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