FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
X Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934
For the quarterly period ended September 30, 1996 or
Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the transition period from to
Commission File Number: 0-20737
AMERICA FIRST APARTMENT INVESTORS, L.P.
(Exact name of registrant as specified in its charter)
Delaware 47-0797793
(State or other jurisdiction (IRS Employer
of incorporation or organization) Identification No.)
Suite 400, 1004 Farnam Street, Omaha, Nebraska 68102
(Address of principal executive offices) (Zip Code)
(402) 444-1630
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
YES X NO
<PAGE> - i -
Part I. Financial Information
Item 1. Financial Statements
AMERICA FIRST APARTMENT INVESTORS, L.P.
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
<TABLE>
<CAPTION>
Sept. 30, 1996 Dec. 31, 1995
-------------- --------------
<S> <C> <C>
Assets
Cash and temporary cash investments, at cost which
approximates market value (Note 4) $ 1,789,294 $ 1,912,560
Investment in tax-exempt mortgage bonds, at estimated fair value (Note 5) 31,566,526 31,566,526
Investment in real estate, net of accumulated depreciation
(and valuation allowance for 1995) (Note 6) 27,232,048 25,890,570
Interest receivable 163,682 196,601
Other assets 188,996 64,192
-------------- --------------
$ 60,940,546 $ 59,630,449
============== ==============
Liabilities and Partners' Capital
Liabilities
Accounts payable (Note 8) $ 755,389 $ 683,013
Bonds payable (Note 7) 2,750,000 -
Distribution payable (Note 3) 329,051 331,163
-------------- --------------
3,834,440 1,014,176
-------------- --------------
Partners' Capital
General Partner 4,096 7,553
Beneficial Unit Certificate Holders
($10.96 per BUC in 1996 and $11.17 in 1995) 57,102,010 58,608,720
-------------- --------------
57,106,106 58,616,273
-------------- --------------
$ 60,940,546 $ 59,630,449
============== ==============
The accompanying notes are an integral part of the consolidated and combined financial statements.
</TABLE>
<PAGE> - 1 -
AMERICA FIRST APARTMENT INVESTORS, L.P.
CONSOLIDATED AND COMBINED STATEMENTS OF INCOME
(UNAUDITED)
<TABLE>
<CAPTION>
For the For the For the Nine For the Nine
Quarter Ended Quarter Ended Months Ended Months Ended
Sept. 30, 1996 Sept. 30, 1995 Sept. 30, 1996 Sept. 30, 1995
(Combined) (Combined)
--------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C>
Income
Mortgage bond investment income $ 483,668 $ 482,189 $ 1,600,221 $ 1,670,648
Rental income 1,481,936 1,300,516 4,201,506 3,825,945
Interest income on temporary cash investments 12,542 14,307 37,112 40,791
--------------- --------------- --------------- ---------------
1,978,146 1,797,012 5,838,839 5,537,384
--------------- --------------- --------------- ---------------
Expenses
General and administrative expenses (Note 8) 335,636 208,962 870,677 585,366
Real estate operating expenses 803,398 662,490 2,271,354 1,696,244
Depreciation 286,715 300,364 870,258 897,122
Interest expense 37,953 - 68,315 -
--------------- --------------- --------------- ---------------
1,463,702 1,171,816 4,080,604 3,178,732
--------------- --------------- --------------- ---------------
Net income $ 514,444 $ 625,196 $ 1,758,235 $ 2,358,652
=============== =============== =============== ===============
Net income allocated to:
General Partner $ 8,012 $ 9,256 $ 26,285 $ 32,558
BUC Holders 506,432 615,940 1,731,950 2,326,094
--------------- --------------- --------------- ---------------
$ 514,444 $ 625,196 $ 1,758,235 $ 2,358,652
=============== =============== =============== ===============
Net income per BUC $ .10 $ .12 $ .33 $ .44
=============== =============== =============== ===============
Weighted average number of BUCs outstanding 5,212,167 5,245,623 5,234,471 5,245,623
=============== =============== =============== ===============
</TABLE>
AMERICA FIRST APARTMENT INVESTORS, L.P.
CONSOLIDATED STATEMENT OF PARTNERS' CAPITAL
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996
(UNAUDITED)
<TABLE>
<CAPTION>
Beneficial Unit
Certificate Holders
General
Partner # of BUCs Amount Total
--------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C>
Partners' Capital (excluding net unrealized
holding losses):
Balance at December 31, 1995 $ 7,553 5,245,623 $ 67,357,194 $ 67,364,747
Net income 26,285 - 1,731,950 1,758,235
Cash distributions paid or accrued (Note 3)
Income (29,742) - (2,074,132) (2,103,874)
Return of capital - - (870,258) (870,258)
Purchase of units - (33,456) (294,270) (294,270)
--------------- --------------- --------------- ---------------
4,096 5,212,167 65,850,484 65,854,580
--------------- --------------- --------------- ---------------
Net unrealized holding losses:
Balance at December 31, 1995 and September 30, 1996 - - (8,748,474) (8,748,474)
--------------- --------------- --------------- ---------------
Balance at September 30, 1996 $ 4,096 5,212,167 $ 57,102,010 $ 57,106,106
=============== =============== =============== ===============
The accompanying notes are an integral part of the consolidated and combined financial statements.
</TABLE>
<PAGE> - 2 -
AMERICA FIRST APARTMENT INVESTORS, L.P.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
For the Nine For the Nine
Months Ended Months Ended
Sept. 30, 1996 Sept. 30, 1995
(Combined)
--------------- ---------------
<S> <C> <C>
Cash flows from operating activities
Net income $ 1,758,235 $ 2,358,652
Adjustments to reconcile net income to net cash
provided by operating activities
Depreciation 870,258 897,122
Decrease in interest receivable 32,919 48,762
Decrease (increase) in other assets 69,164 (10,197)
Increase (decrease) in accounts payable 72,376 (20,312)
--------------- ---------------
Net cash provided by operating activities 2,802,952 3,274,027
--------------- ---------------
Cash flows from investing activities
Real estate capital improvements (155,617) (65,884)
Acquisition of real estate (2,056,119) -
--------------- ---------------
Net cash used in investing activities (2,211,736) (65,884)
--------------- ---------------
Cash flows from financing activities
Distributions paid (2,976,244) (2,980,468)
Proceeds from issuance of tax-exempt refunding bonds 2,750,000 -
Bond issuance costs paid (193,968) -
Purchase of units (294,270) -
--------------- ---------------
Net cash used in financing activities (714,482) (2,980,468)
--------------- ---------------
Net increase (decrease) in cash and temporary cash investments (123,266) 227,675
Cash and temporary cash investments at beginning of period 1,912,560 1,969,975
--------------- ---------------
Cash and temporary cash investments at end of period $ 1,789,294 $ 2,197,650
=============== ===============
Supplemental disclosure of cash flow information:
Cash paid during the period for interest $ 53,184 $ -
=============== ===============
The accompanying notes are an integral part of the consolidated and combined financial statements.
</TABLE>
<PAGE> - 3 -
AMERICA FIRST APARTMENT INVESTORS, L.P.
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS
SEPTEMBER 30, 1996
(UNAUDITED)
1. Organization
America First Apartment Investors, L.P. (the New Partnership) was formed on
March 7, 1996, under the Delaware Revised Uniform Limited Partnership Act for
the purpose of acquiring, holding, operating, selling or otherwise dealing
with multi-family residential properties and other types of commercial real
estate and interests therein. The New Partnership commenced operations on
August 20, 1996, when it was merged with America First Tax Exempt Mortgage
Fund 2 Limited Partnership (the Prior Partnership). Under the terms of the
Merger agreement, the New Partnership was the surviving partnership and
effectively took over the operations of the Prior Partnership. Unit holders
of the Prior Partnership received one Beneficial Unit Certificate (BUC) of the
New Partnership for each BUC they held in the Prior Partnership as of the
record date. The Prior Partnership was terminated under the provisions of the
Prior Partnership's Partnership Agreement. The New Partnership will terminate
on December 31, 2016, unless terminated earlier under the provisions of the
New Partnership's Partnership Agreement. The General Partner of the New
Partnership is America First Capital Associates Limited Partnership Four (AFCA
4).
2. Summary of Significant Accounting Policies
A) Financial Statement Presentation
The accompanying 1996 consolidated financial statements include the
combined accounts of the New Partnership from August 20, 1996 (the Merger
Date), through September 30, 1996, and the accounts of the Prior
Partnership from January 1, 1996, until the Merger Date. Financial
Statements for 1995 include the accounts of the Prior Partnership. The
New Partnership and the Prior Partnership are collectively referred to as
the Partnership.
The consolidated financial statements include the accounts of the
Partnership and its subsidiary, Park at Fifty Eight Limited Partnership,
which owns The Park at Fifty Eight Apartments. All significant
intercompany transactions and accounts have been eliminated in
consolidation.
The consolidated and combined financial statements of the Partnership are
prepared without audit on the accrual basis of accounting in accordance
with generally accepted accounting principles. The consolidated and
combined financial statements should be read in conjunction with the
financial statements and notes thereto included in the Partnership's
Annual Report on Form 10-K for the year ended December 31, 1995. In the
opinion of management, all normal and recurring adjustments necessary to
present fairly the financial position at September 30, 1996, and results
of operations for all periods presented have been made.
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those
estimates.
<PAGE> - 4 -
AMERICA FIRST APARTMENT INVESTORS, L.P.
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS
SEPTEMBER 30, 1996
(UNAUDITED)
B) Investment in Tax-Exempt Mortgage Bonds
The Partnership adopted Statement of Financial Accounting Standards No. 115
"Accounting for Certain Investments in Debt and Equity Securities" (FAS
115) as of January 1, 1994. FAS 115 requires that investment securities
be classified as held-to-maturity, available-for-sale, or trading. Under
FAS 115, investments classified as available-for-sale are reported at fair
value with any unrealized gains or losses excluded from earnings and
reflected as a separate component of partners' capital. Subsequent
increases and decreases in the net unrealized gain/loss on the
available-for-sale securities are reflected as adjustments to the carrying
value of the portfolio and adjustments to the component of partners'
capital. The Partnership does not have investment securities classified
as held-to-maturity or trading. Unrealized losses of $8,748,474 on
tax-exempt mortgage bonds previously recognized through income were
reclassified to a separate component of partners' capital with the
adoption of FAS 115. There was no additional impact resulting from
adoption since the bonds had already been reduced to estimated fair value.
The carrying value of tax-exempt mortgage bonds is periodically reviewed
and adjusted when there are significant changes in the estimated net
realizable value of the underlying collateral.
Accrual of mortgage bond investment income is excluded from income when,
in the opinion of management, collection of related interest is doubtful.
This interest is recognized as income when it is received.
C) Investment in Real Estate
The Partnership's investment in real estate consists of property acquired
through foreclosure or deed in lieu of foreclosure and other real estate
acquired. For periods prior to January 1, 1996, property acquired through
foreclosure or deed in lieu of foreclosure was recorded at the lower of
the unpaid bond balance or estimated net realizable value at the date of
acquisition. Other real estate acquired was recorded at cost. A
valuation allowance was established for declines in the estimated net
realizable value subsequent to acquisition.
On January 1, 1996, the Partnership adopted Statement of Financial
Accounting Standards No. 121, "Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to be Disposed of" (FAS 121). Among
other things, FAS 121 requires that long-lived assets and certain
identifiable intangibles to be held and used by an entity be reviewed for
impairment whenever events or circumstances indicate that the carrying
value of an asset may not be recoverable. As a result of adopting FAS
121, the Partnership wrote down the carrying value of each impaired
property to estimated net realizable value thus eliminating the valuation
allowance on real estate acquired. The carrying value of each property
will be periodically reviewed and adjustments will be made to the carrying
value when there are declines in the estimated net realizable value.
Depreciation of real estate is based on the estimated useful life of the
property (27-1/2 years on multifamily residential apartments or 31-1/2
years on The Exchange at Palm Bay) using the straight-line method.
Depreciation of real estate improvements on The Exchange at Palm Bay is
based on the term of the related tenant lease using the straight-line
method. Subsequent to January 1, 1996, depreciation is calculated based
on the adjusted carrying value of the properties.
The adoption of FAS 121 did not have a material impact on the financial
statements.
D) Income Taxes
No provision has been made for income taxes since Beneficial Unit
Certificate (BUC) Holders are required to report their share of the
Partnership's taxable income for federal and state income tax purposes.
<PAGE> - 5 -
AMERICA FIRST APARTMENT INVESTORS, L.P.
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS
SEPTEMBER 30, 1996
(UNAUDITED)
E) Temporary Cash Investments
Temporary cash investments are invested in federally tax-exempt securities
purchased with an original maturity of three months or less.
F) Net Income per BUC
Net income per BUC has been calculated based on the weighted average
number of BUCs outstanding during each period presented.
3. Partnership Income, Expenses and Cash Distributions
The Partnership Agreement contains provisions for the distribution of Net
Operating Income, Net Sale Proceeds and Liquidation Proceeds and for the
allocation of income and expenses for tax purposes among AFCA 4 and BUC
Holders.
Cash distributions included in the financial statements represent the actual
cash distributions made during each period and the cash distributions accrued
at the end of each period.
4. Partnership Reserve Account
The Partnership maintains a reserve account which totaled $1,034,113 at
September 30, 1996. The reserve account was established to maintain working
capital for the Partnership and is available to supplement distributions to
investors or for any other contingencies related to the ownership of the
mortgage bonds, real estate acquired and the operation of the Partnership,
including the acquisition of additional properties.
On July 10, 1996, management announced its intent to utilize a portion of the
reserve account to purchase up to a total of 50,000 BUCs of the Partnership in
open market transactions. Through September 30, 1996, 33,456 BUCs had been
acquired at a cost of $294,070.
5. Investment in Tax-Exempt Mortgage Bonds
Descriptions of the tax-exempt mortgage bonds owned by the Partnership at
September 30, 1996, are as follows:
<TABLE>
<CAPTION>
Base
Number Maturity Interest Carrying
Property Name Location of Units Date Rate(1) Amount
---------------------------------- -------------------- -------- ------------- -------- -----------------
<S> <C> <C> <C> <C> <C>
Performing:
Jackson Park Place Fresno, CA 296 09/01/11 8.5% $ 8,760,000
-----------------
Nonperforming:(2)
Jefferson Place Olathe, KS 352 12/01/10 8.5% 12,800,000
Avalon Ridge Renton, WA 356 09/01/11 8.5% 18,755,000
-----------------
31,555,000
-----------------
40,315,000
Unrealized holding losses (8,748,474)
-----------------
Balance at September 30, 1996 $ 31,566,526
=================
</TABLE>
(1) In addition to the base interest rate shown, the bonds bear additional
contingent interest as defined in each revenue note which, when combined with
the interest shown, is limited to a cumulative, noncompounded amount not
greater than 13% per annum. The Partnership did not receive any additional
contingent interest in 1996.
(2) Nonperforming bonds are bonds which are not fully current as to interest
payments. The amount of foregone interest on nonperforming bonds for 1996 was
$969,860 ($373,025 for the quarter ended September 30, 1996).
<PAGE> - 6 -
AMERICA FIRST APARTMENT INVESTORS, L.P.
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS
SEPTEMBER 30, 1996
(UNAUDITED)
6. Investment in Real Estate
The Partnership's investment in real estate is comprised of the following at
September 30, 1996:
<TABLE>
<CAPTION>
Building
Number and Carrying
Property Name Location of Units Land Improvements Amount
--------------------------------- -------------------- -------- ------------- --------------- -----------------
<S> <C> <C> <C> <C> <C>
Covey at Fox Valley Aurora, IL 216 $ 1,320,000 $ 10,028,338 $ 11,348,338
The Exchange at Palm Bay Palm Bay, FL 72,002(1) 1,291,839 3,296,078 4,587,917
The Park at Fifty Eight(2) Chattanooga, TN 196 231,113 4,122,226 4,353,339
Shelby Heights Bristol, TN 100 175,000 2,952,847 3,127,847
Coral Point Mesa, AZ 336 2,240,000 8,960,000 11,200,000
-----------------
34,617,441
Less accumulated depreciation (7,385,393)
-----------------
Balance at September 30, 1996 $ 27,232,048
=================
</TABLE>
(1) Represents square feet.
(2) Property is owned by Park at Fifty Eight Limited Partnership and consists
of Phase II (96 units acquired through foreclosure) and Phase I (100 units
purchased on May 16, 1996 for $1,914,598) (See Note 7).
7. Bonds Payable
On May 16, 1996, Park at 58 Limited Partnership received proceeds of
$2,750,000 through the offering of multifamily housing revenue refunding bonds
on The Park at Fifty Eight. The bonds were rated "A" by Standard and Poor's
Corporation and bear interest at an effective rate of 6.65%. The bonds have a
25-year maturity with annual principal payments ranging from $50,000 to
$210,000 due each March. Accrued interest is payable semi-annually in March
and September. The bonds are collateralized by The Park at Fifty Eight.
8. Transactions with Related Parties
Substantially all of the Partnership's general and administrative expenses are
paid by AFCA 4 or an affiliate and reimbursed by the Partnership. The amount
of such expenses reimbursed to AFCA 4 during 1996 was $741,098 ($253,228 for
the quarter ended September 30, 1996). The reimbursed expenses are presented
on a cash basis and do not reflect accruals made at quarter end. AFCA 4 or an
affiliate also paid $89,921 ($48,865 for the quarter ended September 30, 1996)
in capitalized costs during 1996 which were reimbursed by the Partnership.
The capitalized costs were incurred in connection with the offering of
multifamily housing revenue refunding bonds described in Note 7.
AFCA 4 received from property owners administrative fees of $39,308 (none for
the quarter ended September 30, 1996) in 1996. Since these fees are not
Partnership expenses, they have not been reflected in the accompanying
financial statements. Pursuant to the Limited Partnership Agreement, AFCA 4
is entitled to an administrative fee from the Partnership based on the
original amount of the mortgage bonds which were foreclosed on and the
purchase price of any additional properties acquired by the Partnership. The
amount of such fees paid to AFCA 4 during 1996 was $169,650 ($56,550 for the
quarter ended September 30, 1996).
Pursuant to the terms of the Limited Partnership Agreement, AFCA 4 is entitled
to receive a property acquisition fee from the Partnership in connection with
the identification, evaluation and acquisition of additional properties and
the financing thereof. No such fees were paid by the Partnership to AFCA 4
during 1996.
<PAGE> - 7 -
AMERICA FIRST APARTMENT INVESTORS, L.P.
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS
SEPTEMBER 30, 1996
(UNAUDITED)
The general partner of the property partnership which owns Jefferson Place is
principally owned by an employee of an affiliate of AFCA 4. Such employee has
a nominal interest in the affiliate. AFCA 4 and an affiliated mortgage fund
also own small interests in the general partner. The general partner has a
nominal interest in the property partnership's profits, losses and cash flow
which is subordinate to the interest of the Partnership and the mortgage
bond. The general partner did not receive cash distributions from the
partnership in 1996.
An affiliate of AFCA 4 was retained to provide property management services
for Covey at Fox Valley, The Park at Fifty Eight, Shelby Heights, Coral Point,
Jefferson Place and Avalon Ridge. The fees for services provided represent
the lower of (i) costs incurred in providing management of the property, or
(ii) customary fees for such services determined on a competitive basis and
amounted to $318,539 ($110,655 for the quarter ended September 30, 1996) in
1996.
9. Restatement
The tax-exempt mortgage bonds were previously accounted for as loans.
However, the bonds are considered debt securities under FAS 115, which was
effective January 1, 1994. Accordingly, the 1995 financial statements have
been restated to properly present the bonds as debt securities. The only
effect of the restatement was to segregate the $8,748,474 of unrealized losses
as a separate component of partners' capital. There was no effect on the
carrying value of the bonds, total assets, total partners' capital or net
income.
<PAGE> - 8 -
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Liquidity and Capital Resources
America First Tax Exempt Mortgage Fund 2 (the Prior Partnership) originally
acquired nine tax-exempt mortgage bonds, the proceeds of which were used to
provide construction and/or permanent financing for eight multifamily housing
properties and one commercial property. During 1988, one tax-exempt mortgage
bond was prepaid in full. On May 16, 1996, the Partnership acquired Phase I
of the Park at Fifty Eight Apartments. At September 30, 1996, the Partnership
continued to hold three of these tax-exempt mortgage bonds with a carrying
value, at estimated fair value, of $31,566,526 and five real estate properties
acquired with a depreciated cost of $27,232,048.
On August 20, 1996, the Prior Partnership merged with America First Apartment
Investors, L.P. (the New Partnership). Under the terms of the Merger
agreement, the New Partnership was the surviving partnership and effectively
took over the operations of the Prior Partnership. Unit holders of the Prior
Partnership received one Beneficial Unit Certificate (BUC) of the New
Partnership for each BUC they held in the Prior Partnership as of the record
date. The Prior Partnership was terminated under the provisions of the Prior
Partnership's Partnership Agreement. The New Partnership and the Prior
Partnership are collectively referred to as the Partnership.
The following table shows the various occupancy levels of the properties
financed or owned by the Partnership at September 30, 1996:
<TABLE>
<CAPTION>
Number Percentage
Number of Units of Units
Property Name Location of Units Occupied Occupied
- ------------------------------- ----------------------- ---------- ---------- -----------
<S> <C> <C> <C> <C>
Jackson Park Place Fresno, CA 296 283 96%
Jefferson Place Olathe, KS 352 344 98%
Avalon Ridge Renton, WA 356 321 90%
Covey at Fox Valley(1) Aurora, IL 216 210 97%
The Park at Fifty Eight(3) Chattanooga, TN 196 184 94%
Shelby Heights(1) Bristol, TN 100 97 97%
Coral Point(1) Mesa, AZ 336 319 95%
---------- ---------- -----------
1,852 1,758 95%
========== ========== ===========
The Exchange at Palm Bay(1) Palm Bay, FL 72,002(2) 39,987(2) 56%
========== ========== ===========
</TABLE>
(1) Property acquired through foreclosure or deed in lieu of foreclosure.
(2) Represents square feet.
(3) Property consists of Phase II (96 units acquired through foreclosure) and
Phase I (100 units purchased on May 16, 1996).
The principal amounts of the tax-exempt mortgage bonds do not amortize over
their terms. The tax-exempt mortgage bonds provide for the payment of base
interest at a fixed rate. In addition, the Partnership may earn contingent
interest based on a participation in the net cash flow and net sale or
refinancing proceeds from the real estate collateralizing the tax-exempt
mortgage bonds. The base interest payments received on the tax-exempt
mortgage bonds and net rental income earned on properties owned represent the
principal sources of the Partnership's income and distributable cash. The
Partnership has not received any contingent interest on its mortgage bonds
during 1996. The Partnership also earns income on temporary cash investments.
The Partnership may draw on reserves to pay operating expenses or to
supplement cash distributions to Beneficial Unit Certificate (BUC) Holders.
On May 16, 1996, the Partnership raised $2,750,000 through the offering of
multifamily housing refunding bonds on The Park at Fifty Eight Apartments.
The Partnership utilized $1,914,598 of the proceeds to acquire Phase I of the
Park at Fifty Eight Apartments with the remaining proceeds added to the
Partnership's reserves.
<PAGE> - 9 -
During the nine months ended September 30, 1996, $345,639 ($185,994 for the
quarter ended September 30, 1996) of undistributed income was withdrawn from
reserves. In addition, the Partnership withdrew $294,070 from reserves to
purchase 33,456 BUCs during the quarter and nine months ended September 30,
1996. The total amount held in reserves at September 30, 1996, was
$1,034,113. Future distributions to BUC Holders will depend upon the amount
of base and contingent interest and net rental income the Partnership
receives, the size of reserves established by the Partnership and the extent
to which withdrawals are made from reserves.
The Partnership believes that cash provided by operating activities and, if
necessary, withdrawals from the Partnership's reserves will be adequate to
meet its short-term and long-term liquidity requirements, including the
payments of distributions to BUC Holders. Under the terms of the Partnership
Agreement, the Partnership has the authority to enter into short-term and
long-term debt financing arrangements. The Partnership is not authorized to
issue additional BUCs to meet short-term and long-term liquidity requirements.
Distributions
Cash distributions paid or accrued per BUC were as follows:
<TABLE>
<CAPTION>
For the Nine For the Nine
Months Ended Months Ended
Sept. 30, 1996 Sept. 30, 1995
--------------- ---------------
<S> <C> <C>
Regular monthly distributions
Income $ .3962 $ .3915
Return of capital .1663 .1710
--------------- ---------------
$ .5625 $ .5625
=============== ===============
Distributions
Paid out of current and prior undistributed cash flow $ .5625 $ .5625
=============== ===============
</TABLE>
Asset Quality
It is the policy of the Partnership to make a periodic review of the real
estate collateralizing the Partnership's mortgage bonds in order to establish,
when necessary, a valuation reserve on mortgage bonds. The carrying value of
the mortgage bonds is periodically reviewed and adjustments are made when
there are significant changes in the estimated net realizable value of the
underlying collateral for the bonds.
On January 1, 1996, the Partnership adopted Statement of Financial Accounting
Standards No. 121, "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to be Disposed of" (FAS 121). Among other things, FAS 121
requires that long-lived assets and certain identifiable intangibles to be
held and used by an entity be reviewed for impairment whenever events or
circumstances indicate that the carrying value of an asset may not be
recoverable. As a result of adopting FAS 121, the Partnership wrote down the
carrying value of each impaired property to estimated net realizable value
thus eliminating the valuation allowance on real estate acquired. The
carrying value of each property will be periodically reviewed and adjustments
will be made to the carrying value when there are declines in the estimated
net realizable value.
Internal property valuations and reviews performed during the nine months
ended September 30, 1996, indicated that the mortgage bonds and real estate
recorded on the balance sheet at September 30, 1996, required no adjustments
to their current carrying amounts.
The overall status of the Partnership's mortgage bonds and real estate owned
has generally remained constant since June 30, 1996.
<PAGE> - 10 -
Results of Operations
The tables below compare the results of operations for each period shown. The
results of operations for 1996 include the combined accounts of the New
Partnership from August 20, 1996 (the Merger Date), through September 30,
1996, and the accounts of the Prior Partnership from January 1, 1996, until
the Merger Date. Results of operations for 1995 include the accounts of the
Prior Partnership.
<TABLE>
<CAPTION>
For the For the Increase
Quarter Ended Quarter Ended (Decrease)
Sept. 30, 1996 Sept. 30, 1995 From 1995
--------------- --------------- ---------------
<S> <C> <C> <C>
Mortgage bond investment income $ 483,668 $ 482,189 $ 1,479
Rental income 1,481,936 1,300,516 181,420
Interest income on temporary cash investments 12,542 14,307 (1,765)
--------------- --------------- ---------------
1,978,146 1,797,012 181,134
--------------- --------------- ---------------
General and administrative expenses 335,636 208,962 126,674
Real estate operating expenses 803,398 662,490 140,908
Depreciation 286,715 300,364 (13,649)
Interest expense 37,953 - 37,953
--------------- --------------- ---------------
1,463,702 1,171,816 291,886
--------------- --------------- ---------------
Net income $ 514,444 $ 625,196 $ (110,752)
=============== =============== ===============
</TABLE>
<TABLE>
<CAPTION>
For the Nine For the Nine Increase
Months Ended Months Ended (Decrease)
Sept. 30, 1996 Sept. 30, 1995 From 1995
--------------- --------------- ---------------
<S> <C> <C> <C>
Mortgage bond investment income $ 1,600,221 $ 1,670,648 $ (70,427)
Rental income 4,201,506 3,825,945 375,561
Interest income on temporary cash investments 37,112 40,791 (3,679)
--------------- --------------- ---------------
5,838,839 5,537,384 301,455
--------------- --------------- ---------------
General and administrative expenses 870,677 585,366 285,311
Real estate operating expenses 2,271,354 1,696,244 575,110
Depreciation 870,258 897,122 (26,864)
Interest expense 68,315 - 68,315
--------------- --------------- ---------------
4,080,604 3,178,732 901,872
--------------- --------------- ---------------
Net income $ 1,758,235 $ 2,358,652 $ (600,417)
=============== =============== ===============
</TABLE>
Mortgage bond investment income increased for the quarter ended September 30,
1996, compared to the same period in 1995 as a result of an increase in the
cash flow received from Jefferson Place of approximately $22,000 and a
decrease in cash flow from Avalon Ridge of approximately $21,000. Mortgage
bond investment income decreased for the nine months ended September 30, 1996,
compared to the same period in 1995 as a result of a decrease in cash flow
from Avalon Ridge of approximately $84,000 which was partially offset by an
increase in the cash flow received from Jefferson Place of approximately
$14,000. The decrease in cash flow received from Avalon Ridge for the nine
months ended September 30, 1996, compared to the same period in 1995, was
primarily due to a decrease in average occupancy of approximately 2%.
<PAGE> - 11 -
Rental income increased approximately $181,000 for the quarter ended September
30, 1996, compared to the same period in 1995. This increase is attributable
to: (i) a $119,000 increase from The Park at Fifty Eight resulting primarily
from the acquisition of Phase I of this apartment complex in May 1996; (ii) a
$28,000 increase from The Exchange at Palm Bay due to leasing more space
during 1996; and (iii) a $34,000 increase due a slight increase in average
occupancy and rental rate increases at certain other properties acquired by
the Partnership in foreclosure.
Rental income increased approximately $376,000 for the nine months ended
September 30, 1996, compared to the same period in 1995. This increase is
attributable to: (i) a $177,000 increase from The Park at Fifty Eight
resulting primarily from the acquisition of Phase I of this apartment complex
in May 1996; (ii) a $147,000 increase due a slight increase in average
occupancy and rental rate increases at certain other properties acquired by
the Partnership in foreclosure; and (iii) a $52,000 increase from The Exchange
at Palm Bay due to leasing more space during 1996.
Real estate operating expenses increased approximately $141,000 for the
quarter ended September 30, 1996, compared to the same period in 1995. This
increase is attributable to a $160,000 increase from The Park at Fifty Eight
resulting from the acquisition of Phase I of this apartment complex in May
1996 and from various property improvements offset by a $19,000 decrease due
primarily to a slight decrease in property improvements at certain other
properties acquired by the Partnership in foreclosure.
Excluding property tax refunds of approximately $252,000 received by Covey at
Fox Valley during the nine months ended September 30, 1995, real estate
operating expenses increased approximately $323,000 for the nine months ended
September 30, 1996, compared to the same period in 1995. This increase is
attributable to: (i) a $219,000 increase from The Park at Fifty Eight
resulting from the acquisition of Phase I of this apartment complex in May
1996 and from various property improvements; (ii) leasing commissions of
approximately $85,000 incurred by The Exchange at Palm Bay in connection with
leasing additional space to tenants; (iii) a $91,000 increase in repairs and
maintenance expenses and property improvements at Covey at Fox Valley and The
Exchange at Palm Bay; offset by (iv) a $72,000 decrease in real estate
operating expenses (primarily repairs and maintenance expenses) at certain
properties acquired by the Partnership in foreclosure.
Depreciation expense decreased for the quarter and nine months ended September
30, 1996, compared to the same periods in 1995 due to the adoption of FAS 121
on January 1, 1996. FAS 121 requires that depreciation be calculated on the
adjusted carrying value of the properties.
Interest expense of $37,953 and $68,315 was incurred for the quarter and nine
months ended September 30, 1996, respectively, on the $2,750,000 of bonds
payable which were issued in May 1996.
The decrease in interest income on temporary cash investments for the quarter
and nine months ended September 30, 1996, compared to the same periods in 1995
is primarily due to a decrease in the average reserve balance attributable to
withdrawals made from Partnership reserves during 1996 to supplement
distributions to BUC Holders.
General and administrative expenses increased for the quarter and nine months
ended September 30, 1996, compared to the same periods in 1995. These
increases were due to: (i) approximately $103,000 and $178,000 of costs
incurred in the quarter and nine months ended September 30, 1996,
respectively, in conjunction with the Merger; (ii) an increase of
approximately $16,000 and $79,000 in salaries and related expenses for the
quarter and nine months ended September 30, 1996, respectively; (iii) an
increase of approximately $6,000 in professional fees for the nine months
ended September 30, 1996; and (iv) net increases of approximately $8,000 and
$22,000 in other general and administrative expenses incurred for the quarter
and nine months ended September 30, 1996, respectively.
<PAGE> - 12 -
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
4(a) Form of Certificate of Beneficial Unit Certificate
incorporated by reference to Exhibit 4.1 to Registration
Statement on Form S-4 (Commission File No. 333-2920) filed
by the Registrant on March 29, 1996).
4(b) Agreement of Limited Partnership of the Registrant
(incorporated by reference to Exhibit 4(b) to Form 8-K
(Commission File No. 0-20737) filed by the Registrant on
August 23, 1996).
4(c) Agreement of Merger, dated March 28, 1996, between the
Registrant and America First Tax Exempt Mortgage Fund 2
Limited Partnership (incorporated by reference to Exhibit
4.3 to Amendment No. 1 to Registration Statement on Form
S-4 (Commission File No. 333-2920) filed by the Registrant
on May 17, 1996).
4(d) Agreement of Limited Partnership dated October 15, 1986
(incorporated herein by reference to Form 10-K dated
December 31, 1986 filed pursuant to Section 13 or 15(d) of
the Securities Act of 1934 by America First Tax Exempt
Mortgage Fund 2 Limited Partnership (Commission File No.
0-15329)).
4(e) Form of Certificate of Beneficial Unit Certificate
(incorporated herein by reference to Form S-11
Registration Statement filed May 8, 1986 with the
Securities and Exchange Commission by America First Tax
Exempt Mortgage Fund 2 Limited Partnership (Commission
File No. 33-5521)).
10(a) $18,755,000 Washington State Housing Finance Commission
Multifamily Housing Mortgage Revenue Note (Sunpointe
Apartments Projects) Series 1987 (incorporated herein by
reference to Form 10-K dated December 31, 1987 filed
pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934 by America First Tax Exempt Mortgage Fund 2
Limited Partnership (Commission File No. 0-15329)).
10(b) Lender Loan Agreement and Indenture of Trust among
Washington State Housing Finance Commission, the
Registrant and FirsTier Bank, National Association, dated
September 1, 1987 (incorporated herein by reference to Form
10-K dated December 31, 1987 filed pursuant to Section 13
or 15(d) of the Securities Exchange Act of 1934 by America
First Tax Exempt Mortgage Fund 2 Limited Partnership
(Commission File No. 0-15329)).
10(c) Construction Loan Agreement between the Registrant and
Sunpointe Associates Limited Partnership, dated September
1, 1987 (incorporated herein by reference to Form 10-K
dated December 31, 1987 filed pursuant to Section 13 or
15(d) of the Securities Exchange Act of 1934 by America
First Tax Exempt Mortgage Fund 2 Limited Partnership
(Commission File No. 0-15329)).
(b) Form 8-K
The registrant filed the following report on Form 8-K during the
quarter for which this report is filed:
Item Reported Financial Statements Filed Date of Report
2. Acquisition yes August 20, 1996
or Disposition
of Assets
<PAGE> - 13 -
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
Dated: November 12, 1996 AMERICA FIRST APARTMENT INVESTORS, L.P.
By America First Capital
Associates Limited
Partnership Four, General
Partner of the Registrant
By America First Companies L.L.C.,
General Partner of America First Capital
Associates Limited Partnership Four
By /s/ Michael Thesing
Michael Thesing
Vice President, Secretary,
Treasurer and Chief Financial
Officer (Vice President and Principal
Financial Officer of Registrant)
<PAGE> - 14 -
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> SEP-30-1996
<CASH> 1,789,294
<SECURITIES> 31,566,526
<RECEIVABLES> 163,682
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 1,952,976
<PP&E> 34,617,441
<DEPRECIATION> 7,385,393
<TOTAL-ASSETS> 60,940,546
<CURRENT-LIABILITIES> 1,084,440
<BONDS> 0
<COMMON> 0
0
0
<OTHER-SE> 57,106,106
<TOTAL-LIABILITY-AND-EQUITY> 60,940,546
<SALES> 0
<TOTAL-REVENUES> 5,838,839
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 4,080,604
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 1,758,235
<INCOME-TAX> 0
<INCOME-CONTINUING> 1,758,235
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,758,235
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
