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 June 30, 1998 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>
June 30, 1998 Dec. 31, 1997
-------------- --------------
<S> <C> <C>
Assets
Cash and temporary cash investments, at cost which
approximates market value (Note 4 and Note 7) $ 40,364,313 $ 7,879,934
Investment in real estate, net of accumulated depreciation (Note 5) 63,035,490 64,267,471
Investment in tax-exempt mortgage bonds, at estimated fair value (Note 6) - 13,006,526
Interest receivable 113,349 108,623
Other assets 2,097,842 1,860,968
-------------- --------------
$ 105,610,994 $ 87,123,522
============== ==============
Liabilities and Partners' Capital
Liabilities
Accounts payable (Note 9) $ 2,048,234 $ 1,861,162
Bonds payable (Note 7) 39,951,583 27,035,000
Due to Jefferson Place L.P. 2,400,000 2,400,000
Distribution payable (Note 3) 329,051 329,051
-------------- --------------
44,728,868 31,625,213
-------------- --------------
Partners' Capital
General Partner 15,676 7,037
Beneficial Unit Certificate Holders
($11.68 per BUC in 1998 and $10.65 in 1997) 60,866,450 55,491,272
-------------- --------------
60,882,126 55,498,309
-------------- --------------
$ 105,610,994 $ 87,123,522
============== ==============
The accompanying notes are an integral part of the consolidated financial statements.
</TABLE>
<PAGE> - 1 -
AMERICA FIRST APARTMENT INVESTORS, L.P.
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
<TABLE>
<CAPTION>
For the For the For the Six For the Six
Quarter Ended Quarter Ended Months Ended Months Ended
June 30, 1998 June 30, 1997 June 30, 1998 June 30, 1997
--------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C>
Income
Rental income $ 3,257,012 $ 2,331,340 $ 6,346,936 $ 4,024,158
Mortgage bond investment income 561,637 421,444 839,201 1,053,948
Contingent interest income - 290,520 - 290,520
Interest income on temporary cash investments 313,555 22,878 387,905 28,866
--------------- --------------- --------------- ---------------
4,132,204 3,066,182 7,574,042 5,397,492
--------------- --------------- --------------- ---------------
Expenses
Real estate operating expenses 1,515,315 1,139,355 3,000,547 1,805,379
Depreciation 614,273 477,322 1,228,547 810,211
Interest expense 611,137 381,864 1,041,889 547,121
General and administrative expenses (Note 9) 355,938 269,078 693,411 539,163
--------------- --------------- --------------- ---------------
3,096,663 2,267,619 5,964,394 3,701,874
--------------- --------------- --------------- ---------------
Net income $ 1,035,541 $ 798,563 $ 1,609,648 $ 1,695,618
=============== =============== =============== ===============
Net income allocated to:
General Partner $ 16,498 $ 9,854 $ 28,382 $ 22,153
BUC Holders 1,019,043 788,709 1,581,266 1,673,465
--------------- --------------- --------------- ---------------
$ 1,035,541 $ 798,563 $ 1,609,648 $ 1,695,618
=============== =============== =============== ===============
Net income, basic and diluted, per BUC $ .19 $ .15 $ .30 $ .32
=============== =============== =============== ===============
Weighted average number of BUCs outstanding 5,212,167 5,212,167 5,212,167 5,212,167
=============== =============== =============== ===============
</TABLE>
AMERICA FIRST APARTMENT INVESTORS, L.P.
CONSOLIDATED STATEMENT OF PARTNERS' CAPITAL
FOR THE SIX MONTHS ENDED JUNE 30, 1998
(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, 1997 7,037 5,212,167 61,239,746 61,246,783
Net income 28,382 - 1,581,266 1,609,648
Cash distributions paid or accrued (Note 3)
Income (19,743) - (726,015) (745,758)
Return of capital - - (1,228,547) (1,228,547)
--------------- --------------- --------------- ---------------
15,676 5,212,167 60,866,450 60,882,126
--------------- --------------- --------------- ---------------
Net unrealized holding losses:
Balance at December 31, 1997 - - (5,748,474) (5,748,474)
Net change (Note 6) - - 5,748,474 5,748,474
--------------- --------------- --------------- ---------------
- - - -
--------------- --------------- --------------- ---------------
Balance at June 30, 1998 $ 15,676 5,212,167 $ 60,866,450 $ 60,882,126
=============== =============== =============== ===============
The accompanying notes are an integral part of the consolidated financial statements.
</TABLE>
<PAGE> - 2 -
AMERICA FIRST APARTMENT INVESTORS, L.P.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
For the Six For the Six
Months Ended Months Ended
June 30, 1998 June 30, 1997
--------------- ---------------
<S> <C> <C>
Cash flows from operating activities
Net income $ 1,609,648 $ 1,695,618
Adjustments to reconcile net income to net cash
provided by operating activities
Depreciation 1,228,547 810,211
Amortization 73,098 81,953
(Increase) decrease in interest receivable (4,726) 47,075
(Increase) decrease in other assets (57,344) 225,253
Increase in accounts payable 187,072 174,721
--------------- ---------------
Net cash provided by operating activities 3,036,295 3,034,831
--------------- ---------------
Cash flows from investing activities
Real estate capital improvements (1,653) (166,835)
Acquisition of real estate 5,087 (12,431,193)
Proceeds from disposition of mortgage bond 18,755,000 -
--------------- ---------------
Net cash provided by (used in) investing activities 18,758,434 (12,598,028)
--------------- ---------------
Cash flows from financing activities
Distributions paid (1,974,305) (1,974,308)
Bond issuance costs paid (252,628) (298,149)
Net borrowings on line of credit - 8,573,671
Proceeds from issuance of bonds payable 13,090,000 3,450,000
Principal payments on bonds payable (173,417) (80,000)
--------------- ---------------
Net cash provided by financing activities 10,689,650 9,671,214
--------------- ---------------
Net increase in cash and temporary cash investments 32,484,379 108,017
Cash and temporary cash investments at beginning of period 7,879,934 2,021,860
--------------- ---------------
Cash and temporary cash investments at end of period $ 40,364,313 $ 2,129,877
=============== ===============
Supplemental disclosure of cash flow information:
Cash paid during the period for interest $ 701,229 $ 329,335
=============== ===============
Supplemental schedule of non-cash investing activities
Settlement of mortgage bond for real estate $ - $ 8,760,000
=============== ===============
The accompanying notes are an integral part of the consolidated financial statements.
</TABLE>
<PAGE> - 3 -
AMERICA FIRST APARTMENT INVESTORS, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1998
(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
multifamily residential properties and other types of commercial real estate
and interests therein. The Partnership commenced operations on August 20,
1996, when it 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 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,
1997. In the opinion of management, all normal and recurring adjustments
necessary to present fairly the financial position at June 30, 1998,
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 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
property is periodically reviewed and adjusted when there are significant
declines in the estimated net realizable value (see Note 2D).
Depreciation of real estate is based on the estimated useful life of the
property (27-1/2 years on multifamily residential apartments and 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.
C) 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.
<PAGE> - 4 -
AMERICA FIRST APARTMENT INVESTORS, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1998
(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.
D) Fair Value of Real Estate
The fair value of the real estate is based on management's best estimate
of the net realizable value of the properties which may differ from the
ultimate values realized from these properties. The net realizable value
of the properties is determined based on the discounted estimated future
cash flows from the properties, including estimated sales proceeds. The
calculation of discounted estimated future cash flows includes certain
variables such as the assumed inflation rates for rents and expenses,
capitalization rates and discount rates. These variables are supplied to
the Partnership by an independent real estate appraisal firm based upon
local market conditions for each property. In certain cases, additional
factors such as the replacement value of the property or comparable sales
of similar properties are also taken into consideration.
E) 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.
F) Temporary Cash Investments
Temporary cash investments are invested in short-term debt securities
purchased with an original maturity of three months or less.
G) Net Income per BUC
Net income per BUC has been calculated based on the weighted average
number of BUCs outstanding during each period presented.
H) Comprehensive Income
In the first quarter of 1998, the Partnership adopted Statement of
Financial Accounting Standards No. 130, "Reporting Comprehensive Income"
(SFAS 130). SFAS 130 requires the display and reporting of comprehensive
income, which includes all changes in Partners' Capital with the exception
of additional investments by partners or distributions to partners.
Comprehensive income for the Partnership includes net income and the
change in net unrealized holding losses on investments charged or credited
to Partners' Capital. Comprehensive income for the quarter and six months
ended June 30, 1998, compared to the same periods in 1997 was as follows:
<TABLE>
<CAPTION>
For the For the For the Six For the Six
Quarter Ended Quarter Ended Months Ended Months Ended
June 30, 1998 June 30, 1997 June 30, 1998 June 30, 1997
--------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C>
Net income $ 1,035,541 $ 798,563 $ 1,609,648 $ 1,695,618
Change in net unrealized holding gains 5,748,474 - 5,748,474 -
--------------- --------------- --------------- ---------------
Comprehensive income $ 6,784,015 $ 798,563 $ 7,358,122 $ 1,695,618
=============== =============== =============== ===============
</TABLE>
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.
<PAGE> - 5 -
AMERICA FIRST APARTMENT INVESTORS, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1998
(UNAUDITED)
4. Partnership Reserve Account
The Partnership maintains a reserve account which totaled $32,293,964 at June
30, 1998. 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 real estate acquired
and the operation of the Partnership, including the acquisition of additional
properties.
5. Investment in Real Estate
The Partnership's investment in real estate is comprised of the following:
<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 3,991,602 5,287,604
The Park at Fifty Eight(1) Chattanooga, TN 196 231,113 4,122,226 4,353,339
Shelby Heights(1) 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(1) Port Orange, FL 120 647,000 2,616,648 3,263,648
The Retreat(3) Atlanta, GA 226 1,800,000 7,315,697 9,115,697
Jackson Park Place(1) Fresno, CA 296 1,400,000 10,709,534 12,109,534
Park Trace Apartments(1) Norcross, GA 260 2,246,000 11,789,810 14,035,810
-----------------
73,841,817
Less accumulated depreciation (10,806,327)
-----------------
Balance at June 30, 1998 $ 63,035,490
=================
</TABLE>
(1) Property is encumbered as described in Note 7.
(2) Represents square feet.
(3) Property serves as collateral for $12,200,000 of multifamily revenue
refunding bonds issued on Jefferson Place. The Partnership is an
affiliate of the general partner of the partnership which owns Jefferson
Place.
6. Investment in Tax-Exempt Mortgage Bonds
On May 1, 1998, the Partnership sold its tax-exempt mortgage bond which was
collateralized by Avalon Ridge Apartments in Renton, Washington. The
tax-exempt mortgage bond was sold for $18,755,000 plus accrued interest. The
net unrealized holding loss of $5,748,474 on such bond was eliminated thus
Partners' Capital was increased by the same amount.
<PAGE> - 6 -
AMERICA FIRST APARTMENT INVESTORS, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1998
(UNAUDITED)
7. Bonds Payable
Bonds payable were originated by the Partnership through the issuance of
tax-exempt refunding bonds. Bonds payable at June 30, 1998, 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 $ 2,620,000
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 3,380,000
Park at Countryside principal and/or interest to $276,000
are due each March 1 and September 1
Covey at Fox Valley 5.30% 11/1/2007 semiannual payments of $586,000 in 1998, 12,410,000
and Park Trace Apartments interest are due each May 1 $658,000 thereafter
and November 1
Jackson Park Place 5.80% 12/1/2027 monthly payment of $611,901 8,451,583
principal and interest
are due the 1st of each month
Coral Point(1) 4.96% 3/1/2008 semiannual payments of $325,016 in 1998,
interest are due each $650,033 thereafter
March 1 and September 1 13,090,000
-------------
Balance at June 30, 1998 $ 39,951,583
=============
</TABLE>
(1) Bonds are also collateralized by $6,571,000 in cash.
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, 1998. The Line of Credit bears
interest, which is payable monthly, at 1/2% above the Bank's base rate (which
base rate was 9% as of June 30, 1998). 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. Because the Partnership had no collateral pledged at
June 30, 1998, the Partnership's borrowing base under the Line of Credit was
zero. The Partnership may provide collateral for the Line of Credit, subject
to the approval of the Bank, to change its borrowing base. The Partnership
did not have any borrowings against the Line of Credit at June 30, 1998. The
Line of Credit contains convenants 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 1998 was $618,738 ($244,325 for
the quarter ended June 30, 1998). AFCA 4 or an affiliate also paid $150,683
($68,432 for the quarter ended June 30, 1998) in costs capitalized by the
Partnership during 1998 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.
<PAGE> - 7 -
AMERICA FIRST APARTMENT INVESTORS, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1998
(UNAUDITED)
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 in 1998 was $222,750 ($111,375 for the quarter ended June 30,
1998.
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 to AFCA 4 during 1998.
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 (through April 1998), Park at Countryside, The
Retreat, Jackson Park Place and Park Trace Apartments. 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 $346,831 ($168,426 for the quarter ended
June 30, 1998) in 1998.
<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. 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 an additional multifamily property which
is adjacent to one of the foreclosed properties that was originally intended
to be part of a consolidated property.
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 The Park at Fifty-Eight Phase I and Park
at Countryside and during 1997 the Partnership acquired The Retreat and Park
Trace Apartments. In addition, Jackson Park Place was conveyed to the
Partnership during 1997 through a deed in lieu of foreclosure. At June 30
1998, the Partnership held eight real estate properties with a total
depreciated cost of $63,035,490.
The following table shows the various occupancy levels of the properties
owned or financed by the Partnership at June 30, 1998:
<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 296 286 97%
Covey at Fox Valley Aurora, IL 216 206 95%
The Park at Fifty Eight Chattanooga, TN 196 189 96%
Shelby Heights Bristol, TN 100 98 98%
Coral Point Mesa, AZ 336 322 96%
Park at Countryside Port Orange, FL 120 119 99%
The Retreat Atlanta, GA 226 219 97%
Park Trace Apartments Norcross, GA 260 250 96%
---------- ---------- -----------
1,750 1,689 97%
========== ========== ===========
The Exchange at Palm Bay Palm Bay, FL 72,002(1) 60,900(1) 85%
========== ========== ===========
</TABLE>
(1) Represents square feet.
Net rental income earned on the properties owned by the Partnership represents
its principal source of income and distributable cash. The Partnership may
draw on reserves to pay operating expenses or to supplement cash distributions
to Beneficial Unit Certificate (BUC) Holders.
<PAGE> - 9 -
On April 2, 1998, the Partnership received proceeds of $13,090,000 through the
offering of multifamily housing revenue refunding bonds on Coral Point. The
bonds were rated "A" by Standard and Poor's Corporation, bear interest at an
effective rate of 4.96% and have a 10-year maturity. Proceeds from the
offering will be utilized to acquire additional multifamily housing properties.
On May 1, 1998, the Partnership sold its tax-exempt mortgage bond which was
collateralized by Avalon Ridge. The tax-exempt mortgage bond was sold for
$18,755,000 plus accrued interest. The net unrealized holding loss of
$5,748,474 on such bond was eliminated thus Partners' Capital was increased by
the same amount. Proceeds from the sale will be utilized to acquire
additional multifamily housing properties.
The Partnership has a $15 million revolving loan credit agreement (the Line of
Credit) with the First National Bank of Boston (the Bank) that may be used by
the Partnership to provide interim financing for the acquisition of
multifamily residential properties. The Line of Credit expires on December
19, 1998. The Line of Credit bears interest at 1/2% above the Bank's base
rate (which base rate was 9% as of June 30, 1998). Because the Partnership
had no collateral pledged at June 30, 1998, the Partnership's borrowing base
under the Line of Credit was zero. The Partnership may provide collateral for
the Line of Credit, subject to the approval of the Bank, to change its
borrowing base. The Partnership did not have any borrowings against the Line
of Credit at June 30, 1998. The Line of Credit contains convenants 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 any borrowings under the Line of Credit through
the refunding of existing tax-exempt bonds that are associated with certain
properties owned by the Partnership.
During the six months ended June 30, 1998, $646,940 ($540,817 for the quarter
ended June 30, 1998) of undistributed income was added to reserves. The total
amount held in reserves at June 30, 1998, was $32,293,964. Future
distributions to BUC Holders will depend upon the amount of 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, its Line
of Credit, proceeds from the issuance of tax-exempt mortgage bonds 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 Six For the Six
Months Ended Months Ended
June 30, 1998 June 30, 1997
--------------- ---------------
<S> <C> <C>
Regular monthly distributions
Income $ .1393 $ .2196
Return of capital .2357 .1554
--------------- ---------------
$ .3750 $ .3750
=============== ===============
Distributions
Paid out of current and prior undistributed cash flow $ .3750 $ .3750
=============== ===============
</TABLE>
<PAGE> - 10 -
Asset Quality
It is the policy of the Partnership to make a periodic review of its real
estate and adjust, when necessary, the carrying value of such real estate.
Each real estate property held by the Partnership is recorded at the lower of
cost or net realizable value. The carrying value of each real estate property
owned by the Partnership is adjusted when there are significant declines in
the estimated net realizable value.
Internal property valuations and reviews performed during the six months ended
June 30, 1998, indicated that the real estate recorded on the balance sheet at
June 30, 1998, required no adjustments to the current carrying amount.
Results of Operations
The tables below compare the results of operations for each period shown.
<TABLE>
<CAPTION>
For the For the Increase
Quarter Ended Quarter Ended (Decrease)
June 30, 1998 June 30, 1997 From 1997
--------------- --------------- ---------------
<S> <C> <C> <C>
Rental income $ 3,257,012 $ 2,331,340 $ 925,672
Mortgage bond investment income 561,637 421,444 140,193
Contingent interest - 290,520 (290,520)
Interest income on temporary cash investments 313,555 22,878 290,677
--------------- --------------- ---------------
4,132,204 3,066,182 1,066,022
--------------- --------------- ---------------
Real estate operating expenses 1,515,315 1,139,355 375,960
Depreciation 614,273 477,322 136,951
Interest expense 611,137 381,864 229,273
General and administrative expenses 355,938 269,078 86,860
--------------- --------------- ---------------
3,096,663 2,267,619 829,044
--------------- --------------- ---------------
Net income $ 1,035,541 $ 798,563 $ 236,978
=============== =============== ===============
</TABLE>
<TABLE>
<CAPTION>
For the Six For the Six Increase
Months Ended Months Ended (Decrease)
June 30, 1998 June 30, 1997 From 1997
--------------- --------------- ---------------
<S> <C> <C> <C>
Rental income $ 6,346,936 $ 4,024,158 $ 2,322,778
Mortgage bond investment income 839,201 1,053,948 (214,747)
Contingent interest - 290,520 (290,520)
Interest income on temporary cash investments 387,905 28,866 359,039
--------------- --------------- ---------------
7,574,042 5,397,492 2,176,550
--------------- --------------- ---------------
Real estate operating expenses 3,000,547 1,805,379 1,195,168
Depreciation 1,228,547 810,211 418,336
Interest expense 1,041,889 547,121 494,768
General and administrative expenses 693,411 539,163 154,248
--------------- --------------- ---------------
5,964,394 3,701,874 2,262,520
--------------- --------------- ---------------
Net income $ 1,609,648 $ 1,695,618 $ (85,970)
=============== =============== ===============
</TABLE>
<PAGE> - 11 -
Rental income increased for the quarter and six months ended June 30, 1998,
compared to the same periods in 1997. The increase for the quarter was
primarily attributable to: (i) a $482,000 increase resulting from the
acquisition of Park Trace Apartments in October 1997; (ii) a $161,000 increase
resulting from the acquisition of Jackson Park Place in the settlement of the
mortgage bond secured by this property in May 1997; (iii) a $118,000 increase
in rental income at Coral Point due primarily to an increase in occupancy (iv)
a $77,000 increase resulting from the acquisition of The Retreat in April
1997; (v) a $61,000 increase resulting from an increase in leased space at The
Exchange at Palm Bay; and (vi) a $27,000 increase in rental income at the
Partnership's other properties. The increase for the six months was primarily
attributable to: (i) a $922,000 increase resulting from the acquisition of
Park Trace Apartments in October 1997; (ii) a $603,000 increase resulting from
the acquisition of Jackson Park Place in the settlement of the mortgage bond
secured by this property in May 1997; (iii) a $482,000 increase resulting from
the acquisition of The Retreat in April 1997; (iv) a $129,000 increase in
rental income at Coral Point due primarily to an increase in occupancy (v) a
$113,000 increase resulting from an increase in leased space at The Exchange
at Palm Bay; and (vi) a $74,000 increase in rental income at the Partnership's
other properties.
Mortgage bond investment income increased for the quarter ended June 30, 1998,
compared to the same period in 1997. The increase is attributable to: (i) a
$406,000 increase in such income from the tax-exempt bond collateralized by
Avalon Ridge which was sold on May 1, 1998; partially offset by (ii) a
$204,000 decrease resulting from the disposition of the Jefferson Place
mortgage bond in July 1997; and (iii) a $62,000 decrease resulting from the
acquisition of Jackson Park Place in settlement of the mortgage bond for real
estate in May 1997.
Mortgage bond investment income decreased for the six months ended June 30,
1998, compared to the same period in 1997. The decrease is primarily
attributable to: (i) a $464,000 decrease resulting from the disposition of
the Jefferson Place mortgage bond in July 1997; (ii) a $249,000 decrease
resulting from the acquisition of Jackson Park Place in settlement of the
mortgage bond for real estate in May 1997; partially offset by (iii) a
$498,000 increase in cash flow received from the tax-exempt bond
collateralized by Avalon Ridge which was sold on May 1, 1998.
The Partnership earned contingent interest income of $290,520 for the quarter
and six months ended June 30, 1997, in conjunction with the acquisition of
Jackson Park Place in settlement of the mortgage bond in May 1997. No such
income was earned for the quarter and six month periods ended June 30, 1998.
Real estate operating expenses increased for the quarter ended June 30, 1998,
compared to the same period in 1997. This increase is attributable to: (i) a
$198,000 increase resulting from the acquisition of Park Trace Apartments in
October 1997; (ii) a $91,000 increase resulting from the acquisition of
Jackson Park Place in May 1997; (iii) a $68,000 increase resulting from the
acquisition of The Retreat in April 1997; and (iv) a $19,000 increase in real
estate operating expenses at the Partnerships other properties.
Excluding property tax refunds of approximately $180,000 received during the
quarter ended March 31, 1997, real estate operating expenses increased
$1,015,168 for the six months ended June 30, 1998, compared to the same period
in 1997. This increase is attributable to: (i) a $435,000 increase resulting
from the acquisition of Park Trace Apartments in October 1997; (ii) a $299,000
increase resulting from the acquisition of Jackson Park Place in May 1997;
(iii) a $262,000 increase resulting from the acquisition of The Retreat in
April 1997; and (iv) a $19,000 increase in real estate operating expenses at
the Partnerships other properties.
Depreciation expense increased for the quarter and six months ended June 30,
1998, compared to the same periods in 1997. The increase for the quarter is
primarily attributable to: (i) a $107,000 increase resulting from the
acquisition of Park Trace Apartments in October 1997; (ii) a $34,000 increase
resulting from the acquisition of Jackson Park Place in May 1997; partially
offset by (iii) a $4,000 decrease in depreciation expense on the Partnership's
other properties. The increase for the six months is primarily attributable
to: (i) a $214,000 increase resulting from the acquisition of Park Trace
Apartments in October 1997; (ii) a $131,000 increase resulting from the
acquisition of Jackson Park Place in May 1997; (iii) a $67,000 increase
resulting from the acquisition of The Retreat in April 1997; and (iv) a $6,000
increase in depreciation expense on the Partnership's other properties.
<PAGE> - 12 -
Interest expense increased for the quarter and six months ended June 30, 1998,
compared to the same periods in 1997. This increase is attributable to
interest expense of $335,000 and $639,000 incurred for the quarter and six
months ended June 30, 1998, respectively, on bonds payable of $20,915,000
which were issued in December 1997 and interest of $170,000 incurred for the
quarter and six months ended June 30, 1998, on bonds payable issued in April
1998. The increase in interest expense for the quarter was partially offset
by a decrease in interest of $276,000 due primarily to the reduction of the
average amount borrowed by the Partnership on its Line of Credit used to
acquire new properties. Contributing to the increase for the six months ended
June 30, 1998, compared to the same period in 1997, was an increase in
interest expense of $46,000 incurred on bonds payable issued in March 1997
which was partially offset by a decrease of $360,000 in interest expense on
the Partnership's Line of Credit.
Interest income on temporary cash investments increased for the quarter and
six months ended June 30, 1998, compared to the same periods in 1997 due
primarily to an increase in the average reserve balance. Additions made to the
Partnership reserves during 1997 and 1998 were attributable primarily to the
temporary investment of proceeds from the offerings of multifamily housing
revenue refunding bonds and proceeds received from the disposition of the
Avalon Ridge mortgage bond.
General and administrative expenses increased for the quarter and six months
ended June 30, 1998, compared to the same periods in 1997. The increase for
the quarter is primarily due to: (i) an increase of approximately $55,000 in
administrative fees resulting from the acquisition of properties during 1997;
and (ii) net increases of approximately $32,000 in other general and
administrative expenses. The increase for the six months is primarily due
to: (i) an increase of approximately $110,000 in administrative fees
resulting from the acquisition of properties during 1997 and (ii) net
increases of approximately $42,000 in other general and administrative
expenses.
This report contains forward looking statements that reflect management's
current beliefs and estimates of future economic circumstances, industry
conditions, the Partnership's performance and financial results. All
statements, trend analysis and other information concerning possible or
assumed future results of operations of the Partnership and the real estate
investments it has made (including, but not limited to, the information
contained in "Management's Discussion and Analysis of Financial Condition and
Results of Operations"), constitute forward-looking statements. BUC holders
and others should understand that these forward looking statements are subject
to numerous risks and uncertainties and a number of factors could affect the
future results of the Partnership and could cause those results to differ
materially from those expressed in the forward looking statements contained
herein.
Item 3. Quantitative and Qualitative Disclosures About Market Risk.
The requirements of Item 3 of Form 10-Q are not applicable to the Partnership
prior to its Annual Report on Form 10-K for the year ending December 31, 1998.
<PAGE> - 13 -
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
3. Articles of Incorporation and Bylaws of America First
Fiduciary Corporation Number Eight (incorporated 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)).
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).
10(a) 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)).
10(b) $12,410,000 Promissory Note, dated December 11, 1997,
from Park Trace Apartments Limited Partnership to the City
of Aurora, Illinois (The Covey at Fox Valley Apartment
Project) Series 1997 (incorporated herein by reference to
Form 10-K dated December 31, 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)).
10(c) Loan Agreement, dated December 1, 1997, between Park
Trace Apartments Limited Partnership and City of Aurora,
Illinois (The Covey at fox Valley Apartment Project)
Series 1997 (incorporated herein by reference to Form 10-K
dated December 31, 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)).
10(d) Indenture of Trust, dated December 1, 1997, between City
of Aurora, Illinois and UMB Bank, National Association
(The Covey at Fox Valley Apartment Project) Series 1997
(incorporated herein by reference to Form 10-K dated
December 31, 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)).
10(e) Revolving Credit Loan Agreement, dated December 19,
1996, between America First Apartment Investors, L.P.
and The First National Bank of Boston (incorporated
herein by reference to Form 10-K dated December 31, 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)).
<PAGE> - 14 -
10(f) $1,385,000 Promissory Note, dated April 2, 1998, from
Arizona Coral Point Apartments Limited Partnership to The
Industrial Development authority of the county of Maricopa
(Coral Point Apartments Project) Series 1998A and 1998B.
(To be supplied by amendment.)
10(f) $11,705,000 Promissory Note, dated April 2, 1998, from
Arizona Coral Point Apartments Limited Partnership to The
Industrial Development authority of the county of Maricopa
(Coral Point Apartments Project) Series 1998A and 1998B.
(To be supplied by amendment.)
10(g) Loan Agreement, dated March 1, 1998, between The
Industrial Development Authority of the County of Maricopa
and Arizona Coral Point Apartments Limited Partnership
(Coral Point Apartments Project) Series 1998A and 1998B.
(To be supplied by amendment.)
10(h) Indenture of Trust, dated March 1, 1998, between The
Industrial Development Authority of the County of Maricopa
and UMB Bank, N.A. (Coral Point Apartments Project) Series
1998A and 1998B. (To be supplied by amendment.)
(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 May 1, 1998
or Disposition
of Assets
<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: August 13, 1998 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> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> JUN-30-1998
<CASH> 40,364,313
<SECURITIES> 0
<RECEIVABLES> 113,349
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 40,477,662
<PP&E> 73,841,817
<DEPRECIATION> (10,806,327)
<TOTAL-ASSETS> 105,610,994
<CURRENT-LIABILITIES> 2,377,285
<BONDS> 39,951,583
<COMMON> 0
0
0
<OTHER-SE> 60,882,126
<TOTAL-LIABILITY-AND-EQUITY> 105,610,994
<SALES> 0
<TOTAL-REVENUES> 7,574,042
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 4,922,505
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,041,889
<INCOME-PRETAX> 1,609,648
<INCOME-TAX> 0
<INCOME-CONTINUING> 1,609,648
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,609,648
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
