RISK FACTORS

 

                   Limited partner interests are inherently different from the capital stock of a corporation, although many of the business risks to which we are subject are similar to those that would be faced by a corporation engaged in a similar business. You should carefully consider the following risk factors together with all of the other information included in this prospectus in evaluating an investment in our common units.  The risks and uncertainties we describe are not the only ones facing us. Additional risks and uncertainties not presently known to us or that we currently deem immaterial may also impair our business or operations.

 

                   If any of the following risks were to occur, our business, financial condition, results of operations and cash available for distribution could be materially adversely affected. In that case, we might not be able to make distributions on our common units, the trading price of our common units could decline, and you could lose all or part of your investment.

 

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Risks Relating to Our Structure

 

We intend to pay periodic distributions to the holders of our common units, however, we are a holding company and substantially depend on the businesses of our subsidiaries to satisfy our obligations.

We are a holding company and will have no material assets other than the ownership interests in our  subsidiaries and will have no independent means of generating income. Consequently, our cash flow and our ability to make distributions with respect to common units likely will depend on the cash flow of such subsidiaries and the payment of funds to us by such subsidiaries in the form of dividends, distributions, loans or otherwise.  The operating results of our subsidiaries may not be sufficient to make distributions to us. In addition, our subsidiaries are not obligated to make funds available to us and distributions and intercompany transfers from our subsidiaries to us may be restricted by applicable law or covenants contained in financing agreements and other agreements to which these subsidiaries may be subject or enter into in the future. The terms of any borrowings of our subsidiaries or other entities in which we own equity may restrict dividends, distributions or loans to us. To the degree any distributions and transfers are impaired or prohibited, our ability to make distributions on our common units will be limited.

  

We are prohibited from making distributions to our common unit holders under certain circumstances and the holders of our common units may be required to return distributions that were made in violation of applicable law.

 

Under the Delaware Limited Partnership Act, we may not make a distribution to a partner if after the distribution all our liabilities, other than liabilities to partners on account of their partnership interests and liabilities for which the recourse of creditors is limited to specific property of the partnership, would exceed the fair value of our assets. If we were to make such an impermissible distribution, any limited partner who received a distribution and knew at the time of the distribution that the distribution was in violation of the Delaware Limited Partnership Act would be liable to us for the amount of the distribution for three years.

 

Our General Partner and our board of directors have the discretion to change our distribution policy.

 

The declaration and payment of any future distributions will be at the sole discretion of our General Partner; however, it requires our board of director’s approval to change our distribution policy.  Our General Partner and the board of directors will take into account general economic business conditions, our strategic plans and prospects, our business and investment opportunities, the proceeds, if any, from divestitures, our financial condition and operating results, compensation expense, working capital requirements, anticipated cash needs and the availability of adequate cash flow from the operations of our subsidiaries, contractual restrictions and obligations, restrictions contained in our financing arrangements, if any, our issuances of additional equity or debt, legal, tax and regulatory restrictions, restrictions or other implications on the payment of distributions by us to the holders of our common units or by our subsidiaries to us and such other factors as our General Partner and the board of directors that they may deem relevant.

 

Our partnership status could be changed by the Internal Revenue Service and we may become taxable as a corporation.

 

We believe that we are properly treated as a partnership for federal income tax purposes. This allows us to pass through our income and deductions to our partners. However, the Internal Revenue Service (IRS) could challenge our partnership status and we could fail to qualify as a partnership for future years. Qualification as a partnership involves the application of highly technical and complex provisions of the Internal Revenue Code of 1986, as amended. For example, a publicly traded partnership is generally taxable as a corporation unless 90% or more of its gross income is “qualifying” income as defined in Section 7704 of the Code.  Our qualifying income includes, without limitation, interest, dividends, real property rents, gains from the sale or other disposition of real property, gain from the sale or other disposition of capital assets held for the production of interest or dividends, and certain other items. We intend to structure our business in a manner such that at least 90% of our gross income will constitute qualifying income this year and in the future. However, there can be no assurance that such structuring will be effective in all events to avoid the receipt of more than 10% of non-qualifying income, in which case we will have to pay U.S. Federal, state and local income tax on our taxable income at the applicable tax rates and not have the benefit of income, gains, losses, deductions or credits flowing through them.

 

The cost of paying Federal and possibly state and local income tax going forward could be a significant liability and would reduce our funds available to make distributions to holders of our  common units, which could cause a reduction in the value of our common units.  Further, because of widespread state budget deficits, several states are evaluating ways to subject partnerships to entity level taxation through the imposition of state income, franchise or other forms of taxation. To meet the qualifying income test we may structure transactions in a manner which is less advantageous than if this were not a consideration, or we may avoid otherwise economically desirable transactions.

 

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Our property taxes could increase due to property tax rate changes or reassessment, which could adversely impact our cash flows.

 

Even if we qualify as a master limited partnership for federal income tax purposes, we will be required to pay state and local taxes on our properties. The real property taxes on our properties may increase as property tax rates change or as our properties are assessed or reassessed by taxing authorities. If the property taxes we pay increase, our ability to pay expected distributions to our unit holders could be materially and adversely affected.

Permanent changes in tax law could adversely affect us.

 

Changes in tax law could adversely affect us. Legislation has been introduced in Congress which, if enacted, could have a material adverse effect on us. The proposals include legislation which would tax publicly traded partnerships, such as us, as corporations. If such legislation were enacted it would materially increase our taxes. As an alternative, we might be required to restructure our operations, and possibly dispose of certain of our properties, in order to avoid or mitigate the impact of any such legislation.

 

The holders of our common units may be subject to state and local taxes and return filing requirements as a result of owning our common units.

 

In addition to U.S. Federal income taxes, holders of our common units may be subject to other taxes, including state and local taxes, unincorporated business taxes and estate, inheritance or intangible taxes that are imposed by the various jurisdictions in which we do business or own property now or in the future, even if the holders of our common units do not reside in any of those jurisdictions. Holders of our common units may be required to file state and local income tax returns and pay state and local income taxes in some or all of these jurisdictions. Further, holders of our common units may be subject to penalties for failure to comply with those requirements. In some instances we may be required to pay composite or withholding taxes on behalf of non-resident limited partners in some states, however, outside of these instances, it is the responsibility of each unit holder to file all U.S. Federal, state and local tax returns that may be required of such unit holder.

 

The holders of our common units will be subject to U.S. federal income tax on their share of our taxable income, regardless of whether they receive any cash distributions, and may recognize income in excess of cash distributions.

 

A U.S. unit holder will be subject to U.S. Federal, state, local and possibly, in some cases, foreign income taxation on its allocable share of our income, gain, loss, deduction and credit (including its allocable share of those items of any entity in which we invest that is treated as a partnership or is otherwise subject to tax on a flow through basis), regardless of whether or when such unit holder receives cash distributions.

 

The holders of our common units may not receive cash distributions equal to their allocable share of our net taxable income. In addition, certain of our holdings or entities treated as partnerships for U.S. Federal income tax purposes may produce taxable income prior to the receipt of cash relating to such income, and holders of our common units that are U.S. taxpayers will be required to take such income into account in determining their taxable income. In the event of an inadvertent termination of the partnership status for which the IRS has granted limited relief, each holder of our common units may be obligated to make such adjustments as the IRS may require to maintain our status as a partnership. Such adjustments may require the holders of our common units to recognize additional amounts in income during the years in which they hold such units. In addition, because of our methods of allocating income and gain among holders of our common units, you may be taxed on amounts that accrued economically before you became a unit holder. Consequently, you may recognize taxable income without receiving any cash.

 

In some circumstances, under the U.S. Federal income tax rules affecting partners and partnerships, the taxable gain or loss allocated to a unit holder may not correspond to that unit holder’s share of the economic appreciation or depreciation in the particular asset. This is primarily an issue of the timing of the payment of tax, rather than a net increase in tax liability, because the gain or loss allocation would generally be expected to be offset as a unit holder sold units. Although we expect that distributions we make should be sufficient to cover a holder's tax liability in any given year that is attributable to its investment in us, no assurances can be made that this will be the case. We will be under no obligation to make any such distribution and, in certain circumstances, may not be able to make any distributions or will only be able to make distributions in amounts less than a holder's tax liability attributable to its investment in us. Accordingly, each holder of common units should ensure that it has sufficient cash flow from other sources to pay all tax liabilities.

 

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Tax gain or loss on disposition of our common units could be more or less than expected.

 

In the event of the sale of your common units, you will recognize a gain or loss equal to the difference between the amount realized and your adjusted tax basis allocated to those common units. Prior distributions to you in excess of the total net taxable income allocated to you will have decreased the tax basis in your common units. Therefore, such excess distributions will increase your taxable gain, or decrease your taxable loss, when the common units are sold and may result in a taxable gain even if the sale price is less than the original cost. A portion of the amount realized, whether or not representing gain, may be ordinary income to you.

A distribution in excess of our current and accumulated earnings and profits may be considered a return of capital and thus reduce the unit holder’s tax basis in their common units.

All distributions will be made at the discretion of the board of directors of our General Partner and will depend on our earnings, our financial condition, maintenance of our master limited partnership qualification and other factors as our board of directors may deem relevant from time to time. If we decide to make distributions in excess of our current and accumulated earnings and profits, such distributions would generally be considered a return of capital for federal income tax purposes to the extent of the holder’s adjusted tax basis in their shares. A return of capital is not taxable, but it has the effect of reducing the holder’s adjusted tax basis in its investment. If distributions exceed the adjusted tax basis of a holder’s shares, they will be treated as gain from the sale or exchange of such units. If we borrow to fund distributions, our future interest costs would increase, thereby reducing our earnings and cash available for distribution from what they otherwise would have been.

 

We do not expect to be able to furnish to each unit holder specific tax information within 90 days after the close of each calendar year, which means that holders of common units who are U.S. taxpayers should anticipate the need to file annually a request for an extension of the due date of their income tax return.

 

As a publicly traded partnership, our operating results, including distributions of income, distributions, gains, losses or deductions, and adjustments to carrying basis, will be reported on Schedule K-1 and distributed to each unit holder annually. It may require longer than 90 days after the end of our fiscal year to obtain the requisite information from all lower-tier entities so that K-1s may be prepared for the unit holders. For this reason, holders of common units who are U.S. taxpayers should anticipate the need to file annually with the IRS (and certain states) a request for an extension past April 15 or the otherwise applicable due date of their income tax return for the taxable year.

 

Our assets may be subject to impairment charges.

 

We periodically evaluate our real estate investments and other assets for impairment indicators. The judgment regarding the existence of impairment indicators is based on factors such as market conditions, tenant performance and legal structure. For example, the early termination of a lease by a tenant or default by a borrower under a loan held by us may lead to an impairment charge. If we determine that an impairment has occurred, we would be required to make an adjustment to the net carrying value of the asset, which could have a material adverse effect on our results of operations in the period in which the impairment charge is recorded.

  

The sale or exchange of 50% or more of our capital and profit interests will result in the termination of our partnership for U.S. Federal income tax purposes.

 

We will be considered to have been terminated for U.S. federal income tax purposes if there is a sale or exchange of 50% or more of the total interests in our capital and profits within a 12-month period. A termination of our partnership would, among other things, result in the closing of our taxable year for all unit holders, and thus may impair your investment.

Bankruptcy of our General Partner could place us into voluntary bankruptcy.

  

Our General Partner has the power to put us into voluntary bankruptcy without approval from common unit holders.   Should our General Partner experience financial stress and choose to file for bankruptcy protection on its own behalf, it could potentially be in the interest of the General Partner to also file a voluntary bankruptcy with respect to us, and to petition the bankruptcy court to substantively consolidate the assets of both us and the General Partner.

  

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Since we are a limited partnership, you may not be able to pursue legal claims against us in U.S. federal courts.

 

We are a limited partnership organized under the laws of the state of Delaware. Under the federal rules of civil procedure, you may not be able to sue us in federal court on claims other than those based solely on federal law because of lack of complete diversity. Case law applying diversity jurisdiction deems us to have the citizenship of each of our limited partners. Because we are a publicly traded limited partnership, it may not be possible for you to attempt to sue us in a federal court because we have citizenship in and operations in many states. Accordingly, you will be limited to bringing any claims in state court.

 

Our common unit holders do not elect our General Partner or vote on our general partner’s directors.

  

Our common unit holders do not elect our General Partner or our board of directors and, unlike the holders of common stock in a corporation, have only limited voting rights on matters affecting our business and therefore limited ability to influence decisions regarding our business. Furthermore, if our common unit holders are dissatisfied with the performance of our General Partner or board, they have no ability to remove our General Partner or board, with or without cause.

  

Except in limited circumstances, our General Partner has the power and authority to conduct our business without unit holder approval.

 

Under our partnership agreement, our General Partner has full power and authority to do all things on such terms as it determines to be necessary or appropriate to conduct our business including, but not limited to, the following:

 

•

the making of any expenditures, the lending or borrowing of money, the assumption or guarantee of other contracting for, indebtedness and other liabilities, the issuance of evidences of indebtedness, including indebtedness that is convertible into our securities, and the incurring of any other obligations;

  

•

The acquisitions of loans or debt;

•

The purchase, sale or other acquisition or disposition of any or all of our assets, whether real property or otherwise;

•

The making of any improvement to or alterations of our real property assets;

  

•

the mortgage, pledge, encumbrance, transfer, sale, lease, hypothecation or exchange of any or all of our assets;

 

•

the negotiation, execution and performance of any contracts, conveyances or other instruments;

 

•

the distribution of our cash in excess of operating needs;

 

•

the selection and dismissal of employees and agents, outside attorneys, accountants, consultants and contractors and the determination of their compensation and other terms of employment or hiring;

 

•

the maintenance of insurance for our benefit and the benefit of our partners;

 

•

the formation of, or acquisition of an interest in, the contribution of property to, and the making of loans to, any limited or general partnership, joint venture, corporation, limited liability company or other entity;

 

•

the control of any matters affecting our rights and obligations, including the bringing and defending of actions at law or in equity, otherwise engaging in the conduct of litigation, arbitration or mediation and the incurring of legal expense, the settlement of claims and litigation;

 

•

the indemnification of any person against liabilities and contingencies to the extent permitted by law;

 

•

the making of tax, regulatory and other filings, or the rendering of periodic or other reports to governmental or other agencies having jurisdiction over our business or assets; and

 

•

the entering into of agreements with any of its affiliates to render services to us or to itself in the discharge of its duties as our General Partner.

  

•

The exercise of remedies under leases, loans held by us and other remedies in connection with transactions in which we are engaged, including without limitation by instituting litigation or otherwise seeking judicial intervention in any jurisdiction and venue of our choosing.

  

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Our General Partner determines the amount and timing of asset purchases and sales, capital expenditures, borrowings, issuances of additional partnership securities and the creation, reduction or increase of reserves, each of which can affect the amount of cash that is distributed to our unit holders.

 

The amount of cash that is available for distribution to our unit holders is affected by decisions of our General Partner regarding such matters including but not limited to the following:

 

•

amount and timing of asset purchases and sales;

 

•

cash expenditures for, and among other things, operating expenses (and whether a capital expenditure is classified as a maintenance capital expenditure, which reduces operating surplus, or an expansion capital expenditure, which does not reduce operating surplus);

 

•

borrowings;

 

•

activities outside the ordinary course of business

 

•

issuance of additional units; and

 

•

the creation, reduction, or increase of reserves in any quarter.

 

In addition, borrowings by us and our affiliates do not constitute a breach of any duty owed by our General Partner and our  board of directors to our unit holders, including borrowings that have the purpose or effect of enabling our General Partner or its affiliates to receive incentive distribution rights. For example, in the event we have not generated sufficient cash from our operations to pay the minimum quarterly distribution on our common units, our partnership agreement permits us to borrow funds, which would enable us to make this distribution on all of our outstanding units.

 

The control of our General Partner may be transferred to a third party without our consent.

  

Our General Partner may directly or indirectly sell, convey, pledge or otherwise transfer its interest to a third party in a merger or consolidation or in a sale or transfer of all or substantially all of its assets, in each case without our consent or the consent of our common unit holders. Furthermore, ownership interest in our General Partner or its constituent members may be directly or indirectly sold, transferred, assigned, encumbered, hypothecated or pledged, in whole or in part, without our approval. 

    

A new General Partner or new interest holders within the constituent members of the General Partner may not be willing or able to acquire new properties and could acquire properties that have investment objectives and governing terms that differ materially from those of our current properties. A new owner could also have a different investment philosophy, employ investment professionals who are less experienced, be unsuccessful in identifying investment opportunities or have a track record that is not as successful as our track record. If any of the foregoing were to occur, we could experience difficulty in acquiring new properties, and the value of our portfolio of properties, our business, our results of operations and our financial condition could materially suffer.

  

We are a Delaware limited partnership, and there are certain provisions in our limited partnership agreement regarding exculpation and indemnification of our officers and directors that differ from the Delaware General Corporation Law in a manner that may be less protective of the interests of our common unit holders.

 

Our limited partnership agreement provides that the directors and officers of our General Partner do not have liability to us for acts or omissions. In contrast, under the Delaware General Corporation Law, a corporation can only indemnify directors and officers for acts or omissions if the director or officer acted in good faith, in a manner he reasonably believed to be in the best interests of the corporation and, in criminal action, if the officer or director had no reasonable cause to believe his conduct was unlawful. Therefore, our limited partnership agreement is less protective of the interests of our common unit holders when compared to the Delaware General Corporation Law, insofar as it relates to the exculpation and indemnification of our officers and directors.

 

Our General Partner is not required to have a majority of independent directors on its board of directors.

 

Generally, a public company must have a majority of independent board members as defined by both the Securities and Exchange Commission and the Nasdaq Stock Exchange.  We, however, are considered a “controlled company,” which is a company of which more than 50% of the voting power is held by an individual, a group or another company within the meaning of the Nasdaq Stock Exchange rules.  Since our General Partner has full voting power, we are a “controlled company,” and may elect to not comply with certain corporate governance requirements of the Nasdaq Stock Exchange, including, without limitation:

 

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the requirement that a majority of our board of directors consist of independent directors;

 

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the requirement that if we have a nominating/corporate governance committee, it must be composed entirely of independent directors; and

 

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the requirement that if we have a compensation committee, it must be composed entirely of independent directors.

 

Our board is not currently, and in the future will not be, comprised of a majority of independent directors. Accordingly, you will not have the same protections afforded to stockholders of companies that are subject to all of the corporate governance requirements of the Nasdaq Stock Exchange.

Our ability to sell equity to expand our business will depend, in part, on the market price of our common units, and our failure to meet market expectations with respect to our business could negatively affect the market price of our common units and limit our ability to sell equity.

 

The availability of equity capital to us will depend, in part, on the market price of our common units which, in turn, will depend upon various market conditions and other factors that will change from time to time, including:

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analyst reports about us and the master limited partnership industry, the extent of investor interest and our financial performance and that of our tenants;

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general economic, credit market and real estate market conditions

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the general reputation of master limited partnerships and the attractiveness of their equity securities in comparison to other equity securities, including securities issued by other real estate-based companies;

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general units and bond market conditions, including changes in interest rates on fixed income securities, which may lead prospective purchasers of our common units to demand a higher annual yield from future distributions;

•

our ability to satisfy the distribution requirements applicable to master limited partnerships;

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a failure to maintain or increase our cash distribution, which is dependent, to a large part,  upon increased revenue from additional acquisitions and rental increases; and

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other factors such as governmental regulatory action and changes in master limited partnerships  tax laws.

Our failure to meet the market’s expectation with regard to future earnings and cash distributions would likely adversely affect the market price of our common units and, as a result, the availability of equity capital to us.

We will rely on external sources of capital to fund future capital needs, and if we encounter difficulty in obtaining such capital, we may not be able to make future acquisitions necessary to grow our business.

  

We expect to rely on internal and external sources of capital, including intercompany loans, debt and equity financing, to fund future capital needs. However, the recent U.S. and global economic crisis has resulted in a capital environment characterized by limited availability, increasing costs and significant volatility. If we are unable to repay intercompany loans or unable to obtain needed capital on satisfactory terms or at all, we may not be able to make the investments needed to expand our business. Our access to capital will depend upon a number of factors over which we have little or no control, including general market conditions, the market’s perception of our current and potential future earnings and cash distributions and the market price of the shares of our common units. We may not be in a position to take advantage of attractive investment opportunities for growth if we are unable to access the capital markets on a timely basis or on favorable terms;  

  

We may be unable to complete acquisitions that would grow our business, and even if consummated, we may fail to successfully integrate and operate acquired properties.

 

Our growth strategy includes the disciplined acquisition of properties as opportunities arise. Our ability to acquire properties on satisfactory terms and successfully integrate and operate them is subject to the following significant risks:

 

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we may be unable to acquire desired properties because of competition from other real estate investors with more capital, including but not limited to other master limited partnerships, publically traded partnerships,  real estate operating companies, REITs, publically traded companies and investment funds, and such competition  may significantly increase the purchase price of a desired property;

 

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tenancies in new acquisitions may terminate and vacancies may not be filled.

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the process of acquiring or pursuing the acquisition of a new property may divert the attention of our senior management team from our existing business operations;

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agreements for the acquisition of properties are typically subject to customary conditions to closing, including satisfactory completion of due diligence investigations, and we may spend significant time and money on potential acquisitions that we do not consummate because, among other things, due diligence reveals unsatisfactory conditions based upon which purchases would be declined or the sellers are unable to satisfy conditions to closing;

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we may acquire properties without any recourse, or with only limited recourse, for liabilities, whether known or unknown, such as clean-up of environmental contamination, casualty, condemnation, claims by tenants, vendors or other persons against the former owners of the properties and claims for indemnification by general partners, directors, officers and others indemnified by the former owners of the properties;

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we may be unable to quickly and efficiently integrate new acquisitions, particularly acquisitions of portfolios of properties, into our existing operations; and

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we may need to spend more than budgeted amounts to make necessary improvements or renovations to acquired properties.

 

·

we may not locate suitable assets for acquisition based on the costs or other factors unique to potential real property acquisitions.

 

With respect to loans that we may make or have acquired, we may not be able to acquire the real property collateral as a result of defenses that a borrower may successfully assert or as a result of bankruptcy protection or other judicial remedies that a borrower may invoke.

  

If we cannot complete property acquisitions on favorable terms, or operate acquired properties to meet our goals or expectations, our business, financial condition, results of operations, cash flow, per unit trading price of our common units and our ability to make distributions to our unit holders will be materially and adversely affected.

We may be unable to successfully expand our operations into new markets.

 

If the opportunity arises, we may explore acquisitions of properties in new markets. Each of the risks applicable to our ability to acquire and successfully integrate and operate properties in our current markets is also applicable to our ability to acquire and successfully integrate and operate properties in new markets. In addition to these risks, we may not possess the same level of familiarity with the dynamics and market conditions of any new markets that we may enter, which could adversely affect our ability to expand into or operate in those markets. We may be unable to achieve a desired return on our investments in new markets. If we are unsuccessful in expanding into new markets, it could adversely affect our business, financial condition and results of operations.

 

If we sell properties and provide financing to purchasers, defaults by the purchasers would adversely affect our cash flows.

 

If we decide to sell any of our properties, we presently intend to use our best efforts to sell them for cash. However, in some instances, we may sell our properties by providing financing to purchasers. If we provide financing to purchasers, we will bear the risk that the purchaser may default or invoke chapter 11 bankruptcy protection in connection with which an automatic stay may not be lifted, in each case which would negatively impact our cash distributions to unit holders and result in litigation and related expenses to foreclose on the property. Even in the absence of a purchaser default, the distribution of the proceeds of sales to our unit holders, or their reinvestment in other assets, will be delayed until the promissory notes or other property we may accept upon a sale are actually paid, sold, foreclosed or refinanced.

  

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As a result of being a public company, we must implement certain financial and accounting systems, procedures and controls, which will increase our costs and require substantial management time and attention.

As a public company, we will incur significant legal, accounting and other expenses that we would not incur as a private company, including costs associated with public company reporting and corporate governance requirements  under the Sarbanes-Oxley Act of 2002. For example, in order to comply with such reporting requirements, we must have a process for evaluating our internal control systems in order to allow management to report on, and our independent registered public accounting firm to attest to, our internal control over financial reporting, as required by Section 404 of the Sarbanes-Oxley Act. Effective internal and disclosure controls are necessary for us to provide reliable financial reports and effectively prevent fraud and to operate successfully as a public company.  If we fail to implement proper overall business controls, our results of operations could be harmed and to the extent that any material weakness or significant deficiency exists in our consolidated subsidiaries’ internal control over financial reporting, such material weakness or significant deficiency may adversely affect our ability to provide timely and reliable financial information necessary for the conduct of our business and satisfaction of our reporting obligations under federal securities laws, which could also affect our ability to list and remain listed on Nasdaq.  In addition, if we identify significant deficiencies or material weaknesses in our internal control over financial reporting that we cannot remediate in a timely manner, or if we are unable to receive an unqualified report from our independent registered public accounting firm with respect to our internal control over financial reporting, investors and others may lose confidence in the reliability of our financial statements and the trading price of our common units and our ability to obtain any necessary equity or debt financing could suffer.

Furthermore, the design and effectiveness of our disclosure controls and procedures and internal control over financial reporting may not prevent all errors, misstatements, or misrepresentations. We cannot assure you that our internal control over financial reporting will be effective in accomplishing all control objectives all of the time. Deficiencies, including any material weaknesses, in our internal control over financial reporting which may occur in the future could result in misstatements of our results of operations, restatements of our financial statements, a decline in the trading price of our common units, or otherwise materially adversely affect our business, reputation, results of operations, financial condition, or liquidity.

Risks Related to Conflicts of Interest

 

Some members of our General Partner are involved in other business activities that may involve some level of conflicts of interest, or may compete with our company.

  

Constituents and direct or indirect interest owners of our General Partner, may have other business interests in real estate and other industries, and, from time to time, are actively involved in the ownership and management of other businesses simultaneously with the management of our properties and business.  In addition, our board of directors and officers has business interests outside of and in some cases competing with us. Accordingly, these individuals may focus a portion of their time and attention on managing these other businesses.   Furthermore, our General Partner intends to enter into a participation agreement with Pektor Holdings II LLC pursuant to the terms of which Pektor Holdings II LLC shall be entitled to 50% of all of its net profits from Capital Events and dividend payments (excluding incentive distribution rights) derived from the General Partner’s from its 12% non-dilutive interest in us, with respect solely to assets acquired in Pennsylvania on or before December 31, 2015.

    

Conflicts may also arise in the future between our interests and the interests of the other entities and business activities in which such individuals are involved.  Except as provided in our partnership agreement, members and affiliates of our General Partner and or board members, officers and directors, are not prohibited from engaging in other businesses or activities, including those that might be in direct competition with us. Pursuant to the terms of our partnership agreement, the doctrine of corporate opportunity, or any analogous doctrine, shall not apply to our General Partner, including but not limited to all officers, and directors.  All directors, officers and employees of us and our General Partner and their respective affiliates will not be obligated to present corporate opportunities to us.  Furthermore, American Pacific Investcorp GP, LLC may compete with us for investment opportunities and American Pacific Investcorp GP, LLC may own an interest in entities that compete with us on an operations basis.

  

Our partnership agreement does not restrict our General Partner from causing us to pay it or its affiliates for any services rendered to us or from entering into additional contractual arrangements with any of these entities on our behalf.

 

Our partnership agreement allows our General Partner to determine any amounts to pay itself or its affiliates for any services rendered to us. Our General Partner may also enter into additional contractual arrangements with any of its affiliates or members on our behalf. Neither our partnership agreement nor any of the other agreements, contracts or arrangements between us, on the one hand, and our General Partner and its affiliates and members, on the other hand, that will be in effect as of the closing of this offering or are entered into following the closing of this offering, will be the result of arm's-length negotiations. Further, our General Partner and its affiliates will have no obligation to permit us to use any of its or its affiliates' facilities or assets, except as may be provided in contracts entered into specifically for such use. There is no obligation of our General Partner or its affiliates or members to enter into any contracts of this kind.

  

 

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Our General Partner intends to limit its liability regarding our obligations and controls the enforcement of it and its affiliates' obligations to us.

  

Our General Partner intends to limit our and its liability under contractual arrangements so that counterparties to such arrangements have recourse only against our assets, and not against us, our General Partner or its assets. Our partnership agreement provides that any action taken by our General Partner to limit its liability is not a breach of our General Partner's fiduciary duties, even if we could have obtained more favorable terms without the limitation on liability. Any agreements between us, on the one hand, and our General Partner and its affiliates, on the other, will not grant to the unit holders, separate and apart from us, the right to enforce the obligations of our General Partner and its affiliates in our favor.

  

Our General Partner determines which of the costs it incurs on our behalf are reimbursable by us and whether to retain separate counsel, accountants or others to perform services for us.

 

We will reimburse our General Partner’s members and its affiliates and constituents for the costs incurred in managing and operating us, including costs incurred in rendering corporate staff and support services to us.  Our General Partner may decide to use the services of entities or persons affiliated with the General Partner and its principals and/or members. Our partnership agreement provides that our General Partner will determine the expenses that are allocable to us, and it will charge on a fully allocated cost basis for services provided to us; the fully allocated basis charged by our General Partner does not include a profit component.  Further, the attorneys, independent accountants and others who have performed services for us regarding this offering have been retained by our General Partner or the conflicts committee and may perform services for our General Partner and its affiliates. We are not obligated to retain separate counsel for ourselves or the common unit holders in the event of a conflict of interest between our General Partner and its affiliates, on the one hand, and us or the common unit holders, on the other hand.

 

Our General Partner and our affiliates have limited fiduciary duties to us and the holders of our common units, which may permit them to favor their own interests to our detriment and that of the holders of our common units.

 

Our General Partner will manage the business and affairs of our business, and will be governed by a board of directors. Conflicts of interest may arise among our General Partner and its affiliates, on the one hand, and us and our holders of common units, on the other hand. Our General Partner may favor its own interests and the interests of its affiliates over us and our holders of common units while also restricting the remedies available to holders of our common units for actions that, without these limitations, might constitute breaches of duty, including fiduciary duties. For example, our partnership agreement:

 

·

permits our General Partner to make a number of decisions in its individual capacity, as opposed to in its capacity as our General Partner. This entitles our General Partner to consider only the interests and factors that it desires, and it has no duty or obligation to give any consideration to any interest of, or factors affecting, us, our affiliates or any holders of common units;

·

provides that our General Partner  will not have any liability to us or our holders of common units for decisions made in its capacity as a General Partner and

·

provides that our General Partner  and its officers and directors will not be liable for monetary damages to us, our holders of common units or assignees for any acts or omissions, unless there has been a final and non-appealable judgment entered by a court of competent jurisdiction determining that the General Partner or those other persons engaged in fraud and  willful misconduct.

 

By purchasing a unit, our unit holders of common units will become bound by the provisions in the partnership agreement, including the provisions discussed above.

 

 

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Risks Related to Our Business

 

We are subject to risks inherent in the ownership of real estate.

 

We expect to own and manage commercial and residential properties through one or more subsidiaries, and further expect to acquire through subsidiaries other real estate related investments such as debt obligations and loans secured by real estate, all of which are subject to varying degrees of risk generally incident to the ownership of real estate and inherent in the particular types of real estate owned. Our financial condition, the value of our properties and our ability to make distributions to our common unit holders will be dependent upon our ability to operate our properties in a manner sufficient to generate profits, which may be affected by the following risks:

  

•

Changes in the economic climate in the markets in which we own and manage properties, including interest rates, the overall level of economic activity, the availability of consumer credit and mortgage financing, unemployment rates and other factors;

•

Changes in the domestic and global economic climate;

 

•

Increased incidence of defaults by tenants under existing leases or by borrowers under loans;

 

•

Changes in real estate tax valuation assessments and other operating expenses (e.g.,  property and liability insurance, cleaning, utilities, repair and maintenance costs, administrative costs, security, landscaping, pest control, staffing and other general costs);

 

•

Changes in laws and regulations affecting properties (including, without limitation, tax, environmental, zoning and building codes, and housing laws and regulations);

 

•

Catastrophic property damage losses that are not covered by our insurance and expenditures that cannot be anticipated, such as unanticipated repairs;

 

•

Risks of personal injury claims and property damage and the results of litigation filed or to be filed against us; and

 

•

Changes in market conditions that may limit or prevent us from acquiring or selling properties and risks associated with property acquisitions, such as environmental liabilities.

 

•

Increases in the cost to operate properties and foreseeable and unforeseeable contingent or latent liabilities that may arise in connection with such properties.

  

•

If we cannot operate our properties to meet our financial expectations, our cash flow and per unit trading price of our common units and ability to make distributions to our unit holders could be materially and adversely affected. We cannot assure you that we will achieve our return objectives.

 

Real estate investments are generally illiquid.

The real estate investments made, and to be made, by us are difficult to sell quickly. In particular, these risks could arise from weakness in or even the lack of an established market for a property, changes in the financial condition or prospects of prospective purchasers, changes in tenancies, increased vacancy, changes in national or international economic conditions, and changes in laws, regulations or fiscal policies of jurisdictions in which the property is located.

We may be unable to source off-market deal flow in the future.

A key component of our growth strategy is to acquire additional residential and commercial real estate assets or positions before they are widely marketed by real estate brokers, or “off-market.” Properties that are acquired off-market are typically more attractive to us as a purchaser because of the absence of a formal marketing process, which could lead to higher prices. If we cannot obtain off-market deal flow in the future, our ability to locate and acquire additional properties at attractive prices could be materially and adversely affected.

 

We are exposed to risks associated with property development.

We may engage in development and redevelopment activities with respect to certain of our properties. If we do so, we will be subject to certain risks, including, without limitation:

·

the availability and cost of financing on satisfactory terms or at all;

 

·

construction costs of a property exceeding original estimates and occurrence of other unanticipated expenses related to the construction process;

 

·

the availability and timely receipt of zoning and other regulatory approvals and the existence of governmental moratoriums or restrictions;

 

 

17

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·

the timely completion of construction, including unanticipated risks beyond our control, including but not limited to weather or labor conditions, strikes, material unavailability, delays or shortages, catastrophes, and construction overruns;

 

·

the ability to achieve an acceptable level of occupancy upon completion;

 

·

the availability and cost of insurance;

 

·

the unforeseen need to change or modify plans or designs;

·

litigation challenges; and

 

·

community and local challenges.

  

These risks could result in substantial unanticipated delays or expenses and, under certain circumstances, could prevent completion of development activities once undertaken, any of which could have an adverse effect on our business.

We may not be able to compete effectively for acquisition opportunities.

The real estate market is highly competitive.  Competing properties may be newer or have more desirable locations than our properties.  If the market does not absorb foreclosed or newly constructed properties, market vacancies will increase and market rents may decline.  As a result, we may have difficulty leasing units within our properties and may be forced to lower rents on leases to compete effectively, which lowers the income we can generate.

 

In addition, we will compete to acquire properties with many entities, including, among others, national real estate companies, as well as local real estate companies and individuals.  Some competitors may have substantially greater financial resources than we do.  In addition, certain competitors may be willing to pay more for assets.  If competitors prevent us acquiring new properties, our cash flow and valuation may be impacted.

We may be required to make significant capital expenditures to improve our properties in order to retain and attract tenants, causing a decline in operating revenue and reducing cash available for distributions to unit holders.

If adverse economic conditions continue in the real estate market and demand for office space remains low, we expect that, upon expiration of leases at our properties, we will be required to accommodate requests for rent reductions, tenant concessions, renovations, build-to-suit remodeling and  improvements to common areas or provide additional services to our tenants. As a result, we may have to make significant capital or other expenditures in order to retain tenants whose leases expire and attract new tenants in sufficient numbers, reposition properties. If we are unable to raise capital to make such expenditures or capital is otherwise unavailable, we may be unable to make the required improvements. This could result in non-renewals by tenants upon expiration of their leases, which would result in declines in revenue from operations and reduce cash available for distributions to unit holders.

  

We may not be able to control our operating costs or our expenses may remain constant or increase, even if our revenue does not increase, causing our results of operations to be adversely affected.

The expense of owning and operating a property is not necessarily reduced when circumstances such as market factors and competition cause a reduction in income from the property. As a result, if revenue declines, we may not be able to reduce our expenses accordingly. Factors that may adversely affect our ability to control operating costs include but are not limited to:

  

·

the need to pay for insurance and other fixed operating costs, including real estate taxes, which could increase over time and generally will not be reduced even if a property is not fully occupied;

 

·

the need periodically to repair, renovate and re-lease space or the occurrence of emergency repairs;

 

·

the cost of compliance with governmental regulation, including zoning and tax laws;

 

·

the potential for liability under applicable laws; and

 

·

interest rate levels and the availability of financing.

 

If our operating costs increase as a result of any of the foregoing factors, our results of operations may be materially and adversely affected.  Further, if a property is mortgaged and we are unable to meet the mortgage payments, the lender could have a receiver appointed, accept a deed in lieu or foreclose on the mortgage and take possession of the property, resulting in a further reduction in net income.

 

18

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We are dependent on our tenants for a significant portion of our revenue.

If a tenant experiences a downturn in its business or other types of financial distress, it may be unable to make timely rental payments or to make rental payments at all. In addition, certain of our properties may be occupied by a single tenant and, as a result, the success of these properties will depend on the financial stability of a single tenant. Under some circumstances, we may agree to rent reductions, or to partially or wholly terminate the lease in advance of the termination date in consideration for a lease termination fee that is less than the agreed rental amount. Additionally, without regard to the manner in which a lease termination occurs, we are likely to incur additional costs in the form of tenant improvements and leasing commissions in our efforts to lease the space to a new tenant, as well as possibly lower rental rates reflective of declines in market rents. We cannot assure you that we will have adequate sources of funding available to us for such purposes.  Tenants may improperly terminate their leases, which would expose us to lost rental income as well as the cost of any litigation which we may elect to pursue in an attempt to recover such lost rent.

We would face potential adverse effects from tenant defaults, bankruptcies or insolvencies.

The bankruptcy or insolvency of tenants may adversely affect the income produced by our properties. If a tenant defaults, we may experience delays in enforcing our rights as landlord and may incur substantial costs, including litigation and related expenses, in protecting our investment and re-leasing our property. If a tenant files for bankruptcy, we generally cannot evict the tenant solely because of such bankruptcy. A court may authorize a bankrupt tenant to reject and terminate its lease with us. In such a case, our claim against the tenant for unpaid future rent would be subject to a statutory cap that might be substantially less than the remaining rent actually owed under the lease, and it is unlikely that a bankrupt tenant would pay in full amounts it owes us under the lease. Moreover, we may be forced to return rental and other payments made by a debtor tenant as preferential payments.  This shortfall could adversely affect our cash flow and results of operations.

  

We would face potential adverse effects from borrower defaults, bankruptcies or insolvencies.

 

With respect to debt that we may own or acquire, the default, bankruptcy or insolvency of the related borrower may adversely affect the repayment of that debt.  If a borrower defaults, we may experience delays in enforcing our rights as lender and may incur substantial costs, including litigation and related expenses, in exercising our rights.  If a borrower files for bankruptcy, we may not be able to exercise our rights to recover collateral pledged for the debt. A bankruptcy court may recast or restructure the debt, and it is unlikely that a bankrupt borrower would pay in full amounts it owes us. Amounts previously paid to us could be disgorged as preferential payments.  This shortfall could adversely affect our cash flow and results of operations. 

  

We may be unable to renew leases or lease vacant space.

We cannot assure you that leases will be renewed or that our properties will be re-leased at rental rates equal to or above our existing rental rates. Our initial targeted acquisition properties are concentrated in Pennsylvania. Our performance, therefore, is initially linked to economic conditions and the market in one state.

 

We compete with a number of developers, owners and operators of commercial and residential real estate, many of which own properties similar to ours in the same markets in which our properties are located.  If our competitors offer space at rental rates below current market rates, or below the rental rates we currently charge our tenants, we may lose existing or potential tenants and we may be pressured to reduce our rental rates below those we currently charge or to offer substantial rent abatements, tenant improvements, early termination rights or tenant-favorable renewal options in order to retain tenants when our tenants’ leases expire.

 

In addition, certain of the properties we acquire may have some level of vacancy at the time of completion of this offering and certain of our properties may be specifically suited to the particular needs of a tenant. Accordingly, portions of our properties may remain vacant for extended periods of time, which may cause us to suffer reduced revenue resulting in less cash available to be distributed to our unit holders. Moreover, the resale value of a property could be diminished because the market value of a particular property will depend principally upon the value of the leases of such property.

 

Some of our leases may provide tenants with the right to terminate their lease early, which could have an adverse effect on our cash flow and results of operations.

Some of our leases may permit our tenants to terminate their leases as to all or a portion of the leased premises prior to their stated lease expiration dates under certain circumstances, such as providing notice and, in some cases, paying a termination fee. Further, early terminations can be properly or improperly effectuated by our tenants with little or no termination fee being paid to us. If our tenants exercise early termination rights, or simply terminate the lease or vacate, our cash flow and earnings will be materially and adversely affected, and we can provide no assurance that we will be able to generate an equivalent amount of net rental income by leasing the vacated space to new third-party tenants.

Uninsured losses or losses in excess of our insurance coverage could adversely affect our financial condition and our cash flow.

 

There are certain types of risks, generally of a catastrophic nature, such as earthquakes, floods, windstorms, acts of war and terrorist attacks that may be uninsurable, or are not economically insurable, or are not fully covered by insurance. Moreover, certain risks, such as mold and environmental exposures, generally are not covered by insurance. Should an uninsured loss or a loss in excess of insured limits occur, we could lose our equity in the affected property as well as the anticipated future cash flow from that property.

 

19

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Even if a loss is insured, we may be required to pay a significant deductible or self insured retention on any claim for recovery of such a loss prior to our insurer being obligated to reimburse us for the loss, or the amount of the loss may exceed our coverage for the loss. In addition, we may reduce or discontinue insurance on some or all of our properties in the future if the cost of premiums for any of these policies exceeds, in our judgment, the value of the coverage discounted for the risk of loss. Finally, our title insurance policies may not insure the current aggregate market value of our portfolio.

If any of our insurance carriers become insolvent, we could be adversely affected.

If any of our insurance carriers were to become insolvent, we would be forced to replace the existing insurance coverage with another suitable carrier, and any outstanding claims would be at risk for collection. In such an event, we cannot be certain that we would be able to replace the coverage at similar or otherwise favorable terms. Replacing insurance coverage at unfavorable rates and the potential of uncollectible claims due to carrier insolvency could adversely affect our results of operations and cash flows.

Litigation may result in unfavorable outcomes.

  

Like many real estate operators, we may be involved in lawsuits (both insured and uninsured) involving claims for damages and alleged violations of landlord-tenant laws, which may give rise to class action litigation or governmental investigations. Any material litigation that may not be covered by insurance, such as a class action, could result in substantial costs being incurred.

  

We may incur significant costs complying with laws, regulations and covenants that are applicable to our properties.

  

Our properties may be subject to various covenants and local laws and regulatory requirements, including permitting and licensing requirements. Our growth strategy may be materially and adversely affected by our ability to obtain permits, licenses and zoning approvals, and our failure to obtain such permits, licenses, variances and zoning approvals could have a material adverse effect on our business, financial condition and results of operations.

  

Local regulations, including municipal or local ordinances, zoning restrictions and restrictive covenants imposed by community developers may restrict our use of our properties and may require us to obtain approval from local officials or community standards organizations at any time with respect to our properties, including prior to acquiring a property or when undertaking renovations of any of our existing properties. Among other things, these restrictions may relate to fire and safety, seismic, asbestos-cleanup or hazardous material abatement requirements. We cannot assure you that existing regulatory policies will not adversely affect us or the timing or cost of any future acquisitions or renovations, or that additional regulations will not be adopted that would increase such delays or result in additional costs.

In addition, federal and state laws and regulations, including laws such the ADA, may impose further restrictions on our operations. Under the ADA, all public accommodations must meet federal requirements related to access and use by disabled persons. Some of our properties may not be in compliance with the ADA. If one or more of the properties in our portfolio is not in compliance with the ADA or any other regulatory requirements, we may be required to incur additional costs to bring the property into compliance and we might incur damages or governmental fines. Failure to comply with applicable requirements could complicate our ability to lease or sell an affected property and could subject us to monetary penalties, costs required to achieve compliance and potential liability to third parties.  In addition, existing requirements may change and future requirements may require us to make significant unanticipated expenditures that would adversely impact our business, financial condition, results of operations, cash flow, the per unit trading price of our common units and our ability to make distributions to our unit holders.

  

We may be subject to environmental liability as an owner or operator of real estate.

  

Under various Federal, state and local laws, ordinances and regulations, an owner or operator of real property may become liable for the costs of removal or remediation of certain hazardous substances, pollutants and contaminants released on, under, in or from its property. These laws often impose liability without regard to whether the owner or operator knew of, or was responsible for, the release of such substances. To the extent any such substances are found in or on any property invested in by us, we could be exposed to liability and be required to incur substantial remediation costs. The presence of such substances or the failure to undertake proper remediation may adversely affect the ability to finance, refinance or dispose of such property. We cannot assure you that any assessments we conduct will disclose all potential liabilities, or that future property uses or conditions or changes in applicable environmental laws and regulations or activities at nearby properties will not result in the creation of environmental liabilities with respect to a property.

 

20

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We depend on our key personnel.

 

Our success depends upon the continued contribution of key members of our General Partner, including, but not limited to, Michael Pilevsky, Co-President and Co-CEO, Seth Pilevsky Co-President and Co-CEO, Sheila Levine, Vice President and Secretary and Philip Pilevsky, Chairman of the Board, of our General Partner, who may be difficult to replace. The loss of services of these executives could have a material adverse effect on our business.

  

Competition for skilled personnel could increase our labor costs.

 

We compete with various other companies in attracting and retaining qualified and skilled personnel who are responsible for the day-to-day operations of our properties. Competitive pressures may require that we enhance our pay and benefits package to compete effectively for such personnel. We may not be able to offset such added costs by increasing the rents that we charge our tenants. If there is an increase in these costs or if we fail to attract and retain qualified and skilled personnel, our business and operating results could be harmed.

 

USE OF PROCEEDS

  

We currently intend to use the proceeds of this offering to acquire a certain Pennsylvania Portfolio from for an estimated purchase price of $131,500,000 plus closing costs estimated at an aggregate of $3,900,000. The estimated closing cost of $3,900,000 consists of real estate broker fees, acquisition fees, legal and accounting, third party costs, and transfer taxes, title insurance and miscellaneous expenses.   If acquired, the Pennsylvania Portfolio will be owned by our subsidiary, LV Investcorp LP.  The general partner of LV Investcorp LP will be Pennsylvania Investcorp, LP, which, without capital contribution, will be granted a 0.01% ownership interest in LV Investcorp, LP.  The limited partner of LV Investcorp will be us, owning 99.99% of the partnership interests therein as a limited partner.  LV Investcorp, LP will be owned by Pennsylvania Investcorp LP which will be owned by API GP 2, LLC, which will own 0.01% of the partnership interest as a general partner, and by our General Partner, which will own 99.99% of the partnership interests as a limited partner. API GP 2 LLC is wholly owned by American Pacific Investcorp GP LLC.   Furthermore, our General Partner will be entitled to 50% of the net profits and distributions from Capital Events and distributable income (as more particularly described on page 3 above).  Our General Partner intends to enter into a participation agreement with Pektor Holdings II LLC pursuant to which Pektor Holdings II LLC will be entitled to 50% of all of the General Partner’s net profits from Capital Events and dividend payments (excluding incentive distribution rights) derived by the General Partner from its 12% non-dilutive interest in us, with respect to assets acquired in Pennsylvania on or before December 31, 2015.   Pektor Holdings II,  LLC shall have no equity ownership in us, however, is free to acquire common units upon the same terms as purchasers of common units hereunder.    Our General Partner will remain entitled to a non-dilutive 12% ownership interest in us with respect to all assets that we own.

  

We shall pay all corporate costs including but not limited to employee salaries, consultant fees,  various reasonable overhead and reserves, legal and accounting costs and debt service, if any, out of the net operating income  generated by our properties before calculating distributable income to our General Partner and our unit holders.  In addition, you should read “Certain Relationships and Related Party Transactions” for further information regarding our relationships to and transactions with affiliates.

  

ESTIMATED USE OF PROCEEDS*: Aggregate Maximum Offering price $187,000,000
IPO Costs:	Estimated Fee
Offering Placement Costs	$12,662,510
Legal and Accounting	$400,000
Marketing	$200,000
	Total 13,262,510
Acquisition Costs:	Estimated Fee
Purchase Price	$131,500,000
Realco Development Inc.	$500,000
Acquisition Fee	$1,315,000
Legal & Accounting	$200,000
Third Party Costs	$225,150
Transfer Tax	$1,315,000
Title Insurance	$197,250
Miscellaneous	$100,000
	Grand Total $148,614,910

  

*This is our conservative valuation which is reflecting our estimated costs in the event that we may sell the maximum offering of 17,000,000 common units

    

In the event that we sell the minimum of 8,555,556 common units, we will likely seek and secure a bridge loan or equity or other reasonable financial arrangements in order to raise the necessary funds for the completion of the acquisition of the Pennsylvania Portfolio. In the event that we are unable to acquire or choose not to acquire the Pennsylvania Portfolio or in the event that any net proceeds are not used for the purchase of the Pennsylvania Portfolio and operating expenses, the proceeds or net proceeds will be used to locate, identify, evaluate, and, acquire additional real estate throughout the United States under a similar ownership structure.  Other than as set forth in this prospectus, we have not reached any agreements, commitments or understandings for any acquisitions.

  

CAPITALIZATION

 

The following table shows our pro forma capitalization as of June 30, 2010, giving effect to the pro forma adjustments described in our unaudited pro forma financial data included elsewhere in this prospectus, including adjustments for our receipt of estimated net proceeds of $173.7 million from the issuance and sale of common units in this offering.

  

 

21

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We derived this table from, and it should be read in conjunction with and is qualified in its entirety by reference to, the unaudited consolidated pro forma financial data and the accompanying notes included elsewhere in this prospectus. You should also read this table in conjunction with “Management’s Discussion and Analysis of Financial Condition and Results of Operations.”

 

		Pro Forma
		As of
		June 30, 2010
Cash and cash equivalents		$	38,385,490
Total equity:
Common units – public (1) (2)		$	169,885,490
General Partner interest			-
Total equity			169,885,490
Total capitalization		$	169,885,490

 

(1)	An increase or decrease in the initial public offering price of $_.__ per common unit would cause the public common unit holders’ capital to increase or decrease by $__million.
(2)	A ___________ unit increase in the number of common units issued to the public would result in a $___ million increase in the public common unitholders’ capital.

 

DILUTION

 

Dilution is the amount by which the offering price paid by the purchasers of common units sold in this offering will exceed the pro forma net tangible book value per unit after the offering. On a pro forma basis as of June 30, 2010, after giving effect to the offering of common units and the application of the related net proceeds, our net tangible book value was approximately $_______, or $____ per unit. Purchasers of common units in this offering will experience immediate dilution in net tangible book value per common unit for financial accounting purposes, as illustrated in the following table:

 

Assumed initial public offering price per common unit
Increase in net tangible book value per unit attributable to purchasers in the offering
Less: Pro forma net tangible book value per unit after the offering (1)
Immediate dilution in tangible net book value per common unit purchasers in the offering (2)

 

(1)	Determined by dividing the total number of units to be outstanding after the offering (________ common units and the non-dilutive 12% General Partner interest) into our pro forma net tangible book value, after giving effect to the application of the expected net proceeds of the offering.
(2)	If the initial public offering price were to increase or decrease by $____ per common unit, then dilution in net tangible book value per common unit would equal $_____ and $_____, respectively.

 

ANTI-DILUTION

  

Our General Partner shall maintain a non dilutive 12% minimum interest in us.  In the event of any transactions, subdivisions, reclassifications, recapitalizations, splits, combinations or distributions in the form of equity interests with respect to the common units, the  non-dilutive 12% interest of our General Partner will be correspondingly adjusted by issuing additional common units to American Pacific Investcorp Partner LP. However, the General Partner’s non dilutive 12% ownership will be adjusted based on an assessed amount as of the closing day in the event of the maximum sale of 17,000,000 common units pursuant to this offering and cannot be increased in the event that the General Partner disposes of its common unit privately . Therefore, the minimum ownership or our General partner at any given time is of 12% or more.

  

 

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CASH DISTRIBUTION POLICY AND RESTRICTIONS ON DISTRIBUTIONS

 

You should read the following discussion of our cash distribution policy in conjunction with the specific assumptions included in this section. In addition, you should read “Forward-Looking Statements” and “Risk Factors” for information regarding statements that do not relate strictly to historical or current facts and certain risks inherent in our business.

Limitations on Cash Distributions and Our Ability to Change Our Cash Distribution Policy

  

We believe that our unit holders are best served by our distributing substantially all of our available cash. Our partnership agreement generally defines available cash as, for each quarter, cash generated from our business in excess of the amount of cash reserves established by our General Partner to, among others, provide for the conduct of our business, to comply with applicable law or to provide for future distributions to our unit holders for any one or more of the next four quarters.  Because we are not subject to an entity-level federal income tax, we have more cash to distribute to our holders of common units than would be the case were we subject to tax.

 

There is no guarantee, however, that we will distribute quarterly cash distributions to our unit holders. Our distribution policy is subject to certain restrictions and may be changed at any time. The reasons for such uncertainties in our stated cash distribution policy include, without limitation, the following factors:

 

·

Our General Partner has the authority to increase the amount of the reserves, which could result in a reduction in cash distributions from levels we currently anticipate for  our cash distribution policy;

·

Under the Delaware Revised Uniform Limited Partnership Act, we may not make a distribution if the distribution would cause our liabilities to exceed the fair value of our assets;

·

We may lack sufficient cash to pay distributions to our unit holders due to cash flow shortfalls attributable to a number of operational, commercial or other factors as well as increases in our operating or selling, general and administrative expenses, tax expenses, working capital requirements and anticipated cash needs;

·

Our ability to make distributions to our unit holders depends on the performance of our subsidiaries and their ability to distribute cash to us. The ability of our subsidiaries to make distributions to us may be restricted by, among other things, applicable state partnership and limited liability company laws and other laws and regulations;

·

Our ability to grow is dependent on our ability to access external expansion capital, including commercial bank borrowings and the issuance of debt and equity securities.  The incurrence of additional commercial borrowings or other debt to finance our growth would result in incurring interest expense, which in turn may impact the available cash that we have to distribute to our unit holders; and

·

Subject to approval of the board of directors, we may issue additional units, the payment of distributions to which may increase the risk that we will be unable to maintain or increase our per unit distribution level. Other than obtaining approval from the board of directors, there are no limitations in our partnership agreement on our ability to issue additional units.

Minimum Quarterly Distribution

 

Upon completion of this offering, the board of directors of our General Partner will adopt a policy pursuant to which, provided we have sufficient available cash, we will declare an initial quarterly distribution equal to a minimum of $0.135 if our units are priced at $9 per unit or $0.1625 if our units are priced at $11 per unit per complete quarter. The minimum quarterly distribution will be paid no later than 45 days after the end of each fiscal quarter, beginning with the quarter ending December 31, 2010. This equates to an aggregate cash distribution of between $0.135 and $0.54 annually if our units are priced at $9 per unit or $0.1625 and $0.66 annually if our units are priced at $11 per unit, in each case based on the number of common units and General Partner units outstanding immediately after completion of this offering. Our ability to make cash distributions at the initial distribution rate pursuant to this policy will be subject to the factors described above under the caption “Limitations on Cash Distributions and Our Ability to Change Our Cash Distribution Policy.”

  

 

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The table below sets forth the assumed number of outstanding common units and General Partner units upon the closing of this offering and the aggregate distribution amounts payable on such units during the year following the closing of this offering at our initial distribution rate of $0.135 per quarter if our units are priced at $9 per unit or $0.1625 per quarter if our units are priced at $11 per unit ($0.54 per common unit or $0.66 per common unit, respectively, on an annualized basis).

 

Number of

Distributions Per Unit

Units

Per Quarter

Annualized

Common units

$

[17,000,000

]

$

[0.135~0.1625

]

$

[0.54~0.66

]

General partner units

$

[2,318,182

]

$

[0.135~0.1625

]

$

[0.54~0.66

]

Total

$

19,318,182

$

[______

]

$

[______

]

 

At the closing of this offering, our General Partner will remain with an aggregate of a non-dilutive 12% of all distributions that we make prior to liquidation. (Except in the circumstance of a Capital Event, where the distribution to the General Partner is higher as detailed in the“The Offering” section).

 

We will pay our distributions on or about the 15th day of each of February, May, August and November.  This assumes payment within 45 days after the end of the quarter to holders of record on or about the 1st day of each such month. If the distribution date does not fall on a business day, we will make the distribution on or about the business day immediately following the indicated distribution date. We will adjust the quarterly distribution for the period from the closing of this offering through December 31, 2010 based on the actual length of the period.

 

We do not have a legal obligation to pay distributions at our minimum quarterly distribution rate or at any other rate except as provided in our partnership agreement. Our cash distribution policy is consistent with the terms of our partnership agreement, which requires that we distribute substantially all of our available cash quarterly. Under our partnership agreement, available cash is generally defined to mean, for each quarter, cash generated from our business in excess of the amount of reserves established by our General Partner to provide for the conduct of our business, to comply with applicable law or to provide for future distributions to our unit holders for any one or more of the next four quarters.  The actual amount of our cash distributions for any quarter is subject to fluctuations based on the amount of cash we generate from our business and the amount of reserves our General Partner establishes in accordance with our partnership agreement.

 

Although holders of our common units may pursue judicial action to enforce provisions of our partnership agreement, including those related to requirements to make cash distributions as described above, our partnership agreement provides that any determination made by our General Partner in its capacity as our General Partner must be made in good faith and that any such determination will not be subject to any other standard imposed by the Delaware Limited Partnership Act or any other law, rule or regulation or in equity. Our partnership agreement provides that, in order for a determination by our General Partner to be made in “good faith,” our General Partner must believe that the determination is in our best interest.

 

General Partner Interest and Incentive Distribution Rights

 

Our General Partner is entitled to its non dilutive 12% ownership rights of all distributions that we make to all unitholders. Our General Partner's initial 12% interest in our distributions will not be reduced if we issue additional limited partner units in the future and our General Partner is not required to contribute a proportionate amount of capital to us to maintain its 12% General Partner interest.  Our General Partner intends to enter into a participation agreement with Pektor Holdings II LLC pursuant to which Pektor Holdings II LLC will be entitled to 50% of all of the General Partner’s net profits from Capital Events and dividend payments (excluding incentive distribution rights) derived by the General Partner from its 12% non-dilutive interest in us, with respect to assets acquired in Pennsylvania on or before December 31, 2015.

 

In addition, our General Partner currently holds incentive distribution rights that entitles it to receive increasing percentages, with a maximum of 7%, of the cash we distribute from our net operating income, in excess of $______ per unit per quarter. In the event of an Incentive Distribution to our General Partner, the maximum distribution of 7.0% is exclusive of the distributions paid to our General Partner on its 12% General Partner ownership interests.

 

 

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PROVISIONS OF OUR PARTNERSHIP AGREEMENT

RELATING TO CASH DISTRIBUTIONS

 

Our General Partner, in its sole and absolute discretion, has the power and authority to retain or use partnership assets or revenues and may make such distribution to satisfy the anticipated present and future cash needs of the partnership (whether for operations, expansion, improvements, acquisitions or otherwise) from partnership assets or otherwise as it deems appropriate in its sole discretion, quarterly, annually or at any other time.

 

Under the Delaware Limited Partnership Act, a partnership is prohibited from making a distribution to a partner to the extent that at the time of the distribution, after giving effect to the distribution, all liabilities of the partnership (other than liabilities to partners on account of their partnership interests and liabilities for which the recourse of creditors is limited to specified property of the partnership), exceed the fair value of the assets of the partnership (except that fair value of property that is subject to a liability for which the recourse of creditors is limited and is included in the assets of the partnership only to the extent that the fair value of the property exceeds that liability).

 

PLAN OF DISTRIBUTION

 

We are offering for sale a maximum of 17,000,000 common units in a self-underwritten offering directly to the public at a price of between $9.00 -$11.00 per common unit. A minimum amount of 8,555,556 in common units must be sold in our direct offering, for an aggregate of  $77,000,000 (to be raised) in order to close on this offering. The arrangements have been made to place funds into escrow or any similar account. Upon receipt, offering proceeds will be deposited into an escrow account until the close of the offering. We are offering the common units without any underwriting discounts or commissions.

 

Our offering price is between $9.00-$11.00 per common unit and was estimated by management based  upon an expected annual yield of 6% to 6.5% granted to our unitholders. and is not based upon earnings or operating history and  does not reflect our actual value, and bears no relation to our earnings, assets, book value, net worth, or any other recognized criteria of value. No independent investment banking firm has been retained to assist in determining the offering price for the common units. Such offering price was not based on the price of the issuance to our founders. Accordingly, the offering price should not be regarded as an indication of any future price of our common units.

There is currently no market for our common units. There can be no assurance that a market for our common units will be established or that, if established, such market will be sustained. Therefore, purchasers of our common units registered hereunder may be unable to sell their securities, because there may not be a public market for our securities. As a result, you may find it more difficult to dispose of, or obtain accurate quotes of our common units. Any purchaser of our securities should be in a financial position to bear the risks of losing their entire investment.  We intend to apply for trading of our common units on a U.S. national exchange such as  the Nasdaq Stock Market upon the effectiveness of the registration statement of which this prospectus forms a part, but we cannot assure you that we will meet the requirements for listing on the Nasdaq Stock Market.

 

Common Units in this Offering Will Be Sold By Our Officers and Directors

 

This is a self-underwritten offering.  Our officers and directors will sell the common units directly to the public, with no commission or other remuneration payable to them for any common units that are sold by them.  There are no plans or arrangements to enter into any contracts or agreements to sell the common units with a broker or dealer.   Only after our registration statement is declared effective by the Securities and Exchange Commission, do we intend to advertise, through the internet and tombstones, and hold investment meetings in various states where the offering will be registered. Mr. Philip Pilevsky, the Chairman of the Board of Directors of our General Partner, will use his best efforts to sell the common units and intends to offer them to the public, including but not limited to friends, family members and business acquaintances.

 

In offering the securities on our behalf, our officers and directors will rely on the safe harbor from broker-dealer registration set out in Rule 3a4-1 under the Securities Exchange Act of 1934, as amended.  Rule 3a4-1 sets forth those conditions under which a person associated with an issuer may participate in the offering of the issuer’s securities and not be deemed to be a broker-dealer. Those conditions are as follows:

 

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a.

Our officers and directors are not subject to a statutory disqualification, as that term is defined in Section 3(a)(39) of the Act, at the time of their participation;

 

b.

Our officers and directors will not be compensated in connection with their participation by the payment of commissions or other remuneration based either directly or indirectly on transactions in securities;

 

c.

Our officers and directors are not, nor will they be at the time of their participation in the offering, an associated person of a broker-dealer; and

 

d.

Our officers and directors meet the conditions of paragraph (a)(4)(ii) of Rule 3a4-1 of the Exchange Act, in that they (A) primarily perform, or intend primarily to perform at the end of the offering, substantial duties for or on behalf of our Company, other than in connection with transactions in securities; (B) are not a broker or dealer, or have been associated person of a broker or dealer, within the preceding twelve months; and (C) have not participated in selling and offering securities for any issuer more than once every twelve months other than in reliance on Rule (a)(4)(i)  and (a)(4)(iii).

 

 Results of Operations and Cash Available for Distribution

 

In the sections that follow, we present in detail the basis for our belief that we will be able to fully fund our minimum quarterly distribution of $.1625 per unit each quarter for the twelve months ending December 31, 2011. In those sections, we present two tables, consisting of:

 

•

“Unaudited Pro Forma Available Cash,” in which we present the amount of cash we would have had available for distribution on a pro forma basis for our fiscal year ended December 31, 2009 and the twelve months ended June 30, 2010, derived from our unaudited pro forma financial data that are included in this prospectus, as adjusted to give pro forma effect to the offering and the formation transactions; and

 

•

“Estimated Net Operating Income (“NOI”)” in which we demonstrate our ability to generate the minimum estimated NOI necessary for us to pay the minimum quarterly distribution on all units for each quarter for the twelve months ending December 31, 2011 NOI.

 

Unaudited Pro Forma Available Cash for the Year Ended December 31, 2009 and the Twelve Months Ended June 30, 2010

 

If we had completed the transactions contemplated in this prospectus on January 1, 2009, pro forma available cash generated for the year ended December 31, 2009 would have been approximately $12,500,000. This amount would have been sufficient to pay the minimum quarterly distribution of $0.1625 per unit per quarter ($0.65 per unit on an annualized basis) on all of the common units.

 

If we had completed the transactions contemplated in this prospectus on July 1, 2009, our pro forma available cash generated for the twelve months ended June 30, 2010 would have been approximately $12,500,000. This amount would have been sufficient to pay the minimum quarterly distribution on all of the common units and a cash distribution of $0.1625 per unit per quarter ($0.65 per unit on an annualized basis).

 

Unaudited pro forma available cash also includes direct, incremental general and administrative expenses of approximately $1.2 million that we expect to incur as a result of becoming a publicly traded partnership. General and administrative expenses related to being a publicly traded partnership include expenses associated with annual and quarterly reporting; tax return and Schedule K-1 preparation and distribution expenses; Sarbanes-Oxley compliance expenses; expenses associated with listing on the Nasdaq Global Market; independent auditor fees; legal fees; investor relations expenses; registrar and transfer agent fees; director and officer liability insurance costs; and director compensation. These expenses are not reflected in the historical combined financial statements of the Pennsylvania Portfolio.

 

We based the pro forma adjustments upon currently available information and specific estimates and assumptions. The pro forma amounts below do not purport to present our results of operations had the transactions contemplated in this prospectus actually been completed as of the dates indicated. In addition, cash available to pay distributions is primarily a cash accounting concept, while our pro forma financial data have been prepared on an accrual basis. As a result, you should view the amount of pro forma available cash only as a general indication of the amount of cash available to pay distributions that we might have generated had we been formed in earlier periods.

 

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The following table illustrates, on a pro forma basis, for the year ended December 31, 2009 and for the twelve months ended June 30, 2010, the amount of cash that would have been available for distribution to our unitholders, assuming in each case that this offering had been consummated at the beginning of such period. The information in this table was derived primarily from the unaudited pro forma financial statements included elsewhere in this prospectus.

 

		Year Ended				Twelve Months
		December 31,				Ended
		2009				June 30, 2010
Net Income		$	9,913,835			$	9,929,562
Add:
Depreciation and amortization expense			2,703,300				2,703,300
Less:
Straight-line rent adjustments			(86,000	)			(177,000	)
Pro Forma Available Cash (1)		$	12,531,135			$	12,455,862
Pro Forma Cash Distributions
Distributions per unit		$	0.65			$	0.65
Distributions to public common unitholders		$	11,050,000			$	11,050,000
Distributions to our general partner			1,506,818				1,506,818
Total distributions		$	12,556,818			$	12,556,818
Shortfall		$	25,683			$	100,956

 

(1)	Capital expenditures and leasing commissions of our individual subsidiary real estate holding entities are expected to be funded through excess cash balances, intercompany loans  or borrowings under lines of credit.

 

Estimated Net Operating Income (“NOI”) for Twelve Months Ending December 31, 2011

 

In order to fund the aggregate minimum quarterly distribution on all units for the twelve months ending December 31, 2011 totaling $12.6 million, we will need to generate NOI of at least $9.7 million.  Based on the assumptions described below under “—Assumptions and Considerations,” we believe we will generate the minimum estimated NOI of $9.7 million for the twelve months ending December 31, 2011. This minimum estimated NOI should not be viewed as management’s projection of the actual amount of NOI that we will generate during the twelve months ending December 31, 2011. Furthermore, there is a risk that we will not generate the minimum estimated NOI for such period. If we fail to generate the minimum estimated NOI, we would not expect to be able to pay the minimum quarterly distribution on all of our units.

 

Management has prepared the minimum estimated NOI and related assumptions set forth below to substantiate our belief that we will have sufficient available cash to pay the minimum quarterly distribution to all our unitholders for each quarter in the twelve months ending December 31, 2011. This forecast is a forward-looking statement and should be read together with the historical financial statements and pro forma financial data and the accompanying notes included elsewhere in this prospectus and “Management’s Discussion and Analysis of Financial Condition and Results of Operations.” The accompanying prospective financial information was not prepared with a view toward complying with the published guidelines of the SEC or guidelines established by the American Institute of Certified Public Accountants with respect to prospective financial information, but, in the view of our management, was prepared on a reasonable basis, reflects the best currently available estimates and judgments, and presents, to the best of management’s knowledge and belief, the assumptions on which we base our belief that we can generate the minimum estimated NOI necessary for us to have sufficient cash available for distribution to pay the minimum quarterly distribution to all unitholders for each quarter in the twelve months ending December 31, 2011. However, this information is not fact and should not be relied upon as being necessarily indicative of future results, and readers of this prospectus are cautioned not to place undue reliance on the prospective financial information.

 

The prospective financial information included in this registration statement has been prepared by, and is the responsibility of our management. Holtz Rubenstein Reminick LLP has neither compiled nor performed any procedures with respect to the accompanying prospective financial information and, accordingly, Holtz Rubenstein Reminick LLP does not express an opinion or any other form of assurance with respect thereto. The Holtz Rubenstein Reminick LLP report included in this registration statement relates to the historical financial information of the Pennsylvania Portfolio. It does not extend to the prospective financial information and should not be read to do so.

 

 

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When considering our financial forecast, you should keep in mind the risk factors and other cautionary statements under “Risk Factors.” Any of the risks discussed in this prospectus, to the extent they are realized, could cause our actual results of operations to vary significantly from those which would enable us to generate the minimum estimated NOI.

 

We are providing the minimum estimated NOI calculation to supplement our unaudited pro forma financial data and the historical consolidated financial statements of the Pennsylvania Portfolio in support of our belief that we will have sufficient available cash to pay the minimum quarterly distribution on all of our outstanding common and subordinated units for each quarter in the twelve months ending December 31, 2011. Please read below under “—Assumptions and Considerations” for further information as to the assumptions we have made for the financial forecast.

 

We do not undertake any obligation to release publicly the results of any future revisions we may make to the financial forecast or to update this financial forecast to reflect events or circumstances after the date of this prospectus. Therefore, you are cautioned not to place undue reliance on this information.

 

 

 

		Twelve Months
		Ended
		December 31, 2011
Revenues (3)		$	22,671,000
Operating expenses			8,395,000
Operating income before depreciation, amortization and general and administrative			14,276,000
General and administrative (2)			1,212,000
Depreciation and amortization expense			2,847,000
Net Operating Income			10,217,000
Adjustments to reconcile net operating income to estimated cash available for distribution:
Add:
Depreciation and amortization expense			2,847,000
Estimated Cash Available for Distribution (1)		$	13,064,000
Distributions to public common unitholders		$	11,050,000
Distributions to our general partner		$	1,507,000
Total annualized minimum quarterly distributions		$	12,557,000
Excess of cash available for distribution over aggregate annualized minimum annual cash distributions		$	507,000
Calculation of minimum estimated NOI necessary to pay aggregate annualized minimum annual cash distributions:
Estimated NOI		$	10,217,000
Excess of cash available for distribution over minimum annual cash distributions			507,000
Minimum estimated NOI necessary to pay aggregate annualized minimum quarterly distributions		$	9,710,000

 

(1)	Capital expenditures and leasing commissions of our individual subsidiary real estate holding entities (the Subsidiary) are expected to be funded through excess cash balances, intercompany loans and/or borrowings under lines of credit.
(2)	For the purpose of calculating distributable income, general corporate overhead expenses will be charged to the Subsidiary’s based upon each Subsidiary’s relative contribution to operating income.
(3)	Excludes straight-line rent adjustments which would be included under U.S. GAAP.

Assumptions and Considerations

 

Set forth below are the material assumptions that we have made in order to demonstrate our ability to generate the minimum estimated Adjusted NOI for the twelve months ending December 31, 2011.

·

Revenue consists of current tenant lease rents and a portfolio-wide lease-up starting February 2011 through October 2011. Lease-up consideration was staggered throughout the portfolio. For tenants with expiring leases during the calendar year 2011, a 75% renewal probability was assumed with a month and half base rent abatement period. A 5% general vacancy loss factor was assumed.

 

·

Revenue includes and assumes that tenants pay for their pro rata share of operating expenses.

 

·

Operating Expenses are based on historical property operating statements with an inflationary adjustment factor. The Operating Expenses include real estate taxes, insurance, repairs & maintenance, utilities, cleaning, miscellaneous and a management fee.

 

SELECTED HISTORICAL AND UNAUDITED PRO FORMA

FINANCIAL AND OPERATING DATA

 

The following tables show summary combined audited historical financial and operating data of the Pennsylvania Portfolio and consolidated unaudited pro forma financial and operating data for American Pacific Investcorp LP for the periods and as of the dates presented, and should be read in conjunction with the unaudited pro forma financial statements and related notes of American Pacific Investcorp LP and the audited historical financial statements and related notes of the targeted Pennsylvania Portfolio included elsewhere in this prospectus.

 

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Our summary pro forma statement of income data for the years ended December 31, 2009 and the six months ended June 30, 2010 and summary pro forma balance sheet data as of June 30, 2010 are derived from the unaudited pro forma financial data of American Pacific Investcorp LP included elsewhere in this prospectus. The pro forma adjustments have been prepared as if certain transactions to be effected at the closing of this offering had taken place on June 30, 2010, in the case of the pro forma balance sheet, and as of January 1, 2009, in the case of the pro forma statement of income for the year ended December 31, 2009 and for the six months ended June 30, 2010. These transactions include:

 

·

The proposed sale of 17,000,000 of our common units (representing limited partner interests) for an aggregate gross proceeds of $187,000,000;

 

·

Our acquisition of 33 office and industrial flex properties, the Pennsylvania Portfolio, for an estimated amount of $131,500,000, excluding acquisition closing expenses,

 

The pro forma financial data are not necessarily indicative of results of operations that would have occurred had this acquisition been consummated at the beginning of the periods presented or that might be attained in the future.

 

		Six Months Ended June 30,
		2010				2010				2009
		Pro-forma				Historical				Historical
		(Unaudited)				(Unaudited)				(Unaudited)
Statement of Income Data:
Revenue		$	10,961,959			$	10,961,959			$	11,107,064
Operating expenses			4,214,461				4,214,461				4,375,293
Operating income before depreciation, amortization and general and administrative expenses			6,747,498			$	6,747,498			$	6,731,771
Depreciation and amortization			1,351,650
General and administrative			606,000
Net income		$	4,789,848
Common unitholders’ interest in net income		$	4,215,066
General Partner interest in net income		$	574,782
Net income per common unit (basic and diluted)		$	0.25
Balance Sheet Data: (Pro forma)
Real estate assets		$	131,107,200
Total assets		$	171,301,990
Total liabilities		$	1,416,500
Total equity		$	169,885,490
Other Data:
Cash available for distribution to common unit holders		$	5,322,251

 

		Year Ended December 31,
		2009				2009				2008				2007
		Pro-forma				Historical				Historical				Historical
		(Unaudited)
Statement of Income Data:
Revenue		$	21,928,560			$	21,928,560			$	21,799,223			$	21,290,165
Operating expenses			8,099,425				8,099,425				8,041,722				7,703,872
Operating income before depreciation, amortization and general and administrative expenses			13,829,135			$	13,829,135			$	13,757,501			$	13,586,293
Depreciation and amortization			2,703,300
General and administrative			1,212,000
Net income		$	9,913,835
Common unitholders’ interest in net income		$	8,724,175
General Partner interest in net income		$	1,189,660
Net income per common unit (basic and diluted)		$	0.51
Other Data:
Cash available for distribution to common unit holders		$	11,027,608

 

 

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MANAGEMENT'S DISCUSSION AND ANALYSIS

OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

 

You should read the following discussion in conjunction with the pro forma financial condition and results of operations included elsewhere in this prospectus, which include more detailed information regarding the basis of presentation for the following information.

 

Overview

 

American Pacific Investcorp LP is a master limited partnership formed in Delaware on July 2, 2010.  Our General Partner is American Pacific Investcorp Partner LP and has a non- dilutive 12% general partnership interest in us. We are a growth-oriented Delaware limited partnership formed to own one or more entities that will in turn own and operate real property and related assets.

 

Our principal business is the acquisition, ownership, development, improvement, leasing, management and disposition of a broad spectrum of real estate properties, including but not limited to commercial buildings, retail centers, office properties, residential properties, hotels and both residential and commercial condominiums. We may also acquire or make loans secured directly by real property or by ownership interests in real property.  We may also acquire and operate ancillary and/or non-primary businesses as allowed under Section 7704 of the Internal Revenue Service Code.  We have an intentionally broad spectrum of assets that we intend to acquire because we believe that a diversified portfolio avoids concentrations in any one industry that may become subject to risk in the event of a downturn in that specific industry, sector or subsector.  With diversified assets, we believe that the negative impact from sectors experiencing risk, downturn or significant industry specific events, as is typical in economic cycles, may be ameliorated or absorbed by unaffected sectors.   We believe that this strategy will produce more stable long term results as no one sector should have a major impact on our portfolio as a whole.  Further, our objective is to quickly and strategically grow the Company by adding to our portfolio several hundred million dollars of assets meeting our investment criteria.

 

Our day to day operations include all aspects of property management and strategic repositioning, tailored in each case to specific property needs and targeted to enhance each property.  In the event that we are able to acquire  a currently identified portfolio of approximately thirty three (33) commercial office properties located in the state of Pennsylvania (the “Pennsylvania Portfolio”), we thereafter intend to increase our holdings by adding other properties with unrealized value on a  going forward basis.  We intend to implement management and operational strategies that we believe may increase the long term value of our portfolio. We will acquire each asset and/or engage in each business through the use of one or more subsidiaries formed for the sole purpose of ownership of the specific asset or business.  In each case, properties will be acquired by, and owned through, subsidiary entities owned, in whole or in part, by us.

 

Results of Operations

 

The following analysis of the results of operations is based upon the historical results of the Pennsylvania Portfolio and should be read in conjunction with the combined financial statements of Pennsylvania Portfolio for the six months ended June 30, 2010 and 2009 and the three years in the period ended December 31, 2009 included elsewhere in this Registration Statement.

 

The historical combined financial statements do not include certain historical expenses that may not be comparable to the expenses expected to be incurred in the future. Excluded expenses consist of depreciation and amortization as well as general and administrative expenses not directly related to the properties operations.

 

Six Months Ended June 30, 2010 to June 30, 2009 (unaudited)

 

		2010				2009				% Increase/ (Decrease)
Revenue:
Rental income		$	7,103,687			$	7,279,840				(2.42	)%
Reimbursement from tenants of
operating expenses and other income			3,858,272				3,827,224				.81	%
Total Revenue			10,961,959				11,107,064
Operating Expenses:
Real estate taxes and insurance			1,306,152				1,272,493				2.65	%
Rental property operating expenses			2,908,309				3,102,800				(6.27	)%
Total Operating Expenses Before Depreciation, Amortization and General and Administrative Expenses			4,214,461				4,375,293				(3.68	)%
Operating Income Before Depreciation, Amortization and General and Administrative Expenses		$	6,747,498			$	6,731,771				.23	%

 

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Rental income for the six months ended June 30, 2010 decrease by $176,153 or approximately 2.42% as compared to the same period for 2009. Rental revenues are generally derived from properties with single or multi-tenants, under long-term leases ranging from 3 to 10 years.  Therefore, rental revenues recognized under generally accepted accounting principles do not fluctuate significantly, but are affected by lease renewals and terminations.

 

Reimbursement from tenants of operating expenses for the six months ended June 30, 2010 increased by $31,048 or approximately .81% as compared to the same period for 2009. Reimbursement from tenants fluctuate based on changes in vacancy rates and are relative to the underlying expenses that are billed to tenants for reimbursement in accordance with the lease agreement. Average occupancy rates for the periods ended June 30, 2010 and 2009 were approximately 91.80% and 92.31%, respectively. See discussion of fluctuations in operating expenses below.

 

Operating expenses for the six months ended June 30, 2010 decreased by $160,832, or approximately 3.68% as compared to the same period for 2009. The decrease was primarily related to decreases in maintenance and cleaning costs of $200,612, and bad debt expense of $96,973 offset by an increase in utilities of $53,224.

 

Year Ended December 31, 2009 to December 31, 2008

 

		2009				2008				% Increase/ (Decrease)
Revenue:
Rental income		$	14,533,860			$	14,480,750				.37	%
Reimbursement from tenants of
operating expenses and other income			7,394,700				7,318,473				1.04	%
Total Revenue			21,928,560				21,799,223
Operating Expenses:
Real estate taxes and insurance			2,474,715				2,405,626				2.87	%
Rental property operating expenses			5,624,710				5,636,096				(.20	)%
Total Operating Expenses Before Depreciation, Amortization and General and Administrative Expenses			8,099,425				8,041,722				.72	%
Operating Income Before Depreciation, Amortization and General and Administrative Expenses		$	13,829,135			$	13,757,501				.52	%

 

Rental income for the year ended December 31, 2009 increased by $53,110 or approximately .37% as compared to the same period for 2008. Rental revenues are generally derived from properties with single or multi-tenants, under long-term leases ranging from 3 to 10 years.  Therefore, rental revenues recognized under generally accepted accounting principles do not fluctuate significantly, but are affected by lease renewals and terminations.

 

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Reimbursement from tenants of operating expenses for the year ended December 31, 2009 increased by $76,227 or approximately 1.04% as compared to the same period for 2008. Reimbursement from tenants of operating expenses fluctuate based on changes in vacancy rates and are relative to the underlying expenses that are billed to tenants for reimbursement in accordance with the lease agreement. Average occupancy rates for the years December 31, 2009 and 2008 were approximately 92.55% and 93.36%, respectively. See discussion of fluctuations in operating expenses below.

 

Operating expenses for the year ended December 31, 2009 increased by $57,703, or approximately 0.72% as compared to the same period for 2008. The increase was primarily related to increases in maintenance costs of $275,851, real estate taxes of $73,476 offset by decrease in utilities of $181,867, and cleaning costs of $107,078.

 

Year Ended December 31, 2008 to December 31, 2007

 

		2008				2007				% Increase/ (Decrease)
Revenue:
Rental income		$	14,480,750			$	14,082,849				2.83	%
Reimbursement from tenants of
operating expenses and other income			7,318,473				7,207,316				1.54	%
Total Revenue			21,799,223				21,290,165
Operating Expenses:
Real estate taxes and insurance			2,405,626				2,361,709				1.86	%
Rental property operating expenses			5,636,096				5,342,163				5.50	%
Total Operating Expenses Before Depreciation, Amortization and General and Administrative Expenses			8,041,722				7,703,872				4.39	%
Operating Income Before Depreciation, Amortization and General and Administrative Expenses		$	13,757,501			$	13,586,293				1.26	%

 

Rental income for the year ended December 31, 2008 increased by $397,901 or approximately 2.83% as compared to the same period for 2007. Rental revenues are generally derived from properties with single or multi-tenants, under long-term leases ranging from 3 to 10 years.  Therefore, rental revenues recognized under generally accepted accounting principles do not fluctuate significantly, but are affected by lease renewals and terminations.

 

Reimbursement from tenants of operating expenses for the year ended December 31, 2008 increased by $111,157 or approximately 1.54% as compared to the same period for 2007. Reimbursement from tenants of operating expenses fluctuate based on changes in vacancy rates and are relative to the underlying expenses that are billed to tenants for reimbursement in accordance with the lease agreement. See discussion of fluctuations in operating expenses below.

 

Operating expenses for the year ended December 31, 2008 increased by $337,850 or approximately 4.39% as compared to the same period for 2007. The increase was primarily related to increases in real estate taxes of $54,797, maintenance costs of $48,791, utilities costs of $41,521, cleaning costs of $33,089, management and professional fees of 29,428.

 

 

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Liquidity and Capital Resources

 

The following analysis of liquidity and capital resources is based upon the unaudited pro forma balance sheet of American Pacific Investcorp LP as of June 30, 2010, based on its targeted Pennsylvania Portfolio and should be read in conjunction with the unaudited pro forma financial statements and related notes of American Pacific Investcorp LP located elsewhere in this Registration Statement.

 

At June 30, 2010 pro forma cash and cash equivalents are approximately $38,385,000. The pro forma cash balances assume the following transactions are completed:

 

·

The proposed sale of 17,000,000 of our common units (representing limited partner interests) for an aggregate gross proceeds of $187,000,000.

 

·

Our acquisition of 33 office and industrial flex properties, the Pennsylvania Portfolio, for an estimated $131,500,000, excluding acquisition closing costs.

 

The cash needs of the Company are expected to be satisfied from funds generated by current operations.  It is expected that future operational cash needs will also be satisfied from existing cash balances, ongoing operations or borrowings.  The primary sources of capital to fund additional real estate acquisitions may come from existing funds, the sale, financing and refinancing of the Company’s properties  from third party mortgages and purchase money notes obtained in connection with specific acquisitions, and from lines of credit extended to the company from various lending sources.  We may also make intercompany loans from parents to subsidiaries.

 

In addition to the acquisition of properties for consideration consisting of cash and mortgage financing proceeds, the Company may acquire real properties in exchange for the issuance of the Company’s equity securities.  The Company may also finance acquisitions of other companies in the future with borrowings from institutional or private lenders.  The Company currently has no agreements, commitments or understandings with respect to the acquisition of other companies or the acquisition of real properties in exchange for equity or debt securities.

 

Changes in U.S. interest rates may affect the interest earned on the Company’s cash and cash equivalent balances and other interest bearing investments.  Given the level of cash and other interest bearing investments expected to be held by the Company, declines in U.S. interest rates may adversely impact the Company.

 

Critical Accounting Policies and Estimates

 

The Company’s discussion and analysis of its financial condition and results of operations are based upon the Company’s unaudited consolidated pro forma financial statements, which have been prepared in accordance with U.S. generally accepted accounting principles. The preparation of these financial statements requires the Company to make estimates, judgments and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses. The Company bases these estimates, judgments and assumptions on historical experience and on other factors that are believed to be reasonable under the circumstances. Actual results may differ from these estimates under different assumptions or conditions.

 

The following critical accounting policies discussion reflects what the Company believes are the more significant estimates, assumptions and judgments used in the preparation of its unaudited Consolidated Pro Forma Financial Statements. This discussion of critical accounting policies is intended to supplement the description of the accounting policies in the footnotes to the Company’s unaudited Consolidated Pro Forma Financial Statements and the audited Historical Combined Statements of Revenues and Certain Operating expenses of the Pennsylvania Portfolio and to provide additional insight into the information used by management when evaluating significant estimates, assumptions and judgments.

 

Revenue Recognition

 

Rental revenue is recognized on a straight line basis over the terms of the respective leases. Above-market and below-market lease values for acquired properties are recorded based on the present value (using a discount rate which reflects the risks associated with the leases acquired) of the difference between (i) the contractual amounts to be paid pursuant to each in-place lease and (ii) management’s estimate of fair market lease rates for each corresponding in-place lease. The capitalized above or below-market lease values are amortized as a component of rental revenue over the remaining term of the respective leases.

 

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Impairment of Real Estate

 

The Company is required to make subjective assessments as to whether there are impairments in the value of its real estate assets.  On a periodic basis, management assesses whether there are any indicators that the value of its real estate assets may be impaired.  An asset’s value is considered impaired only if management’s estimate of current and projected operating cash flows (undiscounted and without interest charges) of the asset over its remaining useful life is less than the net carrying value of the asset.  Such cash flow projections consider factors such as expected future operating income, trends and prospects, as well as the effects of demand, competition and other factors.  To the extent impairment has occurred, the carrying amount of the asset would be written down to an amount to reflect the fair value of the asset.  The Company’s net income is directly affected by management’s estimate of impairments.

 

Intangibles

 

In accordance with Financial Accounting Standards Board (“FASB”) ASC 805, “Business Combinations,” the Company allocates the purchase price of real estate acquired to land, building and improvements and intangibles based on the relative fair value of each component. The value ascribed to in-place leases is based on the rental rates for the existing leases compared to the Company’s estimate of the fair market lease rates for leases of similar terms and present valuing the difference based on an interest rate which reflects the risks associated with the leases acquired. Origination values are also assigned to in-place leases, and, where appropriate, value is assigned to customer relationships. Origination cost estimates include the costs to execute leases with terms similar to the remaining lease terms of the in-place leases, including leasing commissions, legal and other related expenses. The Company depreciates the amounts allocated to building and improvements over its estimated useful lives. The amounts allocated to the intangible relating to in-place leases are amortized over the remaining term of the related leases. In the event that a tenant terminates its lease, the unamortized portion of the intangible is written off.

 

Recent Accounting Pronouncements

 

In March 2008, the Emerging Issues Task Force of the Financial Accounting Standards Board reached a final consensus on the two-class method of earnings per share related to master limited partnerships, or MLPs. Their conclusion affects how an MLP allocates income between its general partner, which typically holds incentive distribution rights, or IDRs, along with the General Partner interest, and the limited partners. It is not uncommon for MLPs to experience timing differences between the recognition of income and partnership distributions. The amount of incentive distribution is typically calculated based on the amount of distributions paid to the MLP’s partners. The issue is whether current period earnings of an MLP should be allocated to the holders of IDRs as well as the holders of the general and limited partner interests when applying the two-class method.

 

Their conclusion was that when current period earnings are in excess of cash distributions, the undistributed earnings should be allocated to the holders of the General Partner interest, the holders of the limited partner interest and incentive distribution rights holders based upon the terms of the partnership agreement. Under this model, contractual limitations on distributions to incentive distribution rights holders would be considered when determining the amount of earnings to allocate to them. That is, undistributed earnings would not be considered available cash for purposes of allocating earnings to incentive distribution rights holders. Conversely, when cash distributions are in excess of earnings, net income (or loss) should be reduced (increased) by the distributions made to the holders of the General Partner interest, the holders of the limited partner interest and incentive distribution rights holders. The resulting net loss would then be allocated to the holders of the General Partner interest and the holders of the limited partner interest based on their respective sharing of the losses based upon the terms of the partnership agreement.

 

This was effective for fiscal years beginning after December 15, 2008 and interim periods within those fiscal years. The accounting treatment is effective for all financial statements presented. We do not expect the impact of the adoption of this item on its presentation of earnings per unit to be significant.

 

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BUSINESS

 

Overview

 

American Pacific Investcorp LP (the “Company,” “we,” “us” or the “MLP”) was formed in the State of Delaware on July 2, 2010 and has its offices in New York, New York.    Our principal business is the acquisition, ownership, development, improvement, leasing, management and disposition of a broad spectrum of real estate properties, including but not limited to commercial buildings, retail centers, office properties, residential properties, hotels and both residential and commercial condominiums. We may also acquire or make loans secured directly by real property or by ownership interests in real property.  We may also acquire and operate ancillary and/or non-primary businesses as allowed under Section 7704 of the Internal Revenue Service Code.  We have an intentionally broad spectrum of assets that we intend to acquire because we believe that a diversified portfolio avoids concentrations in any one industry that may become subject to risk in the event of a downturn in that specific industry, sector or subsector.  With diversified assets, we believe that the negative impact from sectors experiencing risk, downturn or significant industry specific events, as is typical in economic cycles, may be ameliorated or absorbed by unaffected sectors.   We believe that this strategy will produce more stable long term results as no one sector should have a major impact on our portfolio as a whole.  Further, our objective is to quickly and strategically grow the Company by adding to our portfolio several hundred million dollars of assets meeting our investment criteria.    In each case, assets will be acquired by, and owned through, subsidiary entities owned, in whole or in part, by us.

 

Our day to day operations include all aspects of property management and strategic repositioning, tailored in each case to specific property needs and targeted to enhance each property.  Following an attempt to acquire the Pennsylvania Portfolio, we will seek to increase our holdings by adding properties that we believe to have an unrealized value to our portfolio going forward.  We will implement management and operational strategies that we believe will increase the long term value of the portfolio.  In each case, specific properties will be acquired by, and owned through, a special purpose vehicle owned, in whole or in part, by us.  In addition to real property assets, as described above, we may also acquire debt positions or make loans to third party borrowers secured by real estate and may participate in other ventures involving or related to real estate investments.

 

Our General Partner’s management team, collectively, has two generations of experience in all aspects of the real estate industry. Mr. Philip Pilevsky, Chairman of the board of our General Partner, has been actively involved in all aspects of ownership, development, sales, acquisitions, leasing and property management for over thirty (30) years.  Mr. Pilevsky and currently, with Seth Pilevsky and Michael Pilevsky, owns and manages a portfolio with a gross value of well over one billion dollars.  His experience involves retail shopping centers, commercial office buildings, residential properties, hotels, commercial condominiums and residential cooperatives and condominiums in New York, New Jersey, Pennsylvania, Massachusetts, Connecticut, New Hampshire, Maryland, Delaware, Virginia, Washington D.C., California, Arizona, Washington, Illinois, Texas, Carolinas, Kentucky, Alabama, Missouri, Georgia and Florida.  We will draw on the expertise of Mr. Pilevsky and our other members of the management team to assemble and expand the portfolio, manage the properties and create value by, among other things, reviewing the relevant economic and statistical data and developing innovative strategies for growth.  Our management will also search for opportunities to acquire real property, and will review and  recommend suitable projects for us, consistent with its policies and objectives, to maximize the return on properties.   We may enhance our capabilities to acquire and manage additional real property by adding personnel or entering into joint ventures with other firms.  We also may acquire additional assets directly or indirectly by acquiring debt.  We have already identified the Pennsylvania Portfolio that we intend to acquire through one or more special purpose vehicles and intend to manage initially.

Once our management team identifies suitable real estate projects or assets for acquisition, the property or asset will be acquired through one or more special purpose entities formed solely for that purpose.   Management will then begin to operate and/or reposition the property to improve its cash flow.    Our management intends to utilize its extensive contacts to identify property owners such as banks, investment funds, developers and individual owners to acquire both market and off-market assets.  The source of cash required to acquire assets for the portfolio and undertake operations will likely consist of a private placement of debt and/or equity securities.

 

We intend to file ongoing reports with the Securities and Exchange Commission (“SEC”). You may obtain copies of any materials we file with the SEC directly from us or from the SEC at the SEC’s Public Reference Room at 100 F. Street, N.E. Washington, D.C. 20549, and you may obtain information about obtaining access to the Reference Room by calling the SEC at 1-800-SEC-0330. In addition, the SEC maintains information for electronic filers at its website http://www.sec.gov.

 

Our Intended Properties

 

With a focus on markets throughout the United States, we initially intend to obtain the right to acquire the Pennsylvania Portfolio. The Pennsylvania Portfolio consists of approximately thirty three (33) office buildings with an aggregate of approximately 1,500,000 leasable square feet.  The ten largest tenants take up approximately 478,189 square feet and approximately 35.7% of the annualized base rent as of July 2010. The portfolio was approximately 90.8% occupied by leasable square footage as of July, 2010, and we believe there is opportunity for additional value creation by increasing occupancy levels and continuing to drive operational efficiencies within the portfolio.

 

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Our Real Estate Management Criteria and Operating Strategy

 

Our initial focus is in Pennsylvania and the northeastern region of the United States, however, we intend to expand into any state or region where opportunities may exist.  We believe that we can enhance the value of the properties we acquire through the execution of our strategy for long-term leases with professional on-site management and quality property improvements where necessary and repositioning.  However, we will not limit our services to any particular individual geographic markets or submarkets, as we may find value-adding opportunities in large metropolitan areas, suburban submarkets, smaller cities or rural locations. We will attempt to identify those markets and submarkets with demand demographics that support potential long-term value appreciation. We primarily seek properties with the following characteristics:

 

·

Significant potential for increased rental rates;

 

·

Flexibility in property use and configuration;

 

·

Under-developed property and/or property with additional development rights;

 

·

Below market leases;

 

·

Leases with credit tenants;

 

·

Locations in markets with above average growth potential currently in transition or recovery with favorable supply/demand demographics, which may also allow for increased occupancy or rental rates;

 

·

Historic mismanagement or under-management;

 

·

Under-valued assets;

 

·

Long term property assemblage;

 

·

Strategic locations; and

 

·

Low loan to value ratios.

 

Management of the Properties

 

We plan to have the specific property owner in each case engage our own employees, other employees and third party management companies as needed in our discretion as agents for on-site management of our properties.  Generally such agreements will provide for a management fee between 3% and 6% of the gross monthly receipts of each property and are for terms of three (3) to five (5) year(s), but are negotiable.  We currently have not entered into any contracts with any potential employees or third parties for on-site management of our properties or for other services.  In connection with the acquisition of each asset, and as our portfolio grows, the General Partner will evaluate on a case by case basis the need to hire full time employees for various duties.  We intend to avoid over-stressing the Company at its inception with employee related obligations which may not be necessary.  The General Partner will evaluate the need for full time employees and staff and will, in its discretion, expand the staff as necessary.

 

Competition

 

The real estate market is highly competitive and fluctuates through cycles, particularly in recent years.  Competing properties may attract tenants because they are newer or have more desirable locations than our properties.  In addition, the market may not absorb vacancies, foreclosed or newly constructed properties, which will further depress prices and exacerbate vacancy rates.  The general economic downturn also will continue to force businesses out of operation or force operations to contract.  As a result, we may have difficulty leasing and/or selling units within our properties and may be forced to lower rents on leases to compete effectively, and may lose tenants which lowers the income generated by the properties.

 

In addition, we will compete on a national basis for properties with many other potential owners, including, among others, national real estate companies, funds and individuals.  Some competitors may have substantially greater financial resources than we do and may be willing to pay more for properties.  If marketplace competition prevents us from expanding the portfolio of properties, income generated by the portfolio may not increase.

 

Employees

 

As of August 13, 2010, we  have hired one (1) consultant, Michael Arons, who will be our Chief Financial Officer.  In addition our partnership agreement allows the General Partner to hire employees and or consultants on both its behalf and on our behalf, with all salary and related cost, and other compensation reimbursable by us.  Currently, our General Partner intends to hire three (3) employees, Michael Pilevsky, Seth Pilevsky and Philip Pilevsky, whose salaries will be paid out of our operating income as described in “USE OF PROCEEDS.”    In connection with the acquisition of each asset, and as our portfolio grows, the General Partner will evaluate on a case by case basis the need to hire full time employees for various duties.  We intend to avoid over-stressing the Company at its inception with employee related obligations which may not be necessary.  The General Partner will evaluate the need for full time employees and staff and will, in its discretion, expand the staff as necessary.

 

 

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Legal Proceedings

 

Although we may, from time to time, be involved in litigation and claims arising out of our operations in the normal course of business, we do not believe that as of the date hereof we are a party to any litigation that will have a material adverse impact on our financial condition or results of operations. We are not aware of any significant legal or governmental proceedings against us, or contemplated to be brought against us.

 

MANAGEMENT

 

Board of Directors

 

Our General Partner will conduct our business and operations, and its board of directors and executive officers will make decisions on our behalf.  Our unitholders will not be entitled to elect any directors General Partner or officers of our General Partner, none of whom will be subject to re-election on a regular basis in the future.  Furthermore our unitholders will not otherwise directly or indirectly participate in our management or operation.

 

Upon the closing of this offering, our General Partner will have nine (9) directors, three (3) of whom will be independent as defined under the independence standards established by the Nasdaq Stock Exchange. The Nasdaq Stock Exchange does not require a listed limited partnership like us to have a majority of independent directors on the board of directors of our General Partner. 

 

Conflicts of Interest and Fiduciary Duties

 

General Partner conflicts may arise from time to time in the future between our interests and the interests of our General Partner, its members interest holders, and the other entities and business activities in which they may be involved.  Except as provided in our partnership agreement, affiliates and constituent interest holders of our General Partner and the officers and directors of our General Partner, are not prohibited from engaging in other businesses or activities, including those that might be in direct competition with us. Pursuant to the terms of our partnership agreement, the doctrine of corporate opportunity, or any analogous doctrine, shall not apply to our General Partner, including all officers, directors, and employees.  Furthermore, subject to approval of the board of directors, we may purchase or invest in entities in which our General Partner and/or its members interest holders, directors or officers or their respective affiliates have a material investment.  Therefore, the General Partner may compete with us for investment opportunities and may own an interest in entities that compete with us on an operations basis.   

 

Delaware law provides that Delaware limited partnerships may, in their partnership agreements, restrict the fiduciary duties owed by the General Partner to limited partners and the partnership. Our partnership agreement limits the liability of, and reduces the fiduciary duties owed by, our General Partner to our common unit holders. Our partnership agreement also restricts the remedies available to our unitholders for actions that might otherwise constitute a breach of fiduciary duty by our general partner. By purchasing a common unit, a unit holder is treated as having consented to various actions and potential conflicts of interest contemplated in the partnership agreement that might otherwise be considered a breach of fiduciary or other duties under applicable state law.

 

For a description of other relationships with our affiliates, please read “Certain Relationships and Related Party Transactions.”

 

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Committees of the Board of Directors

 

Audit Committee

 

Our three (3) independent directors  constitute  all of the members of our General Partner’s audit committee.  Upon completion of this offering, our audit committee will operate pursuant to a written charter.  The audit committee will assist our General Partner’s board of directors in its oversight of the integrity of our financial statements and our compliance with legal and regulatory requirements and corporate policies and controls. Furthermore, the audit committee will have the sole authority to review, retain and terminate our independent registered public accounting firm, approve and determine the scope of all auditing services and related fees and the terms thereof, and pre-approve any non-audit services to be rendered by our independent registered public accounting firm. The head of our audit committee is Mr. Gerald Jagendorf, who has had  a long banking career,  including expertise in both international and domestic commercial lending to major as well as middle market corporations; investment banking and real estate construction and permanent financing.  The audit committee will also be responsible for confirming the independence and objectivity of our independent registered public accounting firm.

 

Conflicts Committee

 

Further, two of such independent directors will serve on the initial conflicts committee.  The members of the conflicts committee may not be officers or employees of our General Partner, or directors, officers or employees of its affiliates, and must meet the independence standards established by the Nasdaq Stock Market and the Securities Exchange Act of 1934, as amended, along with other requirements in our partnership agreement.  The conflicts committee will review specific matters that our General Partner’s board of directors believes may involve conflicts of interest and determine whether to submit to the conflicts committee for review. After identifying a potential conflict of interest, the conflicts committee will then determine if the conflict of interest can or has been resolved in accordance with our partnership agreement. If the conflicts committee determines that the resolution of the conflict of interest is fair and reasonable to us and approves the matter, such approval will be conclusively deemed to be fair and reasonable to us, approved by all of our partners, and not a breach by our General Partner of any duties it may owe us or our unit holders.

 

Compensation Committee

 

The compensation committee of our General Partner will initially consist of Tracy Dwyer, an independent director. Upon completion of this offering, the compensation committee will operate pursuant to a written charter. This committee will establish salaries, incentives and other forms of compensation for officers and other employees. The compensation committee will also consider the administration of an incentive compensation and benefit plan.

 

Executive Officers and Directors

 

Our General Partner manages our operations and activities though its board of directors and executive officers. We will reimburse our General Partner for all of its direct and indirect general and administrative expenses incurred on our behalf, including the compensation of our General Partner’s employees, board of directors and executive officers. The following table shows information for the executive officers, directors and key employees of our General Partner upon the consummation of this offering:

 

Name		Age (as of 7/1/2010)		Position With Our General Partner
Philip Pilevsky		64		Chairman of the Board of Directors
Michael Pilevsky		31		Co-President and Co-Chief Executive Officer
Seth Pilevsky		35		Co-President and Co-Chief Executive Officer
Sheila Levine		53		Vice President and Secretary
Gerald Jagendorf		74		Independent Director
Tracey Dwyer				Independent Director
Melanie Brill		44		Independent Director
Diana Marrone		52		Director
Vincent Carrega		69		Director
Michael Arons		47		Chief Financial Officer*

*Position as consultant Chief Financial officer with us.

 

 

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Michael Pilevsky. Michael Pilevsky has been our General Partner’s Co-President and Co-Chief Executive Officer and member of its board of directors since our inception and the inception of our General Partner, and is the son of Mr. Philip Pilevsky, our General Partner’s Chairman of the Board, and brother of Seth Pilevsky, our general partner’s Co- President and Co-Chief Executive Officer.  Concurrently with his position with our general partner, Mr. Pilevsky will continue to act as a Managing Director of Philips International, one of the largest private real estate development and property management organizations in New York and an affiliate of us and of our General Partner. Specifically in the retail sector, Mr. Pilevsky has been involved in the acquisition, development and redevelopment of over 23 shopping centers in the Northeast and Florida.  Together with his father Philip and his brother Seth, Mr. Pilevsky oversees all aspects of ownership, development, sales, acquisitions, leasing and property management for over two hundred properties consisting of retail shopping centers, commercial office buildings, residential properties, hotels, commercial condominiums and residential cooperatives in New York City, Westchester, Brooklyn and Long Island, New York, and New Jersey, Massachusetts, Connecticut and Florida.  With respect to hotel properties, Mr. Pilevsky actively participates in the management of the Andrew Hotel and the Bryant Park Hotel in New York, and The Shore Club in Miami Beach, Florida.  These properties have achieved national and international acclaim.  Before relocating to New York, Mr. Pilevsky headed Philips International’s Southeast Region office in Florida.  Mr. Pilevsky continues to oversee management, operation and leasing activities conducted from the Florida office.

 

Through Philips International and together with his father Philip and his brother Seth, Mr. Pilevsky owns and manages over one million square feet of retail space in Florida and several million square feet of retail and office space located in New York, New Jersey, Massachusetts and Connecticut with a gross value of well over one billion dollars.

Mr. Pilevsky earned his BA from Yeshiva University in 2000, and his Master of Science in Real Estate from New York University in 2002.

 

Philip Pilevsky.  Philip Pilevsky is and has been the Chairman of the Board of our General Partner since our inception and our general partner’s inception, and is the father of both  Michael Pilevsky, our General Partner’s Co- President and Co-Chief Executive Officer and Seth Pilevsky, Co- President and Co-Chief Executive Officer. Concurrently with his position with our General Partner, Mr. Pilevsky will continue to act as the President and Chief Executive Officer of Philips International, which he founded in 1979 and is one of the largest private real estate development and property management organizations in New York and an affiliate of us and of our General Partner.  Previously, Mr. Pilevsky was Chairman of the Board and Chief Executive Officer of Philips International Realty Corp., a publicly traded REIT listed on the New York Stock Exchange (under the symbol “PIRCO”).

 

Mr. Pilevsky has been at the forefront of the development, management and sale of commercial condominiums in New York and has successfully sponsored, and through Philips International, operated approximately eighteen condominium and cooperative projects located in New York, Massachusetts, and Connecticut.  Mr Pilevsky has owned property in New York, New Jersey, Pennsylvania, Massachusetts, Connecticut, New Hampshire, Maryland, Delaware, Virginia, Washington D.C, California, Arizona, Washington, Illinois, Texas, Carolinas, Kentucky, Alabama, Missouri, Georgia and Florida.  With respect to hotel properties, Mr. Pilevsky developed the Morgans Hotel, Royalton Hotel, Paramount Hotel, Andrew Hotel and Bryant Park Hotel in New York, and The Shore Club in Miami Beach, Florida.  These properties have achieved national and international acclaim. Throughout his career Mr. Pilevsky has created significant value in Philips International’s portfolio through creative deal structuring and a thorough understanding of market trends.

Mr. Pilevsky has been a licensed real estate broker for thirty years and has been actively involved in all aspects of leasing and property operation throughout such thirty year period. Mr. Pilevsky is a national television commentator and has been a frequent guest on such networks as CNN, Fox and National Public Radio. He is a member of the Foreign Press Association, the Atlantic Council and other leading real estate industry associations.  Mr. Pilevsky is also one of the largest private owners of medical space in Houston, Texas.

Mr. Pilevsky holds two graduate degrees from Columbia University and maintains a second career as a highly regarded educator, lecturer and author. Mr. Pilevsky sits on the Advisory Board of the University of Pennsylvania’s Institute of Urban Research.  Mr. Pilevsky has been an adjunct professor at New York University teaching real estate and foreign policy for the past twenty years.  Mr. Pilevsky has written two thoughtful books on contemporary foreign policy, namely Captive Continent; The Stockholm Syndrome in European/Soviet Relations (Praeger Publishers, January, 1989) and Jimmy Carter and the Rise of Militant Islam (Durban House Publishing, 2006).

Seth Pilevsky.  Seth Pilevsky is our general partner’s Co- President and Co-Chief Executive Officer and director since our inception and our General Partner’s inception, and is the brother of Michael Pilevsky, our General Partner’s Co- President and Co-Chief Executive Officer, and son of Philip Pilevsky, our General Partner’s Chairman of the Board.  Concurrently with his position with our General Partner, Mr. Pilevsky will continue to act as a Managing Director of Philips International, As an attorney admitted in New York, Mr. Pilevsky has also handled a panoply of legal issues arising in connection with his position at Philips International.  Mr. Pilevsky has been a licensed real estate broker for nine years and has been actively involved in all aspects of leasing and property operation for that time.

 

 

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With respect to hotel properties, Mr. Pilevsky actively participates in the management of the Andrew Hotel and Bryant Park Hotel in New York and The Shore Club in Miami Beach, Florida.  These properties have achieved national and international acclaim.

Before joining the Philips International executive management team, Mr. Pilevsky was part of the executive management team of Interstate Management located in Brooklyn, New York.

Mr. Pilevsky earned his JD from The Benjamin N. Cardozo School of Law in 1999, and his BA from Boston University in 1996.   Mr. Pilevsky was admitted to the New York State Bar in 2000.  He practiced law at Brown Raysman Millstein Felder and Steiner and at Edwards & Angell prior to joining Interstate Management.

 

Sheila Levine.  Sheila Levine is and has been a member of our General Partner’s board of director since our inception and our General Partner’s inception, and is the sister-in-law of Philip Pilevsky, our general partner’s Chairman of the Board. Previously, Ms. Levine served on the board of directors of Philips International Realty Corp., a publicly traded REIT listed on the New York Stock Exchange (under the symbol “PIRCO”).

Concurrently with her position with our General Partner, Ms. Levine will continue to act as an Executive Vice President of Philips International  As part of the executive management team at Philips International, for the past twenty eight years Ms. Levine has overseen all aspects of ownership, property management, leasing, development, sales and acquisitions for over two hundred properties consisting of retail shopping centers, commercial office buildings, residential properties, hotels, commercial condominiums and residential cooperatives in New York City, Westchester, Brooklyn and Long Island, New York and New Jersey, Massachusetts, Connecticut and Florida.  Ms. Levine has also served on the boards of several commercial condominiums in New York, namely, Bar Building Condominium, Diplomat Centre Condominium, and Grand Park Condominium.

  

Specifically in the retail sector, Ms. Levine has been involved in the acquisition, development and redevelopment of over seventy five shopping centers specializing in the Northeast and Florida.  Ms. Levine has been a licensed real estate broker for twenty years and has been actively involved in all aspects of leasing and property operation during such time.  Ms. Levine, through Philips International, participates in the management of over one million square feet of retail space in Florida and several million square feet of retail and office space located in New York, New Jersey, Massachusetts and Connecticut with a gross value of over one billion dollars.

With respect to hotel properties, Ms. Levine actively participates in the management of the Andrew Hotel and the Bryant Park Hotel in New York, and The Shore Club in Miami Beach, Florida.

Ms. Levine earned her Bachelor of Arts degree from Hofstra University in 1979.

Gerald Jagendorf. Mr. Jagnedorf has had a long and distinguished progressive banking and consulting career which includes expertise in both international and domestic commercial lending to major as well as middle market corporations; investment banking and real estate construction and permanent financing. Mr. Jagendorf held various supervisory functions in diverse departments of the Bank of Tokyo, Ltd., New York Agency, which included communications and international operations. Subsequently, Mr. Jagendorf was a loan officer at the Bank of Tokyo Trust Company. This experience lead to Mr. Jagendorf developing American corporate business by laying the foundation for establishing construction lending and metropolitan corporate lending groups in New York for the Bank of Tokyo. Additionally, Mr. Jagendorf served as senior vice president and manager of an independently established real estate banking department which was responsible for a construction loan platform in excess of $1.2 billion and over 60 construction loan projects though out the United States. Mr. Jagendorf was also president of Pacific Sun Associates, Inc. and provided real estate consulting services to financial institutions developers and various corporations. Most recently, Mr. Jagendorf was the Deputy Commissioner of H.P.D. for the city of New York

 

Mr. Jagendorf is a New York licensed Real Estate Broker and a Florida State Licensed Mortgage Broker.

 

Mr. Jagendorf is the father of Melanie Brill, one of our other board members and is a graduate of the American Institute of Banking, University of Wisconsin, Graduate School of Banking as well University of Wisconsin Postgraduate School.  He received his Real Estate Brokerage License from New York University.

 

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Tracy Tiller Dwyer.  Tracy Tiller Dwyer is licensed real estate broker in New York, Florida and Connecticut and has many years of experience in the acquisition and disposition of investment grade real estate.  Previously, Ms. Dwyer served as a board member for Gilbert Robinson, a publicly traded restaurant chain based in Kansas City which owned and operated the Houlihans Restaurant chain.  Ms. Dwyer was also prominently involved in bringing Gilbert Robinson  to New York and was also responsible for raising $20 million for a real estate acquisition that helped bring Ed Debevic’s, a Chicago based restaurant chain, to the New England market.  Ms. Dwyer currently specializes in the importing and sale of antiquities as well interior design, including residential renovation and new construction.  Ms. Dwyer is the President of Parc Monceau, a business  that is presently selling French antiquities and home furnishings.   Previously, as President of Hong Kong Investment Properties, Ms. Dwyer was responsible for the investing of $250 million of foreign money in U.S real estate markets.  Additionally, as Senior Vice President, for Huberth and Peter, Ms. Dwyer was responsible for managing 20 sales investment brokers and doubling the sales revenues of the department in two years to over $750 million.  Most recently, as a sales investment broker for Bach Realty, Ms. Dwyer was twice awarded the top sales broker with over a $100 million in sales.

 

Ms. Dwyer received a B.A. Degree in Marketing at Florida State University.

 

Melanie J. Brill.  Melanie J Brill, Gerald Jagendorf’s daughter, has been an attorney for 18 years focusing primarily on real estate, working for both the public and private sectors in New York and Florida.  Ms. Brill started her career as counsel for the New York City Economic Development Corporation which involved all aspects of leasing and sale transactions for the city’s industrial, commercial and maritime real estate portfolio.  Ms. Brill continued her practice at the New York firm of Pryor Cashman Sherman & Flynn where she worked on all aspects of real estate development law, including financing, title review, and negotiating sales and purchases while representing national and regional real estate developers.  Ms. Brill also served as assistant to general counsel for LNR Property Corporation and as a senior attorney in several Miami law firms where she represented lenders, developers and users of commercial real estate in a myriad of transactions.  Currently, Ms. Brill is an associate at Sachs Sax Caplan as a member of the firms’ community association and country club practice group, which includes all aspects of litigation and transactional real estate law.

 

Ms. Brill holds a B.A. from Rutgers College and J.D. from Benjamin N. Cardozo School of Law.

 

Diana Marrone. Diana Marrone is a Senior Vice President of Philips International. As part of the executive management team at Philips International, Ms. Marrone heads the property management and leasing departments and, throughout her twenty five year career at Philips International, has personally overseen all aspects of property management, leasing, ground up development and acquisitions for over 200 properties consisting of retail shopping centers, commercial office buildings, residential properties, hotels, commercial condominiums and residential cooperatives located in New York City, Westchester, Brooklyn, Long Island, New Jersey, Massachusetts, Connecticut and Florida. Ms. Marrone also serves on the boards of several commercial condominiums in New York.  Previously, Ms. Marrone served as an officer of Philips International Realty Corp., a publicly traded REIT listed on the New York Stock Exchange (under the symbol “PIRCO”).

As the head of property management for Philips International Ms. Marrone is specifically responsible for the management of over one million square feet of retail space in Florida and several million square feet of retail and office space located in New York, New Jersey, Massachusetts and Connecticut.  Specifically in the commercial sector, Ms. Marrone has been involved in the acquisition, development, and redevelopment of over 75 properties including shopping centers, office buildings, hotels and commercial condominiums, specializing in the Northeast and Florida.  In addition, Ms. Marrone has particular expertise in negotiating commercial leases, construction management and solution oriented project management.

 

Vincent Carrega. Vincent Carrega joined Grubb & Ellis’ Investment Services Group in 1979 and, as an Executive Managing Director in the firm’s New York office, he is involved in all aspects of the acquisition and disposition of investment grade real estate with specialization in the structuring of  complex development-oriented transactions. Grubb & Ellis Company is a publicly traded entity (NYSE: GBE) and is one of the most significant and well regarded global commercial real estate services and investment companies.

 

Mr. Carrega has worked with and on behalf of a wide variety of investor, corporate, institutional, public, private and individual owners over the course of his real estate career.  This client roster includes Continuum Health Partners, Related Companies, Extell Development Company, Vornado Realty Trust, Alcoa, RFR Holdings, Meringoff Properties, Philips International Holding Corp., St. Luke’s Roosevelt Hospital, Columbia University, Cabrini Medical Center and St. Vincents Catholic Medical Center. Transactions recently completed by Mr. Carrega include the structuring/disposition of high profile Manhattan development sites 1517-25 Third Avenue, 200 West 72nd Street, 350 Amsterdam Avenue and a major development site at Eighth Avenue and 46th Street.  Recent property sales include 423 West 55th Street, 387 Park Avenue South, 240 West 37th Street, 555 Sixth Avenue and Cabrini Medical Center.

 

 

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During his 30 years at Grubb & Ellis, Mr. Carrega has frequently been recognized as one of the firm’s top producing brokers and has consistently earned membership in the “Circle of Excellence,” a mark of distinction reserved for the company's top transaction professional specialists nationally. In 1998, his completion of the largest investment transaction of the year in the company earned him third highest overall production in the country and first among Investment Sales professionals. Mr. Carrega has also earned the distinction of membership in Grubb & Ellis’ President’s Council, an elite group of professionals who balance outstanding performance and dedication to the firm and community with client service excellence. He is also a leader in the New York office, where senior management has tapped him as a member of the local Management Committee, a small group of individuals who advise on strategy and growth initiatives.

 

*Michael Arons. Michael Arons has been retained by us as a Chief Financial Officer on a contract basis.  Mr. Arons is the principal of Westhill Accounting and Tax Services, LLC, a Connecticut based tax and accounting advisory service company.  Since 1998, Mr. Arons has served as a corporate controller and/or chief financial offer for a broad spectrum of publicly traded and privately held companies in the professional services, real estate, transportation, retail, new media, telecommunication and technology industries. Mr. Arons expertise includes advising clients on strategies to help ensure business profitability and continuity, providing consulting services to troubled companies assisting clients in the purchase, divesture and acquisition of business entities, as well as evaluating internal control procedures and recommending accounting system improvements to safeguard assets.  In addition, Mr. Arons has expertise in the area of SEC reporting and provides consulting and accounting support services to a number of publicly held companies and has worked on reverse mergers, acquisitions, divestitures and private placements.  Mr. Arons frequently consults with clients regarding SEC compliance requirements with respect to financial reporting.

 

Mr. Arons received a B.B.A. in Accounting from Hofstra University and is a licensed Certified Public Accountant in New York.

 

EXECUTIVE COMPENSATION

 

Compensation Discussion and Analysis

 

Compensation Setting Process

 

All compensation decisions for the named executive officers will be determined by the compensation committee. The compensation committee will seek to provide a total compensation package designed to drive performance and reward contributions in support of our business strategies and to attract, motivate and retain high quality talent with the skills and competencies required by us. It is possible that the compensation committee will examine the compensation practices of our peer companies and may also review compensation data from the real estate industry generally to the extent the competition for executive talent is broader than a group of selected peer companies, but any decisions regarding possible benchmarking will be made following the completion of this offering. In addition, the compensation committee may review and, in certain cases, participate in, various relevant compensation surveys and consult with compensation consultants with respect to determining compensation for the named executive officers. We expect that our Co-Presidents and Co-Chief Executive Officers, Michael and Seth Pilevsky, will provide periodic recommendations to the compensation committee regarding the compensation of the other named executive officers.

 

Compensation Philosophy and Objectives

 

Our General Partner’s executive compensation philosophy is designed to support our key business objectives while maximizing value to our unitholders. We employ a compensation philosophy that emphasizes pay for performance and reflects what the current market dictates. Our compensation program designed to provide a total compensation package that allows us to:

 

·

retain and motivate the executives necessary to manage our business;

·

motivate employees to deliver outstanding financial performance and meet or exceed general and specific business, operational, and individual objectives;

·

set compensation and incentive levels relevant to the market in which the employee provides service and that takes into account job responsibilities, including unique skills necessary to support our long-term performance ; and

·

at the same time, optimize and manage compensation costs.

 

We believe a certain amount of executive compensation should be tied to our performance, and a significant portion of the total prospective compensation of each named executive officer should be tied to measurable financial and operational objectives. Therefore, we implemented an Incentive Distribution Rights. During periods when performance meets or exceeds established objectives, the named executive officers should be paid at or above targeted levels, respectively. When our performance does not meet key objectives, incentive award payments, if any, should be less than such targeted levels.

 

 

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Elements of Compensation

 

Following the consummation of this offering, we intend to provide compensation to three (3) executives of our General Partner, Michael Pilevsky, Seth Pilevsky and Philip Pilevsky as delineated in the chart below. However, certain terms of that compensation policy have not yet been established.

 

The following table sets forth the intended annual rate of salary payable for the named executive officers of our General Partner pursuant to the employment agreements that will be in effect following the completion of this offering:

 

Name and Principal Position		Salary ($)			Bonus ($)		All Other Compensation		Total
Michael Pilevsky			100,000
Philip Pilevsky			100,000
Seth Pilevsky			100,000

 

Consulting Agreements

Michael Arons – Chief Financial Officer

 

We have entered into an agreement (the “Arons Consulting Agreement”), whereby Westhill Accounting Tax Services, LLC (“Westhill”) shall assist us by providing contract Chief Financial Officer services to be performed by Michael Arons (“Arons”).  Arons will provide standard services of a contract Chief Financial Officer during and after our registration statement process.   During the registration statement process, we shall pay Westhill a reasonable hourly fee.  After the registration statement process and post closing, we shall pay Westhill a monthly fee equal to $5,000 in cash, which amount is subject to adjustment on the six month anniversary of the effective date of this registration statement.  In addition, we shall reimburse Westhill for the cost of obtaining insurance liability on terms and conditions necessary to cover the services contemplated by the Arons Consulting Agreement. 

 

Director Compensation

 

Following the consummation of this offering, we will provide compensation to the non-employee directors of the board of our general partner; however, certain terms of that compensation policy have not yet been established. Any employees who also serve as directors will not receive additional compensation. It is anticipated that each non-employee director will be reimbursed for out-of-pocket expenses in connection with attending meetings of the board of directors or committees, and that each director will be fully indemnified by us for actions associated with being a director to the extent permitted under Delaware law.

 

SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

 

The following table sets forth the beneficial ownership of our common units that will be owned upon completion of this offering by:

·

each person to be a beneficial owner of 5% or more of our outstanding units;

 

·

each of the directors of our general partner;

 

·

each named executive officer of our General Partner; and

 

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·

all directors and executive officers of our General Partner as a group.

 

The amounts and percentage of units beneficially owned are reported on the basis of regulations of the SEC governing the determination of beneficial ownership of securities. Under the rules of the SEC, a person is deemed to be a “beneficial owner” of a security if that person has or shares “voting power,” which includes the power to vote or to direct the voting of such security, or “investment power,” which includes the power to dispose of or to direct the disposition of such security. A person is also deemed to be a beneficial owner of any securities of which that person has a right to acquire beneficial ownership within 60 days. Under these rules, more than one person may be deemed a beneficial owner of the same securities, and a person may be deemed a beneficial owner of securities as to which he has no economic interest.

Except as indicated by footnote, to our knowledge the persons named in the table below have sole voting and investment power with respect to all units shown as beneficially owned by them.  The business address for the beneficial owners listed below is c/o American Pacific Investcorp LP, 295 Madison Ave., 2nd Fl., New York, New York 10017.

	Units to be
	Beneficially Owned
	After the Offering
Name of Beneficial Owner	Number		Percentage
Directors and Officers
Philip Pilevsky
Michael Pilevsky
Seth Pilevsky
Sheila Levine
Gerald Jagendorf
Tracy Dwyer
Melanie Brill
Diana Marrone
Vincent Carrega
Michael Arons
All directors and officers as a group (10 persons)

 

CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS

 

American Pacific Investcorp GP, LLC is the general partner of our General Partner and appoint all of the directors of our General Partner, which will maintain its non-dilutive 12% General Partner interest in us and will be issued incentive distribution rights as described above. Our General Partner intends to enter into a participation agreement with Pektor Holdings II LLC pursuant to which Pektor Holdings II LLC will be entitled to half of all net profits and distributions earned by the General Partner form its 12% non-dilutive interest in us, with respect to assets acquired in Pennsylvania on or before December 31, 2015. Pektor Holdings II, LLC shall have no equity ownership in us, however, is free to acquire common units upon the same terms as subscribers of common units hereunder.

 

Distributions and Payments to Our General Partner and Its Affiliates

 

The following table summarizes the distributions and payments to be made by us to our General Partner and its affiliates in connection with our ongoing operations. These distributions and payments were determined by and among affiliated entities and, consequently, are not the result of arm's-length negotiations.

 

 

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Distributions of available cash to our General Partner and its affiliates		We will generally make cash distributions as follows: 88% to the unitholders and 12% to our General Partner. (except in the event of a capital proceed distribution which was detailed earlier).
Payments to our General Partner and its affiliates:		Our General Partner shall maintain a non dilutive 12% ownership interest in us and  will be reimbursed by us for all expenses they incur and payments made on our behalf including without limitation, overhead, employee salaries use of and payment to outside consultants any administrative expense.  Our partnership agreement provides that our General Partner will determine the expenses that are allocable to us.
Withdrawal or removal of our General Partner:		If our General Partner withdraws or is removed, its General Partner interests and incentive distribution rights will either be sold to the new General Partner for cash or converted into common units, in each case for an amount equal to the fair market value of those interests.
Liquidation:		Upon our liquidation, distributions shall be made in the following priority:  first, to the payment of expenses and debt obligations; second, to the partners on a parri passu basis until their respective capital accounts (credited for any net income or net loss up through the date of liquidation) have a zero balance; and third, 50% to the General Partner and 50% to our unit holders.

 

Capital Event:

 

Our General Partner is entitled to 50% of the net proceeds of any Capital Event. Therfore, in the event of a sale of an asset, net proceeds is  defined as the sale proceeds less all costs directly associated with such sale, less the then current book value of the asset, adjusted for depreciation. Similarly in the event of a refinancing of an asset, net proceeds shall be defined as financing proceeds less all costs directly associated with said refinancing. Notwithstanding, in the event of a financing, net proceeds shall be distributed only if there is an increase in value, as evidenced by an independent appraisal (or the then equivalent method for determining value) between the book value and the independently appraised value of the asset. Additionally, the distribution of net proceeds shall be limited to said increase in value.

 

Ownership Interests in Pennsylvania Portfolio

 

 If acquired, the Pennsylvania Portfolio will be owned by our subsidiary, LV Investcorp LP.  The general partner of LV Investcorp LP will be Pennsylvania Investcorp, LP, which, without capital contribution, will be granted a 0.01% ownership interest in LV Investcorp, LP.  Pennsylvania Investcorp LP will be owned by API GP 2, LLC, which will own 0.01% of the partnership interest as a general partner, by our General Partner, which will own 99.99% of the partnership interests as a limited partner. API GP 2 LLC is wholly owned by American Pacific Investcorp GP LLC.  The limited partner of LV Investcorp will be us, owning 99.99% of the partnership interests therein as a limited partner.  

Our General Partner intends to enter into a participation agreement with Pektor Holdings II LLC pursuant to which Pektor Holdings II LLC will be entitled to 50% of all net profits and distributions earned by the General Partner from its 12% non-dilutive interest in us, with respect to assets acquired in Pennsylvania on or before December 31, 2015.   

 

 CONFLICTS OF INTEREST AND FIDUCIARY DUTIES

 

Conflicts of Interest

 

Our directors and officers are, and will become, in their individual capacities, officers, directors, controlling shareholders and/or partners of other entities engaged in a variety of businesses. Thus, there exist potential conflicts of interest including, among other things, time, efforts and corporate opportunity, involved in participation with such other business entities. While each officer and director of our business is engaged in business activities outside of our business, they are not obligated to devote any certain amount of time to our business.  The concept of the corporate opportunity doctrine does not apply to our General Partner, its constituent interest owners, and its affiliates or the board of directors.

 

Conflicts of interest exist and may arise in the future as a result of the relationships between our General Partner, its constituent interest owners and its affiliates, on the one hand, and our partnership and our limited partners, on the other hand. The directors and officers of our General Partner have fiduciary duties to manage our General Partner in a manner beneficial to its owners. At the same time, our General Partner has a fiduciary duty to manage our partnership in a manner beneficial to us and our unitholders.

 

Whenever a conflict arises between our General Partner or its affiliates, on the one hand, and us and our limited partners, on the other hand, our General Partner will resolve that conflict. Our partnership agreement contains provisions that modify and limit our General Partner's fiduciary duties to our unitholders. Our partnership agreement also restricts the remedies available to our unitholders for actions taken by our General Partner that, without those limitations, might constitute breaches of its fiduciary duty.

 

Our General Partner will not be in breach of its obligations under our partnership agreement or its fiduciary duties to us or our unitholders if the resolution of the conflict is:

 

 

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•

approved by the conflicts committee of our general partner, although our General Partner is not obligated to seek such approval; or

 

•

on terms no less favorable to us than those generally being provided to or available from unrelated third parties.

 

Our General Partner may, but is not required to, seek the approval of such resolution from the conflicts committee of its board of directors. Unless the resolution of a conflict is specifically provided for in our partnership agreement, our General Partner or the conflicts committee may consider any factors that it determines to be appropriate when resolving a conflict.

 

Fiduciary Duties

 

The Delaware Act provides that Delaware limited partnerships may, in their partnership agreements, modify, restrict or expand the fiduciary duties otherwise owed by a General Partner to limited partners and the partnership.

 

Our partnership agreement contains various provisions modifying and restricting the fiduciary duties that might otherwise be owed by our general partner. This allows our General Partner and/or its constituent partners and affiliates to engage in transactions that would otherwise be prohibited by state-law fiduciary duty standards, restrict the remedies available to unitholders for actions that, without those limitations, might constitute breaches of fiduciary duty, as described below, and take into account the interests of other parties in addition to our interests when resolving conflicts of interest.

 

In addition, under our partnership agreement, we must indemnify, defend and hold harmless our General Partner and its officers, directors, managers and certain other specified persons, to the fullest extent permitted by law, against liabilities, costs and expenses incurred by our General Partner or these other persons. We must provide this indemnification unless there has been a final and non-appealable judgment by a court of competent jurisdiction determining that these persons acted in bad faith or engaged in fraud or willful misconduct. We must also provide this indemnification for criminal proceedings unless our General Partner or these other persons acted with knowledge that their conduct was unlawful. Thus, our General Partner could be indemnified for, and defended with respect to its negligent acts if it meets the requirements set forth above. To the extent these provisions purport to include indemnification and defense for liabilities arising under the Securities Act, it is the opinion of the SEC that such indemnification is contrary to public policy and, therefore, unenforceable.

 

By purchasing our common units, each common unit holder automatically agrees to be bound by the provisions in our partnership agreement, including the provisions discussed above. This is in accordance with the policy of the Delaware Act favoring the principle of freedom of contract and the enforceability of partnership agreements. The failure of a limited partner to sign a partnership agreement does not render the partnership agreement unenforceable against that person.

 

Description of Common Units

 

The Units

The common units are limited partner interests in American Pacific Investcorp LP. The holders of units are entitled to participate in partnership distributions and exercise the rights or privileges available to limited partners under our partnership agreement. For a description of the relative rights and preferences of holders of common units in and to partnership distributions, please read this section and “Our Cash Distribution Policy and Restrictions on Distributions.” For a description of the rights and privileges of limited partners under our partnership agreement, including voting rights, please read “The Partnership Agreement.”

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Holtz Rubenstein Reminick LLP, our independent registered public accounting firm, has audited the combined statements of revenues and certain operating expenses of the targeted Pennsylvania Portfolio. We have included these financial statements in this prospectus and in this registration statement in reliance on Holtz Rubenstein Reminick LLP’s report given on their authority as experts in accounting and auditing.

 

WHERE YOU CAN FIND MORE INFORMATION

 

We have filed with the SEC a registration statement on Form S-1 under the Securities Act to register the common units offered by this prospectus. This prospectus is part of the registration statement. This prospectus does not contain all the information contained in the registration statement because we have omitted certain parts of the registration statement in accordance with the rules and regulations of the SEC. For further information, we refer you to the registration statement, which you may read and copy at the public reference facilities maintained by the SEC at 100 F Street, N. E. Room 1580, Washington, D.C. 20549. You may obtain copies at the prescribed rates from the Public Reference Section of the SEC at its principal office in Washington, D.C. You may call the SEC at 1-800-SEC-0330 for further information about the public reference rooms. The SEC maintains a website that contains reports, proxy and information statements and other information regarding us. You may access the SEC’s website at http://www.sec.gov.

 

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You should rely only on the information or representations provided in this prospectus. We have authorized no one to provide you with different information. We are not making an offer of these securities in any state where the offer is not permitted. You should not assume that the information in this prospectus is accurate as of any date other than the date on the front of the document.

Statements contained in this prospectus as to the contents of any contract or document are not necessarily complete and in each instance reference is made to the copy of that contract or document filed as an exhibit to the registration statement, each such statement being qualified in all respects by such reference and the exhibits and schedules hereto.

 

FORWARD-LOOKING STATEMENTS

 

Some of the information in this prospectus may contain forward-looking statements. These statements can be identified by the use of forward-looking terminology including “will,” “may,” “believe,” “expect,” “anticipate,” “estimate," “continue,” or other similar words. These statements discuss future expectations, contain projections of results of operations or of financial condition, or state other “forward-looking” information. These forward-looking statements involve risks and uncertainties. When considering these forward-looking statements, you should keep in mind the risk factors and other cautionary statements in this prospectus. The risk factors and other factors noted throughout this prospectus could cause our actual results to differ materially from those contained in any forward-looking statement.

 

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INDEX TO FINANCIAL STATEMENTS

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Pennsylvania Portfolio

Independent Auditors' Report	F-1
Combined Statements of Revenue and Certain Operating Expenses	F-2
Notes to Combined Statements of Revenues and Certain Operating Expenses	F-3
American Pacific Investcorp LP
Introduction to Unaudited Pro Forma Condensed Consolidated Financial Statements	F-5
Unaudited Pro Forma Condensed Consolidated Balance Sheet June 30, 2010	F-6
Unaudited Pro Forma Condensed Consolidated Statement of Income Six Months Ended June 30, 2010	F-7
Unaudited Pro Forma Condensed Consolidated Statement of Income Year Ended December 31, 2009	F-8
Notes to Unaudited Pro Forma Condensed Consolidated Financial Statements	F-9

 

 

 

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Independent Auditors' Report

To the Board of Directors of the General Partner of

American Pacific Investcorp LP

New York, New York

 

We have audited the accompanying combined statements of revenues and certain operating expenses of the Pennsylvania Portfolio, for each of the three years in the period ended December 31, 2009. These financial statements are the responsibility of the Pennsylvania Portfolio’s management. Our responsibility is to express an opinion on the financial statement based on our audits.

We conducted our audits in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the basis of accounting used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.

The accompanying financial statements were prepared for the purpose of complying with the rules and regulations of the Securities and Exchange Commission for inclusion in the Registration Statement on Form S-1 of American Pacific Investcorp LP as described in Note 1, and are not intended to be a complete presentation of the Pennsylvania Portfolio.

In our opinion, the financial statements referred to above present fairly, in all material respects, the combined revenues and certain operating expenses described in Note 1 of the Pennsylvania Portfolio for each of the three years in the period ended December 31, 2009, in conformity with United States generally accepted accounting principles.

 

/s/ Holtz Rubenstein Reminick LLP

Melville, New York

August 13, 2010

 

 

F-1

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PENNSYLVANIA PORTFOLIO

Combined Statements of Revenue and Certain Operating Expenses

---

For the six months ended June 30, 2010 and 2009 (Unaudited) and the three years in the period ended December 31, 2009

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		Six Months Ended
		June 30,								Year Ended December 31,
		2010				2009				2009				2008				2007
		(unaudited)
Revenue:
Rental income		$	7,103,687			$	7,279,840			$	14,533,860			$	14,480,750			$	14,082,849
Reimbursement from tenants of operating expenses and other income			3,858,272				3,827,224				7,394,700				7,318,473				7,207,316
Total Revenue			10,961,959				11,107,064				21,928,560				21,799,223				21,290,165
Certain Operating Expenses:
Real estate taxes and insurance			1,306,152				1,272,493				2,474,715				2,405,626				2,361,709
Rental property operating expenses			2,908,309				3,102,800				5,624,710				5,636,096				5,342,163
Total Certain Operating Expenses			4,214,461				4,375,293				8,099,425				8,041,722				7,703,872
Revenues in Excess of Certain
Operating Expenses		$	6,747,498			$	6,731,771			$	13,829,135			$	13,757,501			$	13,586,293

 

 SEE NOTES TO COMBINED FINANCIAL STATEMENTS

 

 

F-2

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PENNSYLVANIA PORTFOLIO

Notes to Combined Statements of Revenues and Certain Operating Expenses

For the Six Month Periods Ended June 30, 2010 and 2009 (Unaudited) and   the Three Years in the Period Ended December 31, 2009

1.

Property to be Acquired and Basis of Presentation