March 19, 2002
RE: Offer to Purchase Limited Partnership Interests
Dear Fellow Investor:
The purpose of this letter is to update you on the status of our Offer to buy
your Limited Partnership Units in Marriott Residence II Inn Limited Partnership.
Our Offer Price has been reduced from $300 per Unit to $200 per Unit in cash.
The reduction in our Offer Price is due to recent announcements by the General
Partner of the Partnership that we believe may materially change the value of
the Partnership. In addition, our new Offer Price of $200 per Unit will be
reduced by any distributions made on or after February 15, 2002, and will be
increased by any interest that accrues as provided in the Offer to Purchase.
The Purchaser is owned by MRI Partners, LLC, a joint venture between
subsidiaries of Madison Capital Management, LLC and Haberhill LLC. Madison is a
privately-held investment firm which purchases units in hundreds of
under-performing limited partnerships. To date, over 65,000 limited partners
nationwide in over 320 limited partnerships have chosen to sell their units to
Madison, making it a leading and reliable choice for limited partnership
investors seeking a timely, cost-effective liquidity option. Haberhill is a
privately-held real estate investment advisory firm. None of the Purchaser,
Madison nor Haberhill is affiliated with the Partnership or its general partner.
We are principals seeking to acquire Units for our investment portfolio only (we
are not a matching service or professional broker who regularly resells units).
Please consider the following in evaluating our Offer:
o STATUS OF CURRENT OFFER. Our offering price is being reduced to $200 per
Unit due to the General Partner's March 6, 2002 announcement in its response to
our tender offer that a significant amount of the Partnership's cash reserves
will be used for capital improvements to its properties. We believe the use of
this cash for capital improvements may drastically reduce the value of the
Partnership's units. In our prior evaluation of the Partnership, we assumed that
the Partnership would fund capital improvements from operating cash flows, and
that substantially all of the Partnership's non-restricted reserves would be
distributed to limited partners. The Partnership's use of $9.7 million, or
approximately 40%, of this cash for capital improvements reduces the amount of
cash available to the limited partners and thus reduces the value of the
Partnership Units to the extent a return on such expenditures in the form of
improved future operating results or enhanced property values is not realized.
In addition, the General Partner's announcement includes disclosure that the
properties' current performance levels have decreased. Based upon the changes
described in the General Partner's March 6, 2002 announcement, our estimated
value of the Partnership's Units has been reduced.
We have communicated to the General Partner our concerns about the
apparent inconsistency between the Partnership's determination to increase
capital expenditures in the near term and its obligation under the Partnership
Agreement to attempt to locate a purchaser for the Partnership's inns and
liquidate the Partnership as promptly as practicable, and has demanded to
inspect the Partnership's relevant books and records regarding such
expenditures.
o UNCERTAINTY ABOUT DISCUSSIONS WITH POTENTIAL BIDDER. In its March 6, 2002
response letter to our offer, the General Partner discloses that exclusive
discussion between the Partnership and a bidder were taking place prior to
September 11, 2001concerning the acquisition of the Partnership's interests.
These discussions were suspended shortly after that date in order for the bidder
to evaluate the economic impact of the events of that date on the Partnership's
properties. The General Partner further discloses that this bidder continues to
evaluate the possibility of an acquisition, however no assurance is given that a
transaction will take place.
o DISTRIBUTIONS ARE SUSPENDED. The Partnership has not paid any distributions
from operations since February 1998. It is required to make debt service
payments, payments to capital expenditure reserve accounts and payments to the
property manager before distributions to limited partners can be reinstated. In
its 2000 annual report, the Partnership states that "It appears unlikely that
cash distributions will be possible for the next several years."
o THE PARTNERSHIP HAS SIGNIFICANT INDEBTEDNESS. The Partnership's
indebtedness consists of a single mortgage note totaling approximately
$132 million, which bears interest at a rate of approximately 8.55%, and matures
Madison Liquidity Investors 117, LLC 6143 South Willow Drive Ste. 200
Greenwood Village, CO 80111
Phone: (800) 269-7313 Facsimile: (303) 957-2098
on March 10, 2006 and is secured by the Partnership's properties. Except in
limited circumstances, this loan cannot be prepaid without significant penalty.
o CAPITAL EXPENDITURES. Under its property management agreement, the
Partnership is required to maintain a property improvement fund to finance
necessary capital improvements. The fund has contained insufficient capital to
meet current needs since the beginning of 1998. The Partnership has said in its
2000 annual report, "[t]he shortfall is primarily due to the need for suite
refurbishments at a majority of the Inns as part of ongoing, routine, capital
maintenance. To address the shortfall, [the Partnership] provided additional
cash of $1.6 million and $2.5 million to the property improvement fund in the
first quarter of 2000 and 1999." In the Partnership's most recent Quarterly
Report on Form 10-Q, it reports that the property manager estimated that
approximately $59 million may be required over the next five years to finance
capital improvements. In the General Partner's response letter to our current
offer it is announced that cash flow from operations will not be sufficient to
fund these capital improvements and that approximately $9.7 million of cash
reserves will be needed to fund these improvements.
o YOU WILL FOREGO FUTURE BENEFITS OF OWNING UNITS. Tendering Unitholders
will give up the opportunity to participate in any future benefits of ownership,
including potential future distributions by the Partnership. The Offer Price may
be less than the total amount which you might otherwise receive with respect to
your Units over the remaining term of the Partnership.
o WE SEEK TO MAKE A PROFIT ON THE PURCHASE OF UNITS. We are making the
Offer for investment purposes and with the intention of making a profit from
ownership of the Units. In establishing the Offer Price, we are motivated to
establish the lowest price that might be acceptable to Unitholders consistent
with our objectives, which may conflict with your interest in receiving the
highest price for your Units
o CONDITIONS OF SALE. Our obligation to purchase Units is subject to
our right to prorate among tendering Unitholders the number of Units we will
purchase, as well as other conditions set forth in the Offer to Purchase.
o YOU MAY ATTEMPT TO SELL IN THE SECONDARY MARKET. The Offer Price is less
than prices recently quoted by secondary market matching services. However, we
have seen no trading in the secondary market for these units after the General
Partner's March 6, 2002 response letter to our offer. We believe the price paid
for these units in the secondary market may be reduced due to this recent
announcement. We also believe that transactions through secondary market
services are costly and time consuming, and that quoted prices often differ from
the price received.
If you have already tender your units to us at the $300 per Unit offering price
please be aware that the amount you will receive will be reduced to $200 per
Unit. If you do not wish to receive the reduced offering price of $200 per Unit
please refer to Section 5 - "Withdrawal Rights" of the Offer to Purchase that
was originally sent to you or call us toll-free at (800) 269-7313 to express
your desire to withdraw your units. If you wish to withdraw your units you must
do so before the expiration date of the Offer, which is currently scheduled for
April 16, 2002.
We will purchase a maximum of 12% of the outstanding Units in our Offer. If
Unitholders offer us more, we will prorate our purchase ratably to all sellers.
You will be paid promptly following (i) receipt of a valid, properly executed
Agreement of Assignment and Transfer (see the enclosed document) and (ii)
transfer of the Units to us, subject to Section 4 - "Proration" of the Offer to
Purchase and the other terms and conditions of the Offer. All sales of Units
will be irrevocable by you, subject to Section 5 - "Withdrawal Rights" of the
Offer to Purchase. The Offer to Purchase, Exhibit (a)(1) to the Schedule TO
which was previously sent to you, and the Supplement contain a full discussion
of the terms of the Offer.
The General Partner does not disclose a net asset value for the Units. If you
would like to learn more about the Partnership you may access its public filings
at www.sec.gov, the website of the Securities and Exchange Commission, or call
the General Partner to request the latest copy of its 10-K (Annual Report), 10-Q
(Quarterly Report) and 8-K (Current Report).
If you wish to accept our Offer:
1. Please complete the Medallion Signature Guarantee on the enclosed Agreement
of Assignment and Transfer (this can be done by your broker or a bank where you
have an account).
2. Return it in the enclosed envelope, along with your Limited
Partnership Certificate (if one was issued to you and is available).
Our offer will expire at 5:00 pm New York time on April 16, 2002, subject to any
extension. We encourage you to act promptly. We will automatically extend our
Offer by ten business days if any distributions are made by the Partnership
within ten business days of the expiration of the Offer. By accepting the offer,
you will agree that we are entitled to all distributions made by the Partnership
on or after February 15, 2002. Unless the General Partner pays the distribution
directly to us or you remit the amount of the distribution to us, we will reduce
the Offer Price you receive by the amount of the distribution. If the Offer is
extended or a distribution occurs within the Offer period, we will issue a press
release. Those who wish to obtain additional information on press releases,
possible extensions or how distributions paid by the Partnership may affect the
payment process (including the final payment amount) may call our customer
service line at the number below. We reserve the right to extend, amend or
terminate the Offer.
Madison Liquidity Investors 117, LLC 6143 South Willow Drive Ste.
200 Greenwood Village, CO 80111
Phone: (800) 269-7313 Facsimile: (303) 957-2098
Please call us at (800) 269-7313 (toll-free), or send a fax to (303) 957-2098,
if you have any questions. If you miss the Expiration Date and still wish to
sell, please call us to learn if we are able to accept your Units. Thank you for
your consideration of our offer.
Very truly yours,
Madison Liquidity Investors 117, LLC
Madison Liquidity Investors 117, LLC 6143 South Willow Drive Ste. 200
Greenwood Village, CO 80111
Phone: (800) 269-7313 Facsimile: (303) 957-2098