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 March 31, 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>
Mar. 31, 1998 Dec. 31, 1997
-------------- --------------
<S> <C> <C>
Assets
Cash and temporary cash investments, at cost which
approximates market value (Note 4) $ 7,465,692 $ 7,879,934
Investment in real estate, net of accumulated depreciation (Note 6) 63,655,299 64,267,471
Investment in tax-exempt mortgage bonds, at estimated fair value (Note 5) 13,006,526 13,006,526
Interest receivable 218,216 108,623
Other assets 1,986,143 1,860,968
-------------- --------------
$ 86,331,876 $ 87,123,522
============== ==============
Liabilities and Partners' Capital
Liabilities
Accounts payable (Note 9) $ 1,629,075 $ 1,861,162
Bonds payable (Note 7) 26,888,485 27,035,000
Due to Jefferson Place L.P. 2,400,000 2,400,000
Distribution payable (Note 3) 329,051 329,051
-------------- --------------
31,246,611 31,625,213
-------------- --------------
Partners' Capital
General Partner 9,051 7,037
Beneficial Unit Certificate Holders
($10.57 per BUC in 1998 and $10.65 in 1997) 55,076,214 55,491,272
-------------- --------------
55,085,265 55,498,309
-------------- --------------
$ 86,331,876 $ 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
Quarter Ended Quarter Ended
Mar. 31, 1998 Mar. 31, 1997
-------------- --------------
<S> <C> <C>
Income
Rental income 3,089,924 1,692,818
Mortgage bond investment income $ 277,564 $ 632,504
Interest income on temporary cash investments 74,350 5,988
-------------- --------------
3,441,838 2,331,310
-------------- --------------
Expenses
Real estate operating expenses 1,485,232 666,024
Depreciation 614,274 332,889
Interest expense 430,752 165,257
General and administrative expenses (Note 9) 337,473 270,085
-------------- --------------
2,867,731 1,434,255
-------------- --------------
Net income $ 574,107 $ 897,055
============== ==============
Net income allocated to:
General Partner $ 11,884 $ 12,299
BUC Holders 562,223 884,756
-------------- --------------
$ 574,107 $ 897,055
============== ==============
Net income, basic and diluted, per BUC $ .11 $ .17
============== ==============
Weighted average number of BUCs outstanding 5,212,167 5,212,167
============== ==============
</TABLE>
AMERICA FIRST APARTMENT INVESTORS, L.P.
CONSOLIDATED STATEMENT OF PARTNERS' CAPITAL
FOR THE QUARTER ENDED MARCH 31, 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 11,884 - 562,223 574,107
Cash distributions paid or accrued (Note 3)
Income (9,870) - (363,007) (372,877)
Return of capital - - (614,274) (614,274)
--------------- --------------- --------------- ---------------
9,051 5,212,167 60,824,688 60,833,739
--------------- --------------- --------------- ---------------
Net unrealized holding losses:
Balance at March 31, 1998 and December 31, 1997 - - (5,748,474) (5,748,474)
--------------- --------------- --------------- ---------------
Balance at March 31, 1998 $ 9,051 5,212,167 $ 55,076,214 $ 55,085,265
=============== =============== =============== ===============
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 For the
Quarter Ended Quarter Ended
Mar. 31, 1998 Mar. 31, 1997
--------------- ---------------
<S> <C> <C>
Cash flows from operating activities
Net income $ 574,107 $ 897,055
Adjustments to reconcile net income to net cash
provided by operating activities
Depreciation 614,274 332,889
Amortization 32,170 39,440
Increase in interest receivable (109,593) (40,211)
(Increase) decrease in other assets (77,625) 408,831
Decrease in accounts payable (232,087) (459,996)
--------------- ---------------
Net cash provided by operating activities 801,246 1,178,008
--------------- ---------------
Cash flows from investing activities
Real estate capital improvements (39) (78,731)
Acquisition of real estate (2,063) (17,054)
--------------- ---------------
Net cash used in investing activities (2,102) (95,785)
--------------- ---------------
Cash flows from financing activities
Distributions paid (987,151) (987,153)
Bond issuance costs paid (79,720) (177,039)
Net repayments on line of credit - (3,450,000)
Proceeds from issuance of bonds payable - 3,450,000
Principal payments on bonds payable (146,515) (80,000)
--------------- ---------------
Net cash used in financing activities (1,213,386) (1,244,192)
--------------- ---------------
Net decrease in cash and temporary cash investments (414,242) (161,969)
Cash and temporary cash investments at beginning of period 7,879,934 2,021,860
--------------- ---------------
Cash and temporary cash investments at end of period $ 7,465,692 $ 1,859,891
=============== ===============
Supplemental disclosure of cash flow information:
Cash paid during the period for interest $ 314,360 $ 158,784
=============== ===============
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
MARCH 31, 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 March 31, 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 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 fair value of the
underlying collateral (see Note 2D).
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
property is periodically reviewed and adjusted when there are significant
declines in the estimated net realizable value (see Note 2D).
<PAGE> - 4 -
AMERICA FIRST APARTMENT INVESTORS, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1998
(UNAUDITED)
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.
D) Fair Value of Real Estate
The fair value of the real estate (including real estate which
collateralizes the Partnership's remaining tax-exempt bond) 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 year 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 quarters ended March
31, 1998 and 1997 equaled net income as there were no changes in the net
unrealized holding losses for the respective periods.
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 $6,712,831 at March
31, 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 the remaining mortgage
bond, real estate acquired and the operation of the Partnership, including the
acquisition of additional properties.
<PAGE> - 5 -
AMERICA FIRST APARTMENT INVESTORS, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1998
(UNAUDITED)
5. Investment in Tax-Exempt Mortgage Bonds
A description of the tax-exempt mortgage bond owned by the Partnership at
March 31, 1998 is as follows:
<TABLE>
<CAPTION>
Base
Number Maturity Interest Carrying
Property Name Location of Units Date Rate(1) Amount
---------------------------------- -------------------- -------- ------------- -------- -----------------
<S> <C> <C> <C> <C> <C>
Nonperforming:(2)
Avalon Ridge Renton, WA 356 09/01/11 8.5% 18,755,000
Unrealized holding losses (5,748,474)
-----------------
Balance at March 31, 1998 (at estimated fair value) $ 13,006,526
=================
</TABLE>
(1) In addition to the base interest rate shown, the bond bears additional
contingent interest as defined in the revenue note which, when combined
with the interest shown, is limited to a cumulative, noncompounded amount
not greater than 13% per annum. The Partnership did not receive
any additional contingent interest in 1998.
(2) Nonperforming bonds are bonds which are not fully current as to interest
payments. The amount of foregone interest on the nonperforming bond was
$120,980 for 1998.
6. 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 3,989,988 5,285,990
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(3) 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(4) Atlanta, GA 226 1,800,000 7,315,697 9,115,697
Jackson Park Place(1) Fresno, CA 296 1,400,000 10,714,478 12,114,478
Park Trace Apartments(1) Norcross, GA 260 2,246,000 11,792,016 14,038,016
-----------------
73,847,353
Less accumulated depreciation (10,192,054)
-----------------
Balance at March 31, 1998 $ 63,655,299
=================
</TABLE>
(1) Property is encumbered as described in Note 7.
(2) Represents square feet.
(3) Property is encumbered as described in Note 8.
(4) Property serves as collateral for $12,200,000 of multifamily revenue
refunding bonds issued on Jefferson Place. The Partnership is the general
partner of the partnership which owns Jefferson Place.
<PAGE> - 6 -
AMERICA FIRST APARTMENT INVESTORS, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1998
(UNAUDITED)
7. Bonds Payable
Bonds payable were originated by the Partnership through the issuance of
tax-exempt refunding bonds. Bonds payable at March 31, 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 8,478,485
principal and interest
are due the 1st of each month
-------------
Balance at March 31, 1998 $ 26,888,485
=============
</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, 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 March 31, 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. The Line of Credit is collateralized by Coral Point;
however, the Partnership may substitute other real estate owned as collateral,
subject to the approval of the Bank. The maximum amount available for
borrowings under the Line of Credit was $10,290,000 at March 31, 1998. The
Partnership did not have any borrowings against the Line of Credit at March
31, 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 $374,413. AFCA 4 or an
affiliate also paid $82,251 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.
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 was $111,375 in 1998.
<PAGE> - 7 -
AMERICA FIRST APARTMENT INVESTORS, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1998
(UNAUDITED)
AFCA 4 did not receive any administrative fees from property owners in 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, 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 $178,405 in 1998.
10. Subsequent Events
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 will be eliminated thus Partners' Capital will
increase by the same amount. Proceeds from the sale will be utilized to
acquire additional multifamily housing properties.
<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 March 31
1998, the Partnership continued to hold one tax-exempt mortgage bond with a
carrying value, at estimated fair value, of $13,006,526 and eight real estate
properties with a total depreciated cost of $63,655,299.
The following table shows the various occupancy levels of the properties
owned or financed by the Partnership at March 31, 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 296 266 90%
Avalon Ridge(1) Renton, WA 356 328 92%
Covey at Fox Valley Aurora, IL 216 211 98%
The Park at Fifty Eight Chattanooga, TN 196 184 94%
Shelby Heights Bristol, TN 100 95 95%
Coral Point Mesa, AZ 336 320 95%
Park at Countryside Port Orange, FL 120 115 96%
The Retreat Atlanta, GA 226 217 96%
Park Trace Apartments Norcross, GA 260 231 89%
---------- ---------- -----------
2,106 1,967 93%
========== ========== ===========
The Exchange at Palm Bay Palm Bay, FL 72,002(2) 60,900(2) 85%
========== ========== ===========
</TABLE>
(1) Property securing tax-exempt mortgage bond held by the Partnership.
(2) Represents square feet.
Net rental income earned on the properties owned by the Partnership represents
its principal source of income and distributable cash. In addition, the
partnership continues to earn interest income on its remaining tax-exempt
mortgage bond and on temporary cash investments. The principal amount of the
tax-exempt mortgage bond does not amortize over its term. The tax-exempt
mortgage bond provides 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 bond. The Partnership
did not receive any contingent interest on its mortgage bonds during 1998.
The Partnership may draw on reserves to pay operating expenses or to
supplement cash distributions to Beneficial Unit Certificate (BUC) Holders.
<PAGE> - 9 -
The Partnership has a $15 million revolving loan credit agreement (the Line of
Credit) with the First National Bank of Boston (the Bank) that is 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 March 31, 1998). The maximum amount available for
borrowings under the Line of Credit was $10,290,000 at March 31, 1998. The
Partnership did not have any borrowings against the Line of Credit at March
31, 1998. 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
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.
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 will be eliminated thus Partners' Capital will
increase by the same amount. Proceeds from the sale will be utilized to
acquire additional multifamily housing properties.
During the quarter ended March 31, 1998, $106,123 of undistributed income was
added to reserves. The total amount held in reserves at March 31, 1998,
was $6,712,831. Future distributions to BUC Holders will depend upon the
amount of net rental income and interest 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 For the
Quarter Ended Quarter Ended
Mar. 31, 1998 Mar. 31, 1997
--------------- ---------------
<S> <C> <C>
Regular monthly distributions
Income $ .0697 $ .1236
Return of capital .1178 .0639
--------------- ---------------
$ .1875 $ .1875
=============== ===============
Distributions
Paid out of current and prior undistributed cash flow $ .1875 $ .1875
=============== ===============
</TABLE>
<PAGE> - 10 -
Asset Quality
It is the policy of the Partnership to make a periodic review of its real
estate, including the property collateralizing the Partnership's remaining
mortgage bond and adjust, when necessary, the carrying value of such real
estate or the mortgage bond. Each real estate property held by the
Partnership is recorded at the lower of cost or net realizable value. The
Partnership's mortgage bond is classified as available-for-sale and is,
therefore, carried at the estimated fair value of the underlying real
property. 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. The carrying value of the mortgage bond is adjusted
when there are significant changes in the estimated net realizable value of
the underlying collateral for the bond.
Internal property valuations and reviews performed during the quarter ended
March 31, 1998, indicated that the mortgage bonds and real estate recorded on
the balance sheet at March 31, 1998, required no adjustments to their current
carrying amounts.
Results of Operations
The table below compares the results of operations for each period shown.
<TABLE>
<CAPTION>
For the For the Increase
Quarter Ended Quarter Ended (Decrease)
Mar. 31, 1998 Mar. 31, 1997 From 1997
--------------- --------------- ---------------
<S> <C> <C> <C>
Rental income 3,089,924 1,692,818 1,397,106
Mortgage bond investment income $ 277,564 $ 632,504 $ (354,940)
Interest income on temporary cash investments 74,350 5,988 68,362
--------------- --------------- ---------------
3,441,838 2,331,310 1,110,528
--------------- --------------- ---------------
Real estate operating expenses 1,485,232 666,024 819,208
Depreciation 614,274 332,889 281,385
Interest expense 430,752 165,257 265,495
General and administrative expenses 337,473 270,085 67,388
--------------- --------------- ---------------
2,867,731 1,434,255 1,433,476
--------------- --------------- ---------------
Net income $ 574,107 $ 897,055 $ (322,948)
=============== =============== ===============
</TABLE>
Rental income increased $1,397,106 for the quarter ended March 31, 1998,
compared to the same period in 1997. This increase was primarily attributable
to: (i) a $442,000 increase resulting from the acquisition of Jackson Park
Place in the settlement of the mortgage bond secured by this property in May
1997; (ii) a $406,000 increase resulting from the acquisition of The Retreat
in April 1997; (iii) a $440,000 increase resulting from the acquisition of
Park Trace Apartments in October 1997; (iv) a $52,000 increase resulting from
a 28% increase in leased space at The Exchange at Palm Bay; and (v) a $57,000
increase in rental income at the Partnership's other properties.
Mortgage bond investment income decreased $354,940 for the quarter ended March
31, 1998, compared to the same period in 1997. The decrease is primarily
attributable to: (i) a $260,000 decrease resulting from the disposition of
the Jefferson Place mortgage bond in July 1997; and (ii) a $187,000 decrease
resulting from the acquisition of Jackson Park Place in settlement of the
mortgage bond for real estate in May 1997. These decreases in mortgage bond
investment income were partially offset by a $92,000 increase in cash flow
received from the tax-exempt bond secured by Avalon Ridge which pays interest
on a modified cash basis. The increase in net cash flow received from Avalon
Ridge is due primarily to an increase in average occupancy.
<PAGE> - 11 -
Excluding property tax refunds of approximately $180,000 received during the
quarter ended March 31, 1997, real estate operating expenses increased
$639,208 for the quarter ended March 31, 1998, compared to the same period in
1997. This increase is attributable to: (i) a $237,000 increase resulting
from the acquisition of Park Trace Apartments in October 1997; (ii) a $208,000
increase resulting from the acquisition of Jackson Park Place in May 1997; and
(iii) a $194,000 increase resulting from the acquisition of The Retreat in
April 1997.
Depreciation expense increased $281,385 for the quarter ended March 31, 1998,
compared to the same period in 1997. This increase is primarily attributable
to: (i) a $107,000 increase resulting from the acquisition of Park Trace
Apartments in October 1997; (ii) a $97,000 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
$10,000 increase in depreciation expense on the Partnership's other
properties.
Interest expense increased $265,495 for the quarter ended March 31, 1998,
compared to the same period in 1997. This increase is attributable to a
$301,000 increase on bonds payable of $20,915,000 which were issued in
December 1997 and a $62,000 increase on bonds payable of $3,450,000 which were
issued in March 1997. These increases were partially offset by a decrease of
$98,000 due to the reduction of the average amount borrowed by the Partnership
on its Line of Credit used to acquire new properties.
Interest income on temporary cash investments increased $68,362 for the
quarter ended March 31, 1998, compared to the same period in 1997 due
primarily to an increase in the average reserve balance attributable to
additions made to the Partnership reserves during 1997.
General and administrative expenses increased $67,388 for the quarter ended
March 31, 1998, compared to the same period in 1997. This increases is
primarily due to: (i) an increase of approximately $55,000 in administrative
fees on the newly acquired properties; and (ii) net increases of approximately
$12,000 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> - 12 -
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) $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)).
10(e) $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)).
<PAGE> - 13 -
10(f) 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(g) 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(h) 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)).
(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> - 14 -
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: May 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> - 15 -
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<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> MAR-31-1998
<CASH> 7,465,692
<SECURITIES> 13,006,526
<RECEIVABLES> 218,216
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 7,683,908
<PP&E> 73,847,353
<DEPRECIATION> (10,192,054)
<TOTAL-ASSETS> 86,331,876
<CURRENT-LIABILITIES> 1,958,126
<BONDS> 26,888,485
<COMMON> 0
0
0
<OTHER-SE> 55,085,265
<TOTAL-LIABILITY-AND-EQUITY> 86,331,876
<SALES> 0
<TOTAL-REVENUES> 3,441,838
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 2,436,979
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 430,752
<INCOME-PRETAX> 574,107
<INCOME-TAX> 0
<INCOME-CONTINUING> 574,701
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 574,701
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
