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, 1997 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, 1997 Dec. 31, 1996
-------------- --------------
<S> <C> <C>
Assets
Cash and temporary cash investments, at cost which
approximates market value (Note 4) $ 2,326,657 $ 2,021,860
Investment in tax-exempt mortgage bonds, at estimated fair value (Note 5) 13,006,526 31,566,526
Investment in real estate, net of accumulated depreciation (Note 6) 50,749,144 30,199,846
Interest receivable 64,782 186,320
Other assets 1,069,111 948,849
-------------- --------------
$ 67,216,220 $ 64,923,401
============== ==============
Liabilities and Partners' Capital
Liabilities
Accounts payable (Note 9) $ 1,403,668 $ 1,454,694
Bonds payable (Note 7) 6,120,000 2,750,000
Line of Credit (Note 8) 957,871 3,584,200
Due to Jefferson Place L.P. (Note 5) 2,400,000
Distribution payable (Note 3) 329,051 329,051
-------------- --------------
11,210,590 8,117,945
-------------- --------------
Partners' Capital
General Partner 6,325 4,038
Beneficial Unit Certificate Holders
($10.74 per BUC in 1997 and $10.90 in 1996) 55,999,305 56,801,418
-------------- --------------
56,005,630 56,805,456
-------------- --------------
$ 67,216,220 $ 64,923,401
============== ==============
The accompanying notes are an integral part of the consolidated financial statements.
</TABLE>
<PAGE> - 1 -
AMERICA FIRST APARTMENT INVESTORS, L.P.
CONSOLIDATED AND COMBINED STATEMENTS OF INCOME
(UNAUDITED)
<TABLE>
For the For the For the Nine For the Nine
Quarter Ended Quarter Ended Months Ended Months Ended
Sept. 30, 1997 Sept. 30, 1996 Sept. 30, 1997 Sept. 30, 1996
(Combined) (Combined)
--------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C>
Income
Mortgage bond investment income $ 314,348 $ 483,668 $ 1,368,296 $ 1,600,221
Contingent interest income - - 290,520 -
Rental income 2,572,960 1,481,936 6,597,118 4,201,506
Interest income on temporary cash investments 4,684 12,542 33,550 37,112
--------------- --------------- --------------- ---------------
2,891,992 1,978,146 8,289,484 5,838,839
--------------- --------------- --------------- ---------------
Expenses
General and administrative expenses (Note 9) 342,279 335,636 881,442 870,677
Real estate operating expenses 1,328,263 803,398 3,133,642 2,271,354
Depreciation 508,834 286,715 1,319,045 870,258
Interest expense 246,601 37,953 793,722 68,315
Realized loss on disposition of mortgage
bond (Note 5) 3,000,000 - 3,000,000 -
--------------- --------------- --------------- ---------------
5,425,977 1,463,702 9,127,851 4,080,604
--------------- --------------- --------------- ---------------
Net income (loss) $ (2,533,985) $ 514,444 $ (838,367) $ 1,758,235
=============== =============== =============== ===============
Net income (loss) allocated to:
General Partner $ 9,749 $ 8,012 $ 31,902 $ 26,285
BUC Holders (2,543,734) 506,432 (870,269) 1,731,950
--------------- --------------- --------------- ---------------
$ (2,533,985) $ 514,444 $ (838,367) $ 1,758,235
=============== =============== =============== ===============
Net income (loss) per BUC $ (.49) $ .10 $ (.16) $ .33
=============== =============== =============== ===============
Weighted average number of BUCs outstanding 5,212,167 5,212,167 5,212,167 5,234,471
=============== =============== =============== ===============
</TABLE>
AMERICA FIRST APARTMENT INVESTORS, L.P.
CONSOLIDATED STATEMENT OF PARTNERS' CAPITAL
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997
(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, 1996 $ 4,038 5,212,167 $ 65,549,892 $ 65,553,930
Net income (loss) 31,902 - (870,269) (838,367)
Cash distributions paid or accrued (Note 3)
Income (29,615) - - (29,615)
Return of capital - - (2,931,844) (2,931,844)
--------------- --------------- --------------- ---------------
6,325 5,212,167 61,747,779 61,754,104
--------------- --------------- --------------- ---------------
Net unrealized holding losses:
Balance at December 31, 1996 - - (8,748,474) (8,748,474)
Net change (realized loss) - - 3,000,000 3,000,000
--------------- --------------- --------------- ---------------
- - (5,748,474) (5,748,474)
--------------- --------------- --------------- ---------------
Balance at September 30, 1997 $ 6,325 5,212,167 $ 55,999,305 $ 56,005,630
=============== =============== =============== ===============
The accompanying notes are an integral part of the consolidated and combined financial statements.
</TABLE>
<PAGE> - 2 -
AMERICA FIRST APARTMENT INVESTORS, L.P.
CONSOLIDATED AND COMBINED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
For the Nine For the Nine
Months Ended Months Ended
Sept. 30, 1997 Sept. 30, 1996
(Combined)
--------------- ---------------
<S> <C> <C>
Cash flows from operating activities
Net income (loss) $ (838,367) $ 1,758,235
Adjustments to reconcile net income to net cash
provided by operating activities
Depreciation 1,319,045 870,258
Amortization 123,695 -
Loss on disposition of mortgage bond 3,000,000 -
Decrease in interest receivable 121,538 32,919
Decrease in other assets 357,938 69,164
Increase (decrease) in accounts payable (51,026) 72,376
--------------- ---------------
Net cash provided by operating activities 4,032,823 2,802,952
--------------- ---------------
Cash flows from investing activities
Real estate capital improvements (626,066) (155,617)
Acquisition of real estate (12,482,277) (2,056,119)
Proceeds from disposition of mortgage bond 12,200,000 -
--------------- ---------------
Net cash used in investing activities (908,343) (2,211,736)
--------------- ---------------
Cash flows from financing activities
Net borrowings on line of credit (2,626,329) -
Proceeds from issuance of tax-exempt refunding bonds 3,450,000 2,750,000
Distributions paid (2,961,459) (2,976,244)
Bond issuance costs paid (601,895) (193,968)
Principal paid on bonds payable (80,000) -
Purchase of units - (294,270)
--------------- ---------------
Net cash used in financing activities (2,819,683) (714,482)
--------------- ---------------
Net increase (decrease) in cash and temporary cash investments 304,797 (123,266)
Cash and temporary cash investments at beginning of period 2,021,860 1,912,560
--------------- ---------------
Cash and temporary cash investments at end of period $ 2,326,657 $ 1,789,294
=============== ===============
Supplemental disclosure of cash flow information:
Cash paid during the period for interest $ 692,847 $ 53,184
=============== ===============
Supplemental schedule of non-cash investing and financing activities:
Settlement of mortgage bond for real estate $ 8,760,000 $ -
Due to Jefferson Place L.P. 2,400,000 -
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, 1997
(UNAUDITED)
1. Organization
America First Apartment Investors, L.P. (the 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 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 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 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 Partnership will terminate on December 31, 2016,
unless terminated earlier under the provisions of its Partnership Agreement.
The General Partner of the Partnership is America First Capital Associates
Limited Partnership Four (AFCA 4).
2. Summary of Significant Accounting Policies
A) Financial Statement Presentation
The accompanying 1997 consolidated financial statements include the
accounts of the Partnership. Financial statements for 1996 include the
combined accounts of the 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.
The consolidated financial statements include the accounts of the
Partnership and its subsidiaries. All significant intercompany
transactions and accounts have been eliminated in consolidation.
The consolidated financial statements of the Partnership are prepared
without audit on the accrual basis of accounting in accordance with
generally accepted accounting principles. The consolidated financial
statements should be read in conjunction with the consolidated and
combined financial statements and notes thereto included in the
Partnership's Annual Report on Form 10-K for the year ended December 31,
1996. In the opinion of management, all normal and recurring adjustments
necessary to present fairly the financial position at September 30, 1997,
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.
B) Investment in Tax-Exempt Mortgage Bonds
Investment securities are classified as held-to-maturity,
available-for-sale, or trading. 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. 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.
<PAGE> - 4 -
AMERICA FIRST APARTMENT INVESTORS, L.P.
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS
September 30, 1997
(UNAUDITED)
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. Each real estate property acquired is recorded at the lower of
cost or estimated net realizable value. The carrying value of each real
estate property acquired is periodically reviewed and adjusted when there
are significant 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.
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.
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 $1,434,743 at
September 30, 1997. 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, 1997, 33,456 BUCs had been
acquired at a cost of $294,070 (none during the quarter or nine months ended
September 30, 1997).
<PAGE> - 5 -
AMERICA FIRST APARTMENT INVESTORS, L.P.
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS
SEPTEMBER 30, 1997
(UNAUDITED)
5. Investment in Tax-Exempt Mortgage Bonds
Descriptions of the tax-exempt mortgage bonds owned by the Partnership during
1997, 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% $ - (3)
Nonperforming:(2)
Jefferson Place Olathe, KS 352 12/01/10 8.5% - (4)
Avalon Ridge Renton, WA 356 09/01/11 8.5% 18,755,000
-----------------
18,755,000
Unrealized holding losses (5,748,474)
-----------------
Balance at September 30, 1997 (at estimated fair value) $ 13,006,526
=================
</TABLE>
<TABLE>
<S> <C>
Reconciliation of the carrying amount of the mortgage bonds is as follows:
Balance at December 31, 1996 $ 31,566,526
Settlement of mortgage bond for real estate (8,760,000)(3)
Disposition of mortgage bond (12,800,000)(4)
Change in unrealized holding losses (realized loss) 3,000,000 (4)
-----------------
Balance at September 30, 1997 $ 13,006,526
=================
</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
contingent interest in 1997.
(2) Nonperforming bonds are bonds which are not fully current as to interest
payments. The amount of foregone interest on nonperforming bonds for 1997
was $710,702 ($174,862 for the quarter ended September 30, 1997).
(3) In accordance with the terms of the Loan Agreement underlying the
$8,760,000 in tax-exempt mortgage bonds collateralized by Jackson Park
Place (Jackson), the Partnership exercised its option to require the owner
of Jackson to prepay the tax-exempt mortgage bonds. The Partnership
entered into a Settlement Agreement with the owner of Jackson that
provided for the Partnership to acquire Jackson at appraised value on May
7, 1997. In accordance with the terms of the Loan Agreement, the
following disbursements were made: (i) $2,100,000 to America First
Participating/Preferred Equity Mortgage Fund (PREP), an affiliated fund,
representing payment of the outstanding balance of its Participating Loan
on Jackson; (ii) $69,480 to PREP representing contingent interest income
on its Participating Loan; (iii) $371,220 to AFCA 4 and $88,780 to the
general partner of PREP representing due and unpaid administrative fees;
(iv) $290,520 to the Partnership representing contingent interest income
on the tax-exempt mortgage bonds; and (v) $360,000 to the owner of
Jackson. These disbursements were funded with borrowings on the
Partnership's Line of Credit. The Partnership also incurred costs of
$18,096 in conjunction with the acquisition.
<PAGE> - 6 -
AMERICA FIRST APARTMENT INVESTORS, L.P.
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS
SEPTMEBER 30, 1997
(UNAUDITED)
(4) On July 30,1997, the limited partnership which owns Jefferson Place
(Jefferson L.P.) received proceeds of $12,200,000 from the offering of
multi-family housing revenue refunding bonds collateralized by Jefferson
Place and The Retreat. The Partnership, in turn, received $12,200,000
from Jefferson Place L.P. representing full payment of its $12,800,000 in
tax-exempt mortgage bonds on Jefferson Place. As a result, the
Partnership realized a loss of $3,000,000. Concurrently, the unrealized
holding losses related to the investment in tax-exempt mortgage bonds,
which is a separate component of partners' capital, was reduced by
$3,000,000. In addition to receiving $12,200,000 in cash which resulted
in a liability to Jefferson Place L.P. of $2,400,000, the Partnership also
received a $3,500,000 subordinate note representing past due interest on
the $12,800,000 tax-exempt mortgage bonds. The Partnership did not record
this past due interest as management considered its collectability to be
doubtful. Interest on the subordinate note, at the rate of 8.5%, is
payable monthly solely out of excess cash flow generated by Jefferson
Place. Final payment of all outstanding principal and interest is due
July 1, 2023. All payments due under the $3,500,000 note are subordinate
to payments due under the $12,200,000 in tax-exempt mortgage bonds. The
Partnership has not recorded the subordinate note on its balance sheet due
to it doubtful collectability. Any interest and principal payments
received under the terms of the subordinate note will be recorded as
income when received.
6. Investment in Real Estate
During 1997, the Partnership acquired two multi-family properties, The Retreat
and Jackson Park Place. The Retreat was financed primarily from proceeds from
the Partnership's line of credit. Jackson Park Place was conveyed to the
Partnership through a deed in lieu of foreclosure (see Note 5).
The Partnership's investment in real estate is comprised of the following at
September 30, 1997:
<TABLE>
<CAPTION>
Building
Number and Carrying
Property Name Location of Units Land Improvements Amount
--------------------------------- -------------------- -------- ------------- --------------- -----------------
<S> <C> <C> <C> <C> <C>
Covey at Fox Valley(1) Aurora, IL 216 $ 1,320,000 $ 10,028,338 $ 11,348,338
The Exchange at Palm Bay Palm Bay, FL 72,002(2) 1,296,002 3,935,126 5,231,128
The Park at Fifty Eight(3)(4) Chattanooga, TN 196 231,113 4,122,226 4,353,339
Shelby Heights (4) Bristol, TN 100 175,000 2,952,847 3,127,847
Coral Point(1) Mesa, AZ 336 2,240,000 8,960,000 11,200,000
Park at Countryside(4) Port Orange, FL 120 647,000 2,616,648 3,263,648
The Retreat(5) Atlanta, GA 226 1,800,000 7,365,987 9,165,987
Jackson Park Place Fresno, CA 296 1,400,000 10,658,096 12,058,096
-----------------
59,748,383
Less accumulated depreciation (8,999,239)
-----------------
Balance at September 30, 1997 $ 50,749,144
=================
</TABLE>
(1) Property is encumbered as described in Note 8.
(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).
(4) Property is encumbered as described in Note 7.
(5) Property serves as collateral for $12,200,000 of multi-family revenue
refunding bonds issued on Jefferson Place as described in Note 5.
<PAGE> - 7 -
AMERICA FIRST APARTMENT INVESTORS, L.P.
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS
SEPTEMBER 30, 1997
(UNAUDITED)
7. Bonds Payable
Bonds payable were originated by the Partnership through the issuance of
tax-exempt refunding bonds. Bonds payable at September 30, 1997, consists of
the following:
<TABLE>
<CAPTION>
Effective Final
Interest Maturity Annual Carrying
Collateral Rate Date Payment Schedule Payments Amount
- ----------------------- --------- -------- ----------------------------------- --------------------- -------------
<S> <C> <C> <C> <C> <C>
The Park at Fifty Eight 6.65% 3/1/2021 semiannual payments of range from $224,000 $ 2,670,000
principal and/or interest to $228,000
are due each March 1 and September 1
Shelby Heights and 6.10% 3/1/2022 semiannual payments of range from $266,000 3,450,000
Park at Countryside principal and/or interest to $276,000
are due each March 1 and September 1 -------------
Balance at September 30, 1997 $ 6,120,000
=============
</TABLE>
8. Line of Credit
The Partnership has a $15 million revolving loan credit agreement (the Line of
Credit) with The First National Bank of Boston (the Bank). The Line of Credit
provides interim financing for the acquisition of multifamily residential
properties. It expires on December 19, 1997; however, the maturity date may
be extended one year if certain conditions are met. The Line of Credit bears
interest, which is payable monthly, at 1/2% above the Bank's base rate (9% as
of September 30, 1997). In addition, the Partnership pays a facility fee of
1/4 of 1% on the unused portion of the line which is payable quarterly in
arrears. The Line of Credit is collateralized by Covey at Fox Valley and
Coral Point; however, the Partnership may substitute other real estate owned
as collateral, subject to the approval of the Bank. The Partnership had
borrowings of $957,871 against the Line of Credit and had $14,042,129 of
available unused credit as of September 30, 1997 (see note 10). The Line of
Credit contains covenants which include, among others, restrictions on the
amount of indebtedness the Partnership may incur and minimum debt service
coverage requirements.
9. 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 1997 was $1,060,377 ($276,190 for
the quarter ended September 30, 1997). AFCA 4 or an affiliate also paid
$314,236 ($100,041 for the quarter ended September 30, 1997) in costs
capitalized by the Partnership during 1997 which were reimbursed by the
Partnership. The capitalized costs were incurred in connection with the
offering of multifamily housing revenue refunding bonds and the acquisition of
real estate. The reimbursed expenses are presented on a cash basis and do not
reflect accruals made at quarter end.
Pursuant to the terms of 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 1997 was $247,728 ($134,628 for the quarter ended
September 30, 1997). AFCA 4 also received administrative fees of $371,220 in
conjunction with the Jackson Park Place Settlement Agreement described in Note
5. AFCA 4 did not receive any other administrative fees from property owners
during 1997.
<PAGE> - 8 -
AMERICA FIRST APARTMENT INVESTORS, L.P.
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS
SEPTEMBER 30, 1997
(UNAUDITED)
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. The amount of such fees paid to AFCA 4 during 1997 was
$112,277 (none for the quarter ended September 30, 1997).
The general partner of the property partnership which owns Jefferson Place was
principally owned by an employee of an affiliate of AFCA 4 through July 30,
1997. 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 1997. On July 30, 1997, the Partnership acquired the
general partnership interest in the property partnership.
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, Avalon Ridge, Park at Countryside (beginning in January
1997), The Retreat (beginning in April 1997) and Jackson Park Place (beginning
in May 1997). 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 $436,401
($165,173 for the quarter ended September 30, 1997) in 1997.
10. Subsequent Event
On October 24, 1997, the Partnership acquired Post Trace Apartments, a
260-unit multi-family housing property located in Norcross, Georgia. The
property was acquired at a cost of $14,016,629, including acquisition costs,
and was financed with proceeds from the Partnership's Line of Credit. The
Partnership anticipates obtaining permanent financing for the property through
the offering of certain of its tax-exempt bonds.
<PAGE> - 9 -
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. The Prior Partnership subsequently
acquired five of the properties through foreclosure or deed in lieu of
foreclosure and one tax-exempt mortgage bond was prepaid in full. During
1996, the Prior Partnership acquired Phase I of the Park at Fifty Eight
Apartments.
On August 20, 1996, the Prior Partnership merged with America First Apartment
Investors, L.P. (the Partnership). Under the terms of the merger agreement,
the 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.
During 1996, the Partnership acquired Park at Countryside and during 1997 the
Partnership acquired The Retreat. In addition, Jackson Park Place was
conveyed to the Partnership during 1997 through a deed in lieu of
foreclosure. At September 30, 1997, the Partnership continued to hold one
tax-exempt mortgage bond with a carrying value, at estimated fair value, of
$10,606,526 and eight real estate properties acquired with a depreciated cost
of $50,749,144.
The following table shows the various occupancy levels of the properties
financed or owned by the Partnership at September 30, 1997:
<TABLE>
<CAPTION>
Number Percentage
Number of Units of Units
Property Name Location of Units Occupied Occupied
- ------------------------------- ----------------------- ---------- ---------- -----------
<S> <C> <C> <C> <C>
Jackson Park Place(1) Fresno, CA 296 289 98%
Jefferson Place(2) Olathe, KS 352 340 97%
Avalon Ridge Renton, WA 356 343 96%
Covey at Fox Valley(1) Aurora, IL 216 202 94%
The Park at Fifty Eight(3) Chattanooga, TN 196 189 96%
Shelby Heights(1) Bristol, TN 100 91 91%
Coral Point(1) Mesa, AZ 336 322 96%
Park at Countryside Port Orange, FL 120 120 100%
The Retreat Atlanta, GA 226 214 95%
---------- ---------- -----------
2,198 2,110 96%
========== ========== ===========
The Exchange at Palm Bay(1) Palm Bay, FL 72,002(4) 42,839(4) 60%
========== ========== ===========
</TABLE>
(1) Property acquired through foreclosure or deed in lieu of foreclosure.
(2) The Partnership's investment consists of a $3,500,000 subordinate note.
(3) Property consists of Phase II (96 units acquired through foreclosure) and
Phase I (100 units purchased on May 16, 1996).
(4) Represents square feet.
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. During 1997, the
Partnership also received contingent interest of $290,520 on its Jackson Park
Place mortgage bond. 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.
<PAGE> - 10 -
The Partnership has a $15 million revolving loan credit agreement (the Line of
Credit) with the First National Bank of Boston (the Bank). The Line of Credit
provides interim financing for the acquisition of multifamily residential
properties. The Line of Credit bears interest at 1/2% above the Bank's base
rate (9% as of September 30, 1997). The Line of Credit expires on December
19, 1997; however, the maturity date may be extended up to one year if certain
conditions are met. The Partnership anticipates meeting all of the conditions
necessary to extend the Line of Credit and intends to extend the maturity date
unless it can complete the refunding of certain of its tax-exempt bonds prior
to December 19, 1997. The Partnership had borrowings of $957,871 against the
Line of Credit and had $14,042,129 of available unused credit as of September
30, 1997. The Line of Credit contains covenants which include, among others,
restrictions on the amount of indebtedness the Partnership may incur and
minimum debt service coverage requirements. The Partnership intends to repay
borrowings under the Line of Credit through the refunding of existing
tax-exempt bonds that are associated with certain properties acquired in
foreclosure.
In accordance with the terms of the Loan Agreement underlying the $8,760,000
in tax-exempt mortgage bonds collateralized by Jackson Park Place (Jackson),
the Partnership exercised its option to require the owner of Jackson to prepay
the tax-exempt mortgage bonds. The Partnership entered into a Settlement
Agreement with the owner of Jackson that provided for the Partnership to
acquire Jackson at appraised value on May 7, 1997. In accordance with the
terms of the Loan Agreement, the following disbursements were made: (i)
$2,100,000 to America First Participating/Preferred Equity Mortgage Fund
(PREP), an affiliated fund, representing payment of the outstanding balance of
its Participating Loan on Jackson; (ii) $69,480 to PREP representing
contingent interest income on its Participating Loan; (iii) $371,220 to AFCA 4
and $88,780 to the general partner of PREP representing due and unpaid
administrative fees; (iv) $290,520 to the Partnership representing contingent
interest income on the tax-exempt mortgage bonds; and (v) $360,000 to the
owner of Jackson. These disbursements were funded with borrowings on the
Partnership's Line of Credit. The Partnership also incurred costs of $18,096
in conjunction with the acquisition.
On July 30,1997, the limited partnership which owns Jefferson Place
(Jefferson Place L.P.) received proceeds of $12,200,000 from the offering of
multi-family housing revenue refunding bonds collateralized by Jefferson Place
and The Retreat. The Partnership, in turn, received $12,200,000 from
Jefferson Place L.P. representing full payment of its $12,800,000 in
tax-exempt mortgage bonds on Jefferson Place. As a result, the Partnership
realized a loss of $3,000,000. Concurrently, the unrealized holding losses
related to the investment in tax-exempt mortgage bonds, which is a separate
component of partners' capital, was reduced by $3,000,000. Proceeds from the
offering were utilized by the Partnership primarily to pay down the Line of
Credit. In addition to receiving $12,200,000 in cash which resulted in a
liability to Jefferson Place L.P. of $2,400,000, the Partnership also received
a $3,500,000 subordinate note representing past due interest on the
$12,800,000 tax-exempt mortgage bonds. The Partnership did not record this
past due interest as management considered its collectability to be doubtful.
Interest on the subordinate note, at the rate of 8.5%, is payable monthly
solely out of excess cash flow generated by Jefferson Place. Final payment of
all outstanding principle and interest is due July 1, 2023. All payments due
under the $3,500,000 note are subordinate to payments due under the
$12,200,000 in tax-exempt mortgage bonds. The Partnership has not recorded
the subordinate note on its balance sheet due to it doubtful collectability.
Any interest and principle payments received under the terms of the
subordinate note will be recorded as income when received.
On October 24, 1997, the Partnership acquired Post Trace Apartments, a
260-unit multi-family housing property located in Norcross, Georgia. The
property was acquired at a cost of $14,016,629, including acquisition costs,
and was financed with proceeds from the Partnership's Line of Credit. The
Partnership anticipates obtaining permanent financing for the property through
the offering of certain of its tax-exempt bonds.
During the nine months ended September 30, 1997, $519,219 of undistributed
income was placed in reserves (a net amount of $12,302 was withdrawn from
reserves for the quarter ended September 30, 1997). The total amount held in
reserves at September 30, 1997, was $1,434,743. 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.
<PAGE> - 11 -
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 its 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, 1997 Sept. 30, 1996
(Combined)
--------------- ---------------
<S> <C> <C>
Regular monthly distributions
Income (loss) $ - $ .3962
Return of capital .5625 .1663
--------------- ---------------
$ .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 and real estate
acquired and adjust, when necessary, the carrying value of the mortgage bonds
and each real estate property acquired. Mortgage bonds are classified as
available-for-sale and is therefore recorded at the estimated fair value of
the underlying collateral. Each real estate property acquired is recorded at
the lower of cost or estimated net realizable value. The carrying value of
the mortgage bonds is adjusted when there are significant changes in the
estimated net realizable value of the underlying collateral for the bonds.
The carrying value of each real estate property acquired is adjusted when
there are significant declines in the estimated net realizable value.
Internal property valuations and reviews performed during the nine months
ended September 30, 1997, indicated that the mortgage bonds and real estate
recorded on the balance sheet at September 30, 1997, required no adjustments
to their current carrying amounts.
Other than the Jefferson Place transaction described under Liquidity and
Capital Resources, the overall status of the Partnership's other mortgage bond
and real estate owned has generally remained constant since June 30, 1997.
Results of Operations
The tables below compare the results of operations for each period shown.
Results of operations for 1996 include the combined accounts of the
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.
<PAGE> - 12 -
<TABLE>
<CAPTION>
For the For the Increase
Quarter Ended Quarter Ended (Decrease)
Sept. 30, 1997 Sept. 30, 1996 From 1996
(Combined)
--------------- --------------- ---------------
<S> <C> <C> <C>
Mortgage bond investment income $ 314,348 $ 483,668 $ (169,320)
Rental income 2,572,960 1,481,936 1,091,024
Interest income on temporary cash investments 4,684 12,542 (7,858)
--------------- --------------- ---------------
2,891,992 1,978,146 913,846
--------------- --------------- ---------------
General and administrative expenses 342,279 335,636 6,643
Real estate operating expenses 1,328,263 803,398 524,865
Depreciation 508,834 286,715 222,119
Interest expense 246,601 37,953 208,648
Realized loss on disposition of mortgage bond 3,000,000 - 3,000,000
--------------- --------------- ---------------
5,425,977 1,463,702 3,962,275
--------------- --------------- ---------------
Net income (loss) $ (2,533,985) $ 514,444 $ (3,048,429)
=============== =============== ===============
</TABLE>
<TABLE>
<CAPTION>
For the Nine For the Nine Increase
Months Ended Months Ended (Decrease)
Sept. 30, 1997 Sept. 30, 1996 From 1996
(Combined)
--------------- --------------- ---------------
<S> <C> <C> <C>
Mortgage bond investment income $ 1,368,296 $ 1,600,221 $ (231,925)
Contingent interest income 290,520 - 290,520
Rental income 6,597,118 4,201,506 2,395,612
Interest income on temporary cash investments 33,550 37,112 (3,562)
--------------- --------------- ---------------
8,289,484 5,838,839 2,450,645
--------------- --------------- ---------------
General and administrative expenses 881,442 870,677 10,765
Real estate operating expenses 3,133,642 2,271,354 862,288
Depreciation 1,319,045 870,258 448,787
Interest expense 793,722 68,315 725,407
Realized loss on disposition of mortgage bond 3,000,000 - 3,000,000
--------------- --------------- ---------------
9,127,851 4,080,604 5,047,247
--------------- --------------- ---------------
Net income (loss) $ (838,367) $ 1,758,235 $ (2,596,602)
=============== =============== ===============
</TABLE>
Mortgage bond investment income decreased for the quarter and nine months
ended September 30, 1997, compared to the same periods in 1996. Approximately
$186,000 of such decrease for the quarter and $310,000 for the nine months is
due to the settlement of the Jackson Park Place mortgage bond for real
estate. Also contributing to the decrease was a decrease of approximately
$158,000 for the quarter and $150,000 for the nine months in cash flow
received from Jefferson Place due to the disposition of the mortgage bond.
These decreases were partially offset by increases in cash flow received from
Avalon Ridge of approximately $175,000 and $228,000 for the quarter and nine
months ended September 30, 1997, respectively. The increase in cash flow
received from Avalon Ridge is due primarily to increases in average occupancy
of 14% and 12% for the quarter and nine months ended September 30, 1997,
respectively, compared to the same periods in 1996.
The Partnership earned contingent interest income of $290,520 for the nine
months ended September 30, 1997, in conjunction with the settlement of the
Jackson Park Place mortgage bond for real estate. No such income was earned
for the nine month period ended September 30, 1996.
<PAGE> - 13 -
Rental income increased for the quarter and nine months ended September 30,
1997, compared to the same periods in 1996. The increase for the quarter is
attributable to: (i) an increase of approximately $1,024,000 due to the
acquisitions of Park at Countryside in December 1996, The Retreat in April
1997, and Jackson Park Place in May 1997; (ii) an increase of approximately
$26,000 from The Park at Fifty Eight due primarily to an increase in average
occupancy; and (iii) net increases of approximately $41,000 generated by the
Partnership's other properties. The increase for the nine months is
attributable to: (i) an increase of approximately $2,024,000 due to the
acquisitions of Park at Countryside, The Retreat, and Jackson Park Place; (ii)
an increase of approximately $209,000 from The Park at Fifty Eight due
primarily to the acquisition of Phase I of this property in May 1996; and
(iii) an increase of approximately $163,000 due to an increase in the average
occupancy and rental rate increases at Covey at Fox Valley, Coral Point,
Shelby Heights and The Exchange at Palm Bay.
Real estate operating expenses increased for the quarter and nine months ended
September 30, 1997, compared to the same periods in 1996. The increase for
the quarter is attributable to: (i) an increase of approximately $480,000 due
to the acquisitions of Park at Countryside, The Retreat, and Jackson Park
Place; and (ii) a net increase of approximately $45,000 in various real estate
operating expenses at the Partnership's other properties, primarily property
improvements at Covey at Fox Valley and The Park at Fifty Eight. Excluding
property tax refunds of $180,000 received by Covey at Fox Valley during the
quarter ended March 31, 1997, real estate operating expenses increased
approximately $1,042,000 for the nine months ended September 30, 1997,
compared to the same period in 1996. This increase is attributable to: (i)
an increase of approximately $987,000 due to the acquisitions of Park at
Countryside, The Retreat, and Jackson Park Place; (ii) an increase of
approximately $26,000 at The Park at Fifty Eight due primarily to the
acquisition of Phase I of this property; (iii) a net increase of approximately
$114,000 in various real estate operating expenses at the Partnership's other
properties, primarily at Coral Point; partially offset by (iv) non-recurring
leasing commissions of $85,000 incurred at the Exchange at Palm Bay during the
nine months ended September 30, 1996.
Depreciation expense increased for the quarter and nine months ended September
30, 1997, compared to the same periods in 1996, primarily attributable to
property acquisitions made during 1996 and 1997 and to real estate capital
improvements made at the Exchange at Palm Bay during 1996 and 1997.
Interest expense incurred during the quarter and nine months ended September
30, 1997, consisted of interest incurred on the Line of Credit and bonds
payable. The Partnership did not have a Line of Credit during such periods in
1996 and therefore incurred no interest expense thereon. Interest expense
incurred during 1997 on bonds payable consisted of interest on bonds issued in
May 1996 and March 1997. During 1996 the Partnership only incurred interest
expense on bonds issued in May 1996.
The decrease in interest income on temporary cash investments for the quarter
and nine months ended September 30, 1997, compared to the same periods in 1996
is primarily due to a decrease in the balance of and average interest rate
earned on the Partnership reserves during 1997.
General and administrative expenses increased for the quarter and nine months
ended September 30, 1997, compared to the same periods in 1996. The increase
for the quarter is attributable to: (i) an increase in administrative fees of
approximately $78,000 due to the acquisition of new properties during 1996 and
1997; (ii) an increase in salaries and related expenses of approximately
$29,000; (iii) net increases in other general and administrative expenses of
approximately $3,000; partially offset by (iv) non-recurring costs of
approximately $103,000 incurred in 1996 in conjunction with the merger of the
Partnership with the Prior Partnership. The increase for the nine months is
attributable to: (i) an increase in salaries and related expenses of $97,000;
(ii) an increase in administrative fees of approximately $78,000 as described
above; (iii) net increases in other general and administrative expenses of
approximately $14,000; partially offset by (iv) non-recurring costs of
approximately $178,000 incurred in 1996 in conjunction with the merger
described above.
During the quarter and nine months ended September 30, 1997, the Partnership
realized a loss of $3,000,000 on the disposition of its tax-exempt mortgage
bond on Jefferson Place (see discussion under Liquidity and Capital Resources).
<PAGE> - 14 -
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).
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)).
10(d) Settlement Agreement among the Registrant and Jackson Park
Place, Artel Farms, Inc., and David A. Dyck dated April
11, 1997 (incorporated herein by reference to Form 10-Q
dated June 30, 1997 filed pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934 by America First
Apartment Investors, L.P. (Commission File No. 0-20737)).
(b) Form 8-K
The registrant did not file a report on Form 8-K during
the quarter for which this report is filed.
<PAGE> - 15 -
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 13, 1997 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 and Principal Financial
Officer
<PAGE> - 16 -
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> SEP-30-1997
<CASH> 2,326,657
<SECURITIES> 13,006,526
<RECEIVABLES> 64,782
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 1,133,893
<PP&E> 59,748,383
<DEPRECIATION> 8,999,239
<TOTAL-ASSETS> 67,216,220
<CURRENT-LIABILITIES> 2,690,590
<BONDS> 0
<COMMON> 0
0
0
<OTHER-SE> 56,005,630
<TOTAL-LIABILITY-AND-EQUITY> 67,216,220
<SALES> 0
<TOTAL-REVENUES> 8,289,484
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 9,127,851
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (838,367)
<INCOME-TAX> 0
<INCOME-CONTINUING> (838,367)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (838,367)
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
