scheduled principal amortization of the Bonds prior to
the Stated Maturity Date. The entire principal amount of the Bonds is scheduled
to be paid on the Stated Maturity Date. The Borrower's (or, after the Permitted
Merger and Security Release, MAALP's) ability to pay the Bonds on the Stated
Maturity Date will be subject to its ability to refinance the Bonds or sell the
Mortgaged Properties (or, in MAALP's case, after the Permitted Merger and
Security Release, to sell other assets, generally) at that time. If the Borrower
(or, after the Permitted Merger and Security Release, MAALP) is unable to
refinance the Bonds or sell the Mortgaged Properties or other assets, as the
case may be, or the proceeds from any such sale or refinancing are insufficient
to pay the Bonds in full in a timely manner, the holders of the Certificates or,
after the Permitted Merger and Security Release, holders of the Bonds may not
receive full repayment of the principal amount of the Certificate or Bonds, as
the case may be, on the Expected Final Distribution Date or Stated Maturity
Date, as the case may be.
UNINSURED LOSS; SUFFICIENCY OF INSURANCE
The Borrower, through blanket policies, carries comprehensive general
public liability insurance, fire and extended coverage insurance, business
interruption insurance, worker's compensation insurance, employer's liability
insurance and other insurance (the "Required Insurance Policies") required under
the Indenture, Mortgages and other security documents (collectively, the
"Security Documents") with respect to the Mortgaged Properties with policy
specifications and insured limits customarily carried for similar properties.
There are, however, certain types of losses, generally of a catastrophic nature
(such as from floods, earthquakes and wars), that may be uninsurable and there
is therefore a risk of uninsured or underinsured losses. Should an uninsured or
underinsured loss occur, the Borrower could lose both its capital invested in,
and anticipated profits from, one or more Mortgaged Properties, and the
Borrower's ability to make required interest and principal payments on the Bonds
could be adversely affected. There is a possibility of casualty losses with
respect to the Mortgaged Properties for which insurance proceeds may not be
adequate. Consequently, there can be no assurance that any loss incurred will
not exceed the limits of policies obtained. In addition, inflation, changes in
building codes and ordinances, environmental considerations, and other factors
may make it unfeasible to use insurance proceeds to replace a Mortgaged Property
after such property has been damaged or destroyed.
RATINGS OF THE CERTIFICATES
It is a condition to the issuance of the Certificates that they be
assigned a rating no lower than "Baa2" by Moody's and a rating no lower than
"BBB" by S&P. A credit rating is not a recommendation to buy, sell or hold
securities and may be subject to downgrade, withdrawal or qualifications at any
time by the assigning rating organization
20
as a result of changes in, or the unavailability of, information. Neither
Moody's nor S&P is rating the likelihood of receipt or the timing of receipt by
the holders of the Certificates of Default Interest payable in connection with a
default under the Bonds in excess of the regular interest. Moody's has rated the
Certificates through the Scheduled Final Distribution Date. S&P has rated the
Certificates through the Expected Final Distribution Date.
The ratings assigned to the Certificates by the Rating Agencies are based
solely on the anticipated performance of the Mortgaged Properties. Future events
could have an adverse impact on the ratings of the Certificates. There is no
assurance that any such rating will continue for any period of time or that it
will not be reviewed, revised, suspended or withdrawn entirely as a result of
changes in or unavailability of information by either Rating Agency if, in its
judgment, circumstances so warrant. The ratings do not represent an assessment
of the likelihood or frequency of principal prepayments on the Bonds or the
corresponding effect on the yield to investors. There is no obligation on behalf
of the Depositor or the Trustee to maintain any particular rating. A review,
revision, suspension or withdrawal of a rating may have an adverse effect on the
market price of the Certificates but will not constitute an event of default
under the Security Documents.
RISKS OF BANKRUPTCY OF THE BORROWER
In the event of the bankruptcy of the Borrower or its General Partner, the
application of certain provisions of the bankruptcy code could have a material
adverse effect on holders of the Bonds and, consequently, holders of the
Certificates. By reason of the "automatic stay" provisions (which could
significantly delay the Indenture Trustee's ability to cause the liquidation of
the Mortgaged Properties) and other provisions of the bankruptcy code, delays in
payments on the Bonds and reductions in the principal balances thereof (each of
which could be significant) could occur. It is also possible that the bankruptcy
trustee or the Borrower as debtor-in-possession could argue, and the bankruptcy
court could agree, that, notwithstanding the existence of a security interest in
the Mortgaged Properties' receivables, the "equities of the case" provision in
the bankruptcy code dictates that the Bondholders' security interest should not
extend post-petition.
The Borrower has agreed to restrict its business to the ownership,
operation and financing of the Mortgaged Properties and those activities related
or incidental to that business. Similarly, the certificate of incorporation of
the General Partner generally limits its permitted activities to serving as the
general partner of the Borrower. The General Partner has two independent
directors. There is and can be no assurance, however, that either the Borrower
or the General Partner will not become bankrupt or insolvent.
The Borrower and its owners have several affiliates, including MAAC and
MAALP. Although the Borrower has been structured so as to limit the possibility
that it will be a debtor in a bankruptcy proceeding other than for reasons
related to the ownership of the Mortgaged Properties, there is and can be no
assurance that, in a bankruptcy of such owners or any of their affiliates, the
Mortgaged Properties will be protected from the creditors of such owners or
affiliates.
FRAUDULENT CONVEYANCE STATUTES
The transfer and pledge of the Mortgaged Properties and the issuance of
the Bonds and Certificates are subject to review under relevant federal and
state fraudulent conveyance statutes ("Fraudulent Conveyance Statutes") in a
bankruptcy case involving, or a lawsuit by creditors of, the Borrower, the
Depositor, the General Partner, MAALP or MAAC. Generally, under Fraudulent
Conveyance Statutes, transfers made or indebtedness incurred by a person will be
subject to avoidance if (i) the transfer was made or the indebtedness incurred
with the intent of hindering, delaying or defrauding creditors or (ii)(a) the
debtor did not receive fair consideration or reasonably equivalent value for
incurring such indebtedness and (b) the Debtor (1) was insolvent or rendered
insolvent by the transfer or the incurrence of such indebtedness, (2) had
unreasonably small capital with which to carry on its business and any
transaction or transactions in which it intended to engage or (3) intended to
incur, or believed it would incur, indebtedness beyond its ability to repay such
indebtedness at maturity. The measure of insolvency will vary depending on the
law of the applicable jurisdiction. Generally, however, an entity would be
considered insolvent if the present fair value of its assets is less than (i)
the amount of its liabilities (including contingent liabilities discounted by
the likelihood of the contingency becoming actual)
21
or (ii) the amount that would be required to pay its probable liabilities on its
existing debts as they become absolute and mature. Fraudulent conveyance related
claims against the Mortgaged Properties may not be covered by title insurance
policies.
If the transfer of the Mortgaged Properties by MAALP to the Borrower were
avoided under Fraudulent Conveyance Statutes, the Borrower could be required to
disgorge its ownership interest in the Mortgaged Properties, thereby negatively
impacting the Borrower's ability to make payments of principal and interest on
the Bonds. Moreover, if the pledge of the Mortgaged Properties or the issuance
of the Bonds by the Borrower was avoided under Fraudulent Conveyance Statutes,
the Bonds would no longer be secured by the Mortgaged Properties and would
constitute merely unsecured claims against the Borrower, which in bankruptcy are
likely to be paid at a significant discount from their face value.
LACK OF ESTABLISHED MARKET
Currently, there is no market for the Certificates. There can be no
assurance that a secondary market will develop or, if a secondary market does
develop, that it will provide holders of the Certificates with liquidity of
investment or that it will continue for the life of the Certificates.
DESCRIPTION OF THE CERTIFICATES
CERTAIN STATEMENTS CONTAINED THROUGHOUT THIS PROSPECTUS ARE SUMMARIES OF
CERTAIN PROVISIONS OF THE TRUST AGREEMENT, THE CERTIFICATES, THE MORTGAGES AND
THE BONDS. SUCH STATEMENTS DO NOT PURPORT TO BE COMPLETE AND ARE QUALIFIED IN
THEIR ENTIRETY BY REFERENCE TO SUCH AGREEMENTS AND INSTRUMENTS.
GENERAL
The Certificates will be issued pursuant to the Trust Agreement in an
aggregate principal amount of U.S. $ . The Certificates represent beneficial
ownership of the assets of the Trust, which consists exclusively of the Bonds in
the aggregate principal amount of $ . The Bonds will be issued pursuant to the
Indenture and until the Permitted Merger and Security Release will be secured by
the Mortgage Liens on the Mortgaged Properties. The Borrower was organized for
the sole purpose of owning, operating and financing the Mortgaged Properties and
issuing the Bonds which are secured by the Mortgage Liens. See "Description of
the Bonds."
The Indenture provides that the Mortgage Liens securing the Bonds will be
subject to the Security Release upon satisfaction of certain conditions and at
the time described below in "Description of the Bonds -- Permitted Merger and
Security Release." Simultaneously with the Permitted Merger and Security
Release, the Trust will terminate, the Trustee will deliver the Bonds to the
holders of the Certificates through the book-entry facilities described herein,
as a distribution in full satisfaction of their beneficial interests in the
Trust, and the Global Certificate will be canceled by the Trustee and delivered
to the Depositor, and will be of no further force or effect. At such time, the
persons formerly owning beneficial interests in the Certificates will, by
operation of the Trust Termination and with no action being required on their
parts, own beneficial interests in the Bonds. See "Book-Entry Clearance and
Settlement."
STATUS
The Certificates will evidence, in the aggregate, all of the beneficial
ownership interests in the Trust. The Certificates will be payable solely from
payments received by the Trustee with respect to the Bonds and will not
represent obligations of the Borrower, any general or limited partner of the
Borrower or any affiliate thereof or any other person.
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FORM, DENOMINATIONS, EXCHANGE, REGISTRATION AND TRANSFER
The Certificates will be issued, maintained and transferred in the
book-entry form only in denominations of $100,000 and integral multiples of
$1,000 in excess thereof. The Certificates will be represented by one Global
Certificate registered in the name of a nominee designated by DTC. No holder of
a Certificate will be entitled to receive a certificate issued in fully
registered, certificated form (a "Definitive Certificate") representing its
interest in the Certificates, except under the limited circumstances described
below under "Book Entry Issuance, Clearance and Settlement -- Definitive
Certificates and Bonds." Unless and until Definitive Certificates are issued in
respect of the Certificates, all transfers of Certificates will be cleared and
settled through the facilities of DTC, CEDEL and Euroclear.
See "Book-Entry Issuance, Clearance and Settlement."
PAYMENTS ON THE CERTIFICATES
Upon receipt of payments required to be made on the Bonds, the Trustee
will pay such amounts to holders of the Certificates through the facilities of
DTC. The Trustee will make all payments with respect to the Certificates to DTC
or its nominee as the registered owner thereof. None of the Borrower, the
Depositor, MAALP, MAAC, the General Partner, the Trustee or the Indenture
Trustee will have any responsibility or liability for any aspect of the records
relating to, or payments made on account of, beneficial ownership interests in
the Global Certificate or for maintaining, supervising or reviewing any records
relating to such beneficial ownership interests.
The Depositor expects that DTC or its nominee, upon receipt of any payment
in respect of the Global Certificate held by it or its nominee, will immediately
credit the accounts of DTC participants (including Euroclear and CEDEL and their
respective depositories) with payments in amounts proportionate to their
respective beneficial interests in the principal amount of Global Certificate as
shown on the records of DTC or its nominee. The Depositor also expects that
payments by DTC participants (including Euroclear and CEDEL and their respective
depositories) to owners of beneficial interests in Global Certificate held
through such DTC participants will be governed by standing instructions and
customary practices, as is now the case with respect to securities held for the
accounts of customers registered in street names. Such payments will be the
responsibility of the relevant DTC participant.
If a Definitive Certificate is issued in exchange for any portion of the
Global Certificate after the close of business at the office or agency where
such exchange occurs on (i) any Certificate Record Date and before the opening
of business at such office or agency on the related Distribution Date or (ii)
any special record date and before the opening of business at such office or
agency on the related proposed date for payment of Default Interest, such
interest or Default Interest, as the case may be, will not be payable on such
Distribution Date or proposed date for payment of Default Interest, as the case
may be, in respect of such Certificate, but will be payable on such Distribution
Date or proposed date for payment of Default Interest, as the case may be, only
to DTC with respect to the Global Certificate, and the Depositor understands
that DTC will undertake to credit such interest to the account of the person who
was the beneficial owner of such portion of the Global Certificate on such
Record Date or special record date, as the case may be.
So long as the Certificates are held through DTC's book entry system,
distributions of interest and principal (and Default Interest, if any) on the
Certificates will be made, subject to applicable laws and regulations, by wire
transfer from the Trustee to DTC and will be forwarded to investors in
accordance with the payment procedures of DTC and the applicable DTC
participant.
If any Certificate is not held through DTC, distributions of interest (and
Default Interest, if any) on such Certificate will be made, subject to the
applicable laws and regulations, to the person in whose name such Certificate is
registered in the register of the Certificates as of the close of business on
the Certificate Record Date, upon compliance by such holder with reasonable
requirements of the Trustee, by wire transfer to the account designated by such
holder, and otherwise by check mailed to the address of such person. With
respect to the final payment of the Certificates, upon compliance by such holder
with reasonable requirements of the Trustee, such payment will be made by wire
transfer to the account designated by the person in whose name the Certificates
are registered in the register of the Certificates as
23
of such date and otherwise by check mailed to the address of such person,
against surrender of such Certificate at the corporate trust office of the
Trustee in Chicago, Illinois.
Payments on any Certificate will be payable to the person in whose name
the Certificate is registered at the close of business on the Record Date
immediately preceding each Payment Date; provided, however, that payments at
maturity will be payable to the person in whose name the Certificate is
registered at such time.
EXPECTED FINAL DISTRIBUTION DATE
The Expected Final Distribution Date for the Certificates is , 2003, which
is the Stated Maturity Date of the Bonds. The Expected Distribution date is
based on an assumption that the entire Principal Amount of the Bonds, together
with accrued interest and other amounts owed in respect of the Bonds, will be
paid on the stated Maturity Date.
SCHEDULED FINAL DISTRIBUTION DATE
The Scheduled Final Distribution Date for the Certificates is , 2005, two
and one-half years after the Expected Final Distribution Date. If the unpaid
principal balance on the Bonds is paid after the Expected Final Distribution
Date and prior to the Scheduled Final Distribution Date, the Certificates are
required to be paid on the next Payment Date. See "Description of the Bonds --
Payment on the Bonds -- Term and Prepayment Lockout." The Trust Agreement also
provides that any amounts received by the Trustee after the Scheduled Final
Distribution Date will be distributed prior to termination of the Trust.
EXCESS FUNDS
The Trustee is required to hold payments received by it with respect to
the Certificates which are not distributed upon repayment in full of the Bonds
in a segregated non-interest bearing trust account (the "Holdover Account") in
the Trustee's name for the benefit of the holders of such Certificates. All such
monies so held by the Trustee and which remain unclaimed for a period of two
years after the final distribution of such Certificates (or such shorter period
as may be prescribed by applicable law) will be distributed by the Trustee to
the Depositor as provided in the Trust Agreement.
AMENDMENT
The Trust Agreement may be amended from time to time by the Depositor and
the Trustee with the consent of the holders of 66 2/3% of the aggregate
principal amount of Certificates outstanding for the purpose of adding any
provision to or changing in any manner or eliminating any provision of the Trust
Agreement or of modifying in any manner the rights of the holders of the
Certificates; provided, that no such amendment will:
(i) reduce in any manner the amount of, or delay the timing of, payments
received on the Bonds which are required to be distributed with respect to the
Certificates without the consent of each affected Certificate holder;
(ii) reduce the percentage of the aggregate outstanding principal amount of
Certificates the holders of which are required to consent to any such amendment,
without the consent of the holders of all Certificates then outstanding; or
(iii) adversely affect the status of the Trust as a grantor trust under Subpart
E, Part I of Subchapter J of the Code.
The Trust Agreement provides that the parties thereto may agree, without
the consent of the holders of the Certificates, to any modification (subject to
certain exceptions) of the Trust Agreement or the Certificates, (i) to add to
the covenants for the benefit of the Trustee or surrender any right or power of
the Depositor, provided that such surrender will not adversely affect the
interests of the holders of the Certificates, (ii) to evidence and provide for
the appointment and acceptance of any successor Trustee or (iii) to cure any
ambiguity or cure or correct any defective or inconsistent provision in the
Trust Agreement or any Certificate provided such action will not adversely
affect the interests of the holders of the Certificates.
24
The Trustee may not consent to any amendment or modification of the Trust
Agreement which would adversely affect the Trust's status as a grantor trust for
federal income tax purposes.
In determining whether any change adversely affects the interests of
holders of the Certificates, the Trustee will rely upon written confirmation of
the Rating Agencies that such change will not result in the downgrading,
withdrawal or qualification of the rating on each class of Certificates then
outstanding and affected thereby.
INDEMNIFICATION
The Trust Agreement contains provisions for the indemnification of the
Trustee by the Trust and for relief for it from responsibility in certain
circumstances, including provisions relieving it from instituting proceedings to
enforce payment unless indemnified to its satisfaction.
MERGER, CONSOLIDATION OR ASSUMPTION
The Depositor will not consolidate or merge with any other corporation or
other entity or permit any other corporation or entity to merge into it, or
convey, transfer or lease its properties and assets substantially as an entirety
to any person except as permitted by the Trust Agreement.
NOTICES
The Trustee will cause all notices to the holders of the Certificates to
be mailed by first class mail, postage prepaid return receipt requested to each
holder as its address appears on the security register or alternatively, will
publish notice in a financial newspaper of national circulation once per week
for at least two consecutive weeks.
TRUST TERMINATION
Simultaneously with the Permitted Merger and Security Release, the Trust
will terminate. At such time, the Trustee will deliver the Bonds to holders of
the Certificates, without any action on the part of Certificate holders, by
means of the book-entry facilities described herein, as distribution in full
satisfaction of their beneficial interests in the Trust. The Global Certificate
evidencing the Certificates will be canceled at that time by the Trustee and
delivered to the Depositor and will be of no further force and effect.
DESCRIPTION OF THE BONDS
GENERAL
The Bonds are to be issued under the Indenture, which has been filed with
the Securities and Exchange Commission (the "Commission"), is incorporated by
reference herein, and is available for inspection at the corporate trust office
of the Trustee at 135 LaSalle Street, Chicago, Illinois 60674-4107. The
Indenture is subject to, and governed by, the Trust Indenture Act of 1939, as
amended. The statements made hereunder relating to the Indenture and the Bonds
to be issued thereunder are summaries of certain provisions thereof and do not
purport to be complete and are subject to, and are qualified in their entirety
by reference to, all provisions of the Indenture and the Bonds. All section
references appearing herein are to sections of the Indenture.
The Bonds will be limited to an aggregate principal amount of $ and will
mature on , 2003. Until the Permitted Merger and Security Release, the Bonds
will be secured by (i) first priority mortgage liens on the 26 Mortgaged
Properties, including the Borrower's fee interest in each of the parcels of real
property on which the Mortgaged Properties are situated, (ii) liens and security
interests in all related assets, including buildings and improvements thereon,
(iii) an assignment of rents and leases from the Mortgaged Properties, and (iv)
the funds and investments, if any, in the Accounts. After the Permitted Merger
and Security Release, the Bonds will be the general unsecured obligations of
MAALP ranking in parity with all other unsecured indebtedness of MAALP, and
Bondholders will have no claim against the Mortgaged Properties or any other
property of MAALP except to the extent all general
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unsecured creditors of MAALP have such claims. The Bonds are neither insured nor
guaranteed by the Depositor, the Borrower, the General Partner, MAALP, MAAC, the
Indenture Trustee, the Trustee or the Underwriter or any of their affiliates, or
by any governmental entity or instrumentality or by any other person or entity.
PERMITTED MERGER AND SECURITY RELEASE
The Indenture provides that the Permitted Merger and Security Release will
occur if and when each of the following conditions, among others, occurs: (i)
the unsecured debt of MAALP, including the Bonds, is rated at least "Baa3" and
"BBB-" by Moody's and S&P, respectively; and (ii) MAALP is a reporting company
under the Exchange Act pursuant to an effective registration statement on Form
10 (or any successor form). The Borrower is required to give written notice of
the anticipated Permitted Merger and Security Release to the Certificate holders
at least 60 days prior to the Permitted Merger and Security Release, which
notice will be accompanied by the MAALP Exchange Act Reports and the Information
Statement. Upon proof of proper notice and delivery of the Exchange Act Reports
and the Information Statement, the Indenture Trustee will release the Mortgage
Liens, the Permitted Merger will occur, and MAALP will assume the obligations
under the Bonds. At such time, the Bonds will be the general unsecured
obligations of MAALP ranking in parity with all other unsecured debt of MAALP.
Neither the Permitted Merger nor the Security Release may occur if Advances are
outstanding.
FORM, DENOMINATIONS, EXCHANGE, REGISTRATION AND TRANSFER
The Bonds will be issued, maintained and transferred in the book-entry
form only in denominations of $100,000 and integral multiples of $1,000 in
excess thereof. The Bonds will be represented by one Global Bond registered in
the name of a nominee designated by DTC. No holder of a Bond will be entitled to
receive a Bond issued in fully registered, certificated form (a "Definitive
Bond") representing its interest in the Bonds, except under the limited
circumstances described below under "Book Entry Issuance, Clearance and
Settlement -- Definitive Certificates and Bonds." Unless and until Definitive
Bonds are issued in respect of the Bonds, all transfers of Bonds will be cleared
and settled through the facilities of DTC, CEDEL and Euroclear. See "Book-Entry
Issuance, Clearance and Settlement."
PAYMENT ON THE BONDS
PAYMENTS OF INTEREST. The Bonds will bear interest at the rate per annum
set forth on the cover page of this Prospectus, payable monthly on each Payment
Date with respect to interest accrued from the preceding Payment Date (or the
date of original issuance in the case of the first Payment Date) through the day
immediately preceding the Payment Date to Bondholders of record on the related
Record Date. Interest on the Bonds will be computed on the basis of a 360-day
year consisting of twelve 30-day months.
PAYMENTS OF PRINCIPAL. The Bonds will mature and the entire principal
amount of the Bonds will be due and payable on ________, 2003.
PAYMENTS UPON ISSUANCE OF PHYSICAL CERTIFICATES. If the Bonds are no
longer represented by the Global Bond, payments of interest, at the option of
the Borrower, may be made by check mailed to the address of the person entitled
thereto. No service charge will be made for any transfer or exchange of Bonds,
but the Borrower may require payment of a sum sufficient to cover any tax or
other governmental charge payable in connection therewith.
TERM AND PREPAYMENT LOCKOUT. The Bonds are non-callable for a period of
five (5) years, and the entire unpaid principal balance of the Bonds will be due
and payable on the Stated Maturity Date. There is no sinking fund for the Bonds,
and the Bonds are not subject to redemption, prepayment or principal
amortization except upon the occurrence of the certain events of default under
the indenture of the Bonds.
PRIORITY OF PAYMENTS; CASH MANAGEMENT
The Borrower has irrevocably instructed the property manager at each
Mortgaged Property to deposit into the applicable Property Account (i) all rents
due under the Leases; (ii) all additional amounts, if any, due and payable under
26
the Leases; and (iii) all other revenue derived from the Mortgaged Properties.
All funds in each Property Account will be transferred to the Operating Account
on a daily basis.
Prior to a Cash Management Period, all money from the Operating Account
will be transferred by automated clearinghouse transfer to such accounts as the
Borrower may direct on a daily basis in accordance with its standing
instructions to the Account Bank. During a Cash Management Period which follows
an event described in clause (i) of the next succeeding paragraph, funds in the
Operating Account will be transferred to such accounts as the Borrower may
direct on the Business Day following each Account Funding Date. During a Cash
Management Period which follows an event described in clause (ii) or (iii)
below, no funds may be transferred from the Operating Account except at the
direction of the Indenture Trustee or its agent.
A Cash Management Period is a period during which (i) the Borrower fails
to maintain a Pre-Permitted Merger Debt Service Coverage Ratio of at least 1.30
to 1 or (ii) an event of default occurs and is continuing under the Bonds, the
Indenture or any Security Document or (iii) any event has occurred and is
continuing which obligates or permits the Indenture Trustee to make an Advance.
Pursuant to the Cash Collateral Account Agreement, during any Cash
Management Period, the Borrower, has instructed the Account Bank to withdraw
from the Operating Account, in the priority listed below and to the extent
available therein, by 10:00 a.m. New York on each Account Funding Date, (i)
funds in an amount equal to one-twelfth of the annual amount of interest on the
Bonds outstanding at the time less the amount of funds on deposit in the
Interest Escrow Account and deposit the same into the Interest Escrow Account;
(ii) funds in an amount equal to the tax payments and insurance premiums
required to be paid during the six months following such Account Funding Date
less funds on deposit in the Mortgage Escrow Account and deposit the same into
the Mortgage Escrow Account; and (iii) funds in an amount equal to one-half of
the annual amount required to be escrowed during any Cash Management Period to
fund replacements pursuant to each Mortgage less the amount on deposit in the
Replacement Reserve Account and deposit the same into the Replacement Reserve
Account.
The Indenture provides that the Borrower will deposit each monthly payment
on the Bonds with the Indenture Trustee by 10:00 a.m. New York time on the
Payment Date for disbursement to holders of the Bonds. The Indenture also
provides that the Indenture Trustee will apply any amounts so received and any
other amount received pursuant to the Indenture excluding fees of the Indenture
Trustee which are paid by the Borrower in a timely fashion, but including,
without limitation, amounts in the Operating Account and the other Accounts and
payments in respect of the liquidation, if any, of the Mortgaged Properties, in
the following order:
FIRST: to reimburse the Indenture Trustee for all unreimbursed Advances,
plus interest thereon at the Advance Rate;
SECOND: to make payments, if any are required, from the Accounts as
provided in the Cash Collateral Agreement;
THIRD: to make payments of interest on the Bonds in accordance with their
terms;
FOURTH: to make payments of principal on the Bonds, to the extent any such
payments are then due;
FIFTH: to make payments of Default Interest on the Bonds, to the extent
any such payments are then due; and
SIX: to pay any other amounts due and owing under the Indenture.
RESTRICTIVE COVENANTS
Pursuant to the Indenture, the Borrower and, after the Permitted Merger
and Security Release, MAALP are subject to the following restrictive covenants,
as applicable:
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MAINTENANCE OF LIENS PRIOR TO PERMITTED MERGER AND SECURITY RELEASE
Prior to the Permitted Merger and Security Release, the Borrower is
required to maintain and preserve the first priority of the Mortgage Liens and
security interests created by the Security Documents.
LIMITATION ON DEBT PRIOR TO PERMITTED MERGER AND SECURITY RELEASE
Prior to the Permitted Merger and Security Release, the Borrower is not
permitted to incur or permit to exist any indebtedness, except pursuant to the
Bonds or trade accounts payable which are paid in full no more than 60 days
after the date on which such accounts payable are created.
LIMITATION ON DEBT FROM AND AFTER PERMITTED MERGER AND SECURITY RELEASE
From and after the Permitted Merger and Security Release, MAALP is
prohibited from incurring any indebtedness (except inter-company indebtedness
that is subordinate to the Bonds) if, immediately after giving effect to the
incurrence of such additional indebtedness, the aggregate principal amount of
all outstanding indebtedness of MAALP and its subsidiaries on a consolidated
basis is greater than 50% of the sum of (i) the cost (original cost plus capital
improvements) of real estate assets of MAALP and its subsidiaries before
depreciation and amortization, determined on a consolidated basis in accordance
with generally accepted accounting principles ("GAAP") and (ii) all other assets
of MAALP and its subsidiaries on a consolidated basis determined in accordance
with GAAP (but excluding intangibles and accounts receivable) (collectively,
"Total Assets").
LIMITATION ON SECURED DEBT FROM AND AFTER PERMITTED MERGER AND SECURITY RELEASE
From and after the Permitted Merger and Security Release, MAALP is
prohibited from incurring any indebtedness secured by any mortgage, lien,
charge, pledge, encumbrance or security interest of any kind ("Secured Debt")
if, immediately after giving effect to the incurrence of such additional Secured
Debt, the aggregate principal amount of all outstanding Secured Debt is greater
than 40% of MAALP's Total Assets.
MINIMUM UNENCUMBERED ASSETS FROM AND AFTER PERMITTED MERGER AND SECURITY RELEASE
From and after the Permitted Merger and Security Release, MAALP is
required to maintain Total Assets which are not encumbered by any pledge,
mortgage or other encumbrance ("Total Unencumbered Assets") of not less than
150% of the aggregate principal amount of all outstanding indebtedness which is
not Secured Debt.
DEBT SERVICE COVERAGE PRIOR TO PERMITTED MERGER AND SECURITY RELEASE
If at any time prior to the Permitted Merger and Security Release, the
Pre-Permitted Merger Debt Service Coverage Ratio of the Borrower is less than
1.30 to 1, the Indenture Trustee will deliver a notice to the Account Bank (the
"Trigger Notice") under the Cash Collateral Agreement. At such time, funds in
the Operating Account will be transferred to the Accounts and any funds
deposited into the Operating Account in the future will be transferred from the
Accounts only in accordance with the Cash Collateral Agreement. If at any time
after such delivery of a Trigger Notice the Pre-Permitted Merger Debt Service
Coverage Ratio is equal to or greater than 1.30 to 1, the Indenture Trustee will
promptly deliver notice to the Account Bank under the Cash Collateral Agreement
and the future funding of the Accounts will cease.
If at any time prior to the Permitted Merger and Security Release, the
Pre-Permitted Merger Debt Service Coverage Ratio of the Borrower is less than
1.15 to 1, the Indenture Trustee may, and upon direction from the holders of 25%
in principal amount of the Bonds, will upon ten days' prior to the Borrower and
each property manager of the Mortgaged Properties, terminate or cause the
termination of all such property managers and require the Borrower to retain a
different manager or managers satisfactory to the Indenture Trustee or such
holders of the Bonds.
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DEBT SERVICE COVERAGE FROM AND AFTER PERMITTED MERGER AND SECURITY RELEASE
From and after the Permitted Merger and Security Release, MAALP and its
subsidiaries are prohibited from incurring any indebtedness if the
Post-Permitted Merger Debt Service Coverage Ratio (as defined below) for the
four consecutive fiscal quarters most recently ended prior to the date on which
such additional indebtedness is to be incurred has been less than 1.50 to 1, on
a pro forma basis after giving effect to the incurrence of such indebtedness and
to the application of the proceeds therefrom, and calculated on the assumption
that (i) such indebtedness and any other indebtedness incurred by MAALP or its
subsidiaries since the first day of such four-quarter period and the application
of the proceeds therefrom, including to refinance other indebtedness, had
occurred at the beginning of such period; (ii) the repayment or retirement of
any other indebtedness by MAALP or its subsidiaries since the first day of such
four-quarter period had been incurred, repaid or retired at the beginning of
such period (except that, in making such computation, the amount of indebtedness
under any revolving credit facility will be computed based upon the average
daily balance of such indebtedness during such period); (iii) the income earned
on any increase in Total Assets since the end of such four-quarter period,
including, without limitation, by merger, stock purchase or sale, or asset
purchase or sale, such acquisition or disposition or any related repayment of
indebtedness had occurred on the first day of such period with the appropriate
adjustment with respect to such acquisition or disposition being included in
such pro forma calculation. The term "Post-Permitted Merger Debt Service
Coverage Ratio" means the ratio of (i) (a) the amount of consolidated net income
(or loss) of MAALP and its subsidiaries on a consolidated basis for such period
plus (b) amounts which have been deducted for (1) interest or indebtedness of
MAALP and its subsidiaries on a consolidated basis; (2) provision for taxes
based on income; (3) amortization of indebtedness discount; (4) provisions for
gains and losses on properties; (5) depreciation and amortization; (6) the
effect of any noncash charge resulting form a change in accounting principles;
and (7) amortization of deferred charges to (ii) the amount which is expensed in
any 12-month period for interest on indebtedness of MAALP and its subsidiaries
on a consolidated basis.
EVENTS OF DEFAULT AND NOTICE
An "Event of Default" is defined in the Indenture to be (i) a default in
the payment of any interest upon any of the Bonds when due and payable; (ii) a
default in the payment of the principal of or premium, if any, on any of the
Bonds when the same becomes due and payable at the Stated Maturity Date; (iii)
the Borrower consolidates with or merges with or into, or conveys, transfers or
leases all or substantially all its assets to, any person or entity in any
transaction other than the Permitted Merger; (iv) the Borrower fails to observe
or perform certain covenants contained in the Indenture regarding the
maintenance of liens and recording, limitation on debt, limitation on Secured
Debt, Total Unencumbered Assets, debt service coverage, the formation of
subsidiaries, and amendments to the Limited Partnership Agreement; (v) the
Borrower fails to observe or perform any of its covenants set forth in the Bonds
or the Indenture (other than those referred to in clauses (i), (ii), (iii) or
(iv) above) and such default, if subject to being cured, continues for a period
of 30 days after the earlier of knowledge by the Borrower thereof or notice
thereof from the Indenture Trustee to the Borrower; PROVIDED that if such
Default is not subject to being cured within such 30-day period and the Borrower
(a) has delivered an Officers' Certificate to the Indenture Trustee (1)
certifying that such Default is reasonably subject to cure and that the Borrower
has commenced such cure and (2) setting forth those actions the Borrower has
taken and will take to pursue such cure and (b) pursues such cure diligently to
completion, then such 30-day period will be extended for an additional period of
60 days; (vi) following the Permitted Merger, MAALP defaults under any
indebtedness for money borrowed by MAALP if (a) such default either (1) results
from the failure to pay the principal of any such indebtedness at its stated
maturity or (2) relates to an obligation other than the obligation to pay the
principal of such indebtedness at its stated maturity and results in such
indebtedness becoming or being declared due and payable prior to the date on
which it would otherwise have become due and payable (b) the principal amount of
such indebtedness, together with the principal amount of any other such
indebtedness in default for failure to pay principal at stated maturity or the
maturity of which has been so accelerated, aggregates $1,000,000 or more at any
one time outstanding and (c) such indebtedness is not discharged, or such
acceleration is not rescinded or annulled, within 10 Business Days after written
notice as provided in the Indenture; (vii) certain events of bankruptcy,
insolvency or reorganization relating to the Borrower; (viii) an event of
default occurs and is continuing under the Security Documents; (ix) any
representation warranty or other statement made by or on behalf of the Borrower
set forth in the Indenture or any other Security Document will proved to have
been false or misleading in any material respect as of the date when made; (x)
any judgment of decree for the payment of money in excess of $100,000 not
covered by insurance is rendered against the Borrower and is not discharged and
either
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(a) an enforcement proceeding has ben commenced by any creditor upon such
judgment or decree or (b) there is a period of 60 days following such judgment
or decree during which such judgment or decree is not discharged, waived or
execution thereof stayed; or (xi) the General Partner fails to comply with
certain provisions of its certificate of incorporation.
If an Event of Default (other than an Event of Default described in clause
(vii) of the preceding paragraph) will occur and be continuing, either the
Indenture Trustee, by notice to the Borrower, or the holders of at least 25% in
aggregate principal amount of the Bonds by notice to the Indenture Trustee and
the Borrower may declare the principal of and accrued interest on all of the
Bonds and all other amounts due thereunder to be due and payable; provided, that
upon the occurrence of an Event of Default described in clause (vii) of the
preceding paragraph, the principal or and accrued interest on all of the Bonds
will automatically become due and payable, without presentment, demand or other
requirements of any kind, all of which are waived by the Borrower.
The holders of a majority in aggregate principal amount of the Bonds may
rescind an acceleration and its consequences if (i) the recision would not
conflict with any judgment or decree; (ii) no amount has been paid to the
holders as principal, interest, or premium, if any, on the Bonds as a result of
such acceleration; (iii) all existing Events of Default have been cured or
waived except nonpayment of principal or interest that has become due solely
because of acceleration; and (iv) all costs and expenses incurred by the
Indenture Trustee prior to such waiver have been reimbursed to the Indenture
Trustee.
A holder of the Bonds may not pursue any remedy with respect to the
Indenture or the Bonds unless: (i) the holder gives to the Indenture Trustee
written notice stating that an Event of Default is continuing; (ii) the holders
of at least 25% in principal amount of the Bonds make a written request to the
Indenture Trustee to pursue the remedy; (iii) such holder or holders offer to
the Indenture Trustee reasonable security or indemnity against any loss,
liability or expense; (iv) the Indenture Trustee does not comply with the
request within 60 days after the receipt of the request and the offer of
security or indemnity; and (v) the holders of a majority of principal amount of
the Bonds do not give the Indenture Trustee a direction inconsistent with the
request during such 60-day period.
The Borrower is required to furnish to the Indenture Trustee annually a
statement as to the performance by the Borrower of its obligations under the
Indenture and as to any default in such performance.
SERVICER
Upon the occurrence of an Event of Default or any event requiring the
Indenture Trustee to exercise any discretion to give its consent or to act or
refrain from acting under any Mortgage, in any case prior to the Permitted
Merger and Security Release, the Indenture Trustee may, and at the direction of
the holders of 25% or more in aggregate principal amount of the Bonds will,
appoint a servicer at the expense of the Borrower.
AMENDMENTS, SUPPLEMENTS AND WAIVERS
The Indenture permits the Borrower (when authorized pursuant to a
resolution of the General Partner's Board of Directors) and the Indenture
Trustee, at any time and from time to time, to enter into one or more amendments
or supplements to the Indenture, in form satisfactory to the Indenture Trustee
for the following purposes: (i) to evidence the succession of another person or
entity to the Borrower pursuant to the terms of the Indenture and the assumption
by any such successor of the covenants of the Borrower contained in the Bonds
and the Indenture; (ii) to add to the covenants of the Borrower for the benefit
of the holders of all or any of the Bonds or to surrender any right or power
conferred upon the Borrower by the Indenture; (iii) to add any additional Events
of Default for the benefit of the holders of all or any of the Bonds; PROVIDED,
HOWEVER, that in respect of any such additional Events of Default such amendment
or supplemental indenture may provide for a particular period of grace after
default (which period may be shorter or longer than that allowed in the case of
other defaults) or may provide for an immediate enforcement upon such default or
may limit the remedies available to the Indenture Trustee upon such default or
may limit the rights of the holders of a majority in aggregate principal amount
of the Bonds; (iv) to evidence and provide for the acceptance of appointment of
a successor indenture trustee as provided in the Indenture; (v) to cure any
ambiguity, to correct or supplement any
30
provision in the Indenture which may be defective or inconsistent with any other
provision therein, or to make any other provisions with respect to matters or
questions arising under the Indenture which will not be inconsistent with the
provisions of the Indenture, PROVIDED such provisions will not adversely affect
the interests of the holders of the Bonds in any material respect; or (vi) to
supplement any of the provisions of the Indenture to the extent as will be
necessary to permit or facilitate the defeasance and discharge of the Bonds
pursuant to and subject to the terms of the Indenture, PROVIDED that any such
action will not adversely affect the interests of the holders of the Bonds in
any material respect.
The Indenture permits the Borrower and the Indenture Trustee, with the
consent of the holders of not less than a majority in principal amount of the
Bonds (or, prior to the Permitted Merger, with the consent of the Trustee acting
as instructed by holders of not less than a majority in principal amount of the
Certificates), to enter into one or more supplemental indentures for the purpose
of adding any provisions to or changing in any manner or eliminating any of the
provisions of the Indenture or modifying in any manner the rights of the holders
of the Bonds, provided that the Indenture Trustee has first received written
confirmation from each Rating Agency that such action will not, in and of
itself, cause the withdrawal, downgrade or qualification of their current rating
of the Certificates or, after the Permitted Merger, the unsecured indebtedness
of MAALP, and except that no such modification or amendment may, without the
consent of the holders of each of the Bonds affected thereby, among other
things, (i) reduce the amount of the Bonds whose holders must consent to an
amendment, supplement or waiver; (ii) reduce the rate of or extend the time for
payment of interest on the Bonds; (iii) reduce the principal of or extend the
fixed maturity of the Bonds; (iv) reduce the premium payable on the Bonds; (v)
make the Bonds payable in money other than that stated in the Bonds; (vi) make
any changes to Section 5.04, Section 5.07 or Section 8.02 of the Indenture;
(vii) waive any default in the payment of principal of or interest on any Bond
or any default depriving the Indenture Trustee or any holder of a lien upon any
of the Mortgaged Properties; or (viii) release any Mortgaged Properties from the
Mortgages Liens, except in accordance with the terms thereof and of the
Indenture.
The holders of a majority in principal amount of the Bonds may on behalf
of the holders of all the Bonds waive compliance by the Borrower with certain
restrictive provisions of the Indenture. The holders of a majority in principal
amount of the Bonds may on behalf of the holders of all the Bonds waive any past
default under the Indenture and its consequences, except (i) a default in the
payment of the principal of or any interest on any Bond; (ii) a default
depriving the Indenture Trustee or any holder of a lien upon any of the
Mortgaged Properties; or (iii) a default in respect of any covenant or provision
which under the Indenture cannot be modified or amended without the consent of
the holder of each Bond affected.
DEFEASANCE
The Borrower, at the Borrower's option, (i) will be discharged from any
and all obligations in respect of the Bonds (except for certain obligations to
register the transfer of the Bonds or the exchange of the Bonds to replace
destroyed, stolen, lost or mutilated Bonds, and to maintain paying agents and
hold moneys for payment in trust) or (ii) will be released from its obligations
with respect to the Bonds under the covenants described under "Restrictive
Covenants", and the occurrence of an event described in clause (iii) under
"Events of Default and Notice" above with respect to any such covenant will no
longer be an Event of Default if, in either case, the Borrower deposits with the
Indenture Trustee, in trust, money or U.S. government obligations that through
the payment of interest thereon and principal thereof in accordance with their
terms will provide money in an amount sufficient to pay all the principal of and
interest on the Bonds on the dates such payments are due in accordance with the
terms of the Bonds. Such a defeasance under clause (i) or (ii) above may only be
effected if, among other things, (a) no Event of Default or event which with
notice or lapse of time or both would become an Event of Default has occurred
and be continuing on the date of such deposit, (b) no Event of Default described
under clause (vii) under "Events of Default and Notice" above or event which
with the giving of notice or lapse of time or both would become an Event of
Default described under such clause (vii) has occurred and be continuing at any
time during the period ending on the 90th day following such date of deposit,
(c) the Borrower has delivered to the Indenture Trustee an opinion of counsel to
the effect that the holders will not recognize gain or loss for federal income
tax purposes as a result of such defeasance and will be subject to federal
income tax on the same amount in the same manner and at the same times as if
such defeasance had not occurred, (d) the Indenture Trustee has first received
written confirmation from each Rating Agency that such action will not, in and
of itself, cause the withdrawal, downgrade or qualification of their current
rating of the Certificates or, after the Permitted
31
Merger, the unsecured debt of MAALP, and (e) certain other customary conditions
precedent are satisfied. Such opinion, in the case of a defeasance as described
under clause (i) above, must refer to and be based upon a ruling of the Internal
Revenue Service or a change in applicable federal income tax law occurring after
the date of the Indenture. In the event the Borrower omits to comply with its
remaining obligations under the Indenture after a defeasance of the Indenture as
described under clause (ii) above and the Bonds are declared due and payable
because of the occurrence of any undefeased Event of Default, the amount of
money and U.S. government obligations on deposit with the Indenture Trustee may
be insufficient to pay amounts due on the Bonds at the time of the acceleration
resulting from such Event of Default; however, the Borrower will remain liable
in respect of such payments.
PAYMENTS ON THE BONDS
All payments of principal and interest in respect of the Bonds will be
made by the Borrower in immediately available funds. The Bonds will trade in
DTC's Same-Day Funds Settlement System until maturity or until the Bonds are
issued in certificated form, and secondary market trading activity in the Bonds
will therefore be required by DTC to settle in immediately available funds.
BOOK ENTRY ISSUANCE, CLEARANCE AND SETTLEMENT
Holders of the Certificates (and after the Permitted Merger and Security
Release, holders of the Bonds) may hold their Certificates (or Bonds) directly
through DTC (for United States holders) and CEDEL and Euroclear (for European
holders) if they are participants in such systems ("Participants"), or
indirectly through organizations that are Participants. CEDEL and Euroclear will
hold omnibus positions on behalf of CEDEL Participants and Euroclear
Participants through customers' securities accounts in CEDEL's and Euroclear's
name on the books of their respective depositories (collectively, the
"Depositories"), which in turn will hold such positions in customers' securities
accounts in the Depositories' names on the books of DTC. DTC is a
limited-purpose trust company organized under the laws of the State of New York,
a "banking organization" within the meaning of the New York Banking Law, a
member of the Federal Reserve System, a "clearing corporation" within the
meaning of the New York Uniform Commercial Code, and a "clearing agency"
registered pursuant to the provisions of Section 17A of the Exchange Act. DTC
was created to hold securities for its Participants and to facilitate the
clearance and settlement of securities transactions between Participants through
electronic computerized book-entry changes in accounts of its Participants,
thereby eliminating the need for physical movement of securities certificates.
Participants include securities brokers and dealers (including the Underwriter),
banks (including the Trustee and the Indenture Trustee), trust companies,
clearing corporations and certain other organizations, some of whom (and/or
their representatives) own DTC. Indirect access to the DTC system is also
available to others such as banks, brokers, dealers and trust companies that
clear through or maintain a custodial relationship with a Participant, either
directly or indirectly ("Indirect Participant").
Upon the issuance of the Global Certificate and the Global Bond, DTC will
credit, on its book-entry registration and transfer system, the respective
principal amounts of the Certificates represented by such Global Certificate to
the accounts of DTC Participants. The accounts to be credited will be designated
by the Underwriter. The account of the Trustee, as a Participant, will be
credited for the issuance of the Global Bond. Ownership of beneficial interests
in the Global Certificate and the Global Bond will be limited to DTC
Participants or Indirect Participants. Ownership of beneficial interests in the
Global Certificate and the Global Bond will be shown on, and the transfer of
those ownership interests will be effected only through, records maintained by
DTC (with respect to DTC Participants' interests) or such DTC Participants (with
respect to the owners of beneficial interests in the Global Certificate, and,
following the Permitted Merger and Security Release, the Global Bond, who own
such interests through Participants). The laws of some jurisdictions require
that certain purchasers of securities take physical delivery of such securities
in definitive form. Such laws may impair the ability to transfer beneficial
interests in the Global Certificate and Global Bond. Transfers between DTC
Participants will occur in accordance with DTC rules. Transfers between CEDEL
Member Organizations and Euroclear Member Organizations will occur in accordance
with their applicable rules and operating procedures.
Cross-market transfers between persons holding directly or indirectly
through DTC, on the one hand, and directly through CEDEL Participants or
Euroclear Participants on the other, will be effected in DTC in accordance with
DTC rules on behalf of the relevant European international clearing system by
its Depository; however, such cross-market transactions will require delivery of
instructions to the relevant European international clearing system by the
counterparty in such system in accordance with its rules and procedures. If the
transaction complies with all relevant requirements, CEDEL or Euroclear, as the
case may be, will then deliver instructions to the Depository to take action to
effect final settlement on its behalf.
Because of time-zone differences, credits of securities in CEDEL or
Euroclear as a result of a transaction with a DTC Participant will be made
during the subsequent securities settlement processing, dated the business day
following the DTC settlement date, and such credits or any transactions in such
securities settled during such processing will be reported to the relevant CEDEL
Participant or Euroclear Participant on such business day. Cash received in
CEDEL or Euroclear as a result of sales of securities by or through a CEDEL
Participant or a Euroclear Participant to a DTC Participant will be received
with value on the DTC settlement date but will be available in the relevant
CEDEL or Euroclear cash account only as of the business day following settlement
in DTC.
The holders of Certificates or, following the Permitted Merger and
Security Release, Bonds that are not Participants or Indirect Participants but
desire to purchase, sell or otherwise transfer ownership of, or other interests
in, Certificates or Bonds may do so only through Participants and Indirect
Participants. In addition, holders of Certificates or, following the Permitted
Merger and Security Release, Bonds will receive all distributions of principal
and interest from the Trustee (or Indenture, Trustee, following the Permitted
Merger and Security Release) through the Participants, who in turn will receive
them from DTC. Under a book-entry format, holders of Certificates or Bonds may
experience some delay in their receipt of payments since such payments will be
forwarded by the Trustee or Indenture Trustee to Cede & Co., as nominee for DTC.
DTC will forward such payments to its Participants, which thereafter will
forward them to Indirect Participants or beneficial owners of Certificates or
Bonds.
Under the rules, regulations and procedures creating and affecting DTC and
its operations (the "Rules"), DTC is required to make book-entry transfers of
Certificates or Bonds among Participants on whose behalf it acts with respect to
the Certificates or Bonds and to receive and transmit distributions of principal
of, and interest on, the Certificates or Bonds. Participants and Indirect
Participants with which the holders of Certificates or Bonds have accounts with
respect to the Certificates or Bonds similarly are required to make book-entry
transfers and receive and transmit such payments on behalf of the respective
holders of Certificates or Bonds. Accordingly, although the holders of
Certificates or Bonds will not possess the Certificates or Bonds, the Rules
provide a mechanism by which Participants will receive payments on Certificates
or Bonds and will be able to transfer their interest.
Because DTC can only act on behalf of Participants, who in turn act on
behalf of Indirect Participants and certain banks, the ability of a holder of
Certificates or Bonds to pledge such Certificates or Bonds to persons or
entities that do not participate in the DTC system, or to otherwise act with
respect to such Certificates or Bonds, may be limited due to the lack of
physical possession of such Certificates or Bonds.
CEDEL is incorporated under the laws of Luxembourg as a professional
depository. CEDEL holds securities for its Participants and facilitates the
clearance and settlement of securities transactions between CEDEL Participants
through electronic book-entry changes in accounts of CEDEL, thereby eliminating
the need for physical movement of securities certificates.
Euroclear was created in 1968 to hold securities for Participants of the
Euroclear system and to clear and settle transactions between Euroclear
Participants though simultaneous electronic book-entry delivery against payment.
Although DTC, CEDEL and Euroclear have implemented the foregoing
procedures in order to facilitate transfers of interests in global securities
among Participants of DTC and Participants of Euroclear and CEDEL, they are
under no obligation to perform or to continue to comply with such procedures,
and such procedures may be discontinued at any time. None of the Depositor, the
Trustee, Indenture Trustee, MAAC, MAALP or the Underwriter will have any
responsibility for the performance by DTC, Euroclear or CEDEL or their
respective direct or indirect Participants or of their respective obligations
under the rules and procedures governing their operations. The information
herein concerning DTC, CEDEL and Euroclear and their book-entry systems has been
obtained from sources believed to be reliable, but the Depositor takes no
responsibility for the accuracy or completeness thereof.
32
DEFINITIVE CERTIFICATES AND BONDS
Definitive Certificates (or, following the Permitted Merger and Security
Release, Definitive Bonds), will be delivered to beneficial owners of the
Certificates (and, following the Permitted Merger and Security Release, the
Bonds) (or their nominees) only if (i) DTC is no longer willing or able properly
to discharge its responsibilities as depository with respect to the Certificates
or Bonds, as the case may be, and the Depositor is unable to locate a qualified
successor, (ii) the Trustee, or, following the Permitted Merger and Security
Release, the Indenture Trustee, at its sole option, elects to terminate the
book-entry system through DTC, or (iii) after the occurrence of an event of
default under the Trust Agreement, or, following the Permitted Merger and
Security Release, the Indenture, Certificate holders (or after the Permitted
Merger and Security Release, Bondholders) representing a majority in principal
amount of the Certificates (or Bonds, as the case may be) then outstanding
advise DTC through DTC Participants in writing that the continuation of a
book-entry system through DTC (or a successor thereto) is no longer in the best
interest of such Certificate holders or Bondholders.
Upon the occurrence of any of the events described in clauses (i) through
(iii) in the immediately preceding paragraph, DTC is required to notify all
affected DTC Participants of the availability through DTC of Definitive
Certificates (or Definitive Bonds, as the case may be). Upon delivery of
Definitive Certificates (or Definitive Bonds, as the case may be), the Trustee
or Indenture Trustee and the registrar will recognize the holders of such
Definitive Certificates (or Definitive Bonds, as the case may be) as holder of
the Certificates or Bonds. Distributions of principal of and interest on the
Definitive Certificates (or Definitive Bonds) will be made by the Trustee (or
Indenture Trustee) directly to holders of Definitive Certificates (or Definitive
Bonds) in accordance with the procedures set forth in the Trust Agreement (or
Indenture). Upon the occurrence of any of the events described in clauses (i)
through (iii) in the immediately preceding paragraph, request for transfer of
Definitive Certificates or Definitive Bonds will be required to be submitted
directly to the registrar in a form acceptable to the registrar (such as the
forms which will appear on the back of the certificate representing a Definitive
Certificate or Definitive Bond), signed by the holder or such holder's legal
representative and accompanied by the Definitive Certificate or Certificates (or
Definitive Bond or Bonds) for which transfer is being requested.
DESCRIPTION OF THE MORTGAGED PROPERTIES
The Mortgaged Properties consist of 26 apartment communities containing an
aggregate of 5,947 apartment units and have an average age of 12 years. The
Mortgaged Properties are primarily located in mid-size markets in the Southeast
and span 19 metropolitan areas across nine states. The Borrower believes that
the Mortgaged Properties are well positioned within their markets and feature an
appealing array of amenities, including swimming pools, washer/dryer
connections, fireplaces, tennis courts and fitness centers. Over the last three
years, average occupancy for the Mortgaged Properties has remained relatively
constant at approximately 95%.
OPERATING PHILOSOPHY
MAAC, MAALP and their respective affiliates (collectively, the "Company")
have focused on owning, operating and acquiring apartment communities in
mid-size southeastern and Texas cities. The Company believes that these markets
generally have been less susceptible to apartment overbuilding during past real
estate investment cycles, and the Company believes that apartment communities in
these markets offer attractive long-term investment returns.
The Company has implemented a practice of having trained property managers
and service technicians on-site at each of the Company's apartment communities.
The presence of these personnel will continue at the Mortgaged Properties
pursuant to the terms of the Management Agreement. Moreover, MAALP intends to
undertake frequent resident surveys and focus groups, in order to measure
resident satisfaction at the Mortgaged Properties.
THE APPRAISAL REPORTS
33
The Appraisals estimate the values of the Mortgaged Properties to be
approximately $240 million. The Appraisals do not render any opinion of value of
the Mortgaged Properties subsequent to the valuation dates of the Appraisals.
The Appraiser states in the Appraisals that the Appraisals were performed
in accordance with the Uniform Standards of Professional Appraisal Practice as
promulgated by the Appraisal Standards Board of the Appraisal Foundation and
adopted by the Appraisal Institute and the Code of Professional Ethics of the
Appraisal Institute. An appraisal is an opinion of value made by experts,
subject to the assumptions and limiting conditions contained therein. The
Appraisals are based substantially on estimates, assumptions and projections of
income and expense related to the Mortgaged Properties and is based on
information available as of the date of the particular Appraisal. However,
neither the Borrower nor the Depositor makes any warranty or representation that
the Mortgaged Properties could be sold at the appraised values.
ENGINEERING REPORT
Creative Project Management, Inc. ("CPM") prepared evaluation reports for
each of the 26 Mortgaged Properties. These reports, dated in October and
November 1997, reviewed the Mortgaged Properties' structural and architectural
conditions, mechanical, electrical, fire and life safety systems as well as
compliance with the requirements of the ADA. Generally, CPM deemed the Mortgaged
Properties as well designed and constructed and provided with above-average
maintenance.
The reports contain analyses of repairs and improvements to the Mortgaged
Properties which are to be completed within one year, the estimated cost of
which aggregate $636,130.
ENVIRONMENTAL REPORT
In November 1997, CPM performed Phase I ESAs (which did not include
invasive procedures, such as soil sampling or ground water analysis) on each of
the Mortgaged Properties. The ESAs did not reveal any significant environmental
liability that would have a material adverse effect on the Borrower's ability to
make required payments on the Bonds. In every instance, the Phase I ESA included
a record search for leaking underground storage tank sites and sites included on
certain environmental databases. In two instances, the database searches
revealed information that led the ESA to recommend a Phase II ESA (which
involves invasive sampling procedures) to determine whether any contaminants
affected the Mortgaged Property. One of these Mortgaged Properties is within one
quarter mile of a hazardous waste site, with relatively flat topography between
that site and the Mortgaged Property. The second of these Mortgaged Properties
is adjacent to a leaking underground storage tank site and the ESA anticipates
that the adjacent contamination will affect the Mortgaged Property. The Borrower
has not performed Phase II ESAs because it believes that, notwithstanding the
results of a Phase II ESA, there will be no material adverse effect on the
Mortgaged Properties taken as a whole as a result of environmental costs or
liabilities would not be material. There can be no assurance that the Borrower
is correct in concluding either that other parties would bear or be able to bear
primary responsibility, or that the environmental costs or liabilities would not
be material which could have a material adverse effect on the Borrower's ability
to make required payments on the Bonds.
The Phase I reports identified the presence of asbestos-containing
materials ("ACM") generally on or in floor and ceiling coverings in four of
Mortgaged Properties. The Borrower has continuing ACM Operation and Maintenance
Plans which include removal of asbestos-containing materials if they are not in
good condition and believes the identified Mortgaged Properties can be managed
pursuant to this plan. CPM identified no other material environmental hazards on
site.
ADDITIONAL MORTGAGED PROPERTY INFORMATION
The following tables sets forth selected financial and operating
information for the Mortgaged Properties.
34
YEAR UNIT MIX
YEAR MANAGEMENT NUMBER NUMBER OF
MORTGAGED PROPERTY METROPOLITAN AREA COMPLETED COMMENCED OF UNITS STORIES 1 BDR 2 BDR 3 BDR
- ------------------ ----------------- --------- --------- -------- ------- ----- ----- -----
Belmere Tampa, Florida 1984 1994 210 2 104 106 0
Crosswinds (1) Jackson, Mississippi 1988/1990 1996 360 3 120 176 64
Fairways at Royal Oak Cincinnati, Ohio 1988 1994 214 2/3 107 107 0
Hermitage at Beechtree Cary, North Carolina 1987 1997 194 2/3 60 134 0
Hidden Lake II (2) Atlanta, Georgia 1987 1997 160 2 64 96 0
High Ridge (2) Athens, Georgia 1987 1997 160 2/3 32 96 32
Howell Commons Greenville, South Carolina 1986/1988 1997 348 2/3 200 148 0
Kirby Station Memphis, Tennessee 1978 1994 371 2 225 146 0
Lakepointe Lexington, Kentucky 1986 1994 118 2 96 22 0
Lakeside Jacksonville, Florida 1985 1996 416 2/3 272 144 0
Marsh Oaks Atlantic Beach, Florida 1986 1995 120 2 56 64 0
Napa Valley Little Rock, Arkansas 1984 1996 240 3 156 84 0
Park Haywood Greenville, South Carolina 1981/1995 1993 208 2 96 112 0
Park Place (2) Spartanburg, South Carolina 1986 1997 184 2 64 96 24
Pear Orchard Jackson, Mississippi 1985 1994 389 2 228 161 0
Savannah Creek (1) Memphis, Tennessee 1989 1996 204 3 68 112 24
Shenandoah Ridge Augusta, Georgia 1982 1994 272 2 128 144 0
Somerset Jackson, Mississippi 1981 1995 144 2 56 88 0
Southland Station I (2) Warner Robins, Georgia 1986 1997 160 2 48 80 32
Steeplechase Chattanooga, Tennessee 1986 1991 108 2/3 43 65 0
Sutton Place(1) Memphis, Tennessee 1991 1996 252 3 84 120 48
Tiffany Oaks Altamonte, Springs, Florida 1985 1996 288 2 224 64 0
Village, The Lexington, Kentucky 1987 1994 252 2/3 168 84 0
Westside Creek I Little Rock, Arkansas 1984 1997 142 2 16 126 0
Williamsburg Village Jackson, Tennessee 1987 1994 148 2 88 48 12
Willow Creek(2) Willow Creek, Georgia 1971/1978 1997 285 2/3 113 164 8
----- ----- ----- ---
Total Mortgaged Properties 5,947 2,916 2,787 244
===== ===== ===== ===
APPROXIMATE AVERAGE
RENTABLE AREA UNIT SIZE
MORTGAGED PROPERTY (SQUARE FT.) (SQUARE FT.)
- ------------------ ------------ ------------
Belmere 202,440 964
Crosswinds (1) 443,200 1,231
Fairways at Royal Oak 214,477 1,002
Hermitage at Beechtree 169,776 875
Hidden Lake II (2) 154,000 963
High Ridge (2) 186,608 1,166
Howell Commons 292,840 841
Kirby Station 310,173 836
Lakepointe 90,614 768
Lakeside 344,192 827
Marsh Oaks 93,280 777
Napa Valley 183,216 763
Park Haywood 156,776 754
Park Place (2) 195,312 1,061
Pear Orchard 338,400 870
Savannah Creek (1) 237,200 1,162
Shenandoah Ridge 222,800 819
Somerset 126,848 881
Southland Station I (2) 186,704 1,167
Steeplechase 98,602 913
Sutton Place(1) 267,600 1,062
Tiffany Oaks 234,224 813
Village, The 182,716 725
Westside Creek I 148,030 1,042
Williamsburg Village 121,412 820
Willow Creek(2) 246,668 866
--------- -----
Total Mortgaged Properties 5,448,068 916
========= =====
(1) These properties are located in DeSoto County, Mississippi, a suburb of
Memphis, Tennessee. The company considers the properties a part of the
Memphis, Tennessee market.
(2) These properties were acquired in connection with the acquisition by the
Company of Flournoy Development Company, a Georgia corporation ("FDC") and
certain related entities on November 25, 1997.
35
AVERAGE PHYSICAL OCCUPANCY AT
MORTGAGED PROPERTY METROPOLITAN AREA SEPTEMBER 30, 1997 DECEMBER 31, 1996
- ------------------ ----------------- ------------------ -----------------
Belmere Tampa, Florida 98.6% 97.1%
Crosswinds Jackson, Mississippi 94.4% 96.7%
Fairways at Royal Oak Cincinnati, Ohio 98.1% 98.1%
Hermitage at Beechtree Cary, North Carolina 96.6% 95.0%
Hidden Lake II Atlanta, Georgia 93.2% 97.5%
High Ridge Athens, Georgia 85.3% 93.5%
Howell Commons Greenville, South Carolina 97.7% 87.6%
Kirby Station Memphis, Tennessee 99.7% 97.0%
Lakepointe Lexington, Kentucky 94.9% 98.3%
Lakeside Jacksonville, Florida 95.4% 95.4%
Marsh Oaks Atlantic Beach, Florida 94.2% 99.2%
Napa Valley Little Rock, Arkansas 92.1% 82.9%
Park Haywood Greenville, South Carolina 92.8% 93.8%
Park Place Spartanburg, South Carolina 91.3% 92.7%
Pear Orchard Jackson, Mississippi 95.1% 97.9%
Savannah Creek Memphis, Tennessee 100% 99.0%
Shenandoah Ridge Augusta, Georgia 92.6% 92.3%
Somerset Jackson, Mississippi 95.8% 98.6%
Southland Station I Warner Robins, Georgia 91.6% 89.7%
Steeplechase Chattanooga, Tennessee 98.1% 96.3%
Sutton Place Memphis, Tennessee 99.2% 98.8%
Tiffany Oaks Altamonte Springs, Florida 99.3% 96.0%
Village, The Lexington, Kentucky 96.4% 96.0%
Westside Creek I Little Rock, Arkansas 95.1% 90.0%
Williamsburg Village Jackson, Tennessee 99.3% 97.3%
Willow Creek Willow Creek, Georgia 91.8% 91.0%
Total Mortgaged Properties
AVERAGE MONTHLY RENT PER UNIT AT APPRAISED APPRAISED
MORTGAGED PROPERTY SEPTEMBER 30, 1997 DECEMBER 31, 1996 VALUE VALUE/UNIT
- ------------------ ------------------ ---------------- ------- ----------
Belmere $602 $592 $10,100,000 $48,095
Crosswinds $605 $588 17,125,000 47,569
Fairways at Royal Oak $588 $570 10,200,000 47,664
Hermitage at Beechtree $645 $624 9,350,000 48,196
Hidden Lake II $609 $590 6,800,000 42,500
High Ridge $739 $748 9,200,000 57,500
Howell Commons $499 $501 13,600,000 39,080
Kirby Station $556 $531 16,100,000 43,396
Lakepointe $534 $520 5,000,000 42,373
Lakeside $555 $556 15,650,000 37,620
Marsh Oaks $519 $501 4,400,000 36,667
Napa Valley $541 $542 9,300,000 38,750
Park Haywood $497 $479 6,700,000 32,212
Park Place $591 $598 7,000,000 38,043
Pear Orchard $544 $556 16,365,000 42,069
Savannah Creek $580 $557 8,800,000 43,137
Shenandoah Ridge $440 $434 7,500,000 27,574
Somerset $488 $492 5,000,000 34,722
Southland Station I $611 $647 6,740,000 42,125
Steeplechase $542 $522 4,000,000 37,037
Sutton Place $561 $536 10,800,000 42,857
Tiffany Oaks $559 $528 11,475,000 39,844
Village, The $562 $542 11,000,000 43,650
Westside Creek I $628 $603 4,980,000 35,070
Williamsburg Village $518 $507 5,620,000 37,973
Willow Creek $460 $455 7,900,000 27,719
------------ -------
Total Mortgaged Properties $240,705,000 $40,475
============ =======
36
PATIO, PORCH,
BALCONY OR WASHER/DRYER SWIMMING FITNESS
MORTGAGED PROPERTY METROPOLITAN AREA SUNROOM CONNECTIONS CLUBHOUSE POOL(S) CENTER FIREPLACES
- ------------------ ----------------- ------------ ------------ --------- --------- ------- ----------
Belmere Tampa, Florida All All No Yes (1) No Yes (24)
Crosswinds Jackson, Mississippi All All No Yes (3) Yes All
Fairways at Royal Oak Cincinnati, Ohio All All Yes Yes (1) Yes Yes (88)
Hermitage at Beechtree Cary, North Carolina All All Yes Yes (1) Yes Yes (140)
Hidden Lake II Atlanta, Georgia All All Yes Yes (1) Yes Yes (88)
High Ridge Athens, Georgia All All Yes Yes (1) Yes Yes (64)
Howell Commons Greenville, South Carolina All All Yes Yes (1) No No
Kirby Station Memphis, Tennessee All Yes (168) No Yes (2) No Yes (26)
Lakepointe Lexington, Kentucky All All Yes Yes (1) No All
Lakeside Jacksonville, Florida All All Yes Yes (2) Yes Yes (368)
Marsh Oaks Atlantic Beach, Florida All All No Yes (1) No No
Napa Valley Little Rock, Arkansas All All Yes Yes (2) No Yes (80)
Park Haywood Greenville, South Carolina Yes (80) Yes (130) Yes Yes (1) No Yes (80)
Park Place Spartanburg, South Carolina All All Yes Yes (1) Yes Yes (100)
Pear Orchard Jackson, Mississippi All All Yes Yes (2) No Yes (145)
Savannah Creek Memphis, Tennessee All All Yes Yes (2) Yes Yes (204)
Shenandoah Ridge Augusta, Georgia Yes (128) Yes (92) No Yes (2) No Yes (92)
Somerset Jackson, Mississippi All Yes (88) Yes Yes (1) No Yes (88)
Southland Station I Warner Robins, Georgia All All Yes Yes (1) Yes Yes (72)
Steeplechase Chattanooga, Tennessee All All Yes Yes (1) Yes No
Sutton Place Memphis, Tennessee All All Yes Yes (2) Yes No
Tiffany Oaks Altamonte Springs, Florida All All Yes Yes (1) Yes Yes (64)
Village, The Lexington, Kentucky All All Yes Yes (1) Yes Yes (252)
Westside Creek I Little Rock, Arkansas All All Yes Yes (1) No Yes (142)
Williamsburg Village Jackson, Tennessee All All Yes Yes (1) Yes Yes (12)
Willow Creek Willow Creek, Georgia All Yes (82) Yes Yes (2) Yes Yes (15)
37
NINE MONTHS ENDED SEPTEMBER 30, 1997
NET MANAGEMENT
OPERATING FEE CAPITAL ADJUSTED
MORTGAGED PROPERTY REVENUE EXPENSES INCOME ADJUSTMENT EXPENDITURES CASH FLOW
- ------------------ ---------- -------- --------- ---------- ------------ ---------
Belmere $1,117,858 $411,347 $706,511 $44,714 $31,500 $630,297
Crosswinds 1,897,439 580,672 1,316,767 75,898 54,000 1,186,869
Fairways at Royal Oak 1,096,972 384,651 712,321 43,879 32,100 636,342
Hermitage at Beechtree 1,079,040 375,525 703,515 43,162 29,100 631,253
Hidden Lake II 809,325 326,639 482,686 32,373 24,000 426,313
High Ridge 933,342 355,680 577,662 37,334 24,000 516,328
Howell Commons 1,435,340 487,050 948,290 57,414 52,200 838,676
Kirby Station 1,843,672 507,773 1,335,899 73,747 55,650 1,206,502
Lakepointe 541,140 193,548 347,592 21,646 17,700 308,246
Lakeside 1,950,821 793,341 1,157,480 78,033 62,400 1,017,047
Marsh Oaks 554,190 207,710 346,480 22,168 18,000 306,312
Napa Valley 1,059,454 405,606 653,848 42,378 36,000 575,470
Park Haywood 864,729 358,917 505,812 34,589 31,200 440,023
Park Place 921,298 394,469 526,829 36,852 27,600 462,377
Pear Orchard 1,858,815 633,419 1,225,396 74,353 58,350 1,092,693
Savannah Creek 1,064,029 336,103 727,926 42,561 30,600 654,765
Shenandoah Ridge 1,010,734 447,505 563,229 40,429 40,800 482,000
Somerset 610,770 277,167 333,603 24,431 21,600 287,572
Southland Station I 820,371 271,009 549,362 32,815 24,000 492,547
Steeplechase 493,418 196,168 297,250 19,737 16,200 261,313
Sutton Place 1,253,028 384,296 868,732 50,121 37,800 780,811
Tiffany Oaks 1,434,237 513,365 920,872 57,369 43,200 820,303
Village, The 1,210,631 425,686 784,945 48,425 37,800 698,720
Westside Creek I 744,133 257,207 486,926 29,765 21,300 435,861
Williamsburg Village 689,330 241,678 447,652 27,573 22,200 397,879
Willow Creek 1,150,208 490,055 660,153 46,008 42,750 571,395
----------- ----------- ----------- ---------- -------- -----------
Total $28,444,324 $10,256,586 $18,187,738 $1,173,774 $892,050 $16,157,914
=========== =========== =========== ========== ======== ===========
TWELVE MONTHS ENDED DECEMBER 31, 1996
NET MANAGEMENT
OPERATING FEE CAPITAL ADJUSTED
MORTGAGED PROPERTY REVENUE EXPENSES INCOME ADJUSTMENT EXPENDITURES CASH FLOW
- ------------------ ------- -------- --------- ---------- ------------ ---------
Belmere $1,431,297 $558,026 $873,271 $57,252 $42,000 $774,019
Crosswinds 2,497,368 840,172 1,657,196 99,895 72,000 1,485,301
Fairways at Royal Oak 1,445,875 520,900 924,975 57,835 42,800 824,340
Hermitage at Beechtree 1,365,182 454,093 911,089 54,607 38,800 817,682
Hidden Lake II 1,073,673 423,947 649,726 42,947 32,000 574,779
High Ridge 1,365,157 466,802 898,355 54,606 32,000 811,749
Howell Commons 1,984,926 678,072 1,306,854 79,397 69,600 1,157,857
Kirby Station 2,348,728 649,808 1,698,920 93,949 74,200 1,530,771
Lakepointe 707,455 271,236 436,219 28,298 23,600 384,321
Lakeside 2,523,881 996,865 1,527,016 100,955 83,200 1,342,861
Marsh Oaks 717,166 242,233 474,933 28,687 24,000 422,246
Napa Valley 1,454,936 474,702 980,234 58,197 48,000 874,037
Park Haywood 1,123,514 408,860 714,654 44,941 41,600 628,113
Park Place 1,250,520 563,068 687,452 50,021 36,800 600,631
Pear Orchard 2,416,192 801,268 1,614,924 96,648 77,800 1,440,476
Savannah Creek 1,327,045 460,920 866,125 53,082 40,800 772,243
Shenandoah Ridge 1,314,522 604,810 709,712 52,581 54,400 602,731
Somerset 824,225 321,521 502,704 32,969 28,800 440,935
Southland Station I 1,109,454 359,419 750,035 44,378 32,000 673,657
Steeplechase 626,380 273,916 352,464 25,055 21,600 305,809
Sutton Place 1,590,725 465,826 1,124,899 63,629 50,400 1,010,870
Tiffany Oaks 1,852,892 761,932 1,090,960 74,116 57,600 959,244
Village, The 1,552,802 527,557 1,025,245 62,112 50,400 912,733
Westside Creek I 984,816 349,142 635,674 39,393 28,400 567,881
Williamsburg Village 877,292 308,493 568,799 35,092 29,600 504,107
Willow Creek 1,406,073 693,728 712,345 56,243 57,000 599,102
----------- ----------- ----------- ---------- ---------- -----------
Total $37,172,096 $13,477,315 $23,694,780 $1,486,885 $1,189,400 $21,018,495
=========== =========== =========== ========== ========== ===========
38
DESCRIPTION OF THE MORTGAGES
The following is a summary of certain provisions of the Mortgages not
described elsewhere in this Prospectus. This summary does not purport to be
complete and is qualified in its entirety by reference to the Mortgages. The
Mortgages will remain in place until the occurrence of the Permitted Merger and
Security Release. From and after the occurrence of the Permitted Merger and
Security Release, the Bonds will be the general unsecured obligations of MAALP
ranking in parity with all other unsecured debt of MAALP.
GENERAL
The Mortgages create first priority mortgage liens on the Mortgaged
Properties, including the Borrower's fee interest in each of the parcels of real
property on which such Mortgaged Properties are situated, and related assets.
The Mortgages will secure the payment in full of the Bonds and other charges
that may become due and payable under the Indenture.
SECURITY RELEASE
The Indenture provides that the Mortgage Liens will be subject to release
if and when each of the following conditions, among others, will occur: (i) the
unsecured indebtedness of MAALP, including the Bonds, is rated at least "Baa3 "
and "BBB-" by Moody's and S&P, respectively, and (ii) MAALP is a reporting
company under the Exchange Act, pursuant to an effective registration statement
on Form 10 (or any successor form). The Borrower will give written notice to the
Trustee which, in turn, will give notice to the Certificate holders, of the
anticipated Permitted Merger and Security Release at least 60 days prior to any
Security Release. Together with such notice, the Borrower will deliver copies of
the MAALP Exchange Act Reports and the Information Statement to each beneficial
owner of the Certificates. Upon proof of proper notice and delivery of the
Exchange Act Reports and the Information Statement, the Indenture Trustee will
release the Mortgage Liens, the Permitted Merger will occur and MAALP will
assume the obligations under the Bonds. Neither the Permitted Merger nor the
Security Release may occur if Advances are outstanding.
EFFECT OF SECURITY RELEASE
After the Permitted Merger and Security Release, the Bonds will be the
general unsecured obligations of MAALP ranking in parity with all other
unsecured indebtedness of MAALP, and persons previously holding Certificates
will thereafter have no claim against the Mortgaged Properties or any other
property of MAALP except as general unsecured creditors of MAALP.
REPRESENTATIONS, WARRANTIES, AND COVENANTS
Each Mortgage, or a separate certificate executed by the Borrower,
contains representations and warranties by the Borrower that are customary in
transactions similar to the issuance of the Bonds, including representations as
to the due formation of the Borrower; the authority of the Borrower to enter
into and to perform under the related loan documents; the authority of the
Borrower to conduct its business and its registration or qualification to do
business in the state of its organization and all states where the Mortgaged
Properties are located; the due authorization, execution and delivery of the
loan documents by the Borrower; the legality, validity and binding effect of the
loan documents and the enforceability thereof against the Borrower; any required
consents necessary to enter into and perform under the loan documents;
compliance with applicable laws (including zoning and environmental laws); the
absence of material defaults by the Borrower under other agreements; the payment
of taxes and other charges against the Mortgaged Properties; the absence of
material litigation; and the maintenance of all necessary permits.
Each Mortgage also contains certain representations, warranties, and
covenants by the Borrower with respect to each Mortgaged Property and other
collateral that are typical in commercial mortgages securing transactions
similar to the issuance of the Bonds, including (i) representations regarding
the Borrower's good title to the Mortgaged Property and (ii) covenants (a) to
maintain good title to the Mortgaged Property, (b) to maintain insurance
required with respect to the Mortgaged Property, (c) to comply in all material
respects with laws, a failure of which would have a material
39
adverse effect on the Borrower, the Mortgaged Property, or the Indenture
Trustee's interest therein, (d) to allow no liens to be created against the
Mortgaged Property and other collateral other than liens permitted by the
Indenture, the Mortgages and the Bonds (collectively, the "Loan Documents")
(subject to contract as set forth in the Mortgages) (e) except as otherwise
permitted in the Mortgage with respect to the Security Release, to make no sale
or assignment of any interest in the Mortgaged Property to anyone other than the
Indenture Trustee, except for the granting of customary easements and similar
rights in the ordinary course of business, (f) to pay property taxes,
assessments, and similar charges against the Mortgaged Property as they become
due, (g) to comply in all material respects with the terms of the Leases, (h) to
rebuild or restore the Mortgaged Property after a casualty or condemnation
(except where the Loan Documents provide that such repair or restoration is not
required), (i) to maintain the validity and priority of the Indenture Trustee's
security interest in the Mortgaged Property and other collateral, (j) to make no
amendment to the Leases without the prior consent of the Indenture Trustee
(except as permitted by the Loan Documents), and (k) not to be a party to any
merger, consolidation, or reorganization not permitted by the Loan Documents.
LIMITATIONS ON ADDITIONAL INDEBTEDNESS
Under each Mortgage, the Borrower has covenanted not to incur, assume or
guaranty any indebtedness other than (i) the indebtedness represented by the
Bonds and (ii) trade and operational debt incurred in the ordinary course of
business with trade creditors in such amounts as are normal and reasonable under
the circumstances, provided such debt is not evidenced by a note and is not
outstanding for more than sixty (60) days (or such longer period as any such
debt will be contested by the Borrower in good faith (collectively, the
"Permitted Indebtedness").
DISCHARGE OF LIENS
The Borrower has covenanted to discharge by payment or by procurement of
an appropriate surety bond, or otherwise, within 30 days after receiving written
notice of the filing thereof (and in any event before foreclosure is permitted
under law) any lien, encumbrance, or charge upon any Mortgaged Property not
permitted under the terms of the respective Mortgage (subject to certain rights
to contest those liens).
MAINTENANCE, REPAIR AND ALTERATIONS
The Borrower has covenanted in the Mortgages and the Indenture (i) to
maintain the Mortgaged Properties in good order and condition such that the
utility and operation of the Mortgaged Properties will not be affected in any
material adverse respect, subject to ordinary wear and tear and casualty, (ii)
subject to the provisions of the Mortgages regarding casualty and condemnation,
to make or cause to be made all necessary or appropriate repairs, replacements,
and renewals to the Mortgaged Properties, and (iii) not to commit or permit any
waste of the Mortgaged Properties or any part thereof.
The Borrower may make, or permit to be made, material alterations with
respect to a Mortgaged Property only with the consent of the Indenture Trustee.
INSURANCE
The Borrower is required to maintain (or cause to be maintained) until the
earlier to occur of (i) the Permitted Merger or (ii) the term of the Bonds,
insurance with respect to each Mortgaged Property against loss or damage by fire
or such other hazards as may be included in the form of "all risk" building
insurance from time to time available, in amounts sufficient to prevent the
Borrower or the Indenture Trustee from becoming a co-insurer, but in any case in
an amount equal to the replacement cost of the improvements (without considering
depreciation and exclusive of excavations and foundations), which may be
maintained in a blanket policy that insures other properties so long as there is
sufficient coverage to replace the Mortgaged Property. In addition, for each
Mortgaged Property, the Borrower will be required to maintain loss of income
insurance covering losses arising out of damage or destruction by fire and such
other hazards as may be included in the "all risk" building insurance carried as
described above. Such insurance may also be maintained in a blanket policy that
insures other properties so long as there is sufficient coverage to replace the
required cash flow from the Mortgaged Property. The Borrower is also required to
maintain boiler and machinery
40
insurance; comprehensive general liability insurance; and such other insurance
as is generally available on commercially reasonable terms and is generally
required by institutional lenders on loans secured by similar properties. If any
Mortgaged Property is in an area designated as flood prone or a flood risk area
or if flood insurance is required pursuant to the United States Flood Disaster
Protection Act of 1973, as amended or supplemented or under any subsequent law
then in effect, flood insurance with respect to such Mortgaged Property will be
maintained in an amount not less than the maximum amount available under the
Federal Flood Insurance Program. Required insurance coverage must be provided by
insurance carriers having minimum claims paying ability rating of "Aa or better
by Moody's and "AA" or better by S&P. Each policy of insurance must name the
Trustee as additional insureds or as loss payees.
TITLE INSURANCE
The Borrower has received title insurance loan policies in favor of the
Indenture Trustee for all of the Mortgaged Properties.
CASUALTY AND CONDEMNATION
In the event of any condemnation, the Borrower must continue to make its
payments on the Bonds and the Borrower is required to pay the amount of any
award or proceeds to the Indenture Trustee; provided, however, if there is no
event of default under the Mortgage, the costs of restoration do not exceed 20%
of the value of the improvements, the improvements comply with all building,
zoning and other land use laws and regulations; the restoration can be completed
within one year after such taking and six months prior to the Stated Maturity
Date, then such award will be made available to the Borrower for the
restoration.
FINANCIAL STATEMENTS AND OTHER INFORMATION
The Borrower or, after the Permitted Merger, MAALP is required to deliver
to the Indenture Trustee and the Rating Agencies, not later than 90 days after
the end of each fiscal year, audited financial statements prepared on an accrual
basis in accordance with GAAP for such year and certified by appropriate
officers of the Borrower or MAALP, as the case may be.
In addition, the Borrower or, after the Permitted Merger, MAALP is
required to deliver to the Indenture Trustee and the Rating Agencies (i) not
later than 45 days after the end of each fiscal quarter, unaudited financial
statements internally prepared on an accrual basis in accordance with GAAP for
such quarter, together with a certificate of appropriate officers of the
Borrower or MAALP, as the case may be, relating to such financial statements and
certifying as to the existence or nonexistence of an event of default and (ii)
not later than 20 Business Days after the end of each financial quarter, a
certificate of appropriate officers of the Borrower or MAALP, as the case may
be, setting forth the Pre-Permitted Merger Debt Service Coverage Ratio or the
Post-Permitted Merger Debt Service Coverage Ratio, as the case may be. The
Borrower is also required before the Permitted Merger to deliver to the
Indenture Trustee and the Rating Agencies certain additional operating and
financial reports with respect to the Mortgaged Properties.
THE BORROWER
OVERVIEW
The Borrower is a special purpose Delaware limited partnership. The
special purpose for which the Borrower has been formed is to hold, operate, own,
manage, renovate, improve, lease, mortgage and otherwise deal with the Mortgaged
Properties. The General Partner is a special purpose corporation organized under
the laws of the State of Delaware. The special purpose for which the General
Partner has been formed is to own the sole general partnership interest in the
Borrower; act as and exercise all of the authority of the general partner of the
Borrower; and do all acts necessary to satisfy the responsibilities of the
general partner of the Borrower.
41
The sole limited partner of the Borrower is MAALP, which is a majority
owned subsidiary of MAAC. MAALP is the operating partnership in the UPREIT
structure of MAAC, which is a self-administered and self-managed REIT. Twenty of
the Mortgaged Properties were contributed by MAALP to the Borrower in exchange
for a 99% limited partnership interest in the Borrower, and five of the
Mortgaged Properties were acquired directly by the Borrower utilizing part of
the proceeds from the MSMC Loan. One of the Mortgaged Properties was acquired by
the Borrower as a result of the merger of Hermitage at Beechtree, L.L.C., with
and into the Borrower. The only members of Hermitage at Beechtree, L.L.C. were
MAAC and MAALP. The General Partner contributed cash in the amount of $2,270,636
for a 1% general partnership interest in the Borrower.
The Borrower's principal executive offices are located at 1209 Orange
Street, Wilmington, Delaware 19801 and its telephone number is (302) 777-0205.
SPECIAL PURPOSE ENTITY COVENANTS
The Agreement of Limited Partnership of the Borrower (the "Partnership
Agreement") contains provisions restricting the Borrower from engaging in any
business other than the ownership, operation and financing of the Mortgaged
Properties and from incurring debt other than the Bonds or as permitted under
the Indenture, which includes certain trade accounts payable. In addition, the
Partnership Agreement contains provisions intended to reduce the likelihood that
the assets and liabilities of the Borrower would be consolidated with those of
any affiliate of the Borrower in the event of a bankruptcy of such affiliate,
including provisions prohibiting the commingling of assets of the Borrower with
the assets of its General Partner and requiring the maintenance of separate
books and records. Such provisions include the requirement that the General
Partner have at least one independent director and that such independent
director approve certain matters, including the filing of any bankruptcy
petition.
THE DEPOSITOR
The Depositor is a special purpose Delaware corporation, incorporated on
December , 1997. The business of the Depositor is limited by the terms of its
Certificate of Incorporation to the purchase of the Bonds, creation of the
Trust, causing the issuance by the Trust of the Certificates and the assignment
to the Trustee of the trust assets and activities related thereto. Under the
General Corporation Law of the State of Delaware and the Certificate of
Incorporation of the Depositor, the Certificate of Incorporation may be amended
only with the unanimous approval of the board of directors of the Depositor
including the independent directors of the Depositor and both (i) a majority of
the outstanding stock of the Depositor and (ii) a majority of the outstanding
stock of each class entitled to vote as a class. The Depositor will have only a
single class of stock. The sole stockholder of the Depositor is MAAC, which will
not be liable for the payment of the Certificates.
USE OF PROCEEDS
The proceeds from the offer and sale of the Certificates will be utilized
by the Depositor to purchase the Bonds from the Borrower. The net proceeds of
this offering will be used by the Borrower to repay certain indebtedness of the
Borrower to Morgan Stanley Mortgage Capital Inc. pursuant to the terms of a $140
million short-term promissory note. The proceeds from the MSMC Loan were used to
partially finance the acquisition of Flournoy Development Company and certain
related limited partnerships and other entities by MAAC and MAALP on November
25, 1997. Finally, any remaining net proceeds of this offering will be
distributed to the partners of the Borrower and used by such partners for
general corporate purposes, including acquisitions.
SELECTED FINANCIAL INFORMATION
The following table sets forth selected financial information on a pro
forma basis for the Borrower as of and for the nine months ended September 30,
1997 and for the year ended December 31, 1996, and on an historical combined
basis for Capital Properties Group ("CPG"), which is the predecessor of the
Borrower, as of and for each of the years in the five-year period ended December
31, 1996 as of and for the nine months ended September 30, 1997 and 1996
42
(unaudited). The historical combined operating data of the CPG for the years
ended December 31, 1996, 1995 and 1994 have been derived from the historical
combined financial statements audited by KPMG Peat Marwick LLP, independent
accountants, whose report with respect thereto is included elsewhere in this
Prospectus. The historical combined operating data for the nine months ended
September 30, 1997 and 1996 and the years ended December 31, 1993 and 1992 have
been derived from the unaudited combined financial statements of the CPG. In the
opinion of management, the historical combined operating data for the nine
months ended September 30, 1997 and 1996 and the years ended December 31, 1993
and 1992 include all adjustments (consisting only of normal recurring
adjustments) necessary to present fairly the information set forth therein.
The pro forma condensed combined financial information as of and for the
nine months ended September 30, 1997 and the year ended December 31, 1996 were
prepared as if at September 30, 1997: (i) the Borrower had issued the Bonds;
(ii) the Flournoy Reorganization had been consummated ; (iii) MAALP had
contributed 20 of the Mortgaged Properties to the Borrower in exchange for a 99%
limited partnership interest in the Borrower and the contributed Mortgaged
Properties were recorded at MAALP's historic costs; (iv) 5 of the Mortgaged
Properties had been acquired by the Borrower; (v) Hermitage at Beechtree, L.L.C.
had merged with and into the Borrower; (vi) the MSMC Loan had been originated;
(vii) the Mortgaged Properties had all been acquired by CPG prior to January 1,
1996; and (viii) $116 million of the net proceeds of the MSMC Loan had been
distributed to MAALP.
The following selected financial information should be read in conjunction
with the discussion set forth in "Management's Discussion and Analysis of
Financial Condition and Results of Operations, the unaudited pro forma condensed
financial statements, and all of the financial statements included elsewhere in
this Prospectus. The pro forma financial information is not necessarily
indicative of what the actual financial position and results of operations of
the Borrower would have been as of and for the periods indicated, nor does it
purport to represent the future financial position and results of operations for
future periods.
43
Mid-America Capital Partners, L.P. (Pro Forma) and
Capital Properties Group (Historical Combined)
(in thousands except Property Data)
NINE MONTHS ENDED SEPTEMBER 30, YEAR ENDED DECEMBER 31,
------------------------------ -----------------------------------------------------
Partnership Partnership
Pro Forma CPG Historical Pro Forma CPG Historical
1997 1997 1996 1996 1996 1995 1994 1993 1992
-------- -------- -------- -------- ------- ------- ------ ------- ----
(UNAUDITED) (UNAUDITED) (UNAUDITED) (UNAUDITED)
Statement of Operations Data:
Revenue:
Rental ................................. $ 28,128 $ 22,233 $ 13,788 $ 36,710 $20,056 $14,321 $4,568 $ 791 $513
Other .................................. 364 187 143 581 195 176 185 51 31
-------- -------- -------- -------- ------- ------- ------ ------- ----
Total Revenue ....................... $ 28,492 22,420 13,931 37,291 20,251 14,497 4,753 842 544
Expenses (1):
Property expenses (2) .................. 10,311 7,934 5,128 13,553 7,207 5,306 1,688 362 230
Depreciation of real property and
amortization .......................... 5,917 4,588 2,695 7,355 3,981 2,600 750 120 94
Depreciation of non-real assets ........ 27 19 13 42 19 14 5 5 4
General and administrative expenses .... 1,253 -- -- 1,642 -- -- -- -- --
Interest .............................. 7,159 724 1,631 9,546 2,169 2,225 925 226 172
Amortization of deferred financing costs 476 35 44 634 58 48 37 -- --
-------- -------- -------- -------- ------- ------- ------ ------- ----
Net Income ................................ 3,349 9,120 4,420 4,519 6,817 4,304 1,348 129 44
======== ======== ======== ======== ======= ======= ====== ======= ====
Balance Sheet Data:
Real estate owned, at cost ................ $226,355 181,040 136,803 -- 158,285 87,240 73,521 6,027 2,330
Real estate owned, net .................... 214,161 168,846 130,508 -- 150,699 83,653 72,548 5,772 2,177
Total assets .............................. 220,238 169,057 130,967 -- 151,257 84,216 73,499 6,523 2,593
Total debt ................................ 144,000 -- 22,595 -- 16,461 22,830 23,110 4,740 2,357
Partners' equity (deficit) ................ 75,532 165,848 130,967 -- 131,951 59,978 48,938 1,454 (47)
Other Data (at end of period):
Number of Mortgaged Properties ............ 26 20 16 26 18 12 10 2 1
Number of apartment units ................. 5,947 4,804 3,786 5,947 4,314 2,554 2,290 316 108
EBITDA (3) ................................ 16,928 -- -- 22,096 -- -- -- -- --
Adjusted EBITDA (4) ....................... 16,036 -- -- 20,907 -- -- -- -- --
Debt Service Coverage Ratio (5) ........... 2.24x -- -- 2.19x -- -- -- -- --
Adjusted Debt Service Coverage Ratio (6)... 1.61x -- -- 1.57x -- -- -- -- --
Ratio of Earnings to Fixed Charges (7) .... 1.44x 13.02x 3.64x 1.44x 4.06x 2.81x 2.40x 1.57x 1.26x
(1) Certain general and administrative expenses and other costs which are
incurred by MAALP on behalf of CPG are not included in the historical
financial statements. The Partnership will pay a management fee, equal to
4% of revenues, to MAALP for providing these services.
(2) See "Management's Discussion and Analysis of Financial Condition and
Results of Operations - Capital Expenditures."
(3) Earnings before interest taxes depreciation and amortization ("EBITDA")
represents net income before extraordinary items and minority interest,
computed in accordance with GAAP, adjusted for gains on dispositions of
properties, interest expense, federal income taxes, depreciation and
amortization. EBITDA should not be considered as a substitute for net
income or any other GAAP measurement of performance, as an indication of
operating performance or as an alternative to cash flows from operating,
investing and financing activities as a measure of liquidity.
(4) For purposes of this computation, adjusted EBITDA consists of EBITDA as
defined in (3) above less a $200 per apartment unit capital expenditure
reserve per annum. A management fee of 4% of revenue is included in the
proforma general and administrative expenses.
(5) Debt service coverage ratio is computed as a ratio of adjusted EBITDA to
interest expense.
(6) Adjusted debt service coverage ratio is defined as adjusted EBITDA divided
by adjusted interest. Adjusted interest is calculated based on an assumed
9.25% annual debt service constant and $144,000,000 of pro-forma total
indebtedness.
(7) Ratio of earnings to fixed charges is computed by dividing net income by
fixed charges. Fixed charges consist of interest expense (including
interest costs capitalized and amortization of deferred financing costs).
44
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
The following is a discussion of the combined financial condition and
results of operations of CPG for the nine months ended September 30, 1997 and
1996 and for the years ended December 31, 1996, 1995, and 1994. This discussion
should be read in conjunction with the financial statements included in this
Prospectus. These financial statements include all adjustments which are, in the
opinion of management, necessary to reflect a fair statement of the results for
the interim periods presented, and all such adjustments are of a normal
recurring nature.
CAPITAL EXPENDITURES
Following a review of its capital expenditure and depreciation policy,
effective January 1, 1996, CPG implemented a new policy of which the primary
changes are as follows:
(a) Increase minimum dollar amounts to capitalize from $500 to $1,000;
(b) For stabilized Mortgaged Properties (generally, Mortgaged Properties
owned and operated by CPG for at least one year), capitalize
replacement purchases for major appliances and carpeting of an
entire apartment unit which was previously expensed; and
(c) Reduce depreciation life for certain assets from 20 years to 10 to
15 years.
CPG believes that the newly adopted accounting policy is preferable because it
is consistent with policies currently being used by the majority of the largest
apartment REITs and provides a better matching of expenses with the estimated
benefit period. CPG's 1995 and 1994 financial statements were not restated for
the effect of the change in accounting policy. The policy has been implemented
prospectively effective January 1, 1996.
RESULTS OF OPERATIONS
COMPARISON OF NINE MONTHS ENDED SEPTEMBER 30, 1997 TO THE NINE MONTHS ENDED
SEPTEMBER 30, 1996
The total number of apartment units owned at September 30, 1997 was 4,804
in 20 apartment communities, compared to 3,786 in 16 apartment communities at
September 30, 1996. Average monthly rental per apartment unit increased to $546
at September 30, 1997 from $525 at September 30, 1996. Overall occupancy was
96.4% at September 30, 1997 compared to 99.2% at September 30, 1996.
Total revenues for the nine months ended September 30, 1997 increased by
approximately $8,489,000 due primarily to (i) approximately $6,219,000 from the
apartment communities acquired in 1996, (ii) approximately $1,868,000 from the
apartment communities acquired in 1997, and (iii) approximately $402,000 from
the apartment communities owned throughout both periods.
Property operating expenses for the nine months ended September 30, 1997
increased by approximately $2,806,000 due primarily to (i) approximately
$2,074,000 from the apartment communities acquired in 1996, (ii) approximately
$635,000 from the apartment communities acquired in 1997, and (iii)
approximately $97,000 from the apartment communities owned throughout both
periods. Utility costs increased from 4.6% of revenue to 4.2% of revenue for the
nine months ended September 30, 1997 compared to the same period a year earlier,
due primarily to the further installation of approximately 1,795 individual
apartment unit water meters.
Depreciation and amortization expense increased approximately $1,890,000
for the nine months ended September 30, 1997 compared to the same period a year
earlier primarily due to depreciation expense for (i)
45
approximately $1,325,000 from the apartment communities acquired in 1996, (ii)
approximately $374,000 from the apartment communities acquired in 1997, and
(iii) approximately $191,000 from the apartment communities owned throughout
both periods.
Interest expense decreased approximately $907,000 during the nine months
ended September 30, 1997 compared to the same period a year earlier primarily
due to the repayment of all debt in 1997. The average borrowing cost of CPG's
debt was 8.7% at September 30, 1996.
COMPARISON OF YEAR ENDED DECEMBER 31, 1996 TO THE YEAR ENDED DECEMBER 31, 1995
During the 1996 period, CPG acquired 6 apartment communities. The total
number of apartment units owned at December 31, 1996 was 4,314 in 18 apartment
communities, compared to 2,554 in 12 apartment communities at December 31, 1995.
Average monthly rental per apartment unit increased to $532 at December 31, 1996
from $506 at December 31, 1995. Overall occupancy at December 31, 1996 and 1995
was 95.9% and 96.1%, respectively.
Total revenues for 1996 increased by approximately $5,754,000 due
primarily to (i) approximately $4,820,000 from the 6 apartment communities
acquired in 1996, (ii) approximately $465,000 from a full year's operation of
the 2 apartment communities acquired in 1995, and (iii) approximately $469,000
from the apartment communities owned throughout both periods.
Property operating expenses for 1996 increased by approximately $1,901,000
due primarily to (i) approximately $1,674,000 from the 6 apartment communities
acquired in 1996 (ii) approximately $143,000 from a full year's operations of
the 2 apartment communities acquired in 1995, and (iii) approximately $84,000
from the apartment communities owned throughout both periods. As a percentage of
revenue, property operating expenses decreased to 35.6% from 36.6% for the year
ended December 31, 1996 and 1995, respectively. Utility costs decreased from
5.2% of revenue to 4.6% of revenue for the year ended December 31, 1996 compared
to the same period a year earlier, due primarily to the installation of 1,276
individual apartment unit water meters.
Depreciation and amortization expense increased approximately $1,396,000
for the year ended December 31, 1996 compared to the same period a year earlier
primarily due to depreciation expense of (i) approximately $893,000 from the 6
apartment communities acquired in 1996, (ii) approximately $97,000 from the 2
apartment communities acquired in 1995, and (iii) approximately $406,000 from
the apartment communities owned throughout both periods.
Interest expense decreased approximately $56,000 during 1996 due primarily
to the scheduled loan maturity of the Kirby Station debt. CPG increased the
average borrowing cost to 9.4% at December 31, 1996 as compared to 8.7% on
December 31, 1995.
COMPARISON OF YEAR ENDED DECEMBER 31, 1995 TO THE YEAR ENDED DECEMBER 31, 1994
The total number of apartment units owned at December 31, 1995 was 2,554
in 12 apartment communities, compared to 2,290 in 10 apartment communities at
December 31, 1994. Average monthly rental per apartment unit increased to $506
for 1995 from $500 for 1994. Overall occupancy was 96.1% at December 31, 1995
and 1994.
Total revenues for 1995 increased by approximately $9,744,000 due
primarily to (i) approximately $1,076,000 from the 2 apartment communities
acquired, (ii) approximately $8,643,00 from a full year's operation of 10
apartment communities acquired in 1994, and (iii) approximately $25,000 from the
apartment communities owned throughout both periods.
Property operating expenses increased by approximately $3,618,000 over
1994. The increase primarily resulted from (i) approximately $421,000 of
operating expense from the 2 apartment communities acquired in 1995, (ii)
approximately $2,655,000 for full year's operation of the 10 apartment
communities acquired in 1994, and (iii) approximately $542,000 from the
apartment communities owned throughout both periods. As a percentage of revenue,
property operating expenses increased to 36.6% from 35.5% for the year ended
December 31, 1995 and 1994,
46
respectively. During 1995, approximately $90,000 was expensed for replacement of
appliances and carpets compared to approximately $44,000 for 1994.
Depreciation and amortization expense increased approximately $1,869,000
for the year ended December 31, 1995 compared to the same period a year earlier
primarily due to depreciation expense for (i) approximately $210,000 from the 2
apartment communities acquired in 1996, (ii) approximately $1,622,000 from the
10 apartment communities acquired in 1994, and (iii) approximately $37,000 for
the apartment communities owned throughout both periods.
Interest expense increased approximately $1,300,000 during 1995 due to
apartment communities acquired during the year. CPG's average borrowing cost was
8.7% at December 31, 1995 and 1994.
LIQUIDITY AND CAPITAL RESOURCES
Net cash flow provided by operating activities increased by approximately
$5,798,000 for the nine months ended September 30, 1997 from approximately
$8,598,000 for the nine months ended September 30, 1996. The increase in net
cash flow was primarily due to an increase in net income, depreciation and
amortization, and accrued expenses and liabilities. Net cash flow provided by
operating activities increased by approximately $5,219,000 for the year ended
December 31, 1996 from approximately $7,012,000 for the year ended December 31,
1995. The increase in net cash flow was primarily due to an increase in net
income, depreciation and amortization, and accrued expenses and liabilities.
This increase in net cash flow provided by operating activities was offset by an
increase in restricted cash due to an increase in other mortgage escrows and
replacement reserves.
Net cash flow used in investing activities decreased by approximately
$26,808,000 for the nine months ended September 30, 1997 from approximately
$49,563,000 for the nine months ended September 30, 1996. Capital improvements
to existing properties totaled approximately $3,544,000 for the nine months
ended September 30, 1997, compared to approximately $3,182,000 for the same
period in 1996. Of the $3,501,000 in capital improvements approximately
$1,019,000 was for recurring capital expenditures, including carpet and
appliances, approximately $893,000 was for revenue enhancing projects,
approximately $1,590,000 was for acquisition capital with the remaining balance
for other miscellaneous items. Net cash flow used in investing activities
increased by approximately $57,326,000 for the year ended December 31, 1996 from
approximately $13,719,000 for the year ended December 31, 1995. Capital
improvements to existing properties totaled approximately $4,819,000 for the
year ended December 31, 1996, compared to approximately $155,000 for the same
period in 1995. Of the $4,819,000 in capital improvements approximately
$1,514,000 was for recurring capital expenditures, including carpet and
appliances, approximately $941,000 was for revenue enhancing projects,
approximately $2,282,000 was for acquisition capital with the remaining balance
for other miscellaneous spending. For the stabilized apartment units, recurring
capital expenditures averaged $351 per apartment unit. Construction in progress
for new apartment units decreased to approximately $1,588,000 for the year ended
December 31, 1996 due primarily to no new apartment unit construction.
Net cash flow provided by financing activities decreased by approximately
$32,596,000 during the nine months ended September 30, 1997 from approximately
$40,913,000 for the same period in 1996. The principal uses of cash from
financing activities were approximately $16,460,000 for repayment of notes
payable, approximately $5,713,000 for contributions by the partners, and
$19,064,000 for contribution of properties to CPG. Net cash flow used by
financing activities increased by approximately $52,331,000 during the year
ended December 31, 1996 from approximately $6,455,000 for the year ended
December 31, 1995. The principal uses of the cash included approximately
$6,370,000 for the repayment of notes payable, approximately $110,000 for
distributions to the partners, and $65,266,000 for contribution of properties to
CPG.
CPG believes that cash provided by operations is adequate and anticipates
that it will continue to be adequate in both the short and long-term to meet
operating requirements (including recurring capital expenditures at the
Mortgaged Properties).
47
INSURANCE
In the opinion of management, property and casualty insurance is in place
which provides adequate coverage to provide financial protection against normal
insurable risks such that it believes that any loss experienced would not have a
significant impact on CPG's liquidity, financial position, or results of
operations.
INFLATION
Substantially all of the resident leases at the Mortgaged Properties
allow, at the time of renewal, for adjustments in the rent payable thereunder,
and thus may enable CPG to seek rent increases. The substantial majority of
these leases are for one year or less. The short-term nature of these leases
generally serves to reduce the risk to CPG of the adverse effects of inflation.
RISKS ASSOCIATED WITH FORWARD-LOOKING STATEMENTS
The Management's Discussion and Analysis of Financial Condition and
Results of Operations contains certain forward-looking statements. These
statements include the plans and objectives of management for future operations,
including plans and objectives relating to capital expenditures and
rehabilitation costs on the apartment communities. The forward-looking
statements included herein are based on current expectations that involve
numerous risks and uncertainties which are discussed in "Risk Factors" in this
Prospectus. Although CPG believes that the assumptions underlying the
forward-looking statements are reasonable, any of the assumptions could be
inaccurate and, therefore, there can be no assurance that the forward-looking
statements included in this Prospectus will prove to be accurate. In light of
the significant uncertainties inherent in the forward-looking statements
included herein, the inclusion of such information should not be regarded as a
representation by CPG or any other person that the objectives and plans of CPG
will be achieved.
48
MANAGEMENT OF THE BORROWER
DIRECTORS AND EXECUTIVE OFFICERS
The business affairs of the Borrower will be managed by the General
Partner; provided that the day-to-day operation of the Mortgaged Properties will
be managed by MAALP pursuant to the terms of a Management Agreement between the
Borrower and MAALP. The Company's directors and executive officers are as
follows:
NAME POSITION WITH TERM EXPIRES POSITION WITH MAAC
BORROWER
George E. Cates Director 1998 Chairman of the Board of Directors and
Chief Executive Officer
H. Eric Bolton, Jr. Director 1998 Director, President and Chief Operating Officer
Stephen M. Carpenter Independent Director 1998(1) None
Howard Eddings, Jr. Independent Director 1998(1) None
Simon R.C. Wadsworth President Director, Executive Vice President and
Chief Financial Officer
Lynn A. Johnson Secretary/Treasurer Vice President and Secretary/Treasurer
- ----------
(1) The Articles of Incorporation of the General Partner provide that the
General Partner will at all times have at least one "independent director"
which is defined as a director of the General Partner who is not and has
not been at any time during the five (5) years preceding the time of
initial appointment: (a) a stockholder, director, officer, employee,
partner, attorney or counsel of the General Partner, the Borrower, or any
affiliate of either of them; (b) a customer, supplier or other person who
derives more than 10% of its purchases or revenues from its activities
with the General Partner, the Borrower, or any affiliate of either of
them; (c) a person or other entity controlling or under common control
with any such stockholder, partner, customer, supplier or other person; or
(d) a member of the immediate family of any such stockholder, director,
officer, employee, partner, customer, supplier or other person.
The following is a biographical summary of the experience of the directors
and executive officers of the Company:
GEORGE E. CATES. Mr. Cates is the Chief Executive Officer and Chairman of
the Board of Directors of MAAC, positions he has held since MAAC's inception.
Mr. Cates founded The Cates Company in 1977 and served as its president and
chief executive officer until its merger with MAAC in February 1994. Mr. Cates
received a B.S. in industrial engineering from Georgia Tech. From 1970 to 1977,
Mr. Cates was a shareholder and general manager of Walk Jones and Francis Mah,
Inc., architects and engineers. Prior to that, he served in a number of
manufacturing, sales and marketing positions with the Buckeye Cellulose division
of Procter & Gamble. Mr. Cates is past Chairman of the Board of Memphis Light,
Gas and Water Division, past president of the Memphis Apartment Council, past
Vice Chairman of the Memphis and Shelby County Airport Authority and is
currently a trustee of Rhodes College. Mr. Cates is also a director of First
Tennessee National Corporation. Mr. Cates is 60 years old.
H. ERIC BOLTON, JR. Mr. Bolton has been an employee of MAAC since 1994.
Mr. Bolton joined MAAC as its Vice-President of Development and was named Chief
Operating Officer in February 1996. In December 1996, Mr. Bolton was appointed
to serve as President of MAAC and was appointed as a member of the Board of
Directors of MAAC in February 1997. Mr. Bolton has over 10 years of real estate
experience and prior to joining MAAC was
49
Executive Vice President and Chief Financial Officer of Trammell Crow Realty
Advisors. He received a B.BA. in accounting from the University of Memphis and
an M.B.A. in finance and real estate from the University of North Texas. Mr.
Bolton is 41 years old.
HOWARD EDDINGS, JR. Mr. Eddings is President of the Memphis Leadership
Foundation. From 1991 to 1996, Mr. Eddings served as Vice-President of Field
Ministries for the Memphis Leadership Foundation. Mr. Eddings received a B.A.
degree in Social Work from the University of Memphis. Mr. Eddings is 36 years
old.
STEPHEN M. CARPENTER. Rev. Carpenter is the Principal/founder of New Hope
Christian Academy in Memphis, Tennessee; established June, 1995 and is an
ordained Episcopal minister serving at The Church of the Holy Communion,
Memphis, Tennessee. Prior to Seminary, Mr. Carpenter was a computer programmer
for two years and a Pension Plan Consultant and Administrator for five years.
His formal education includes a B.B.A. from the University of Texas, Austin and
an M.Div. from Princeton Theological Seminary. Rev. Carpenter is 33 years old.
SIMON R. C. WADSWORTH. Mr. Wadsworth is Executive Vice President, Chief
Financial Officer and a director of MAAC. Mr. Wadsworth joined MAAC in March
1994, but acted as a consultant to the Company from the time the Initial
Offering was completed until being named to his current positions. Mr. Wadsworth
is the President and 85% shareholder of TMF, Inc., an industrial equipment
dealership which he acquired in 1981. Mr. Wadsworth spends less than two hours
per week on TMF, Inc. business, which is managed by professional management.
From 1976 to 1980, he was Director of Corporate Development for Holiday Inns,
Inc., and from 1973 to 1976 was Budget Director for Royal Crown Companies. Mr.
Wadsworth received a B.A. with honors from Cambridge University and an M.B.A.
(concentrating in finance and accounting) from the Harvard Graduate School of
Business. Mr. Wadsworth is 50 years old.
LYNN A. JOHNSON. Ms. Johnson is Vice President, Secretary and Treasurer of
MAAC. Ms. Johnson is a CPA and has an M.B.A. in accountancy from the University
of Memphis. Ms. Johnson joined The Cates Company, MAAC's predecessor, in 1992
as controller. Prior to joining The Cates Company, Ms. Johnson was employed as
controller for Poag & Thomason, a real estate development firm. Ms. Johnson is
46 years old.
EXECUTIVE COMPENSATION
None of the directors or executive officers of the General Partner, with
the exception of Mr. Carpenter and Mr. Eddings, will receive any compensation
for serving in such positions. Mr. Carpenter and Mr. Eddings will each be paid a
stipend of $100 per month for serving as a director of the General Partner.
CERTAIN INFORMATION REGARDING MAALP AND MAAC
OVERVIEW
MAAC is a Memphis-Tennessee based self-administered and self-managed
UPREIT whose common stock is traded on the New York Stock Exchange under the
symbol "MAA." MAAC is the sole general partner of MAALP and owns an
approximately 84.5% interest in MAALP (MAAC and MAALP being hereinafter referred
to as the "Company" where the context so requires). The Company seeks to acquire
apartment communities appealing to middle and upper income residents primarily
in mid-size cities in the southeastern United States and Texas. Approximately
72% of the Company's apartment units are located in Tennessee, Georgia, Florida
and Texas markets. The Company's strategic focus is to provide its residents
high quality apartment units in attractive community settings, characterized by
extensive landscaping and attention to aesthetic detail. The Company utilizes
its experience and expertise in maintenance, landscaping, marketing and
management to effectively "reposition" many of the apartment communities it
acquires to raise occupancy levels and per unit average rentals. The Company's
principal executive offices are located at 6584 Poplar Avenue, Suite 340,
Memphis, Tennessee 38138, and its telephone number is (901) 682-6600.
Founded in 1977 by George E. Cates, MAAC's Chairman of the Board of
Directors and Chief Executive Officer, MAAC's predecessor grew from an operator
of a single 252-unit apartment community in Memphis, Tennessee into a
fully-integrated owner and operator of 5,580 apartment units in 22 apartment
communities in four southeastern states immediately prior to the Company's
initial public offering in February 1994 (the "Initial Offering"). At the time
of the Initial Offering, all of the apartment communities were transferred to
MAALP, and MAAC commenced its operations in an UPREIT structure, with MAALP
being solely responsible for the operation, maintenance, landscaping and other
management duties in respect of the apartment communities.
On November 25, 1997, the Company acquired from Flournoy Development
Company ("FDC"), a Columbus, Georgia-based apartment construction, development
and management company, and certain related property partnerships
50
(the "Property Partnerships"), 31 apartment communities containing an aggregate
of 7,571 apartment units located primarily in Georgia, Florida, South Carolina
and Tennessee, by means of the merger of FDC into MAAC (the "FDC Merger") and
the acquisition by MAALP of certain apartment communities and partnership
interests in certain Property Partnerships (collectively, the "Flournoy
Reorganization"). In addition, the Company acquired from FDC the construction in
progress of four new apartment communities and five additions to existing
apartment communities, which, in the aggregate, represents the construction of
1,570 new apartment units (the "Development Properties"). After consummation of
the Flournoy Reorganization, the Company owned 114 apartment communities
containing 30,726 apartment units in 13 states, a 450% increase over the number
of apartment units owned at the time of the Initial Offering.
PRESENT AND ANTICIPATED OPERATING STRUCTURE OF THE COMPANY
By means of the FDC Merger, MAAC acquired the Development Properties and
partnership interests in 28 Property Partnerships (the "FDC-owned Partnership
Interests"), which assets at the time of acquisition had an aggregate value of
approximately $27.6 million. The remaining assets were acquired in the Flournoy
Reorganization by MAALP. Consequently, immediately after the Flournoy
Reorganization both MAAC and MAALP owned substantial portions of the historical
assets of FDC and the Property Partnerships.
The FDC Merger was structured as a tax-free reorganization under Section
368(a)(1)(A) of the Code. Pursuant to two separate General Counsel Memoranda
issued by the Internal Revenue Service (the "IRS"), the IRS has privately ruled
that a merger will not qualify as a tax-free reorganization under the Code if a
substantial amount of the assets received by the surviving entity in the merger
were transferred to a partnership (as opposed to a controlled corporation, which
transfer is permitted by the Code) immediately after consummation of the merger.
In January 1997, the Department of Treasury issued proposed regulations that
would permit certain post-merger transfers of assets to partnerships,
effectively reversing the prior IRS position. However, the proposed regulations
expressly do not apply to transactions consummated or subject to definitive
agreements prior to the adoption of final regulations. As of this time, final
regulations have not been adopted. Counsel has advised MAAC that the IRS might
successfully assert that the FDC Merger did not qualify as a tax-free
reorganization under the Code if MAAC were to transfer the Development
Properties and the FDC-owned Partnership Interests to MAALP.
If the FDC Merger were to fail to qualify as a tax-free reorganization
under the Code, MAAC and the former shareholders of FDC would incur substantial
tax liabilities. Therefore, in order to preserve the status of the FDC Merger as
a tax-free reorganization, MAAC has agreed not to transfer the Development
Properties and the FDC-owned Partnership Interests to MAALP for a period of two
years after consummation of the Flournoy Reorganization without the consent of
the former FDC shareholders. Until the Development Properties and FDC-owned
Partnership Interests are transferred from MAAC to MAALP, MAAC will retain
substantial interests in the real estate assets represented by the Development
Properties and the FDC-owned Partnership Interests and will not be able to
operate exclusively through its preferred UPREIT structure. The Company believes
that the inability of MAAC to transfer those assets to MAALP and operate
exclusively through its UPREIT structure will preclude MAALP from obtaining the
ratings from the Rating Agencies necessary to effect the Permitted Merger and
Security Release. At the end of such restricted period, MAAC intends to transfer
all real estate assets then-owned by it, including the Development Properties
and the FDC-owned Partnership Interests, to MAALP and to seek the ratings for
the unsecured debt of MAALP from the Rating Agencies required as a condition to
the Permitted Merger and Security Release.
Accordingly, included or incorporated by reference into this Prospectus
are Consolidated Summary Financial and Operating Data and consolidated financial
statements for MAAC, which include 100% of the assets, liabilities and
operations of MAALP as a consolidated subsidiary of MAAC. MAAC believes that
such information more accurately presents the financial condition, results of
operations, cash flow and other operating data that would be considered
important by Certificate holders as prospective holders of the Bonds following
the Permitted Merger and Security Release, at which time the Bonds will be the
general, unsecured obligations of MAALP, than would the same information for
either MAAC or MAALP on an unconsolidated, "standalone" basis. See " -- Summary
Consolidated Financial and Operating Data" and "Incorporation by Reference." At
least 60 days prior to the Permitted Merger and Security Release, MAALP will
cause the Trustee to distribute the Exchange Act Reports to the holders of
Certificates, which Exchange Act Reports will contain consolidated audited and
unaudited financial information concerning MAALP. The Company
51
believes that at such time, the Development Properties and FDC-owned Partnership
Interests will have been contributed by MAAC to MAALP and that substantially all
of the Company's assets and operations at such time will be held and conducted
by MAALP and its subsidiaries, including the Borrower.
SUMMARY CONSOLIDATED FINANCIAL AND OPERATING DATA FOR THE COMPANY
The following table sets forth summary financial and operating information
on an historical basis for the Company and its predecessor. See " -- Present and
Anticipated Operating Structure" immediately above. The following information
should be read in conjunction with all of the financial statements and notes
thereto included in the Quarterly Report on Form 10-Q for the quarter and
nine-month period ended September 30, 1997, and the Annual Report on Form 10-K
for the year ended December 31, 1996, which are incorporated by reference
herein. Also set forth below are summary unaudited pro forma financial,
operating and other data for the Company as of and for the nine months ended
September 30, 1997 and the year ended December 31, 1996 which should be read in
conjunction with the unaudited pro forma condensed combined financial statements
included in the Company's Current Report on Form 8-K/A, dated September 17, 1997
and filed with the Securities and Exchange Commission on November 14, 1997
incorporated by reference herein. The unaudited pro forma balance sheet data at
September 30, 1997 have been prepared as if the following had occurred at
September 30, 1997: (i) consummation of the offering and sale of 1,875,000
shares of MAAC's 8 7/8% Series B Cumulative Preferred Stock and the application
of the net proceeds thereof; (ii) consummation of the Flournoy Reorganization;
(iii) the establishment of the MSMC Loan and the Company's initial anticipated
borrowings thereunder; (iv) the issuance and sale of 3,499,300 shares of the
Company's Common Stock for an aggregate net purchase price of $92.8 million and
the related use of such proceeds; (v) the acquisition of one apartment community
containing an aggregate of 194 apartment units for an aggregate cash purchase
price of $8.9 million, subsequent to September 30, 1997.
The unaudited pro forma statements of operations data have been prepared
as if, at January 1, 1996, in addition to the transactions described above, the
following had occurred: (i) the acquisition of seven Mortgaged Properties in
1996 and of ten Mortgaged Properties in 1997; (ii) the disposition of three
Mortgaged Properties in 1996 for aggregate cash consideration of $17.8 million;
(iii) the issuance and sale in 1996 of 2,000,000 shares of MAAC's 9.5% Series A
Cumulative Preferred Stock for an aggregate net cash price of $47.8 million and
the related use of such proceeds; (iv) the issuance and sale in 1997 of
2,300,000 shares of the Company's Common Stock for an aggregate net cash price
of $62.6 million and the related use of such proceeds; and (v) the Company
qualified as a REIT and distributed all of its taxable income for the periods
presented and, therefore, incurred no income tax.
The pro forma financial data are not necessarily indicative of what the
actual financial position or results of operations of the Company would have
been as of the date or for the periods indicated, nor do they purport to
represent the results of operations or financial position for future periods.
This data should be read in conjunction with the historical financial statements
of the Company and "Management's Discussion and Analysis of Financial Condition
and Results of Operations" in the Forms 10-Q and Form 10-K described above and
incorporated into the accompanying Prospectus by reference. In the opinion of
management, the operating data for the periods presented include all adjustments
(consisting only of normal recurring adjustments) necessary to present fairly
the information set forth therein.
52
MID-AMERICA APARTMENT COMMUNITIES, INC.
SUMMARY FINANCIAL AND OPERATING DATA
(Dollars in thousands except per share and property data)
NINE MONTHS ENDED SEPTEMBER 30,
------------------------------------
(Unaudited)
Historical Pro-
Pro-Forma -------------------- Forma
1997 1997 1996 1996
----------- -------- -------- --------
OPERATING DATA:
Revenue:
Property
Rental ......................... $ 139,917 $ 95,388 $ 81,527 $177,827
Other .......................... 3,102 1,566 1,347 3,951
Property management ............... 1,036 -- -- 1,319
Development ....................... 614 -- -- 2,046
Construction, net ................. 631 -- -- 1,854
Miscellaneous ..................... 672 -- -- 1,259
Total revenue .................. 145,972 96,954 82,874 188,256
Expenses:
Property Expenses (2) ............. 54,092 36,928 31,795 68,785
General and administrative (3) .... 8,180 4,707 4,621 10,587
Property management ............... 576 -- -- 715
Interest .......................... 33,012 20,271 19,502 42,116
Depreciation and amortization ..... 30,226 19,798 16,175 38,713
Other, net (4) .................... (875) -- -- 640
Gain on disposition of properties . -- -- 1,944 --
Income before minority interest
and extraordinary item ............ 20,761 15,250 12,725 26,700
Net income ........................ 17,854 12,678 10,384 22,962
Preferred dividends ............... 6,682 3,562 -- 8,910
Net income available for
common shares ................. 11,172 9,116 10,384 14,052
Net income per weighted average
common share outstanding ...... $ .61 $ .71 $ .95 $ .76
Weighted average
Common Shares outstanding ..... 18,451 12,793 10,982 18,451
BALANCE SHEET DATA:
Real estate owned, at cost ........ $ 1,191,470 $783,545 $624,496 --
Total assets ...................... 1,158,440 737,291 600,115 --
Total debt ........................ 594,784 382,058 347,541 --
Minority interest ................. 63,076 45,383 39,623 --
Shareholders' equity (owners'
deficit) .......................... 466,440 290,499 196,189 --
OTHER DATA:
Dividends declared per share ...... -- $ 1.07 $ 1.02 --
Ratio of total debt to total
capitalization (5) ................ 44.8% 42.2% 50.8% --
Number of properties .............. 114 82 72 --
Number of apartment units ......... 30,726 22,085 18,992 --
EBITDA (6) ........................ 83,124 -- -- 108,169
Debt Service
Coverage Ratio (7) ............. 2.52x -- -- 2.57x
YEAR ENDED DECEMBER 31,
----------------------------------------------------------
Historical
----------------------------------------------------------
1996 1995 1994(1) 1993 1992
-------- -------- -------- --------- ---------
(Predecessor)
OPERATING DATA:
Revenue:
Property
Rental ......................... $110,090 $ 93,509 $ 50,181 $ 25,687 $ 21,756
Other .......................... 1,060 1,454 1,026 608 438
Property management ............... -- -- -- -- --
Development ....................... -- -- -- -- --
Construction, net ................. -- -- -- -- --
Miscellaneous ..................... 732 -- -- -- --
Total revenue .................. 111,882 94,963 51,207 26,295 22,194
Expenses:
Property Expenses (2) ............. 42,570 37,954 19,484 11,316 9,682
General and administrative (3) .... 6,154 4,851 3,613 1,402 1,112
Property management ............... -- -- -- -- --
Interest .......................... 25,766 22,684 10,233 9,448 7,524
Depreciation and amortization ..... 22,104 17,167 9,099 3,720 3,344
Other, net (4) .................... -- -- -- -- --
Gain on disposition of properties . 2,185 -- -- -- --
Income before minority interest
and extraordinary item ............ 17,473 12,307 8,788 2,409 532
Net income ........................ 14,260 9,810 6,944 2,542 1,090
Preferred dividends ............... 990 -- -- -- --
Net income available for
common shares ................. 13,270 9,810 6,944 2,542 1,090
Net income per weighted average
common share outstanding ...... $ 1.21 $ 1.00 $ 1.01 -- --
Weighted average
Common Shares outstanding ..... 10,986 9,819 6,534 -- --
BALANCE SHEET DATA:
Real estate owned, at cost ........ $641,893 $578,788 $434,460 $ 125,269 $ 111,686
Total assets ...................... 611,199 565,267 439,233 104,439 93,252
Total debt ........................ 315,239 307,939 232,766 105,594 95,036
Minority interest ................. 39,238 41,049 43,709 -- --
Shareholders' equity (owners'
deficit) .......................... 241,384 202,278 152,385 (4,684) (4,493)
OTHER DATA:
Dividends declared per share ...... $ 2.07 $ 2.01 $ 1.71 -- --
Ratio of total debt to total
capitalization (5) ................ 41.9% 48.2% 44.1% -- --
Number of properties .............. 73 70 54 22 19
Number of apartment units ......... 19,280 18,220 14,333 5,580 5,064
EBITDA (6) ........................ -- -- -- -- --
Debt Service
Coverage Ratio (7) ............. -- -- -- -- --
(NOTES ON FOLLOWING PAGE)
53
(1) Operating data for 1994 includes 34 days of predecessor financial
information and per share data for 1994 is for the period February 4, 1994
through December 31, 1994.
(2) See "Management's Discussion and Analysis of Financial Condition and
Results of Operations -- Capital Expenditures" included in the Quarterly
Report on Form 10-Q for the quarter and nine-month period ended September
30, 1997 and the Annual Report on Form 10-K for the year ended December
31, 1996, which are incorporated herein by reference.
(3) Includes corporate expenses.
(4) Pro forma operating data for the nine-month period ended September 30,
1997 includes a non-recurring tax credit of approximately $875,000.
(5) Total capitalization as of the dates presented is total debt plus the
aggregate market value of the Company's Common Stock, Series A Preferred
Stock, Series B Preferred Stock and units of limited partnership interest
held by persons other than the Company (based upon the market value of the
Company's Common Stock), which are redeemable for shares of Common Stock
on a one-for-one basis, or at the Company's option for cash. The market
value of the Series A Preferred Stock and the Series B Preferred Stock is
based upon $25.00 per share.
(6) Earnings before interest taxes depreciation and amortization ("EBITDA")
represents net income before extraordinary items and minority interest,
computed in accordance with GAAP, adjusted for gains on dispositions of
properties, interest expense, federal income taxes, depreciation and
amortization. EBITDA should not be considered as a substitute for net
income or any other GAAP measurement of performance, as an indication of
operating performance or as an alternative to cash flows from operating,
investing and financing activities as a measure of liquidity.
(7) Debt service coverage ratio is computed as a ratio of EBITDA to interest
expense.
CERTAIN FEDERAL INCOME TAX CONSIDERATIONS
CERTIFICATES
GENERAL
The following general discussion summarizes certain of the material
federal income tax aspects of the acquisition, ownership and disposition of the
Certificates. This discussion is a summary for general information only and does
not consider all aspects of federal income taxation that may be relevant to the
purchase, ownership and disposition of the Certificates by a prospective
investor in light of his or her personal circumstances. This discussion also
does not address the federal income tax consequences of ownership of
Certificates not held as capital assets within the meaning of Section 1221 of
the Code, or the federal income tax consequences to investors subject to special
treatment under the federal income tax laws, such as dealers in securities or
foreign currency, tax-exempt entities, banks, financial institutions, thrifts,
insurance companies, persons that hold the Certificates as part of a "straddle,"
a "hedge" against currency risk, or a "conversion transaction," persons that
have a "functional currency" other than the U.S. dollar, and investors in
pass-through entities. In addition, the discussion is generally limited to the
tax consequences to initial holders. It also does not describe any tax
consequences arising out of the tax laws of any state, local or foreign
jurisdiction.
This summary is based upon the Code, existing and proposed regulations
thereunder, and current administrative rulings and court decisions. All of the
foregoing are subject to change, possibly on a retroactive basis; accordingly,
any such change could affect the continuing validity of this discussion.
54
PERSONS CONSIDERING THE PURCHASE OF CERTIFICATES SHOULD CONSULT THEIR OWN
TAX ADVISORS CONCERNING THE APPLICATION OF FEDERAL INCOME TAX LAWS, AS WELL AS
THE LAWS OF ANY STATE, LOCAL, OR FOREIGN TAXING JURISDICTION, TO THEIR
PARTICULAR SITUATIONS.
The following discussion is limited to the federal income tax consequences
relevant to a holder of a Certificate that is a U.S. Person, except where
otherwise noted. A "U.S. Person" is (i) a citizen or resident of the United
States, (ii) a corporation or partnership (except to the extent provided in
applicable Treasury regulations) organized under the laws of the United States
or any political subdivision thereof or therein, (iii) an estate, the income of
which is subject to federal income tax regardless of the source, or (iv) a trust
with respect to which a court within the United States is able to exercise
primary supervision over its administration and one or more such U.S. Persons
have the authority to control all of its substantial decisions (and certain
other trusts eligible to elect to be treated as U.S. Persons).
CLASSIFICATION OF INVESTMENT ARRANGEMENT
In the opinion of Baker Donelson Bearman & Caldwell, a professional
corporation, the Trust will be treated for federal income tax purposes as a
grantor trust and not as an association (or publicly traded partnership) taxable
as a corporation. The Trustee intends to report income, gain, loss and deduction
to the Internal Revenue Service ("IRS") accordingly.
Under the grantor trust rules, each Certificate holder will be treated for
federal income tax purposes as having purchased an undivided interest in the
assets of the Trust to the extent of the Certificate holder's proportionate
interest in the Trust. Similarly, the sale of a Certificate by a Certificate
holder will be considered a sale of the Certificate holder's interest in the
assets of the Trust with respect to that holder. In general, the tax
consequences of an investment in Certificates will depend on the rules
applicable to the Bonds and, after foreclosure, the Mortgaged Properties. The
Certificates will represent an undivided proportionate interest in the Bonds.
A Certificate owned by a "domestic building and loan association" within
the meaning of Code Section 7701(a)(19) will not be considered to represent
"loans . . . secured by an interest in real property which is ... residential
real property" within the meaning of Code Section 7701(a)(19)(C)(v). In
addition, a Certificate owned by a real estate investment trust will be
considered to represent "real estate assets" within the meaning of Code Section
856(c)(4)(A), and interest income on such assets will be considered "interest on
obligations secured by mortgages on real property" within the meaning of Code
Section 856(c)(3)(B), in each case to the extent that the holder's pro rata
undivided interest in the Bonds does not exceed such holder's allocable interest
in the fair market value of the Mortgaged Properties. Furthermore, a Certificate
owned by a real estate mortgage investment conduit ("REMIC") may be considered
to represent an "obligation (including any participation or certificate of
beneficial ownership therein) which is principally secured by an interest in
real property" within the meaning of Code Section 860G(a)(3)(A) to the extent
that the Bonds constitutes a "qualified mortgage" within the meaning of Code
Section 860G(a)(3).
INTEREST INCOME
It is not currently expected that the Bonds will be issued with original
issue discount. Accordingly, Certificate holders will accrue income for federal
income tax purposes on their allocable share of interest payable on the Bonds in
accordance with their normal method of tax accounting.
SALE OR EXCHANGE OF CERTIFICATES
Upon the sale or exchange of a Certificate, a holder will recognize gain
or loss equal to the difference between the amount realized on the sale and its
aggregate adjusted basis in its pro rata share of the Bonds. In general, the
aggregate adjusted basis will equal the holder's cost for the Certificate
increased by the amount of any income (other than qualified stated interest)
previously reported with respect to the Certificate and decreased by the amount
of any losses previously reported with respect to the Certificate and the amount
of any distributions (other than qualified stated interest) received thereon.
55
Except with respect to market discount on the Bonds, and except for
certain financial institutions subject to the provisions of Code Section 582(c),
such gain or loss generally would be capital gain or loss if the Certificate was
held as a capital asset. However, gain on the sale of a Certificate will be
treated as ordinary income (i) if a Certificate is held as part of a "conversion
transaction", as defined in Code Section 1258(c), up to the amount of interest
that would have accrued on the holder's net investment in the conversion
transaction at 120% of the appropriate applicable Federal rate (under Code
Section 1274 (d) ) in effect at the time the taxpayer entered into the
transaction, minus any amount previously treated as ordinary income with respect
to any prior disposition of property that was held as part of such transaction;
or (ii) in the case of a non-corporate taxpayer, to the extent such taxpayer has
made an election under Code Section 163(d) (4) to have net capital gains taxed
as investment income at ordinary income rates.
TAXATION OF FOREIGN INVESTORS
Under present United States Federal income tax law and subject to the
discussions of backup withholding below:
(a) if the Certificates are offered, sold and delivered, and
principal and interest thereon are paid, in accordance with the terms of
the Trust Agreement, payments of principal of and interest on the
Certificates to any holder that is a United States Alien will not be
subject to United States Federal withholding tax, provided that in the
case of interest, (1) the holder does not actually or constructively own
10% or more of the capital or profits interest in the Borrower, (2) the
holder is not a controlled foreign corporation that is related to the
Depositor or Borrower through stock ownership, and (3) either (i) the
beneficial owner of the Certificate certifies to the Trustee or its agent,
under penalties of perjury, that it is not a U.S. Person and provides its
name and address, or (ii) a securities clearing organization, bank or
other financial institution that holds customer's securities in the
ordinary course of its trade or business (a "financial institution") and
holds the Certificate on behalf of the beneficial owner certifies to the
Trustee or its agent, under penalties of perjury, that such statement has
been received from the beneficial owner by it or by a financial
institution between it and the beneficial owner and furnishes the payor
with a copy thereof;
(b) a holder of a Certificate who is a United States Alien will not
be subject to United States Federal withholding tax on gain realized on
the sale or exchange of a Certificate; and
(c) a Certificate held by an individual who at the time of death is
not a citizen or resident of the United States will not be subject to
United States Federal estate tax as a result of such individual's death if
the individual does not actually or constructively own (i) 10% or more of
the total combined voting power of all classes of stock of the Depositor
entitled to vote or (ii) 10% or more of the capital or profits interest in
the Borrower, and the income on the Certificate would not have been
effectively connected with the conduct of a trade or business by the
individual in the United States.
Gain recognized by a United States Alien on the disposition of a
Certificate will be subject to United States Federal income tax if (i) such gain
is effectively connected with a trade or business conducted by such person
within the United States (in which case the branch profits tax may also apply if
the person is a foreign corporation) or (ii) in the case of a United States
Alien that is an individual, such person is present in the United States for a
period or periods aggregating 183 days or more in the taxable year of the sale
or exchange and certain other conditions are met.
If a United States Alien is engaged in a trade business within the United
States and interest and premium, if any, on a Certificate is effectively
connected with the conduct of such trade or business, such person may be subject
to United States Federal income tax on such interest and premium at ordinary
Federal income tax rates on a net basis (in which case the branch profits tax
may also apply if the Person is a foreign corporation).
The IRS recently issued final regulations (the "New Regulations") which
would provide alternative methods of satisfying the certification requirement
described in clause (a) (3) above. The New Regulations are effective January 1,
1999, although valid withholding certificates that are held on December 31,
1998, remain valid until the earlier of December 31, 1999 or the due date of
expiration of the Certificate under the rules as currently in effect. The New
Regulations would require, in the case of Certificates held by a foreign
partnership, that (x) the certification described
56
in clause (a) (3) above be provided by the partners rather than by the foreign
partnership and (y) the partnership provide certain information, including a
United States taxpayer identification number. A look-through rule would apply in
the case of tiered partnerships.
United States Aliens should consult their own tax advisors concerning the
application of the certification requirements in the New Regulations.
BONDS
GENERAL
The following discussion is a summary of the anticipated material federal
income tax considerations relating to the ownership and disposition of the Bonds
after the Permitted Merger and Security Release. The summary is based upon
current provisions of the Code, the Treasury regulations promulgated thereunder,
and existing judicial and administrative rulings and decisions, all of which are
subject to change, prospectively or retroactively.
This summary does not purport to deal with all aspects of federal income
taxation that may affect particular investors in light of their individual
circumstances, nor with certain categories of investors subject to special
treatment under the federal income tax laws. This summary focuses primarily on
investors who will hold the Bonds as "capital assets" (generally, property held
for investment) within the meaning of Section 1221 of the Code, although much of
the discussion is applicable to other investors as well. The summary is based on
current law and there can be no assurance that the law will not change or that
the IRS will not take a position that would be materially adverse to investors.
Finally, the summary does not purport to address the anticipated state and local
income tax consequences to investors of the ownership and disposition of the
Bonds. Consequently, potential Bondholders are advised to consult their own tax
advisors concerning the federal, state, or local tax consequences to them of the
purchase, holding, and disposition of the Bonds.
No election will be made to treat the Borrower, the Mortgaged Properties,
or the arrangement by which the Bonds are issued as a REMIC for federal income
tax purposes. There are no regulations, published rulings, or judicial decisions
involving the characterization for federal income tax purposes of securities
with terms substantially the same as the Bonds. The Borrower believes the Bonds
will be treated as evidences of indebtedness for federal income tax purposes and
not as ownership interests in the Mortgaged Properties. Bondholders should be
aware that (i) Bonds held by a domestic building and loan association should
constitute "loans secured by an interest in real property" within the meaning of
Code Section 7701(a)(19)(C)(v); (ii) Bonds held by a REIT should be treated as
"real estate assets" within the meaning of Code Section 856(c)(5)(A); and (iii)
income derived from the Bonds should be considered "interest on obligations
secured by mortgages on real property or on interests in real property" within
the meaning of Code Section 856(c)(3)(B). Bonds held by a regulated investment
company or a REIT will not constitute "government securities" within the meaning
of Code Section 851 (b)(4)(A)(i) or Code Section 856(c)(5)(A).
Payments received by Bondholders on the Bonds generally should be accorded
the same tax treatment under the Code as payments received on other taxable
corporate bonds. Except as described below for Bonds issued with market discount
or premium, interest paid or accrued on a Bond will be treated as ordinary
income to the Bondholder and a principal payment on a Bond will be treated as a
return of capital to the extent that the Bondholder's tax basis in the Bond is
allocable to that payment. In general, interest paid to Bondholders who report
their income on the cash receipts and disbursements method of accounting should
be taxable to them when received. Interest earned by Bondholders who report
their income on the accrual method of accounting will be taxable when accrued,
regardless of when it is actually received. The Indenture Trustee will report
annually to the IRS and to Bondholders of record with respect to interest paid
or accrued on the Bonds.
MARKET DISCOUNT
A subsequent purchaser of a Bond at a discount from its outstanding
principal amount will acquire such Bond with market discount. A Bond will not be
considered to have market discount, however, if the amount of such market
57
discount is de minimis, i.e., less than the product of (i) 0.25% of the
remaining principal amount of the Bond, multiplied by (ii) the weighted average
maturity ("WAM") of the Bond. The purchaser generally will be required to
recognize the market discount as ordinary income. A purchaser of a Bond with
market discount generally will be required to treat a portion of any gain on a
sale, exchange, redemption, or other disposition of the Bond as ordinary income
to the extent of the accrued, but not previously taxable, market discount. A
purchaser of a Bond with market discount also generally will be required to
include market discount that has accrued, but has not yet been recognized, in
income to the extent of any partial principal payments that are received. Market
discount generally will accrue ratably over the remaining term of the Bond,
unless the Bondholder irrevocably elects to accrue such market discount on the
basis of a constant interest rate.
A Bondholder who has acquired a Bond with market discount generally must
defer interest deductions attributable to any indebtedness incurred or continued
to purchase or carry the Bond to the extent such deductions exceed interest
income on the Bond. The amount of deferred interest expense, however, is limited
to the amount of market discount income that accrues, but that is not recognized
currently. Any such deferred interest expense generally is allowed as a
deduction not later than the year in which the related market discount income is
recognized. As an alternative to the inclusion of market discount in income upon
disposition of a Bond, a Bondholder may elect to recognize market discount
currently on an uncapped accrual basis. In that case, the preceding interest
expense deferral rule will not apply. Any such election generally will apply to
all market discount instruments held or acquired by the Bondholder in the
taxable year of election or thereafter.
Treasury regulations implementing the market discount rules have not yet
been issued, and uncertainty exists with respect to many aspects of those rules.
Due to the substantial lack of regulatory guidance with respect to the market
discount rules, it is unclear how those rules will affect any secondary market
that develops for the Bonds. Prospective investors should consult their own tax
advisors regarding the application of the market discount rules to the Bonds.
AMORTIZABLE PREMIUM
A purchaser of a Bond who purchases the Bond at a premium over its stated
principal amount plus accrued interest generally may elect to amortize such
premium ("Section 171 Premium") over the remaining term of the Bond using a
constant yield method that reflects monthly compounding. Pursuant to proposed
Treasury regulations issued on July 1, 1996, Section 171 Premium allocable to an
accrual period will be treated as an offset to interest income on a Bond
allocable to such accrual period at the time the Bondholder takes into account
the interest income under its method of accounting. Any Section 171 Premium
allocable to an accrual period in excess of the interest income on a Bond
allocable to such period will be carried forward to the next accrual period. If
a Bondholder makes an election to amortize Section 171 Premium on a Bond, such
election will apply to all taxable debt instruments (including all Bonds) then
owned and thereafter acquired by the Bondholder. Such election will be
irrevocable without the consent of the Service.
Section 171 Premium does not include any acquisition premium attributable
to the portion of a purchase price for a Bond that exceeds the adjusted issue
price but not the stated principal amount of such Bond. Purchasers who pay a
premium for the Bonds should consult their tax advisors regarding the election
to amortize premium and the method of accrual to be employed.
GAIN OR LOSS ON DISPOSITION
If a Bond is transferred or sold in a taxable transaction, the Bondholder
will recognize gain or loss equal to the difference between the amount realized
on the sale and such Bondholder's adjusted basis in the Bond. The adjusted basis
of a Bond generally will equal the cost of the Bond to the Bondholder, increased
by any market discount previously includible in the Bondholder's gross income
with respect to the Bond, and reduced by the portion of the basis of the Bond
allocable to payments (other than qualified stated interest payments) previously
received by the Bondholder and by any amortized premium. Similarly, a Bondholder
who receives a scheduled principal payment with respect to a Bond will recognize
gain or loss equal to the difference between the amount of the payment and the
portion of his adjusted basis in the Bond that is allocable to such payment.
Except to the extent that the market discount rules apply and except as provided
below, any gain or loss on the sale or other disposition of a Bond generally
will be capital gain or loss. Such
58
gain or loss will be long-term gain or loss if the Bond is held as a capital
asset by the Bondholder for more than 12 months.
If the holder of a Bond is a bank, thrift, or similar institution
described in Section 582 of the Code, any gain or loss on the sale or exchange
of the Bond will be treated as ordinary income or loss. A portion of any gain
from the sale of a Bond that otherwise might be capital gain may be treated as
ordinary income to the extent that such Bond is held as part of a "conversion
transaction" within the meaning of Section 1258 of the Code. A conversion
transaction generally is one in which the taxpayer has taken two or more
positions in Bonds or similar property that reduce or eliminate market risk, if
substantially all of the taxpayer's return is attributable to the time value of
the taxpayer's net investment in such transaction. The amount of gain realized
in a conversion transaction that is recharacterized as ordinary income generally
will not exceed the amount of interest that would have accrued on the taxpayer's
net investment at 120% of the appropriate "applicable federal rate" (which rate
is computed and published monthly by the Service) at the time the taxpayer
entered into the conversion transaction, subject to appropriate reduction for
prior inclusion of interest and other ordinary income from the transaction.
MISCELLANEOUS TAX ASPECTS
BACKUP WITHHOLDING. A Certificate holder or, after the Permitted Merger
and Security Release, a Bondholder may, under certain circumstances; be subject
to "backup withholding" at the rate of 31% with respect to "reportable
payments," which include interest payments and principal payments to the extent
of accrued , as well as distributions of proceeds from a sale of Bonds. Backup
withholding generally applies if the holder of a Certificate or a Bond, as the
case may be (i) fails to furnish the Indenture Trustee its social security
number or other taxpayer identification number ("TIN"), (ii) furnishes the
Indenture Trustee or the Borrower an incorrect TIN, (iii) fails to report
properly interest, dividends, or other "reportable payments," or (iv) under
certain circumstances, fails to provide the Indenture Trustee, the Borrower, or
such Certificate holder's or Bondholder's, as the case may be, securities broker
with a certified statement, signed under penalty of perjury, that the TIN is its
correct taxpayer identification number and that the Certificate holder or the
Bondholder, as the case may be, is not subject to backup withholding. Backup
withholding will not apply with respect to payments made to certain Certificate
holders or Bondholders, as the case may be, including corporations, certain
tax-exempt recipients (such as exempt organizations), and certain Non-U.S
Holders (as defined below) that comply with the requisite certification
procedures. Certificate holders or Bondholders, as the case may be, should
consult their tax advisors as to the application of backup withholding to
payments received by them with respect to the Certificates and the Bonds.
The Trustee will report to the Certificate holders and the Indenture
Trustee will report to the Bondholders (other than those that are exempt from
the backup withholding rules) and to the IRS within a reasonable time after the
end of each calendar year the amount of any "reportable payments" during such
year and the amount of tax withheld, if any, with respect to payments on the
Certificates or the Bonds, as the case may be.
FOREIGN CERTIFICATE HOLDERS AND BONDHOLDERS. Under the Code, interest
income (including accrued interest recognized on the sale or exchange of a
Certificate or a Bond) paid or accrued with respect to Certificates or Bonds
held by nonresident alien individuals, foreign corporations, foreign
partnerships, or certain foreign estates and trusts ("Non-U.S. Holders"), or
Certificate holders or Bondholders holding on behalf of Non-U.S. Holders,
generally will be treated as "portfolio interest" and therefore will not be
subject to any United States federal income tax, provided that (i) such interest
income is not effectively connected with a trade or business in the United
States of the Non-U.S. Holder and (ii) the Borrower or other person who
otherwise would be required to withhold tax from such payments (the "Withholding
Agent") is provided with an appropriate statement that the beneficial owner of a
Certificate or a Bond is a Non-U.S. Holder. Interest income paid on Certificates
or Bonds to Non-U.S. Holders also will not be subject to withholding tax if (i)
such interest income is effectively connected with a United States trade or
business conducted by the Non-U.S. Holder and (ii) the Non U.S. Holder files an
IRS Form 4224 with the Withholding Agent. Such effectively connected interest
income, however, generally will be subject to regular United States federal
income tax. In other circumstances, interest income paid to Non-U.S. Holders may
be subject to United States withholding tax at a rate of 30% (subject to
reduction by applicable treaty).
59
DUE TO THE COMPLEXITY OF THE FEDERAL INCOME TAX RULES APPLICABLE TO
CERTIFICATE HOLDERS OR BONDHOLDERS AND THE CONSIDERABLE UNCERTAINTY THAT EXISTS
WITH RESPECT TO MANY ASPECTS OF THOSE RULES, POTENTIAL INVESTORS SHOULD CONSULT
THEIR OWN TAX ADVISORS REGARDING THE TAX TREATMENT OF THE ACQUISITION,
OWNERSHIP, AND DISPOSITION OF THE CERTIFICATES OR THE BONDS.
TAX CONSIDERATIONS AFTER A FORECLOSURE FOR FOREIGN INVESTORS
If the Trustee were to acquire beneficial ownership, on behalf of the
holders, of a Mortgaged Property by foreclosure, deed in lieu of foreclosure or
otherwise, then, to the extent that a United States Alien is treated as owning
an interest in the Foreclosed Property for United States Federal income tax
purposes, such United States Alien would be subject to United States Federal
withholding tax at a rate of 30% (subject to reduction by applicable treaties)
on its share of the gross income from the Foreclosed Property (which amount
could exceed such United States Alien's share of the net income from the
Foreclosed Property), unless such United States Alien has in effect an election
to be taxed at normal U.S. tax rates on the net income from all U.S. real
property owned by such United States Alien. In addition, a United States Alien
would be subject to tax in the same manner as a U.S. Person on any gain
recognized upon a sale of the Foreclosed Property. Ten percent of the gross
amount realized on the disposition of the Foreclosed Property that is allocable
to a United States Alien is subject to withholding. The amount thereby withheld
is creditable against the actual amount of the United States Alien's tax
liability. An interest in the Foreclosed Property deemed to be acquired by a
United States Alien would be includable in such individual's estate for U.S.
estate tax purposes. In addition, depending upon the Trust's level of
activities, its realization of gain and how long the Trust held the Foreclosed
Property, a United States Alien may be deemed to be involved in a U.S. trade or
business for United States Federal income tax purposes and be obligated to file
United States Federal and state tax returns.
DEDUCTIBILITY OF TRUST'S FEES AND EXPENSES
In computing its Federal income tax liability, a Certificate holder will
be entitled to deduct, consistent with its method of accounting, its share of
reasonable administrative fees, trustee fees and other fees paid or incurred by
the Trust as provided in Section 162 or 212 of the Code and any allowable
amortization deductions with respect to certain other assets of the Trust. If a
Certificate holder is an individual, estate or trust, the deduction for his
share of fees will be a miscellaneous itemized deduction that may be disallowed
in whole or in part.
STATE, LOCAL AND FOREIGN TAXES
Certificate holders should consult their tax advisors with respect to
state, local and foreign tax considerations relevant to an investment in the
Certificates.
ERISA CONSIDERATIONS
The Employee Retirement Income Security Act of 1974, as amended ("ERISA"),
establishes fiduciary standards and other responsibilities for fiduciaries of
employee benefit plans subject to Part 4, Subtitle B, Title I of ERISA ("ERISA
Plans"). In addition, unless a statutory or administrative exemption applies,
ERISA and Section 4975 of the Code impose restrictions on certain transactions
(i.e. "prohibited transactions") involving the assets of an ERISA Plan, a plan
described in Section 4975(e)(1) of the Code or a person treated as holding
assets of such plans pursuant to Department of Labor Regulation, 29 F.R.
2510.3-101 ("Plan Assets Regulation") or applicable law (collectively, "Plans")
and certain persons referred to as a "party in interest" under ERISA and a
"disqualified person" under Code Section 4975 with respect to such Plan. A loan
or other extension of credit, the provision of services or a sale or exchange of
property occurring between a Plan and a party in interest or disqualified person
with respect to such Plan might constitute a non-exempt prohibited transaction.
Pursuant to the Plan Assets Regulation or applicable law, the Bonds and
other assets of the Trust may be treated, for purposes of ERISA and Code Section
4975, as if they were assets of a Plan acquiring a Certificate unless an
exception applies. There can be no assurances that any exception applies in
respect of the Trust. Therefore, absent an exemption
60
from the prohibited transaction restrictions of ERISA and the Code, the
purchase, holding or sale of Class A Certificates by a Plan, or the operations
of the Trust, might result in a prohibited transaction.
Each investor in the Certificates or the Bonds will be deemed to have
represented that such investor (a) is not, and is not using the assets of, an
ERISA Plan or an employee benefit plan or other retirement plan or arrangement
subject to Section 4975 of the Code, or (b) has determined that the purchase and
holding of Certificates or Bonds, as the case may be, by such investor would not
constitute or result in a non-exempt prohibited transaction under Section 406 of
ERISA or Section 4975 of the Code because the relevant conditions for exemptive
relief under one or more of the following prohibited transaction class
exemptions have been satisfied: Prohibited Transaction Class Exemption ("PTCE")
96-23 (relating to transactions effected by in-house asset managers); PTCE 95-60
(relating to certain transactions involving insurance company general accounts);
PTCE 91-38 (relating to investments by bank collective investment funds); PTCE
90-1 (relating to investment by insurance company pooled separate accounts); or
PTCE 84-14 (relating to transactions effected by a "qualified professional asset
manager").
Due to the complexity of the rules and penalties under ERISA and the Code
applicable to Plans, potential Plan investors should consult their advisors and
counsel regarding whether the purchase and holding of the Bonds could give rise
to a transaction that is prohibited under ERISA or the Code. Potential investors
also should be aware that ERISA requires that the assets of a Plan be valued at
their fair market value as of the close of the plan year and that the Borrower
does not plan to provide any valuations to Bondholders.
LEGAL INVESTMENT
The Certificates will not constitute "mortgage-related securities" for
purposes of the SMMEA. The appropriate characterization of the Certificates
under various legal investment restrictions, and thus the ability of investors
subject to these restrictions to purchase the Certificates, may be subject to
significant interpretive uncertainties.
All depository institutions considering an investment in the Certificates
should review the "Supervisory Policy Statement on Securities Activities" dated
January 28, 1992, as revised April 15, 1994 (the "Policy Statement") of the
Federal Financial Institutions Examination Council.
The Policy Statement, which has been adopted by the Board of Governors of
the Federal Reserve System, the Federal Deposit Insurance Corporation, the
Office of the Comptroller of the Currency and the Office of Thrift Supervision,
and by the National Credit Union Administration (with certain modifications),
prohibits depository institutions from investing in certain "high-risk mortgage
securities", except under limited circumstances, and sets forth certain
investment practices deemed to be unsuitable for regulated institutions.
Institutions whose investment activities are subject to regulation by
federal or state authorities should review rules, policies and guidelines
adopted from time to time by such authorities before purchasing any
Certificates, as they May be deemed unsuitable investments, or may otherwise be
restricted, under such rules, policies or guidelines.
The foregoing does not take into consideration the applicability of
statutes, rules, regulations, orders, guidelines or agreements generally
governing investments made by a particular investor, including, but not limited
to, "prudent investor" provisions, percentage-of-assets limits, provisions which
may restrict or prohibit investment in securities which are not "interest
bearing" or "income Paying," and provisions which may restrict or prohibit
investments in securities which are issued in book-entry form.
No representation is made as to the proper characterization of the
Certificates for legal investment purposes, financial institution regulatory
purposes, or other purposes, or as to the ability of particular investors to
purchase the Certificates under applicable legal investment restrictions. The
uncertainties described above (and any unfavorable future determinations
concerning legal investment or financial institution regulatory characteristics
of the Certificates) may adversely affect the liquidity of the Certificates.
Accordingly, all institutions whose investment activities are subject to legal
investment laws and regulations, regulatory capital requirements or review by
regulatory authorities should consult
61
with their own legal advisors in determining whether and to what extent the
Certificates constitute a legal investment or are subject to investment, capital
or other restrictions.
Investors should consult their own legal advisors in determining whether
and to what extent the Certificates constitute legal investments for such
investors.
PLAN OF DISTRIBUTION
Subject to the terms and conditions of the Underwriting Agreement between
the Depositor and the Underwriter, the Certificates will be purchased from the
Depositor by the Underwriter upon issuance. Distribution of the Certificates
will be made by the Underwriter from time to time in negotiated transactions or
otherwise at varying prices to be determined at the time of sale. Proceeds to
the Depositor from the sale of the Certificates will be approximately % of the
initial aggregate Certificate Principal Amount of the Certificates, plus accrued
interest, if any, from the date of original issuance, before deducting expenses
payable by the Depositor.
In connection with the purchase and sale of the Certificates, the
Underwriter may be deemed to have received compensation from the Depositor in
the form of underwriting discounts. An affiliate of the Underwriter, Morgan
Stanley Mortgage Capital Inc. has entered into and may, in the future, enter
into other financing arrangements with affiliates of the Borrower.
The Borrower and MAALP have agreed to indemnify the Underwriter against,
or make contributions to the Underwriter with respect to, certain liabilities,
including liabilities under the Securities Act of 1933, as amended.
In connection with this offering, the Underwriter may purchase and sell
the Certificates in the open market. These transactions may include purchases to
cover short positions created by the Underwriter of a greater number of
Certificates than they are required to purchase from the Depositor in this
offering. The Underwriter may also impose a penalty bid, whereby selling
concessions allowed to broker-dealers in respect of the securities sold in the
offering may be reclaimed by the Underwriter if such Certificates are
repurchased by the Underwriter in covering transactions. These activities may
maintain or otherwise affect the market price of the Certificates, which may be
higher than the price that might otherwise prevail in the open market; and these
activities, if commenced, may be discontinued at any time. These transactions
may be affected in the over-the-counter market or otherwise.
The Prospectus may only be issued or passed on in the United Kingdom to a
person who is of a kind described in Article 11(3) of the Financial Services Act
of 1986 (Investment Advertisements) (Exemptions) Order 1996 or is a person to
whom this Prospectus may otherwise lawfully be issued or passed on.
The Trust described in this Prospectus may only be promoted (whether by
issuing or passing on of documents as referred to in the foregoing restriction
or otherwise) by an authorized person under Chapter III of the Financial
Services Act of 1986 of the United Kingdom ("FSA") to a person in the United
Kingdom if that person is of a kind described in section 76(2) of the FSA or as
permitted by the Financial Services (Promotion of Unregulated Schemes)
Regulation 1991 (as amended).
LEGAL MATTERS
The validity of the Certificates will be passed upon for the Depositor by
Baker, Donelson, Bearman & Caldwell, Memphis, Tennessee and for the Underwriter
by Cadwalader, Wickersham & Taft, New York, New York.
EXPERTS
The Combined Financial Statements and the financial statement schedule of
Capital Properties Group as of December 31, 1996 and 1995 and for the years
ended December 31, 1996, 1995 and 1994, the balance sheet of Mid-America Capital
Partners, L.P. as of November 24, 1997 and the Combined Historical Summary of
Gross Income and Direct Operating Expenses for Certain Multifamily Acquisition
Properties for the year ended December 31, 1996 have
62
been included herein in reliance on the report of KPMG Peat Marwick LLP,
independent accountants, given on authority of said firm as experts in auditing
and accounting. The report of KPMG Peat Marwick LLP covering the December 31,
1996 combined financial statements refers to the Capital Properties Group's
change in its accounting method to capitalize replacement purchase for major
appliances and carpet.
The Consolidated Financial Statements of MAAC incorporated in this
Prospectus by reference to the Annual Report on Form 10-K for the year ended
December 31, 1996, have been so incorporated in reliance on the report of KPMG
Peat Marwick LLP, independent accountants, given on the authority of said firm
as experts in auditing and accounting. The report of KPMG Peat Marwick LLP
covering the December 31, 1996 financial statements refers to MAAC's change in
accounting method to capitalize replacement purchases for major appliances and
carpet.
The financial statements of Brown-Flournoy Equity Income Fund Limited
Partnership as of December 31, 1996 and 1995 and for each of the years in the
three-year period ended December 31, 1996 have been included herein in reliance
on the report of KPMG Peat Marwick LLP, independent accountants, given on
authority of said firm as experts in auditing and accounting.
RATINGS OF THE CERTIFICATES
It is a condition to the issuance of the Certificates that they be rated
no lower than "Baa2" by Moody's and rated no lower than "BBB" by S&P. Moody's
has rated the Certificates through the Scheduled Final Distribution Date. S&P,
however, has rated the Certificates through the Expected Final Distribution
Date. A credit rating is not a recommendation to buy, sell or hold securities
and may be subject to downgrade, withdrawal or qualification at any time by the
assigning rating organization as a result of changes in, or the unavailability
of, information. Neither Moody's nor S&P is rating the likelihood of receipt or
the timing of receipt of Default Interest under the Certificates.
The ratings assigned to the Certificates by each of the Rating Agencies
are based Primarily on its evaluation of the income-producing ability of the
Mortgaged Properties and reflect only the views of the Rating Agencies. Future
events, such as events affecting the Mortgaged Properties or the Borrower could
have an adverse impact on the rating of the Certificates. Although it is the
intent of the Depositor to retain the Rating Agencies to perform annual
monitoring and to provide the Rating Agencies with certain financial and other
information in connection therewith, none of the Depositor, the Trustee, the
Indenture Trustee or the Borrower is under an obligation to maintain any
particular rating, and the Rating Agencies are under no obligation whatsoever to
continue to issue any rating. A downgrade, withdrawal or qualification of a
rating may have an adverse effect on the market price of the Certificates but
will not constitute an event of default under the Indenture, the Bonds or the
Mortgages.
The ratings of the Rating Agencies address the likelihood of the timely
receipt by the holders of the Certificates of all payments (other than Default
Interest) to which such holders are entitled, including payment of all principal
(and any other amounts due under the Security Documents), in the case of
Moody's, by the Final Scheduled Distribution Date and, in the case of S&P, by
the Expected Final Distribution Date. The rating takes into consideration the
characteristics of the Certificates and the structural and legal aspects
thereof. The ratings do not, however, represent an assessment of the likelihood
or frequency of principal prepayments on the Bonds or the corresponding effect
on the yield to investors.
There can be no assurance that a rating agency other than the Rating
Agencies will not choose to rate the Certificates and publish such rating or
that such other rating agency would assign the Certificates a rating equivalent
to or higher than the ratings assigned by the Rating Agencies. See "Risk Factors
- - Ratings of the Certificates."
AVAILABLE INFORMATION
The Borrower and the Trust have filed with the Securities and Exchange
Commission (the "Commission") a Registration Statement on Form S-3 under the
Securities Act of 1933, as amended (the "Securities Act"), with respect to the
securities offered hereby. This Prospectus, which is a part of the Registration
Statement, does not contain all of the information included in the Registration
Statement and the exhibits and financial statements thereto. For further
63
information with respect to the Borrower, the Trust, the Certificates and the
Bonds, reference is hereby made to the Registration Statement, including the
exhibits and schedules thereto, which may be examined without charge or copies
obtained upon payment of prescribed fees from, the Public Reference Section of
the Commission at Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C.
20549 and are also available for inspection and copying at the regional offices
of the Commission located at 7 World Trade Center, 13th Floor, New York, New
York 10048 and at 500 West Madison Street, Suite 1400, Chicago, Illinois
60661-2511. Electronic filings made through the Electronic Data Gathering,
Analysis and Retrieval System are publicly available through the Securities and
Exchange Commission's web site (http://www.sec.gov).
Statements contained in this Prospectus concerning the provisions or
contents of any contract, agreement or other document referred to herein or
therein are not necessarily complete. With respect to each such contract,
agreement or document filed as an exhibit to the Registration Statement,
reference is made to such exhibit for a more complete description of the matters
involved, and each such statement shall be deemed qualified in its entirety by
such reference to the copy of the applicable document filed with the Commission.
The Borrower intends to deliver to security holders annual reports
containing financial statements with a report thereon by the Borrower's
independent certified public accountants, and quarterly reports containing
unaudited financial information for each of the first three quarters of each
fiscal year.
INCORPORATION BY REFERENCE
All documents filed by the Borrower pursuant to Sections 13(a), 13(c), 14
or 15(d) of the Securities Exchange Act of 1934, as amended, prior to the
termination of the offering made pursuant to this Prospectus shall be deemed to
be incorporated by reference into this Prospectus.
The following documents heretofore filed with the Commission by MAAC (File
No. 1-12762), of which the Borrower is a "majority-owned subsidiary" as defined
by Rule 405 promulgated pursuant to the Securities Act, are incorporated herein
by reference:
(a) Annual Report on Form 10-K for the year ended December 31, 1996;
(b) Quarterly Reports on Form 10-Q for the periods ended March 31, 1997,
June 30, 1997 and September 30, 1997, respectively; and
(c) Current Reports on Form 8-K dated October 7, 1997, September 19, 1997,
September 17, 1997, August 19, 1997, June 5, 1997, April 25, 1997, April 11,
1997, March 19, 1997, and February 21, 1997, as amended by MAAC's Current
Reports on Form 8-K/A, as applicable;
The Borrower will provide, without charge, to each person to whom this
Prospectus is delivered, upon the written or oral request of such person, a copy
of any or all of the documents incorporated by reference herein (not including
the exhibits to such documents, unless exhibits are specifically incorporated by
reference in such documents). Requests for such copies should be directed to
Mid-America Capital Partners, L.P., c/o CT Corporation Trust Company, 1209
Orange Street, Wilmington, Delaware, 19081, Attn, Lynn A. Johnson, Secretary,
(302) 777-0205.
64
INDEX TO FINANCIAL STATEMENTS
MID-AMERICA CAPITAL PARTNERS, L.P.
PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED):
Pro Forma Condensed Consolidated Balance Sheet as of September 30, 1997 .................. F-__
Pro Forma Condensed Consolidated Statements of Operations for the nine
months ended September 30, 1997 and the year ended December 31, 1996 ................... F-__
BALANCE SHEET:
Report of Independent Auditors ........................................................... F-__
Balance Sheet as of November 24, 1997 .................................................... F-__
Notes to Balance Sheet ................................................................... F-__
CAPITAL PROPERTIES GROUP
COMBINED FINANCIAL STATEMENTS:
Report of Independent Auditors ........................................................... F-__
Combined Balance Sheets as of September 30, 1997 (Unaudited) and
December 31, 1996 and 1995 ............................................................. F-__
Combined Statements of Operations for the nine months ended September 30,
1997 and 1996 (Unaudited) and for the years ended December 31, 1996,
1995 and 1994 .......................................................................... F-__
Combined Statements of Partners' Capital for the nine months ended September
30, 1997 (Unaudited) and for the years ended December 31, 1996, 1995 and
1994 ................................................................................... F-__
Combined Statements of Cash Flows for the nine months ended September 30,
1997 and 1996 (Unaudited) and for the years ended December 31, 1996, 1995
and 1994 ............................................................................... F-__
Notes to the Combined Financial Statements ............................................... F-__
Schedule III:
Real Estate Investments and Accumulated Depreciation ................................... F-__
ACQUISITION PROPERTIES
BROWN-FLOURNOY EQUITY INCOME FUND LIMITED PARTNERSHIP:
Report of Independent Auditors ........................................................... F-__
Balance Sheets as of September 30, 1997 (Unaudited) and December 31, 1996
and 1995 ............................................................................... F-__
Statements of Operations for the nine months ended September 30, 1997 and
1996 (Unaudited) and for the years ended December 31, 1996, 1995 and 1994 .............. F-__
Statements of Partners' Capital (Deficit) for the nine months ended
Setpember 30, 1997 (Unaudited) and for the years ended
December 31, 1996, 1995 and 1994 ....................................................... F-__
Statements of Cash Flows for the nine months ended September 30, 1997
and 1996 (Unaudited) and for the years ended December 31,
1996, 1995 and 1994 .................................................................... F-__
Notes to Financial Statements ............................................................ F-__
COMBINED FINANCIAL STATEMENTS FOR CERTAIN MULTIFAMILY ACQUISITION PROPERTIES:
Report of Independent Auditors ........................................................... F-__
Combined Historical Summary of Gross Income and Direct Operating Expenses for
Certain Multifamily Acquisition Properties for the period from January 1,
1997 to the earlier of September 30, 1997 or date of acquisition
(Unaudited) and for the year ended December 31, 1996 ................................... F-__
Notes to Combined Historical Summary of Gross Income and Direct Operating
Expenses for Certain Multifamily Acquisition Properties ................................ F-__
MID-AMERICA CAPITAL PARTNERS, L.P.
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
BASIS OF PRESENTATION
The following unaudited pro forma condensed balance sheet is presented as if at
September 30, 1997: (i) MAALP had contributed 20 apartment communities, $2.271
million cash and the right to acquire the Reorganization Properties (as defined
below) to the Partnership in exchange for a 99% limited partnership interest in
the Partnership and the contributed properties were recorded at MAALP's
historical cost; (ii) the Partnership exercised its right to acquire the
Reorganization Properties and repaid notes payable of approximately $22 million
which were secured by the Reorganization Properties. Additional amounts due in
connection with the acquisition of the Reorganization Properties were paid by
MAALP on behalf of the Partnership.; (iii) the merger of Hermitage at Beechtree,
L.L.C. with and into the Partnership is consummated; (iv) the consummation of
the Reorganization; (v) the origination of the MSMC Loan and the distribution of
$116 million of the net proceeds to MAALP; (vi) the Partnership had issued its
$144,000,000 ___% Bonds Due 2003 (the Bonds); and (vii) the net proceeds from
the sale of the Bonds are applied as set forth in "Use of Proceeds."
The 26 communities contributed to or acquired by the Partnership (the Mortgaged
Properties) consist of (i) 20 properties at September 30, 1997 comprising
Capital Partners Group (the CPG Properties); (ii) 5 properties on November 25,
1997 acquired by the Partnership in connection with the consummation of the
merger of Flournoy Development Company (FDC) with and into MAAC and the other
transactions (collectively, the Reorganization Properties) as described in the
Agreement and Plan of Reorganization dated as of September 15, 1997 (the Plan of
Reorganization) between FDC, MAAC and MAALP consisting of 4 properties acquired
from Brown-Flournoy Equity Income Fund Limited Partnership (the Brown-Flournoy
Properties) and Willow Creek; and (iii) one property (Hermitage at Beechtree)
which was acquired subsequent to September 30, 1997 through the merger of
Hermitage at Beechtree, L.L.C. with and into the Partnership. It is expected
that MAALP and the Partnership will record properties acquired in connection
with the Plan of Reorganization using the purchase method of accounting.
The unaudited pro forma condensed combined statements of operations for the nine
months ended September 30, 1997 and the year ended December 31, 1996 have been
prepared as if each of the transactions described above and the Recent
Acquisitions (as defined below) had been consummated on January 1, 1996 and
assuming that the Partnership incurred no income tax expense. The Recent
Acquisitions are comprised of (i) the Reorganization Properties; (ii) Hermitage
at Beechtree; (iii) the acquisition in 1996 of 6 of the Communities containing
an aggregate of 1,760 apartment units (the 1996 Completed Acquisitions); and
(iv) the acquisition in 1997 of 2 of the Communities containing an aggregate of
490 apartment units (the 1997 Completed Acquisitions), (the Reorganization
Properties, Hermitage at Beechtree, the 1996 Completed Acquisitions and the 1997
Completed Acquisitions are collectively referred to as the Completed
Acquisitions).
MID-AMERICA CAPITAL PARTNERS, L.P.
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
These unaudited pro forma financial statements have been prepared by the
Partnership based on the historical financial statements of CPG, Brown-Flournoy
Equity Income Fund Limited Partnership (Brown-Flournoy), and the combined
financial statements for certain Multifamily Acquisition Properties, which have
been included elsewhere herein. These unaudited pro forma financial statements
should be read in conjunction with the foregoing historical financial
statements, including the notes thereto. In management's opinion, all
adjustments necessary to reflect the effects of the above have been made. These
pro forma combined financial statements are presented for comparative purposes
only and are not indicative of what the actual financial position or results of
operations of the Partnership would have been had the foregoing transactions
occurred on the dates indicated.
MID-AMERICA CAPITAL PARTNERS, L.P.
PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
SEPTEMBER 30, 1997
(UNAUDITED)
(DOLLARS IN THOUSANDS)
PARTNERSHIP
FORMATION MSMC LOAN
CPG PRO FORMA PRO FORMA PARTNERSHIP
HISTORICAL(A) ADJUSTMENTS ADJUSTMENTS(F) OFFERING(G) PRO FORMA
-------- ------- -------- -------- -------
ASSETS:
Real estate assets, net ................. $168,846 45,315 (B) -- -- 214,161
Cash .................................... 92 (19,933)(C) 22,112 -- 2,271
Restricted cash ......................... -- -- 636 -- 636
Deferred financing
costs, net ............................ -- -- 964 2,206(H) 3,170
Other assets ............................ 119 (119)(D) -- -- --
-------- ------- -------- -------- -------
TOTAL ASSETS ..................... $169,057 25,263 23,712 2,206 220,238
======== ======= ======== ======== =======
LIABILITIES:
MSMC Loan payable ....................... $ -- -- 140,000 (140,000) --
Bonds ................................... -- -- -- 144,000 144,000
Accounts payable ........................ 427 (427)(D) -- -- --
Accrued expenses and
other liabilities ..................... 2,225 (2,225)(D) -- -- --
Security deposits ....................... 557 149 (B) -- -- 706
-------- ------- -------- -------- -------
TOTAL LIABILITIES ................ 3,209 (2,503) 140,000 4,000 144,706
-------- ------- -------- -------- -------
PARTNERS' CAPITAL
General Partner ......................... -- 1 (E) -- -- 1
Limited Partner ......................... 165,848 27,765 (E) (116,288) (1,794)(I) 75,531
-------- ------- -------- -------- -------
TOTAL PARTNERS'
CAPITAL ....................... 165,848 27,766 (116,288) (1,794) 75,532
-------- ------- -------- -------- -------
TOTAL LIABILITIES
AND PARTNERS'
CAPITAL ....................... $169,057 25,263 23,712 2,206 220,238
======== ======= ======== ======== =======
(A) Reflects the unaudited historical combined balance sheet of CPG as of
September 30, 1997.
(Continued)
MID-AMERICA CAPITAL PARTNERS, L.P.
PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET, CONTINUED
SEPTEMBER 30, 1997
(UNAUDITED)
(DOLLARS IN THOUSANDS)
PARTNERSHIP FORMATION PRO FORMA ADJUSTMENTS:
The following pro forma adjustments reflect transactions occurring in
connection with the Partnership formation and consummation of the
Reorganization. In connection with the Partnership formation (i) MAALP
contributed 20 of the Communities, $2.271 million cash and the right to
acquire the Reorganization Properties to the Partnership; (ii) Hermitage
at Beechtree, L.L.C. was merged with and into the Partnership (the
Hermitage at Beechtree Merger); (iii) the Partnership assumed security
deposit liabilities of the Communities; and (iv) MAALP received a 99%
limited partnership interest in the Partnership. All other assets and
liabilities of the Communities were retained by MAALP.
(B) Reflects the acquisition of the Reorganization Properties by the
Partnership ($36,300) and the Hermitage at Beechtree merger ($9,015),
including security deposits assumed in connection with the acquisitions.
(C) Reflects:
MAALP cash contribution at the formation of the Partnership $ 2,270
MACP, Inc. cash contribution in exchange for a 1% general
partner interest in the Partnership 1
CPG cash retained by MAALP (92)
Repayment of notes payable in connection with the acquisition
of the Reorganization Properties (22,112)
--------
$(19,933)
--------
(D) Reflects assets and liabilities of CPG retained by MAALP at the formation
of the Partnership.
(E) Reflects increase in capital accounts as a result of the Partnership
formation.
MSMC LOAN PRO FORMA ADJUSTMENTS:
(F) The Partnership entered into a $140 million short-term promissory note on
November 25, 1997. The proceeds of the borrowing net of deferred
financing costs ($964), retained restricted cash ($636) and repayment of
notes payable in connection with the acquisition of the Reorganization
Properties ($22,112) were distributed to MAALP.
(Continued)
MID-AMERICA CAPITAL PARTNERS, L.P.
PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET, CONTINUED
SEPTEMBER 30, 1997
(UNAUDITED)
(DOLLARS IN THOUSANDS)
OFFERING PRO FORMA ADJUSTMENTS:
(G) Reflects the Offering assuming the application of proceeds as described
in "Use of Proceeds."
(H) Reflects deferred financing costs incurred in connection with the
Offering ($2,656) net of deferred financing costs incurred in connection
with the MSMC Loan which are fully amortized at the date of the Offering
($450).
(I) Reflects the distribution of a portion of the net proceeds of the
Offering to MAALP ($1,344) and the amortization of deferred financing
costs incurred in connection with the MSMC Loan ($450).
Subsequent to the formation of the Partnership, an additional $2.271 million was
distributed by the Partnership to MAALP. The distribution is not reflected in
the accompanying pro forma balance sheet since it is not directly attributable
to the Offering or the Reorganization.
MID-AMERICA CAPITAL PARTNERS, L.P.
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
NINE MONTHS ENDED SEPTEMBER 30, 1997
(UNAUDITED)
(DOLLARS IN THOUSANDS)
HISTORICAL
COMBINED
CPG COMPLETED PRO FORMA
HISTORICAL(A) ACQUISITIONS(B) ADJUSTMENTS PRO FORMA
------- ----- ------ ------
REVENUES:
Rental ................................................. $22,233 5,895 -- 28,128
Other .................................................. 187 177 -- 364
------- ----- ------ ------
TOTAL REVENUES .................................. 22,420 6,072 -- 28,492
------- ----- ------ ------
EXPENSES:
Personnel .............................................. 2,283 720 -- 3,003
Building repairs and maintenance,
utilities, landscaping and other
operating ............................................ 3,526 1,117 -- 4,643
Real estate taxes and insurance ........................ 2,125 540 -- 2,665
Depreciation and amortization-
real estate assets ................................... 4,588 1,180 149(C) 5,917
Depreciation and amortization-
non-real estate assets ............................... 19 -- 8(C) 27
General and administrative ............................. -- 239 1,014(D) 1,253
Interest ............................................... 724 1,596 4,839(E) 7,159
Amortization of deferred
financing costs ...................................... 35 -- 441(F) 476
------- ----- ------ ------
TOTAL EXPENSES .................................. 13,300 5,392 6,451 25,143
------- ----- ------ ------
Net income ................................................. $ 9,120 680 (6,451) 3,349
======= ===== ====== ======
PRO FORMA ADJUSTMENTS:
(A) Reflects the unaudited historical combined statement of operations of CPG
for the nine months ended September 30, 1997. Certain general and
administrative expenses and other costs which are incurred by MAALP on
behalf of CPG are not included in the historical financial statements.
The Partnership will pay a management fee, equal to 4% of revenues, to
MAALP for providing these services. See adjustment (D).
(Continued)
MID-AMERICA CAPITAL PARTNERS, L.P.
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS, CONTINUED
NINE MONTHS ENDED SEPTEMBER 30, 1997
(UNAUDITED)
(DOLLARS IN THOUSANDS)
(B) Reflects the unaudited historical operating results from January 1, 1997
to the earlier of the acquisition date or September 30, 1997 for the 1997
Completed Acquisitions, Hermitage at Beechtree and the Reorganization
Properties.
(C) Represents additional depreciation and amortization resulting from the
purchase of the Reorganization Properties, the 1997 Completed
Acquisitions and Hermitage at Beechtree.
(D) Represents management fees paid to MAALP equal to 4% of total revenues
($1,140) and fees paid to the Trustee and estimated additional costs to
operate as a separate public company ($113), net of general and
administrative expenses of the Reorganization Properties which will be
eliminated ($239).
(E) Represents interest on the Bonds of $7,159, net of interest which was
eliminated as a result of the repayment of notes payable of CPG and the
Reorganization Properties ($2,320). The Partnership has entered into
forward placement contracts the effect of which was to lock the interest
rate on $130 million of the Bonds at an average interest rate of 6.64%.
Interest on the Bonds is calculated based upon a rate of 6.64% for $130
million and 6.54% (based upon current estimates) for $14 million.
(F) Represents amortization of historical deferred financing costs of CPG
($35) which were eliminated as a result of repaying the CPG notes payable
net of the amortization of deferred financing costs on the Bonds of $476.
MID-AMERICA CAPITAL PARTNERS, L.P.
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1996
(UNAUDITED)
(DOLLARS IN THOUSANDS)
HISTORICAL
COMBINED
CPG COMPLETED PRO FORMA
HISTORICAL(A) ACQUISITIONS(B) ADJUSTMENTS PRO FORMA
------- ------ ------ ------
REVENUES:
Rental ................................................ $20,056 16,654 -- 36,710
Other ................................................. 195 386 -- 581
------- ------ ------ ------
TOTAL REVENUES ................................. 20,251 17,040 -- 37,291
------- ------ ------ ------
EXPENSES:
Personnel ............................................. 1,996 1,822 -- 3,818
Building repairs and maintenance,
utilities, landscaping and other
operating ........................................... 3,269 2,962 -- 6,231
Real estate taxes and insurance ....................... 1,942 1,562 -- 3,504
Depreciation and amortization-
real estate assets .................................. 3,981 1,420 1,954(C) 7,355
Depreciation and amortization-
non-real estate assets .............................. 19 -- 23(C) 42
General and administrative ............................ -- 319 1,323(D) 1,642
Interest .............................................. 2,169 2,130 5,247(E) 9,546
Amortization of deferred
financing costs ..................................... 58 -- 576(F) 634
------- ------ ------ ------
TOTAL EXPENSES ................................. 13,434 10,215 9,123 32,772
------- ------ ------ ------
Net income ................................................ $ 6,817 6,825 (9,123) 4,519
======= ====== ====== ======
PRO FORMA ADJUSTMENTS:
(A) Reflects the unaudited historical combined statement of operations of CPG
for the year ended December 31, 1996. Certain general and administrative
expenses and other costs which are incurred by MAALP on behalf of CPG are
not included in the historical financial statements. The Partnership will
pay a management fee, equal to 4% of revenues, to MAALP for providing
these services. See adjustment (D).
(Continued)
MID-AMERICA CAPITAL PARTNERS, L.P.
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS, CONTINUED
YEAR ENDED DECEMBER 31, 1996
(UNAUDITED)
(DOLLARS IN THOUSANDS)
(B) Reflects the unaudited historical operating results from January 1, 1996
to the earlier of the acquisition date or December 31, 1996 for the
Completed Acquisitions, Hermitage at Beechtree and the Reorganization
Properties.
(C) Represents additional depreciation and amortization resulting from the
purchase of the Reorganization Properties, the Completed Acquisitions and
Hermitage at Beechtree.
(D) Represents management fees paid to MAALP equal to 4% of total revenues
($1,492) and fees paid to the Trustee and estimated additional costs to
operate as a separate public company ($150), net of general and
administrative expenses of the Reorganization Properties which will be
eliminated ($319).
(E) Represents interest on the Bonds of $9,546, net of interest which was
eliminated as a result of the repayment of notes payable of CPG and the
Reorganization Properties ($4,299). The Partnership has entered into
forward placement contracts the effect of which was to lock the interest
rate on $130 million of the Bonds at an average interest rate of 6.64%.
Interest on the Bonds is calculated based upon a rate of 6.64% for $130
million and 6.54% (based upon current estimates) for $14 million.
(F) Represents amortization of historical deferred financing costs of CPG
($58), which were eliminated as a result of repaying the CPG notes
payable net of the amortization of deferred financing costs on the Bonds
of $476.
INDEPENDENT AUDITORS' REPORT
The Partners
Mid-America Capital Partners, L.P.
We have audited the accompanying balance sheet of Mid-America Capital Partners,
L.P. as of November 24, 1997. This financial statement is the responsibility of
the Company's management. Our responsibility is to express an opinion on this
financial statement 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 balance sheet is free of material misstatement. An
audit includes examining, on a test basis, evidence supporting the amounts and
disclosures in the balance sheet. An audit also includes assessing the
accounting principles used and significant estimates made by management, as well
as evaluating the overall balance sheet presentation. We believe that our audit
provides a reasonable basis for our opinion.
In our opinion, the balance sheet referred to above presents fairly, in all
material respects, the financial position of Mid-America Capital Partners, L.P.
as of November 24, 1997, in conformity with generally accepted accounting
principles.
KPMG Peat Marwick LLP
Memphis, Tennessee
November 24, 1997
MID-AMERICA CAPITAL PARTNERS, L.P.
BALANCE SHEET
NOVEMBER 24, 1997
ASSETS
Cash $1,000
======
PARTNERS' CAPITAL
Commitments and contingencies (note 2) -
PARTNERS' CAPITAL:
General Partner $1,000
Limited Partner -
------
TOTAL PARTNERS' CAPITAL $1,000
======
See accompanying notes to balance sheet.
MID-AMERICA CAPITAL PARTNERS, L.P.
NOTES TO BALANCE SHEET
NOVEMBER 24, 1997
(1) ORGANIZATION AND BASIS OF FINANCIAL PRESENTATION
Mid-America Capital Partners, L.P. (the Partnership) is a special purpose
Delaware limited partnership. The sole purpose for which the Partnership
has been formed is to own and operate 26 apartment communities (the
Mortgaged Properties) to be contributed to the Partnership by Mid-America
Apartments, L.P., a Tennessee limited partnership (MAALP) or acquired
directly by the Partnership. The sole limited partner of the Partnership
is MAALP, which is a majority owned subsidiary of Mid-America Apartment
Communities, Inc. (MAAC). MAAC is a self-administered and self-managed
umbrella partnership real estate investment trust (REIT). MAAC conducts a
substantial portion of its operations through MAALP and subsidiaries of
MAALP.
MAALP contributed its interest in 20 of the Mortgaged Properties and cash
in exchange for a 99% limited partnership interest in the Partnership.
MAACP, Inc., (the General Partner), a Tennessee corporation and
wholly-owned subsidiary of MAAC, contributed cash for a 1% general
partnership interest in the Partnership.
Distributions to the Partners relating to operations of the Mortgaged
Properties will be based upon net cash flow, as defined in the Partnership
Agreement. Profits, losses and distributions will be allocated to the
Partners in proportion with their ownership.
(2) COMMITMENTS AND CONTINGENCIES
The Partnership, through its ownership in the Mortgaged Properties, will
be party to various legal actions resulting from the operation of the
Mortgaged Properties. Management believes that these actions will not have
a materially adverse effect on the Partnership.
(3) SUBSEQUENT EVENT (UNAUDITED)
Subsequent to November 24, 1997, the Mortgaged Properties were acquired by
the Partnership and were pledged to secure a $140 million loan (the MSMC
Loan) received from Morgan Stanley Mortgage Capital, Inc. A portion of the
proceeds from the MSMC Loan were utilized in connection with the
acquisition of certain of the Mortgaged Properties and the remainder was
distributed to MAALP.
MID-AMERICA CAPITAL PARTNERS, L.P.
NOTES TO BALANCE SHEET
The Partnership expects to issue $144 million aggregate principal amount
of __% Bonds Due 2003 (the Bonds). The Bonds will be secured by a first
priority deed of trust, security agreement and assignment of rents and
leases in respect of the Mortgaged Properties. The net proceeds from the
sale of the Bonds will be applied to the MSMC Loan, utilized to fund costs
of the offering and the remainder will be distributed to MAALP.
INDEPENDENT AUDITORS' REPORT
The Partners
Capital Properties Group:
We have audited the accompanying combined balance sheets of Capital Properties
Group as of December 31, 1996 and 1995, and the related combined statements of
operations, partners' capital and cash flows for each of the three years in the
period ended December 31, 1996. In connection with our audits of the combined
financial statements, we also have audited the financial statement Schedule III,
Real Estate Investment and Accumulated Depreciation. These combined financial
statements and the financial statement schedule are the responsibility of the
management of Capital Properties Group. Our responsibility is to express an
opinion on these combined financial statements and financial statement schedule
based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the combined financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the combined financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the combined financial statements referred to above present
fairly, in all material respects, the combined financial position of Capital
Properties Group at December 31, 1996 and 1995, and the results of their
operations and their cash flows for each of the years in the three-year period
ended December 31, 1996, in conformity with generally accepted accounting
principles. Also in our opinion, the related financial statement schedule, when
considered in relation to the combined financial statements taken as a whole,
presents fairly, in all material respects, the information set forth therein.
As discussed in note 1 to the combined financial statements, Capital Properties
Group changed its accounting method to capitalize replacement purchases for
major appliances and carpet in 1996.
KPMG Peat Marwick LLP
Memphis, Tennessee
November 24, 1997
CAPITAL PROPERTIES GROUP
COMBINED BALANCE SHEETS
SEPTEMBER 30, 1997 (UNAUDITED) AND
DECEMBER 31, 1996 AND 1995
(DOLLARS IN THOUSANDS)
DECEMBER 31,
SEPTEMBER 30, -------------------
ASSETS 1997 1996 1995
------ --------- -------- -------
(Unaudited)
REAL ESTATE ASSETS:
Land .................................... $ 16,497 14,569 7,947
Buildings and improvements .............. 159,095 140,662 76,382
Furniture, fixtures and equipment ....... 2,653 2,224 1,232
Construction in progress ................ 2,795 830 1,679
--------- -------- -------
181,040 158,285 87,240
Less accumulated depreciation ........... (12,194) (7,586) (3,587)
--------- -------- -------
REAL ESTATE ASSETS, NET ........... 168,846 150,699 83,653
Cash ....................................... 92 134 162
Restricted cash ............................ -- 278 249
Deferred financing costs, net .............. -- 35 93
Other assets ............................... 119 11 59
--------- -------- -------
TOTAL ASSETS ...................... $ 169,057 151,257 84,216
========= ======== =======
LIABILITIES AND PARTNERS' CAPITAL
LIABILITIES:
Notes payable ........................... $ -- 16,461 22,830
Accounts payable ........................ 427 587 102
Accrued expenses and other liabilities .. 2,225 1,709 997
Security deposits ....................... 557 549 309
--------- -------- -------
TOTAL LIABILITIES ................. 3,209 19,306 24,238
PARTNERS' CAPITAL .......................... 165,848 131,951 59,978
--------- -------- -------
TOTAL LIABILITIES AND
PARTNERS' CAPITAL ................ $ 169,057 151,257 84,216
========= ======== =======
See accompanying notes to combined financial statements.
CAPITAL PROPERTIES GROUP
COMBINED STATEMENTS OF OPERATIONS
NINE MONTHS ENDED SEPTEMBER 30, 1997 AND 1996 (UNAUDITED) AND YEARS
ENDED DECEMBER 31, 1996, 1995 AND 1994
(DOLLARS IN THOUSANDS)
NINE MONTHS ENDED YEARS ENDED
SEPTEMBER 30, DECEMBER 31,
---------------- -----------------------
1997 1996 1996 1995 1994
------- ------ ------ ------ -----
(Unaudited)
REVENUES:
Rental ................................ $22,233 13,788 20,056 14,321 4,568
Other ................................. 187 143 195 176 185
------- ------ ------ ------ -----
TOTAL REVENUES .................. 22,420 13,931 20,251 14,497 4,753
------- ------ ------ ------ -----
EXPENSES:
Personnel ............................. 2,283 1,381 1,996 1,413 426
Building repairs and maintenance 1,110 662 917 772 213
Real estate taxes and insurance ....... 2,125 1,398 1,942 1,408 405
Utilities ............................. 859 670 930 749 233
Landscaping ........................... 617 357 502 371 119
Other operating ....................... 940 660 920 593 292
Depreciation and amortization -
real estate assets ................... 4,588 2,695 3,981 2,600 750
Depreciation and amortization -
non-real estate assets ............... 19 13 19 14 5
Interest .............................. 724 1,631 2,169 2,225 925
Amortization of deferred
financing costs ...................... 35 44 58 48 37
------- ------ ------ ------ -----
TOTAL EXPENSES .................. 13,300 9,511 13,434 10,193 3,405
------- ------ ------ ------ -----
NET INCOME ...................... $ 9,120 4,420 6,817 4,304 1,348
======= ====== ====== ====== =====
See accompanying notes to combined financial statements.
CAPITAL PROPERTIES GROUP
COMBINED STATEMENTS OF PARTNERS' CAPITAL
NINE MONTHS ENDED SEPTEMBER 30, 1997 (UNAUDITED)
AND YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
(DOLLARS IN THOUSANDS)
PARTNERS'
CAPITAL
-------
Partners' Capital, December 31, 1993 ........................... $ 1,485
Capital contributions, net .................................. 46,105
Net income .................................................. 1,348
--------
Partners' Capital, December 31, 1994 ........................... 48,938
Capital contributions, net .................................. 6,736
Net income .................................................. 4,304
--------
Partners' Capital, December 31, 1995 ........................... 59,978
Capital contributions, net .................................. 65,156
Net income .................................................. 6,817
--------
Partners' Capital, December 31, 1996 ........................... 131,951
Capital contributions, net .................................. 24,777
Net income .................................................. 9,120
--------
Partners' Capital, September 30, 1997 (unaudited) .............. $165,848
========
See accompanying notes to combined financial statements.
CAPITAL PROPERTIES GROUP
COMBINED STATEMENTS OF CASH FLOWS
NINE MONTHS ENDED SEPTEMBER 30, 1997 AND 1996 (UNAUDITED) AND YEARS
ENDED DECEMBER 31, 1996, 1995 AND 1994
(DOLLARS IN THOUSANDS)
NINE MONTHS ENDED YEARS ENDED
SEPTEMBER 30, DECEMBER 31,
------------------- -----------------------------
1997 1996 1996 1995 1994
-------- ------- ------- ------- -------
(Unaudited)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income ............................... $ 9,120 4,420 6,817 4,304 1,348
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization ......... 4,642 2,752 4,058 2,662 792
Changes in assets and liabilities:
Restricted cash ......................... 278 16 (29) 21 106
Other assets ............................ (8) (7) (52) 68 (104)
Accounts payable ........................ (160) 398 485 (79) 174
Accrued expenses and other liabilities .. 516 817 712 14 697
Security deposits ....................... 8 202 240 22 250
-------- ------- ------- ------- -------
NET CASH PROVIDED BY
OPERATING ACTIVITIES ............. 14,396 8,598 12,231 7,012 3,263
-------- ------- ------- ------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of real estate assets .......... (19,211) (46,381) (66,226) (12,006) (43,008)
Improvements to properties ............... (3,544) (3,182) (4,819) (155) (1,156)
Construction of units in progress ........ -- -- -- (1,558) (121)
NET CASH USED IN
INVESTING ACTIVITIES ............. (22,755) (49,563) (71,045) (13,719) (44,285)
-------- ------- ------- ------- -------
(Continued)
CAPITAL PROPERTIES GROUP
COMBINED STATEMENTS OF CASH FLOWS, CONTINUED
NINE MONTHS ENDED SEPTEMBER 30, 1997 AND 1996 (UNAUDITED) AND YEARS
ENDED DECEMBER 31, 1996, 1995 AND 1994
(DOLLARS IN THOUSANDS)
NINE MONTHS ENDED YEARS ENDED
SEPTEMBER 30, DECEMBER 31,
------------------- ----------------------------
1997 1996 1996 1995 1994
-------- ------- ------- ------ -------
(Unaudited)
CASH FLOWS FROM FINANCING ACTIVITIES:
Principal payments on notes payable .. $(16,460) (236) (6,370) (281) (4,840)
Deferred financing costs ............. -- -- -- -- (63)
Capital contributions, net ........... 24,777 41,149 65,156 6,736 46,105
NET CASH PROVIDED BY
FINANCING ACTIVITIES ......... 8,317 40,913 58,786 6,455 41,202
-------- ------- ------- ------ -------
NET INCREASE (DECREASE)
IN CASH ...................... (42) (52) (28) (252) 180
Cash, beginning of period ............... 134 162 162 414 234
-------- ------- ------- ------ -------
Cash, end of period ..................... $ 92 110 134 162 414
======== ======= ======= ====== =======
SUPPLEMENTAL DISCLOSURE OF CASH
FLOW INFORMATION - interest paid ..... $ 658 1,867 2,403 2,188 849
======== ======= ======= ====== =======
SUPPLEMENTAL DISCLOSURE OF NONCASH
INVESTING ACTIVITIES - assumption of
debt related to property acquisitions $ -- -- -- -- 23,210
======== ======= ======= ====== =======
See accompanying notes to combined financial statements.
CAPITAL PROPERTIES GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS
SEPTEMBER 30, 1997 AND 1996 (UNAUDITED)
AND DECEMBER 31, 1996 AND 1995
(DOLLARS IN THOUSANDS)
(1) ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION
The accompanying combined financial statements include the accounts of the
apartment communities listed below (the Properties). The Properties are
owned by Mid-America Apartment Communities, Inc. (MAAC) or by Mid-America
Apartments, L.P. (MAALP). MAAC is a Memphis, Tennessee based
self-administered and self-managed real estate investment trust. MAAC's
business is conducted principally through MAALP, its operating
partnership.
METROPOLITAN NUMBER OF
AREA OF APARTMENT DATE
NAME PROPERTY UNITS ACQUIRED
---- -------- ----- --------
Napa Valley Little Rock, AR 240 October 17, 1996
Westside Creek I Little Rock, AR 142 March 31, 1997
Tiffany Oaks Altamonte Springs, FL 288 December 17, 1996
Marsh Oaks Atlantic Beach, FL 120 June 29, 1995
Lakeside Jacksonville, FL 416 March 12, 1996
Belmere Tampa, FL 210 December 14, 1994
Shenandoah Ridge Augusta, GA 272 September 1, 1994
Lakepointe Lexington, KY 118 September 15, 1994
The Village Lexington, KY 252 September 15, 1994
Crosswinds Jackson, MS 360 July 25, 1996
Pear Orchard Jackson, MS 389 May 5, 1994
Somerset Jackson, MS 144 January 15, 1995
Fairways at Royal Oak Cincinnati, OH 214 December 28, 1994
Howell Commons Greenville, SC 348 January 15, 1997
Park Haywood Greenville, SC 208 September 20, 1993
Steeplechase Chattanooga, TN 108 February 14, 1991
Williamsburg Village Jackson, TN 148 December 16, 1994
Kirby Station Memphis, TN 371 November 22, 1994
Savannah Creek Memphis, TN 204 July 25, 1996
Sutton Place Memphis, TN 252 July 25, 1996
-----
4,804
=====
All of the properties are owned by MAALP, except Lakeside and Marsh Oaks
which are owned by MAAC.
The properties listed above are referred to collectively as the Capital
Properties Group (CPG).
PRINCIPLES OF COMBINATION
The accompanying combined financial statements of CPG have been presented
on a combined basis because of their common ownership and because the
Properties are expected to be contributed to Mid-America Capital Partners,
L.P. (the Partnership), in connection with the Partnership's issuance of
Bonds (see note 7).
The accounts of each of the Properties comprising CPG are combined in the
financial statements. All significant inter-entity accounts and
transactions have been eliminated in combination. The combined financial
statements include the assets and liabilities, as well as the operations
of CPG, from the date that each Property was acquired by MAALP or MAAC.
The accompanying combined financial statements include the revenues and
direct operating expenses of the Properties. Certain general and
administrative expenses and other costs which are incurred by MAALP on
behalf of CPG are not included in the financial statements. The
Partnership will pay a management fee (calculated as 4% of revenues) to
MAALP for providing these services in the future. Had the management fee
been charged during 1996, 1995 and 1994, net income would have been
reduced by approximately $810, $580 and $190, respectively. In addition,
MAALP incurred debt to fund the acquisition and improvement of certain of
the Properties. The debt and related interest expenses are not included in
the accompanying financial statements.
INTERIM UNAUDITED FINANCIAL INFORMATION
The accompanying interim unaudited financial information for the nine
months ended September 30, 1997 and 1996 had been prepared pursuant to the
rules and regulations of the Securities and Exchange Commission. Certain
information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting
principles have been condensed or omitted pursuant to such rules and
regulations, although management believes that the disclosures are
adequate to make the information presented not misleading. In the opinion
of management, all adjustments and eliminations, consisting only of normal
recurring adjustments, necessary to present fairly
(Continued)
the combined results of CPG's operations and cash flows for the nine
months ended September 30, 1997 and 1996 have been included. The results
of operations for such interim period is not necessarily indicative of the
results for the full year.
REVENUE RECOGNITION
CPG leases residential apartments under operating leases with terms
generally one year or less. Rental and other revenues are recorded when
earned.
RENTAL OPERATIONS
CPG owns and operates apartment units which are leased to tenants on terms
of one year or less, with monthly payments due in advance. In management's
opinion, due to the number of tenants, the type and diversity of
submarkets in which the Properties operate, and the collection terms,
there is no concentration of credit risk.
RESTRICTED CASH
Restricted cash consists of escrow deposits held by lenders for property
taxes, insurance, debt service and replacement reserves. The escrow
deposits are designated for certain operating expense payments.
REAL ESTATE ASSETS AND DEPRECIATION
Real estate assets are carried at the lower of depreciated cost or net
realizable value. Interest, property taxes and other development costs
incurred during construction is capitalized until completion. Repairs and
maintenance costs are expensed as incurred while significant improvements,
renovations and replacements are capitalized. The cost of interior
painting, vinyl flooring and blinds are expensed as incurred.
In conjunction with acquisitions of properties, CPG's policy is to provide
in its acquisition budgets adequate funds to complete any deferred
maintenance items to bring the properties to the required standards,
including the cost of replacement appliances, carpet, interior painting,
vinyl flooring and blinds. These costs are capitalized.
Following a review of its capital expenditure and depreciation policy,
effective January 1, 1996, CPG implemented a new policy of which the
primary changes are as follows:
(Continued)
(a) Increase minimum dollar amounts to capitalize from $500 to
$1,000;
(b) For stabilized properties (generally, properties owned and
operated for at least one year), capitalize replacement purchases
for major appliances and carpeting of an entire apartment unit
which was previously expensed; and
(c) Reduce depreciation life for certain assets from 20 years to 10
to 15 years.
CPG believes that the newly adopted accounting policy is preferable
because it is consistent with policies currently being used by the
majority of the largest apartment REITs and provides a better matching of
expenses with the estimated benefit period. CPG's 1995 and 1994 financial
statements were not restated for the effect of the change in accounting
policy. The policy has been implemented prospectively effective January 1,
1996.
Depreciation is computed on a straight-line basis over the estimated
useful lives of the related assets which range from 8 to 40 years for land
improvements and buildings and 5 years for furniture, fixtures and
equipment.
CPG periodically evaluates its real estate assets for impairment based
upon undiscounted cash flows and measures impairment based on fair value.
This determination is dependent primarily on the CPG's estimates on
occupancy, rent and expense increases, which involves numerous assumptions
and judgments as to future events over a period of many years. At December
31, 1996 CPG does not hold any assets which meet the impairment criteria.
DEFERRED FINANCING COSTS
Deferred financing costs are amortized over the terms of the related debt
using a method which approximates the interest method.
CAPITAL CONTRIBUTIONS, NET
MAALP provides cash management and vendor remittance services for CPG. Net
cash flows resulting from these services are treated as capital
contributions or distributions. In addition, MAALP provides funding for
CPG's property acquisition and improvement projects and for debt service
related to the notes payable included in the CPG financial statements. The
amount of these funded activities are contributed by MAALP to CPG as
capital contributions. Capital contributions, net for the years ended
December 31, 1996, 1995 and 1994, consisted of funds utilized (provided)
by:
(Continued)
1996 1995 1994
------- ------ ------
Acquisitions and improvements of properties $71,045 13,719 44,285
Principal payments on notes payable 6,370 281 4,840
Intercompany remittances, net (12,259) (7,264) (3,020)
------- ------ ------
$65,156 6,736 46,105
======= ===== ======
INCOME TAXES
No provision for federal income taxes has been made in the accompanying
combined financial statements. Each partner is responsible for reporting
his share of taxable income or loss from the real estate investments.
USE OF ESTIMATES
Management of the CPG has made a number of estimates and assumptions
relating to the reporting of assets and liabilities and the disclosure of
contingent assets and liabilities to prepare these financial statements in
conformity with generally accepted accounting principles. Actual results
could differ from those estimates.
(2) NOTES PAYABLE
Notes payable are secured by real estate assets and consist of the
following:
DECEMBER 31,
--------------
1996 1995
---- ----
Note payable to an insurance company,
interest and principal paid
monthly at 8.75%, monthly interest
and principal payments of $26
with the balance due June 15, 1997,
collateralized by Lakepoint Apartments. $ 2,562 2,605
Note payable to an insurance company,
interest and principal paid monthly
at 10%, monthly interest and principal
payments of $86 with the balance due
November 1, 1997, collateralized by
Pear Orchard Apartments. 8,643 8,763
(Continued)
DECEMBER 31,
--------------
1996 1995
---- ----
Note payable to an insurance company,
interest and principal paid monthly
at 8.75%, monthly interest and
principal payments of $46
with the balance due June 15, 1997,
collateralized by The Village Apartments. $ 5,256 5,344
Note payable to an insurance company, interest
and principal paid monthly at 6.6%,
monthly interest and principal
payments of $56 with the balance
due December 1, 1996, collateralized
by Kirby Station Apartments. - 6,118
------- ------
$16,461 22,830
======= ======
During the nine months ended September 30, 1997 all notes payable were
repaid.
Certain of the mortgage notes payable require, among other things, escrow
balances for the payments of insurance, taxes, improvements and repairs.
In addition, certain of the Properties are subject to a negative pledge
agreement under MAALP's credit line agreement with a $30,403 outstanding
balance at December 31, 1996. It is anticipated that these restrictions
will be removed prior to the contribution of the Properties to the
Partnership.
(3) FAIR VALUE DISCLOSURE OF FINANCIAL INSTRUMENTS
Cash, rental receivable, accounts payable and accrued expenses and other
liabilities and security deposits are carried at amounts which reasonably
approximate their fair value.
Fixed rate notes payable at December 31, 1996 and 1995 total $16.5 million
and $22.8 million, respectively, and have an estimated fair value of $16.7
million and $23.7 million (excluding prepayment penalties) based upon
interest rates available for the issuance of debt with similar terms and
remaining maturities as of December 31, 1996 and 1995. These notes were
subject to prepayment penalties which would be required to retire these
notes prior to maturity.
(Continued)
The fair value estimates presented herein are based on information
available to management as of December 31, 1996 and 1995. Although
management is not aware of any factors that would significantly affect the
estimated fair value amounts, such amounts have not been comprehensively
revalued for purposes of these financial statements since that date, and
current estimates of fair value may differ significantly from the amounts
presented herein.
(4) COMMITMENTS AND CONTINGENCIES
Neither CPG nor MAALP is presently subject to any material litigation nor,
to their knowledge, is any material litigation threatened against CPG or
MAALP, other than routine litigation arising in the ordinary course of
business, some of which is expected to be covered by liability insurance
and none of which is expected to have a material adverse effect on the
combined financial statements of CPG.
(5) EMPLOYEE BENEFIT PLANS
MAALP employees at the Properties participate in employee benefit plans
sponsored by MAAC. Provided below is a summary of MAAC benefit plans
available to the employees.
401(K) SAVINGS PLAN
The Mid-America Apartment Communities, Inc. 401(k) Savings Plan is a
defined contribution plan that satisfies the requirements of Section
401(a) and 401(k) of the Code. MAAC may, but is not obligated to, make a
matching contribution of $.50 for each $1.00 contributed, up to 6% of the
participant's compensation. During 1996 and 1995, MAALP made contributions
to this plan of approximately $13 and $3, respectively, on behalf of
employees at the Properties. These contributions are not included in the
accompanying combined financial statements. No contributions were made
during 1994.
EMPLOYEE STOCK PURCHASE PLAN
The Mid-America Apartment Communities, Inc. Employee Stock Purchase Plan
(the ESPP) provides means for employees at the Properties to purchase
common stock of MAAC. The Board of Directors of MAAC has authorized the
issuance of 150,000 shares for the plan. The ESPP is administered by the
Compensation Committee of the Board of Directors of MAAC who may annually
grant options to employees to purchase annually
(Continued)
up to an aggregate of 15,000 shares of common stock at a price equal to
85% of the market price of the common stock. During 1996 and 1995, the
ESPP purchased 138 and 54 shares, respectively, with no purchases made in
1994.
EMPLOYEE STOCK OWNERSHIP PLAN
The Mid-America Apartment Communities, Inc. Employee Stock Ownership Plan
(the ESOP) is a non-contributory stock bonus plan that satisfies the
requirements of Section 401(a) of the Internal Revenue Code. Each employee
at the Properties is eligible to participate in the ESOP after attaining
the age of 21 years and completing one year of service with MAAC.
Participants' ESOP accounts will be 100% vested after five years of
continuous service, with no vesting prior to that time. During 1996 and
1995, MAAC contributed approximately $28 and $14, respectively, to the
ESOP which purchased an additional 1,138 and 558 shares, respectively,
with no contributions made in 1994. These contributions are not included
in the accompanying financial statements.
STOCK OPTION PLAN
MAAC has the 1994 Restricted Stock and Stock Option Plan (the Plan) which
provides incentives to attract and retain independent directors, executive
officers and key employees. The Compensation Committee of the Board of
Directors of MAAC is responsible for granting Options and shares of
Restricted Stock and for establishing the exercise price of Options and
terms and conditions of Restricted Stock. During 1996 options were granted
to employees at the CPG properties to acquire 500 shares of MAAC common
stock at an exercise price of $26.50 per share. No options were granted to
employees at the CPG properties during 1995 or 1994. The effect of the
1996 grant is not included in the accompanying combined financial
statements of CPG.
(6) RELATED PARTY TRANSACTIONS
The accompanying combined financial statements include the revenues and
certain direct operating expenses of the Properties. MAALP provides the
Properties management and other services (including employee benefits) at
no charge and also provides funds for the acquisition and improvement of
the Properties. See Note 1.
(Continued)
(7) SUBSEQUENT EVENTS (UNAUDITED)
It is anticipated that the Properties, along with 6 additional properties
to be acquired by the Partnership (collectively the Communities), will
either be contributed to or acquired by the Partnership subsequent to
September 30, 1997. These transactions will result in MAALP having a 99%
limited partnership interest in the Partnership. The Partnership is
expected to issue $144 million of ___% Bonds Due 2003 (the Bonds) to be
secured by a first priority deed of trust, security agreement and
assignment of rents and leases on the Communities.
SCHEDULE III
CAPITAL PARTNERS GROUP
REAL ESTATE INVESTMENTS AND ACCUMULATED DEPRECIATION
DECEMBER 31, 1996
(DOLLARS IN THOUSANDS)
COST CAPITALIZED GROSS AMOUNT
SUBSEQUENT TO CARRIED AT
INITIAL COST ACQUISITION DECEMBER 31, 1996(3)
------------------ ------------------ --------------------
BUILDING BUILDING BUILDING
METROPOLITAN AND AND AND
PROPERTY NAME AREA ENCUMBRANCES LAND FIXTURES LAND FIXTURES LAND FIXTURES
- ------------- ---- ------------ ---- -------- ---- -------- ---- -------
Belmere Tampa, FL $ -(2) 851 7,667 706 851 8,373
Crosswinds Jackson, MS -(2) 1,535 13,826 423 1,535 14,249
Fairways at Royal Oak Cincinnati, OH -(2) 814 7,335 517 814 7,852
Kirby Station Memphis, TN - 1,148 10,337 1,499 1,148 11,836
Lakepointe Lexington, KY 2,562 411 3,699 371 411 4,070
Lakeside Jacksonville, FL -(2) 1,431 12,883 1,232 1,431 14,115
Marsh Oaks Atlantic Beach, FL -(2) 244 2,829 328 244 3,157
Napa Valley Little Rock, AR - 960 8,642 198 960 8,840
Park Haywood Greenville, SC -(2) 325 2,925 35 2,088 360 5,013
Pear Orchard Jackson, MS 8,643 1,352 12,168 599 1,352 12,767
Savannah Creek Memphis, TN (4) -(2) 778 7,013 163 778 7,176
Shenandoah Ridge Augusta, GA -(2) 650 5,850 1,469 650 7,319
Somerset Jackson, MS -(2) 477 4,294 459 477 4,753
Steeplechase Chattanooga, TN -(2) 217 1,957 1,024 217 2,981
Sutton Place Memphis, TN (4) -(2) 894 8,053 259 894 8,312
Tiffany Oaks Altamonte Springs, FL - 1,024 9,219 - 1,024 9,219
The Village Lexington, KY 5,256 900 8,097 560 900 8,657
Williamsburg Village Jackson, TN -(2) 523 4,711 316 523 5,027
=========== ========= ========= ===== ========= ======== =========
TOTAL $ 16,461 14,534 131,505 35 12,211 14,569 143,716
=========== ========= ========= ===== ========= ======== =========
LIFE USED
TO COMPUTE
DEPRECIATION
IN LATEST
METROPOLITAN ACCUMULATED INCOME
PROPERTY NAME AREA TOTAL DEPRECIATION NET CONSTRUCTION STATEMENT(1)
- ------------- ---- ----- ------------ --- ------------ ------------
Belmere Tampa, FL 9,224 (619) 8,605 1984 5 - 40
Crosswinds Jackson, MS 15,784 (207) 15,577 1988/1990 5 - 40
Fairways at Royal Oak Cincinnati, OH 8,666 (560) 8,106 1988 5 - 40
Kirby Station Memphis, TN 12,984 (875) 12,109 1978 5 - 40
Lakepointe Lexington, KY 4,481 (331) 4,150 1986 5 - 40
Lakeside Jacksonville, FL 15,546 (409) 15,137 1985 5 - 40
Marsh Oaks Atlantic Beach, FL 3,401 (176) 3,225 1986 5 - 40
Napa Valley Little Rock, AR 9,800 (51) 9,749 1984 5 - 40
Park Haywood Greenville, SC 5,373 (406) 4,967 1983/1995 5 - 40
Pear Orchard Jackson, MS 14,119 (1,226) 12,893 1985 5 - 40
Savannah Creek Memphis, TN (4) 7,954 (105) 7,849 1989 5 - 40
Shenandoah Ridge Augusta, GA 7,969 (607) 7,362 1982 5 - 40
Somerset Jackson, MS 5,230 (340) 4,890 1981 5 - 40
Steeplechase Chattanooga, TN 3,198 (467) 2,731 1986 5 - 40
Sutton Place Memphis, TN (4) 9,206 (122) 9,084 1991 5 - 40
Tiffany Oaks Altamonte Springs, FL 10,243 - 10,243 1985 5 - 40
The Village Lexington, KY 9,557 (713) 8,844 1989 5 - 40
Williamsburg Village Jackson, TN 5,550 (372) 5,178 1987 5 - 40
========= ======== ==========
TOTAL 158,285 (7,586) 150,699
========= ======== ==========
(1) Depreciation is on a straight line basis over the estimated useful asset
life which ranges from 8 to 40 years for land improvements and buildings
and 5 years for furniture, fixtures and equipment.
(2) Subject to negative pledge pursuant to the agreement in respect of MAALP's
Credit Line agreement with an outstanding balance of $30,403 at December
31, 1996.
(3) The aggregate cost for Federal income tax purposes was approximately $160
million at December 31, 1996. The total gross amount of real estate assets
for GAAP purposes exceeds the aggregate cost for Federal income tax
purposes, principally due to purchase accounting adjustments recorded under
generally accepted accounting principles.
(4) These properties are located in Desoto County, MS, a suburb of Memphis, TN.
The Company considers the properties a part of the Memphis,TN market.
SCHEDULE III
CAPITAL PROPERTIES GROUP
REAL ESTATE INVESTMENTS AND ACCUMULATED DEPRECIATION
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
A summary of acttivity for real estate investments and accumulated depreciation
is as follows:
1996 1995 1994
-------- ------ ------
Real estate investments:
Balance at beginning of year ............ $ 87,240 73,521 6,026
Acquisitions ............................ 66,226 12,006 66,218
Improvements ............................ 4,819 1,713 1,277
-------- ------ ------
Balance at end of year ........ $158,285 87,240 73,521
======== ====== ======
Accumulated depreciation:
Balance at beginning of year ............ $ 3,587 973 223
Depreciation ............................ 3,999 2,614 750
-------- ------ ------
Balance at end of year ........ $ 7,586 3,587 973
======== ====== ======
INDEPENDENT AUDITORS' REPORT
The Partners
Brown-Flournoy Equity Income
Fund Limited Partnership:
We have audited the accompanying balance sheets of Brown-Flournoy Equity Income
Fund Limited Partnership (the "Fund") as of December 31, 1996 and 1995 and the
related statements of operations, partners' capital (deficit) and cash flows for
each of the years in the three-year period ended December 31, 1996. These
financial statements are the responsibility of the Fund's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Brown-Flournoy Equity Income
Fund Limited Partnership as of December 31, l996 and 1995, and the results of
its operations and its cash flows for each of the years in the three-year period
ended December 31, 1996, in conformity with generally accepted accounting
principles.
KPMG Peat Marwick LLP
Baltimore, Maryland
January 17, 1997
BROWN-FLOURNOY EQUITY INCOME FUND
LIMITED PARTNERSHIP
BALANCE SHEETS
SEPTEMBER 30, 1997 AND
DECEMBER 31, 1996 AND 1995
DECEMBER 31,
SEPTEMBER 30, ---------------------------
ASSETS 1997 1996 1995
------ ------------ ----------- -----------
(unaudited)
Investment in real estate (note 3) ............ $ 13,669,416 14,355,212 15,200,825
Cash and cash equivalents (note 4) ............ 1,589,425 1,467,365 1,447,679
Other assets:
Accounts receivable ........................ 36,560 19,744 22,624
Prepaid expenses ........................... 12,994 70,500 65,417
Loan fees, less accumulated amortization
of $592,748 and $469,856 at December 31,
1996 and 1995, respectively ............... -- 93,761 49,459
------------ ----------- -----------
TOTAL OTHER ASSETS .................... 49,554 184,005 137,500
------------ ----------- -----------
TOTAL ASSETS .......................... $ 15,308,395 16,006,582 16,786,004
============ =========== ===========
LIABILITIES AND PARTNERS' CAPITAL (DEFICIT)
Accounts payable and accrued expenses including
$28,941 and $27,523 due to affiliates at
December 31, 1996 and 1995, respectively ... $ 639,081 417,042 453,493
Tenant security deposits ...................... 101,476 110,890 130,542
Mortgage loans payable (note 6) ............... 20,400,000 20,400,000 20,200,950
------------ ----------- -----------
TOTAL LIABILITIES ..................... 21,140,557 20,927,932 20,784,985
------------ ----------- -----------
Partners' capital (deficit) - (note 8):
General Partners ........................... (271,185) (252,969) (234,522)
Limited Partners:
Class A - $1,000 stated value per unit;
27,000 units outstanding ................ (5,561,077) (4,668,481) (3,764,559)
Class B ................................... 100 100 100
------------ ----------- -----------
TOTAL PARTNERS' CAPITAL (DEFICIT) ..... (5,832,162) (4,921,350) (3,998,981)
------------ ----------- -----------
TOTAL LIABILITIES AND PARTNERS'
CAPITAL (DEFICIT) ................... $ 15,308,395 16,006,582 16,786,004
============ =========== ===========
See accompanying notes to financial statements.
BROWN-FLOURNOY EQUITY INCOME FUND
LIMITED PARTNERSHIP
STATEMENTS OF OPERATIONS
NINE MONTHS ENDED YEARS ENDED
SEPTEMBER 30, DECEMBER 31,
------------------------- --------------------------------------
1997 1996 1996 1995 1994
----------- ---------- ---------- ---------- ----------
(unaudited)
REVENUES:
Rental income ......................... $ 3,484,337 3,585,281 4,799,909 4,644,851 4,451,569
Interest income ....................... 47,655 44,308 61,955 67,677 49,805
Gain on settlement of lawsuit (note 10) -- -- -- 299,228 --
----------- ---------- ---------- ---------- ----------
3,531,992 3,629,589 4,861,864 5,011,756 4,501,374
----------- ---------- ---------- ---------- ----------
EXPENSES:
Compensation and related benefits ..... 453,550 380,193 521,603 465,396 423,923
Property taxes ........................ 279,020 273,580 336,976 345,327 343,773
Utilities ............................. 213,314 213,089 289,952 255,151 233,250
Property management fee to related
party (note 5) ....................... 174,217 179,264 239,995 232,242 222,578
Maintenance and repairs ............... 223,536 336,579 435,767 505,152 404,083
Advertising ........................... 83,483 81,154 105,534 75,793 64,462
Other ................................. 80,159 79,533 106,700 106,308 80,845
Administrative, including amounts to
related party (note 5) ............... 72,736 57,828 93,005 85,768 92,422
Interest expense (note 6) ............. 1,457,750 1,451,548 1,933,782 1,945,006 1,953,754
Depreciation of property and equipment
(notes 2 and 7) ...................... 796,185 782,551 1,047,007 1,038,167 1,019,697
Amortization of loan fees (note 2) .... 195,589 71,030 122,892 74,188 74,188
----------- ---------- ---------- ---------- ----------
4,029,539 3,906,349 5,233,213 5,128,498 4,912,975
----------- ---------- ---------- ---------- ----------
NET LOSS (NOTE 7) ............... $ (497,547) (276,760) (371,349) (116,742) (411,601)
=========== ========== ========== ========== ==========
NET LOSS PER UNIT OF CLASS A
LIMITED PARTNERSHIP
INTEREST (NOTE 8) ............. $ (18.06) (10.05) (13.48) (4.24) (14.94)
=========== ========== ========== ========== ==========
See accompanying notes to financial statements.
BROWN-FLOURNOY EQUITY INCOME FUND
LIMITED PARTNERSHIP
STATEMENTS OF PARTNERS' CAPITAL (DEFICIT)
NINE MONTHS ENDED SEPTEMBER 30, 1997 (UNAUDITED)
AND EACH OF THE YEARS IN THE THREE-YEAR PERIOD
ENDED DECEMBER 31, 1996
CLASS A CLASS B
GENERAL LIMITED LIMITED
PARTNERS PARTNERS PARTNERS TOTAL
--------- ---------- --- ----------
Balance at December 31, 1993 .... $(196,405) (1,096,782) 100 (1,293,087)
Net loss ........................ (8,232) (403,369) -- (411,601)
Distributions to partners:
Operations .................... (11,020) (540,000) -- (551,020)
Financing proceeds ............ -- (800,000) -- (800,000)
--------- ---------- --- ----------
Balance at December 31, 1994 .... (215,657) (2,840,151) 100 (3,055,708)
Net loss ........................ (2,334) (114,408) -- (116,742)
Distributions to partners ....... (16,531) (810,000) -- (826,531)
--------- ---------- --- ----------
Balance at December 31, 1995 .... (234,522) (3,764,559) 100 (3,998,981)
Net loss ........................ (7,427) (363,922) -- (371,349)
Distributions to partners ....... (11,020) (540,000) -- (551,020)
--------- ---------- --- ----------
Balance at December 31, 1996 .... (252,969) (4,668,481) 100 (4,921,350)
Net loss ........................ (9,951) (487,596) -- (497,547)
Distributions to partners ....... (8,265) (405,000) -- (413,265)
--------- ---------- --- ----------
Balance at September 30, 1997 ... $(271,185) (5,561,077) 100 (5,832,162)
========= ========== === ==========
See accompanying notes to financial statements.
BROWN-FLOURNOY EQUITY INCOME FUND
LIMITED PARTNERSHIP
STATEMENTS OF CASH FLOWS
NINE MONTHS ENDED YEARS ENDED
SEPTEMBER 30, DECEMBER 31,
---------------------------- ------------------------------------------
1997 1996 1996 1995 1994
----------- ----------- ----------- ---------- ----------
(unaudited)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss ................................. $ (497,547) (276,760) (371,349) (116,742) (411,601)
Adjustments to reconcile net loss to net
cash provided by operating activities:
Depreciation of property and equipment 796,185 782,551 1,047,007 1,038,167 1,019,697
Amortization of loan fees ............. 195,589 71,030 122,892 74,188 74,188
Gain on settlement of lawsuit ......... -- -- -- (299,228) --
Changes in assets and liabilities:
(Increase) decrease in accounts
receivable ......................... (16,816) (639) 2,880 24,334 (18,285)
Decrease (increase) in prepaid
expenses ........................... 57,506 53,214 (5,083) 1,065 (18,372)
Increase (decrease) in accounts
payable and accrued expenses........ 222,039 182,671 (36,451) 6,063 (23,668)
(Decrease) increase in tenant
security deposits .................. (9,414) (6,470) (19,652) 6,926 1,815
----------- ----------- ----------- ---------- ----------
NET CASH PROVIDED BY
OPERATING ACTIVITIES ............ 747,542 805,597 740,244 734,773 623,774
----------- ----------- ----------- ---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to investment in real estate ... (110,389) (96,970) (201,394) (88,700) (54,100)
Settlement proceeds ...................... -- -- -- 16,000 283,228
----------- ----------- ----------- ---------- ----------
NET CASH (USED IN) PROVIDED
BY INVESTING ACTIVITIES ......... (110,389) (96,970) (201,394) (72,700) 229,128
----------- ----------- ----------- ---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Decrease in mortgage loans payable ....... -- (90,080) (90,080) (125,936) (29,647)
Proceeds from mortgage refinancing ....... -- 20,400,000 20,400,000 -- --
Repayment of mortgage loans .............. -- (20,110,870) (20,110,870) -- --
Financing costs .......................... (101,828) (111,679) (167,194) -- --
Distributions to partners ................ (413,265) (413,265) (551,020) (826,531) (1,351,020)
----------- ----------- ----------- ---------- ----------
NET CASH USED IN FINANCING
ACTIVITIES ...................... (515,093) (325,894) (519,164) (952,467) (1,380,667)
----------- ----------- ----------- ---------- ----------
NET INCREASE (DECREASE) IN
CASH AND CASH EQUIVALENTS ....... 122,060 382,733 19,686 (290,394) (527,765)
CASH AND CASH EQUIVALENTS:
Beginning of period ...................... 1,467,365 1,447,679 1,447,679 1,738,073 2,265,838
----------- ----------- ----------- ---------- ----------
End of period ............................ $ 1,589,425 1,830,412 1,467,365 1,447,679 1,738,073
=========== =========== =========== ========== ==========
See accompanying notes to financial statements.
BROWN-FLOURNOY EQUITY INCOME FUND
LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996
(1) ORGANIZATION
Brown-Flournoy Equity Income Fund Limited Partnership (the "Fund") is a
Delaware limited partnership formed on June 25, 1986 to develop and operate
four residential apartment communities in Georgia and South Carolina. The
capital raised from the admission of investors enabled the Fund to acquire
the properties and improvements and complete construction. The properties
are:
o Southland Station, a 160-unit apartment community in Warner Robins,
Georgia
o Park Place, a 184-unit apartment community in Spartanburg, South
Carolina
o Hidden Lake - Phase Two, a 160-unit apartment community in Union City,
Georgia
o High Ridge, a 160-unit apartment community in Athens, Georgia
The General Partners are Brown-Equity Income Properties, Inc., the
Administrative General Partner, and John F. Flournoy, the Development
General Partner. The Class B Limited Partners are John F. Flournoy and
Realty Associates 1986 Limited Partnership, an affiliate of the
Administrative General Partner. The Fund will terminate on December 31,
2036, unless sooner terminated under the provisions of the partnership
agreement.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) METHOD OF ACCOUNTING
The accompanying financial statements have been prepared on the accrual
basis of accounting. The Fund reports its operating results for income
tax purposes on the accrual basis. No provision for income taxes is made
because any liability for income taxes is that of the individual
partners and not that of the Fund.
(b) CASH EQUIVALENTS
The Fund considers all highly liquid investments with original
maturities of three months or less to be cash equivalents.
(Continued)
BROWN-FLOURNOY EQUITY INCOME FUND
LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
(c) DEPRECIATION
Depreciation of property and equipment is computed using the
straight-line method over the useful lives of the property and equipment
as follows:
Buildings 25 years
Furniture, fixtures, and equipment 10 years
(d) DEFERRED COSTS
Costs associated with marketing of the Class A limited partnership units
to the public were offset against the related partners' capital.
Loan fees incurred to obtain the original mortgage loans were
capitalized and were amortized on a basis that approximates the interest
method over the seven-year loan terms. These fees were fully amortized
in 1996. Loan fees incurred to obtain the new mortgage loans (note 6)
have been capitalized and are being amortized over the one-year loan
terms.
(e) USE OF ESTIMATES
Management of the Fund has made a number of estimates and assumptions
relating to the reporting of assets, liabilities, revenue, and expenses
to prepare these financial statements in conformity with generally
accepted accounting principles. Actual results could differ from those
estimates.
(f) FAIR VALUE OF FINANCIAL INSTRUMENTS
The fair value of financial instruments is determined by reference to
various market data and other valuation considerations. The fair value
of financial instruments approximate their recorded values.
(g) IMPAIRMENT OF LONG-LIVED ASSETS
In accordance with Statement of Financial Accounting Standards No. 121,
ACCOUNTING FOR THE IMPAIRMENT OF LONG-LIVED ASSETS AND FOR LONG-LIVED
ASSETS TO BE DISPOSED OF, the Fund records impairment losses on
long-lived assets used in operations when events and circumstances
indicate that the individual assets might be impaired, based on fair
(Continued)
BROWN-FLOURNOY EQUITY INCOME FUND
LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
value, and the undiscounted cash flows estimated to be generated by
those assets are less than the carrying amounts of those assets. During
1996, no events or circumstances indicated that the assets of the Fund
were impaired. Prior to 1996, the Fund's investment in real estate was
carried at the lower of net realizable value or cost, net of accumulated
depreciation, on an individual property basis.
(h) INTERIM UNAUDITED FINANCIAL INFORMATION
The accompanying interim unaudited financial information for the nine
months ended September 30, 1997 and 1996 has been prepared pursuant to
the rule and regulations of the Securities and Exchange Commission.
Certain information and footnote disclosures normally included in
financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted pursuant to such
rules and regulations, although management believes that the disclosures
are adequate to make the information presented not misleading. In the
opinion of management, all adjustments and eliminations, consisting only
of normal recurring adjustments, necessary to present fairly the results
of the Fund's operations and cash flows for the nine months ended
September 30, 1997 and 1996, have been included. The results of
operations for such interim periods is not necessarily indicative of the
results for the full year.
(3) INVESTMENT IN REAL ESTATE
Investment in real estate is summarized as follows at December 31:
1996 1995
----------- ----------
Land ............................. $ 1,205,950 1,205,950
Buildings ........................ 20,417,743 20,417,743
Furniture, fixtures, and equipment 2,403,666 2,202,272
----------- ----------
24,027,359 23,825,965
Less accumulated depreciation .... 9,672,147 8,625,140
----------- ----------
$14,355,212 15,200,825
=========== ==========
(Continued)
BROWN-FLOURNOY EQUITY INCOME FUND
LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
(4) CASH AND CASH EQUIVALENTS
Cash and cash equivalents consist of the following, stated at cost, which
approximates market value at December 31:
1996 1995
---------- ---------
Cash and money market ..................... $ 532,655 428,716
Certificates of deposit with interest rates
ranging from 5.00% to 5.60% in 1996
and 4.25% to 5.90% in 1995 ............. 934,710 1,018,963
---------- ---------
$1,467,365 1,447,679
========== =========
Restricted cash represents amount retained from tenant security deposits
and totaled $110,890 and $130,542 at December 31, 1996 and 1995,
respectively.
(5) RELATED PARTY TRANSACTIONS
The Administrative General Partner received $52,795, $41,644, and $41,314
in 1996, 1995, and 1994, respectively, for reimbursement of costs
associated with administering the Fund, including clerical services,
investor communication services, and reports and filings to regulatory
authorities.
Flournoy Properties, Inc., an affiliate of the Development General Partner,
is the managing agent for the properties and earned management fees of
$239,995, $232,242, and $222,578 representing 5% of the gross monthly
operating revenues from the properties during 1996, 1995, and 1994,
respectively.
(6) MORTGAGE LOANS PAYABLE
The Fund's General Partners secured first mortgage loans aggregating $20.8
million on August 30, 1989 which were secured by the land, apartment units,
and all other improvements to the four apartment properties. These loans
were for an original term of seven years with an interest rate of 9.6%.
Interest only was payable monthly through September 1994, and thereafter
monthly payments were based on a 30-year amortization schedule with a
balloon payment due at the end of the seven-year term.
(Continued)
BROWN-FLOURNOY EQUITY INCOME FUND
LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
The mortgage loans matured on September 1, 1996. The Fund refinanced these
loans with Columbus Bank and Trust. The terms of the commitment provide for
interest only payments of prime plus 1% in monthly installments and a term
of one year. The new loans totaled $20,400,000 and provided proceeds
sufficient to satisfy the repayment of the old mortgage loans, and all
costs of the refinancing. The Fund is required to pay a commitment fee of
one point payable in advance in quarterly installments. Interest of
$1,932,975, $1,945,936, and $1,953,991 was paid during the years ended
December 31, 1996, 1995, and 1994, respectively.
The Fund extended the maturity date of its mortgage loans with Columbus
Bank and Trust from September 1, 1997 to December 31, 1997. The Fund was
not required to pay a commitment fee related to the extension. The Fund
intends to repay these balances with proceeds from capital transactions.
(7) LOSSES FOR FEDERAL INCOME TAX PURPOSES
The Fund's losses for federal income tax purposes in each of the last three
years ended December 31 differs from the net losses for financial reporting
purposes due to differences in the Fund's computation of tax depreciation
and in 1995, different treatment of the additional net settlement proceeds
(note 10). For Federal income tax purposes, real property (other than land)
and personal property, are being depreciated over 27-1/2 and seven years,
respectively, using the Modified Accelerated Cost Recovery System, and the
additional net settlement proceeds (note 10) are being treated as a
reduction to the adjusted tax basis of the Southland Station property. The
tax losses for 1996, 1995, and 1994 are as follows:
1996 1995 1994
--------- -------- --------
Losses for financial
reporting purposes ....... $(371,349) (116,742) (411,601)
Financial reporting
depreciation in
excess of tax depreciation 247,403 268,686 167,515
Additional net settlement
proceeds (note 10) ....... -- (299,228) --
--------- -------- --------
Losses for income
tax purposes ............. $(123,946) (147,284) (244,086)
========= ======== ========
(Continued)
BROWN-FLOURNOY EQUITY INCOME FUND
LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
(8) PARTNERS' CAPITAL (DEFICIT)
The partnership agreement provides, among other provisions, for the
following:
(a) The Fund will consist of the General Partners, the Class A Limited
Partners, and the Class B Limited Partners.
(b) Distributions to the Partners relating to operations of the properties
will be based on net cash flow, as defined in the partnership
agreement. Investors will receive 98% of net cash flow and the General
Partners will each receive 1%. Profit and loss from operations will be
allocated in the same proportions. Net loss per Class A Limited
Partnership interest as disclosed on the statements of operations is
based upon 27,000 units outstanding.
(c) Net proceeds of sale or operational stage financing of the properties
will be distributed as follows:
o To pay any deferred fees payable to the General Partners and
affiliates.
o To Class A Limited Partners until each Class A Limited Partner has
recovered his original capital contribution in full and received a
cumulative, noncompounded annual return of 7.5% of his capital
contribution to the extent that such return has not been provided
from prior distributions of net cash flow.
o Any remainder will be distributed 80% to the Class A Limited
Partners, 1% to each of the General Partners, 14% to John F.
Flournoy in his capacity as Class B Limited Partner ,and 4% to
Realty Associates' 1986 Limited Partnership.
(d) Restrictions exist regarding transferability or disposition of
partnership interests.
(Continued)
BROWN-FLOURNOY EQUITY INCOME FUND
LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
(9) DISTRIBUTIONS TO PARTNERS
Distributions of cash to partners during 1996, 1995 and 1994 are summarized
as follows:
1996 1995 1994
-------- --------- ---------
To Class A Limited Partners from:
Operations .................... $540,000 540,000 540,000
Settlement proceeds ........... -- 270,000 --
Financing proceeds ............ -- -- 800,000
To General Partners from:
Operations .................... 11,020 11,020 11,020
Settlement proceeds ........... -- 5,511 --
-------- --------- ---------
$551,020 826,531 1,351,020
======== ========= =========
Each Class A Limited Partner received a distribution of $20 per unit from
operations in 1996, 1995, and 1994; $10 per unit from settlement proceeds
in 1995; and approximately $29.63 per unit from financing proceeds in 1994.
(10) SETTLEMENT PROCEEDS
During the fourth quarter of 1994, the Fund settled an outstanding lawsuit
with the manufacturer of defective polybutylene piping which was utilized
at the Southland Station property. The lawsuit sought damages resulting
from numerous plumbing leaks at the property since construction. The
settlement included the cost to replumb the property, as well as additional
net settlement proceeds to the Fund of $299,228. A special distribution of
these proceeds was made in the second quarter of 1995.
(11) SUBSEQUENT EVENT
The Fund has entered into an agreement to sell its four residential
apartment communities to Mid-America Apartments, L.P. for approximately
$9,625,000 in cash. The agreement has not yet been approved by the
partners. In conjunction with the sale, the Fund is to be liquidated and
cash will be distributed to the partners in accordance with the terms of
the partnership agreement.
INDEPENDENT AUDITORS' REPORT
The Partners
Mid-America Capital Partners, L.P.:
We have audited the accompanying combined historical summary of gross income and
direct operating expenses for certain multifamily acquisition properties
(Historical Summary) as described in note 1, for the year ended December 31,
1996. This Historical Summary is the responsibility of management. Our
responsibility is to express an opinion on this Historical Summary 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 Historical Summary is free of material misstatement.
An audit includes examining, on a test basis, evidence supporting the amounts
and disclosures in the Historical Summary. An audit also includes assessing the
accounting principles used and the significant estimates made by management, as
well as evaluating the overall presentation of the Historical Summary. We
believe that our audit provides a reasonable basis for our opinion.
The accompanying Historical Summary was prepared for the purpose of complying
with the rules and regulations of the Securities and Exchange Commission for
inclusion in the registration statement on Form S-3 of Mid-America Capital
Partners, L.P., and excludes material amounts described in note 1 to the
Historical Summary, that would not be comparable to those resulting from the
proposed future operations of the properties.
In our opinion, the Historical Summary referred to above presents fairly, in all
material respects, the gross income and direct operating expenses described in
note 1 to the Historical Summary for the year ended December 31, 1996, in
conformity with generally accepted accounting principles.
KPMG Peat Marwick LLP
Memphis, Tennessee
November 24, 1997
MID-AMERICA CAPITAL PARTNERS, L.P.
COMBINED HISTORICAL SUMMARY OF GROSS INCOME AND DIRECT OPERATING EXPENSES
FOR CERTAIN MULTIFAMILY ACQUISITION PROPERTIES
YEAR ENDED DECEMBER 31, 1996 AND PERIOD FROM JANUARY
1, 1997 TO THE EARLIER OF SEPTEMBER 30, 1997 OR DATE OF
ACQUISITION (UNAUDITED)
(DOLLARS IN THOUSANDS)
1997 1996
---- ----
(Unaudited)
GROSS INCOME - total revenue .......................... $1,391 4,335
DIRECT OPERATING EXPENSES:
Operating expenses ............................... 347 909
Real estate taxes ................................ 82 265
Repairs and maintenance .......................... 109 307
------ -----
538 1,481
------ -----
GROSS INCOME IN EXCESS
OF DIRECT OPERATING EXPENSES ......... $ 853 2,854
====== =====
See accompanying notes to combined historical summary of gross income and
direct operating expenses for certain multifamily acquisition properties.
MID-AMERICA CAPITAL PARTNERS, L.P.
NOTES TO COMBINED HISTORICAL SUMMARY OF GROSS INCOME AND DIRECT
OPERATING EXPENSES FOR CERTAIN MULTIFAMILY ACQUISITION PROPERTIES
DECEMBER 31, 1996
(1) ACCOUNTING POLICIES
DESCRIPTION
The accompanying financial statement includes the operations of certain
properties (the Acquisition Properties) owned by parties unaffiliated
with Mid-America Capital Partners, L.P. (the Partnership). The
Acquisition Properties were acquired by Mid America Apartment, L.P.
(MAALP) on the dates indicated below except for Hermitage at Beechtree
which was acquired by the Partnership. MAALP is expected to contribute
the Acquisition Properties, along with other properties owned by MAALP,
to the Partnership in exchange for a 99% limited partnership interest
in the Partnership. The Acquisition Properties included in the
financial statement are as follows:
NUMBER OF
LOCATION APARTMENT DATE
NAME OF PROPERTY UNITS ACQUIRED
---- ----------- ----- --------
Howell Commons Greenville, SC 348 January 16, 1997
Westside Creek I Little Rock, AR 142 March 31, 1997
Hermitage at Beechtree Cary, NC 194 November 3, 1997
BASIS OF PRESENTATION
The accompanying financial statement is not representative of the
actual operations for the periods presented. Certain expenses have been
excluded because the Partnership does not anticipate that they will be
incurred in future operations of the property. Expenses excluded
consist of depreciation and amortization, management fees and other
costs not directly related to the future operations of the Acquisition
Properties. Interest expense has been included in the Historical
Summary to the extent that a bond payable is assumed in connection with
the acquisition of the Acquisition Property. Operating expenses include
payroll, utilities, advertising and other general and administrative
costs. Management is not aware of any material factors relating to
these Acquisition Properties that would cause this financial statement
not to be indicative of future operating results as related to revenue
and certain expenses.
(Continued)
MID-AMERICA CAPITAL PARTNERS, L.P.
NOTES TO COMBINED HISTORICAL SUMMARY OF GROSS INCOME AND DIRECT
OPERATING EXPENSES FOR CERTAIN MULTIFAMILY ACQUISITION PROPERTIES
The accompanying combined historical summary of gross income and direct
operating expenses for certain multifamily acquisition properties was
prepared for the purpose of complying with the rules and regulations of
the Securities and Exchange Commission for inclusion in registration
statement on Form S-3 of Mid-America Capital Partners, L.P. and
excludes material amounts that would not be comparable to those
resulting from the proposed future operations of the properties.
INCOME RECOGNITION
Revenues from rental property are recognized when due from tenants.
Leases are generally for one year or less.
INTERIM UNAUDITED FINANCIAL INFORMATION
The accompanying unaudited financial information includes revenues and
certain expenses of the Acquisition Properties from January 1, 1997 to
the earlier of September 30, 1997 or the date of acquisition by MAALP.
The unaudited information has been prepared pursuant to the rules and
regulations of the Securities and Exchange Commission. Certain
information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting
principles have been condensed or omitted pursuant to such rules and
regulations, although management believes that the disclosures are
adequate to make the information presented not misleading. In the
opinion of management, all adjustments and eliminations, consisting
only of normal recurring adjustments, necessary to present fairly the
historical statement of revenues and certain expenses for the period
have been included. The results of operations for such interim period
are not necessarily indicative of the results for the full year.
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
Set forth below is an estimate of the fees and expenses to be incurred in
connection with the issuance and distribution of the Bonds registered hereby.
Registration fee to the SEC.............................. $ 44,250
Rating Agency Fees.......................................
Printing expense.........................................
Accounting fees and expenses.............................
Legal fees and expenses..................................
Trustees Fees............................................
Miscellaneous expenses...................................
---------
Total.................................................... $
=========
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The Certificates of Incorporation of the General Partner and the Depositor
obligate General Partner and the Depositor, respectively, to indemnify and
advance expenses to present and former directors and officers to the maximum
extent permitted by Delaware law. The Delaware General Corporation Law ("DGCL")
permits a corporation to indemnify its present and former directors and
officers, among others, against judgments, settlements, penalties, fines or
reasonable expenses incurred with respect to a proceeding to which they may be
made a party by reason of their service in those or other capacities if (i) such
persons conducted themselves in good faith, (ii) they reasonably believed, in
the case of conduct in their official capacities with the corporation, that
their conduct was in its best interests and, in all other cases, that their
conduct was at lest not opposed to its best interests and (iii) in the case of
any criminal proceeding, they had no reasonable cause to believe that their
conduct was unlawful.
Any indemnification by the General Partner or the Depositor pursuant to
the provisions of their respective Certificates of Incorporation Charter
described above shall be paid out of the assets of the General Partner or the
Depositor, as the case may be, and shall not be recoverable from the
shareholders of such entities. To the extent that the foregoing indemnification
provisions purport to include indemnification for liabilities arising under the
Securities Act of 1933, in the opinion of the Securities and Exchange Commission
such indemnification is contrary to public policy and, therefore, unenforceable.
The General Partner and the Depositor will purchase director and officer
liability insurance for the purpose of providing a source of funds to pay any
indemnification described above.
The DGCL permits the Certificate of Incorporation of a Delaware
corporation to include a provision eliminating or limiting the personal
liability of its directors to the corporation or its shareholders for monetary
damages for breach of fiduciary duty as a director, except that such provision
cannot eliminate or limit the liability of a director (i) for any breach of the
director's duty of loyalty to the corporation or its shareholders, (ii) for acts
or omissions not in good faith or which involve intentional misconduct or a
knowing violation of the law or (iii) for unlawful distributions that exceed
what could have been distributed without violating the DGCL or the corporation's
charter. The Certificates of Incorporation of the Depositor and the General
Partner, respectively contain a provision eliminating the personal liability of
its directors or officers to the General Partner or the Depositor or its
shareholders for money damages to the maximum extent permitted by Tennessee law
from time to time.
II-1
ITEM 16. EXHIBITS.
EXHIBITS
NUMBER DESCRIPTION
- ------ -----------
1.1* Underwriting Agreement
3.1 Certificate of Limited Partnership of Mid-America Capital Partners,
L.P.
3.2 Limited Partnership Agreement between MAAC, Inc., as General Partner
and Mid-America Apartments, L.P., a limited partner relating to the
formation of Mid-America Capital Partners, L.P., a Delaware limited
partnership
3.3 Certificate of Incorporation of MAACP, Inc.
3.4 Bylaws of MAACP, Inc.
3.5 Certificate of Incorporation of Mid-America Finance, Inc.
3.6 Bylaws of Mid-America Finance, Inc.
4.1* Form of Amended and Restated Indenture among Mid-America Capital
Partners, L.P. and Mid-America Apartments, as issuer and La Salle
National Bank, as Trustee
4.2* Form of Trust Agreement between Mid-America Finance, Inc. as
depositor and La Salle National Bank, as Trustee
4.3* Form of Certificate
4.4* Form of Bond
5.1* Opinion of Baker, Donelson, Bearman & Caldwell, a professional
corporation
10.1 Cash Collateral Account Security, Pledge and Assignment Agreement
among Mid-America Capital Partners, L.P. and Mid-America Apartments,
L.P. and First Union Bank, and Morgan Stanley Mortgage Capital,
Inc., and La Salle National Bank dated November 21, 1997
10.2 Form of Deed of Trust, Assignment of Leases and Rents and Security
Agreement
12.1* Statement re: Computation of Ratio of Earnings to Fixed Charges
23.1 Consent of KPMG Peat Marwick L.L.P.
23.2 Consent of KPMG Peat Marwick L.L.P.
23.3* Consent of Baker, Donelson, Bearman & Caldwell, a professional
corporation (included in Exhibit 5.1)
23.4* Consent of Cushman & Wakefield
23.5* Consent of Creative Project Management, Inc.
24.1 Power of Attorney (included on signature page)
25.1* Statement of Eligibility and Qualification of Indenture Trustee on
Form T-1
___________________
*To be filed by amendment.
ITEM 17. UNDERTAKINGS.
(a) Insofar as indemnification for liabilities arising under the
Securities Act of 1933, as amended (the "Securities Act"), may be permitted to
directors, officers and controlling persons of the Registrant pursuant to the
foregoing provisions, or otherwise, the Registrant has been advised that in the
opinion of the Securities and Exchange Commission (the "Commission") such
indemnification is against public policy as expressed in the Securities Act and
is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the Registrant of expenses
incurred or paid by a director, officer or controlling person of the Registrant
in the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification
II-2
by it is against public policy as expressed in the Securities Act and will be
governed by the final adjudication of such issue.
(b) The undersigned Registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act,
the information omitted from the form of prospectus filed as part of this
Registration Statement in reliance upon Rule 430A and contained in a form of
prospectus filed by the Registrant pursuant to Rule 424(b)(1) or (4) or 497(h)
under the Securities Act shall be deemed to be part of this Registration
Statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities Act,
each post-effective amendment that contains a form of prospectus shall be deemed
to be a new registration statement relating to the securities offered therein,
and the offering of such securities at that time shall be deemed to be the
initial bona fide offering thereof.
II-3
SIGNATURES
Pursuant to the requirement of the Securities Act of 1933, the Registrants
certify that they have reasonable grounds to believe that they meet all of the
requirements for filing on Form S-3 and have duly caused this Registration
Statement to be signed on their behalf by the undersigned, thereunto duly
authorized, in the City of Memphis, State of Tennessee, on December 16, 1997.
MID-AMERICA CAPITAL PARTNERS, L.P.
a Delaware limited partnership (Registrant)
By: MAACP, Inc.
Its: General Partner
By:/s/ SIMON R.C. WADSWORTH
Simon R.C. Wadsworth, President
By:/s/ LYNN A. JOHNSON
Lynn A. Johnson, Secretary-Treasurer
MID-AMERICA FINANCE, INC.,
a Delaware corporation (Registrant)
By:/s/ SIMON R.C. WADSWORTH
Simon R. C. Wadsworth, President
By:/s/ LYNN A. JOHNSON
Lynn A. Johnson, Secretary-Treasurer
POWER OF ATTORNEY
Each person whose signature appears below hereby constitutes and appoints
Simon R.C. Wadsworth and Lynn A. Johnson, and each or either of them, his true
and lawful attorney-in-fact with full power of substitution and resubstitution,
for him and in his name, place and stead, in any and all capacities, to sign any
and all amendments (including post-effective amendments) to this Registration
Statement and to cause the same to be filed, with all exhibits thereto and other
documents in connection therewith, with the Securities and Exchange Commission,
hereby granting to said attorneys-in-fact and agents, and each of them, full
power and authority to do and perform each and every act and thing whatsoever
requisite or desirable to be done in and about the premises, as fully to all
intents and purposes as the undersigned might or could do in person, hereby
ratifying and confirming all acts and things that said attorneys-in-fact and
agents, or either of them, or their substitutes or substitute, may lawfully do
or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
SIGNATURE TITLE DATE
--------- ----- ----
/s/ GEORGE E. CATES Director of General Partner and Depositor December 16, 1997
George E. Cates
/s/ HOWARD EDDINGS, JR. Independent Director of General Partner and Depositor December 16, 1997
Howard Eddings, Jr.
/s/ H. ERIC BOLTON, JR. Director of General Partner and Depositor December 16, 1997
H. Eric Bolton, Jr.
/s/ SIMON R.C. WADSWORTH President of General Partner Depositor December 16, 1997
Simon R. C. Wadsworth
/s/ LYNN A. JOHNSON Secretary-Treasurer of General Partner and Depositor December 16, 1997
Lynn A. Johnson
/s/ STEPHEN M. CARPENTER Independent Director of General Partner and Depositor December 16, 1997
Stephen M. Carpenter
INDEX TO EXHIBITS
EXHIBITS
NUMBER DESCRIPTION
- ------ -----------
1.1* Underwriting Agreement
3.1 Certificate of Limited Partnership of Mid-America Capital Partners,
L.P.
3.2 Limited Partnership Agreement between MAAC, Inc., as General Partner
and Mid-America Apartments, L.P., a limited partner relating to the
formation of Mid-America Capital Partners, L.P., a Delaware limited
partnership
3.3 Certificate of Incorporation of MAACP, Inc.
3.4 Bylaws of MAACP, Inc.
3.5 Certificate of Incorporation of Mid-America Finance, Inc.
3.6 Bylaws of Mid-America Finance, Inc.
4.1 Form of Amended and Restated Indenture among Mid-America Capital
Partners, L.P. and Mid-America Apartments, as issuer and La Salle
National Bank, as Trustee
4.2 Form of Trust Agreement between Mid-America Finance, Inc. as
depositor and La Salle National Bank, as Trustee
4.3* Form of Certificate
4.4* Form of Bond
5.1* Opinion of Baker, Donelson, Bearman & Caldwell, a professional
corporation
10.1 Cash Collateral Account Security, Pledge and Assignment Agreement
among Mid-America Capital Partners, L.P. and Mid-America Apartments,
L.P. and First Union Bank, and Morgan Stanley Mortgage Capital,
Inc., and La Salle National Bank dated November 21, 1997
10.2 Form of Deed of Trust, Assignment of Leases and Rents and Security
Agreement
12.1* Statement re: Computation of Ratio of Earnings to Fixed Charges
23.1 Consent of KPMG Peat Marwick L.L.P.
23.2 Consent of KPMG Peat Marwick L.L.P.
23.3* Consent of Baker, Donelson, Bearman & Caldwell, a professional
corporation (included in Exhibit 5.1)
23.4* Consent of Cushman & Wakefield
23.5* Consent of Creative Project Management, Inc.
24.1 Power of Attorney (included on signature page)
25.1* Statement of Eligibility and Qualification of Indenture Trustee on
Form T-1
___________________
*To be filed by amendment.