FORM 10-K
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended December 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)
Securities Registered Pursuant to Section 12(b) of the Act:
None
Securities Registered Pursuant to Section 12(g) of the Act:
Beneficial Unit Certificates representing assignments of limited
partnership interests in America First Apartment Investors, L.P. (the
"BUCs")
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
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K (Section 229.405 of the chapter) is not contained
herein, and will not be contained, to the best of the registrant's knowledge, in
definitive proxy or information statements incorporated by reference in Part
III of this Form 10-K or any amendment to this Form 10-K. [X]
The aggregate market value of the BUCs on March 16, 1999, based upon the
final sales price per BUC reported in The Wall Street Journal on March 17,
1999, was $48,064,545.
DOCUMENTS INCORPORATED BY REFERENCE
None
<PAGE> - i -
TABLE OF CONTENTS
Page
PART I
Item 1. Business 1
Item 2. Properties 2
Item 3. Legal Proceedings 4
Item 4. Submission of Matters to a Vote of Security Holders 4
PART II
Item 5. Market for the Registrant's Common Equity and Related
Stockholder Matters 4
Item 6. Selected Financial Data 5
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations 6
Item 7A. Quantitative and Qualitative Disclosures About Market Risk 17
Item 8. Financial Statements and Supplementary Data 17
Item 9. Changes in and Disagreements With Accountants on Accounting and
Financial Disclosure 17
PART III
Item 10. Directors and Executive Officers of the Registrant 18
Item 11. Executive Compensation 19
Item 12. Security Ownership of Certain Beneficial Owners and Management 19
Item 13. Certain Relationships and Related Transactions 19
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K 20
SIGNATURES 40
<PAGE> - ii -
PART I
Item 1. Business. America First Apartment Investors, L.P. (the
Registrant or the Partnership) was formed on March 7, 1996, under the Delaware
Revised Uniform Limited Partnership Act for the purpose of acquiring, holding,
operating, selling and otherwise dealing with multifamily real estate and
other types of commercial real estate and interests therein. The Partnership
will pursue its purpose in order to (i) preserve investors' capital and (ii)
provide regular cash distributions to investors.
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. As of the record date established for the Merger, a total
of 5,212,167 Beneficial Unit Certificates (BUCs) representing assigned limited
partnership interests in the Prior Partnership were outstanding. BUC holders
of the Prior Partnership received one BUC in the Partnership for each BUC of
the Prior Partnership outstanding as of the record date.
After completion of the offering of its BUCs in 1986, the Prior
Partnership acquired nine tax-exempt mortgage bonds with an aggregate
principal amount of $90,765,000. These tax-exempt bonds were issued by
various state and local authorities to provide construction and permanent
financing of eight multifamily housing properties and one commercial property
located in eight states. The Prior Partnership subsequently acquired five of
the properties through foreclosure or deed in lieu of foreclosure or through
the acquisition of an indirect ownership interest. The Prior Partnership also
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. These properties, along with three mortgage bonds,
were acquired by the Partnership in connection with the Merger. The other
mortgage bond was repaid by the borrower in 1988. Since the Merger, the
Partnership acquired seven additional multifamily housing properties, one in
1996, two in 1997 and four in 1998. In addition, in 1997, the Partnership
also acquired a property through a deed in lieu of foreclosure on one of its
tax-exempt mortgage bonds. As of December 31, 1998, these properties had a
depreciated cost of $99,915,375. A description of the real estate acquired by
the Registrant appears in Note 5 of the Notes to the Financial Statements
filed in response to Item 8 hereof. For further information regarding these
properties, see Item 7, Management's Discussion and Analysis of Financial
Condition and Results of Operations.
Of the three mortgage bonds acquired by the Partnership in connection
with the Merger, one property was deeded to the Partnership in lieu of
foreclosure on the mortgage bond and the other two mortgage bonds were prepaid
to the Partnership, one each in 1997 and 1998.
The amount of cash received by the Registrant from tax-exempt mortgage
bonds and the real estate is a function of the net rental revenues generated
by the properties financed or owned by the Partnership. Net rental revenues
from a multifamily apartment complex depend on the rental and occupancy rates
of the property and on the level of operating expenses. Occupancy rates and
rents are directly affected by the supply of, and demand for, apartments in
the market areas in which a property is located. This, in turn, is affected
by several factors such as local or national economic conditions, the amount
of new apartment construction and interest rates on single-family mortgage
loans. In addition, factors such as government regulation (such as zoning
laws), inflation, real estate and other taxes, labor problems and natural
disasters can affect the economic operations of a property.
In each city in which the properties financed or owned by the Registrant
are located, such properties compete with a substantial number of other
apartment complexes. Apartment complexes also compete with single-family
housing that is either owned or leased by potential tenants. The principal
method of competition is to offer competitive rental rates. Such properties
also compete by emphasizing property location, condition and amenities.
The Registrant believes that each of the properties it has financed or
owns is in compliance in all material respects with federal, state and local
regulations regarding hazardous waste and other environmental matters and the
Registrant is not aware of any environmental contamination at any of such
properties that would require any material capital expenditure by the
Registrant for the remediation thereof.
<PAGE> - 1 -
The Registrant is engaged solely in the business of providing financing
for the acquisition and improvement of real estate and the operation of real
estate acquired. Accordingly, the presentation of information about industry
segments is not applicable and would not be material to an understanding of
the Registrant's business taken as a whole.
The Registrant has no employees. Certain services are provided to the
Registrant by employees of America First Companies L.L.C. which is the general
partner of the general partner of the Registrant, and the Registrant
reimburses America First Companies L.L.C. for such services at cost. The
Registrant is not charged, and does not reimburse, for the services performed
by managers and officers of America First Companies L.L.C..
Item 2. Properties. Properties owned by the Registrant at December 31,
1998 are described in the following table:
<TABLE>
<CAPTION>
Average
Number Square Feet Federal
Property Name Location of Units Per Unit Tax Basis
- - -------------------------- ------------------- -------- ----------- ---------------
<S> <C> <C> <C> <C>
Covey at Fox Valley Aurora, IL 216 948 $ 9,256,819
The Park at Fifty Eight Chattanooga, TN 196 876 3,504,471
Shelby Heights Bristol, TN 100 980 2,551,929
Coral Point Mesa, AZ 336 780 9,591,276
Park at Countryside Port Orange, FL 120 720 3,073,365
The Retreat Atlanta, GA 226 855 8,661,246
Jackson Park Place Fresno, CA 296 822 11,479,418
Park Trace Apartments Norcross, GA 260 806 13,519,875
Littlestone at Village Green Gallatin, TN 200 987 10,457,086
St. Andrews at Westwood Orlando, FL 259 836 15,723,805
Hunt Apartments Oklahoma City, OK 216 693 7,601,098
Greenbriar Apartments Tulsa, OK 120 666 4,305,786
-------- ---------------
2,545 99,726,174
========
The Exchange at Palm Bay Palm Bay, FL 72,002 (1) 4,223,242
======== ---------------
$ 103,949,416
===============
</TABLE>
(1) Represents square feet.
Depreciation is taken on each property acquired on a straight-line basis
over the estimated useful life of the properties (27-1/2 years on multifamily
residential apartments and 31-1/2 years on The Exchange at Palm Bay).
<PAGE> - 2 -
The average annual occupancy rate and average effective rental rate per
unit or per square foot for each of the properties for each of the last five
years are listed in the following table. Information prior to the dates the
properties were acquired by the Registrant is not available to the Registrant
and accordingly is not presented in the table.
<TABLE>
<CAPTION>
1998 1997 1996 1995 1994
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
COVEY AT FOX VALLEY
Average Occupancy Rate 95% 94% 95% 94% 95%
Average Effective Annual Rental Per Unit $8,721 $8,691 $8,574 $8,057 $7,782
THE PARK AT FIFTY EIGHT
Average Occupancy Rate 95% 97% 96% 97% 96%
Average Effective Annual Rental Per Unit $4,940 $4,880 $4,774 $4,937 $4,768
SHELBY HEIGHTS
Average Occupancy Rate 95% 92% 92% 95% 97%
Average Effective Annual Rental Per Unit $5,814 $5,649 $5,653 $5,611 $5,601
CORAL POINT
Average Occupancy Rate 96% 94% 96% 96% 97%
Average Effective Annual Rental Per Unit $6,157 $5,966 $5,825 $5,537 $5,183
THE EXCHANGE AT PALM BAY
Average Occupancy Rate 80% 65% 56% 43% 39%
Average Effective Annual Rental Per Square Foot $7.07 $ 5.85 $ 4.89 $ 3.52 $ 3.27
PARK AT COUNTRYSIDE
Average Occupancy Rate 98% 97% N/A (1) N/A N/A
Average Effective Annual Rental Per Unit $6,426 $6,086 N/A N/A N/A
JACKSON PARK PLACE
Average Occupancy Rate 97% 93% 93% 96% 95%
Average Effective Annual Rental Per Unit $5,891 $5,631 $5,703 $5,773 $5,585
THE RETREAT
Average Occupancy Rate 97% 94% (2) N/A N/A N/A
Average Effective Annual Rental Per Unit $7,044 $6,403 N/A N/A N/A
PARK TRACE APARTMENTS
Average Occupancy Rate 93% 86% (3) N/A N/A N/A
Average Effective Annual Rental Per Unit $6,953 $6,717 N/A N/A N/A
LITTLESTONE AT VILLAGE GREEN
Average Occupancy Rate 93%(4) N/A N/A N/A N/A
Average Effective Annual Rental Per Unit $1,887 N/A N/A N/A N/A
ST. ANDREWS AT WESTWOOD APARTMENTS
Average Occupancy Rate 96%(5) N/A N/A N/A N/A
Average Effective Annual Rental Per Unit $2,337 N/A N/A N/A N/A
THE HUNT APARTMENTS
Average Occupancy Rate 96%(6) N/A N/A N/A N/A
Average Effective Annual Rental Per Unit $224 N/A N/A N/A N/A
GREENBRIAR APARTMENTS
Average Occupancy Rate 96%(6) N/A N/A N/A N/A
Average Effective Annual Rental Per Unit $267 N/A N/A N/A N/A
</TABLE>
(1) Property was acquired on December 30, 1996.
(2) Based on information from April 10, 1997, the date of acquisition, through
December 31, 1997.
(3) Based on information from October 24, 1997, the date of acquisition,
through December 31, 1997.
<PAGE> - 3 -
(4) Based on information from September 30, 1998, the date of acquisition,
through December 31, 1998.
(5) Based on information from September 18, 1998, the date of acquisition,
through December 31, 1998.
(6) Occupancy rate at December 31, 1998. (Property was acquired on December
17, 1998)
In the opinion of the Partnership's management, each of the properties
owned by the Partnership is adequately covered by insurance. For additional
information concerning the properties, see "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and Note 6
to the Partnership's Financial Statements. A discussion of general
competitive conditions to which these properties are subject is included in
Item 1 hereof.
Item 3. Legal Proceedings. There are no material pending legal
proceedings to which the Registrant is a party or to which any of its property
is subject.
Item 4. Submission of Matters to a Vote of Security Holders. No matter
was submitted during the fourth quarter of the fiscal year ended December 31,
1998, to a vote of the Registrant's security holders.
PART II
Item 5. Market for the Registrant's Common Equity and Related
Stockholder Matters.
(a) Market Information. The BUCs trade on the NASDAQ Stock Market under
the trading symbol "APROZ". The following table sets forth the high and low
final sale prices for the BUCs for each quarterly period from January 1, 1997,
through December 31, 1998.
<TABLE>
<CAPTION>
1997 High Low
----------- --------- ---------
<S> <C> <C>
1st Quarter $ 9-1/2 $ 8-5/8
2nd Quarter $ 9-3/8 $ 8-3/4
3rd Quarter $ 9-7/8 $ 8-7/8
4th Quarter $10-1/2 $ 9-3/8
1998 High Low
----------- --------- ---------
1st Quarter $11-3/8 $ 9-3/4
2nd Quarter $10-3/4 $ 9-1/8
3rd Quarter $10-1/2 $ 9-1/8
4th Quarter $10-1/4 $ 8-1/2
</TABLE>
(1)
(b) BUC Holders. The approximate number of BUC holders on December 31,
1998, was 2,855.
(c) Distributions. Cash distributions are being made on a monthly
basis. Total cash distributions paid or accrued to BUC Holders during the
fiscal years ended December 31, 1998, and December 31, 1997, equaled
$3,996,688 and $3,909,126, respectively. The cash distributions paid per BUC
during the fiscal years ended December 31, 1998, and December 31, 1997, were
as follows:
<PAGE> - 4 -
<TABLE>
<CAPTION>
Per BUC
Year Ended Year Ended
December 31, 1998 December 31, 1997
----------------- -----------------
<S> <C> <C>
Income $ .2464 $ -
Return of Capital .5203 .7500
----------------- -----------------
Total $ .7667 $ .7500
================= =================
</TABLE>
See Item 7, Management Discussion and Analysis of Financial Condition
and Results of Operations, for information regarding the sources of funds used
for cash distributions and for a discussion of factors, if any, which may
adversely affect the Registrant's ability to make cash distributions at the
same levels in 1999 and thereafter.
Item 6. Selected Financial Data. Set forth below is selected financial
data for the Partnership which includes the financial data of America First
Apartment Investors, L.P. from August 20, 1996 (the Merger Date), through
December 31, 1998, and America First Tax Exempt Fund 2 Limited Partnership for
periods prior to the Merger Date. The information set forth below should be
read in conjunction with the consolidated and combined Financial Statements
and Notes thereto filed in response to Item 8 hereof.
<TABLE>
<CAPTION>
For the For the For the For the For the
Year Ended Year Ended Year Ended Year Ended Year Ended
Dec. 31, 1998 Dec. 31, 1997 Dec. 31, 1996 Dec. 31, 1995 Dec. 31, 1994
------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
Rental income $ 14,136,286 $ 9,511,041 $ 5,763,648 $ 5,116,073 $ 4,949,664
Mortgage bond investment income 839,201 1,611,956 2,107,486 2,234,610 2,452,200
Contingent interest - 290,520 - - -
Interest income on temporary cash investments 919,767 35,532 51,557 55,720 37,303
Real estate operating expenses (6,674,248) (4,514,450) (3,047,804) (2,359,827) (2,397,067)
Depreciation (2,712,145) (1,897,586) (1,165,059) (1,197,490) (1,183,588)
Interest expense (2,352,767) (1,132,494) (118,382) - -
Realized loss on disposition of mortgage bond - (3,000,000) - - -
General and administrative expenses (1,421,998) (1,263,054) (1,146,709) (792,300) (689,987)
------------- ------------- ------------- ------------- -------------
Net income (loss) $ 2,734,096 $ (358,535) $ 2,444,737 $ 3,056,786 $ 3,168,525
============= ============= ============= ============= =============
Net income (loss), basic and diluted, per
Beneficial Unit Certificate (BUC) $ .51 $ (.08) $ .46 $ .57 $ .60
============= ============= ============= ============= =============
Total cash distributions paid or accrued per BUC $ .7667 $ .7500 $ .7500 $ .7500 $ .7500
============= ============= ============= ============= =============
Investment in real estate, net of accumulated
depreciation (and valuation allowance for
years 1995 and prior) $ 99,915,375 $ 64,267,471 $ 30,199,846 $ 25,890,570 $ 26,770,652
============= ============= ============= ============= =============
Investment in tax-exempt mortgage bonds $ - $ 13,006,526 $ 31,566,526 $ 31,566,526 $ 31,566,526
============= ============= ============= ============= =============
Total assets $ 121,518,386 $ 87,123,522 $ 64,923,401 $ 59,630,449 $ 60,520,431
============= ============= ============= ============= =============
Bonds and mortgage notes payable $ 56,600,662 $ 27,035,000 $ 2,750,000 $ - $ -
============= ============= ============= ============= =============
</TABLE>
<PAGE> - 5 -
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Liquidity and Capital Resources
The Partnership's principal capital resources at December 31, 1998 consisted
of twelve apartment complexes and one office/warehouse facility which had a
combined depreciated cost of $99,915,375 as of that date. The following table
sets forth certain information regarding the Partnership's real estate as of
December 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 296 286 97%
Covey at Fox Valley Aurora, IL 216 195 90%
The Park at Fifty Eight Chattanooga, TN 196 184 94%
Shelby Heights Bristol, TN 100 92 92%
Coral Point Mesa, AZ 336 319 95%
Park at Countryside Port Orange, FL 120 117 98%
The Retreat Atlanta, GA 226 221 98%
Park Trace Apartments Norcross, GA 260 235 90%
Littlestone at Village Green Gallatin, TN 200 182 91%
St. Andrews at Westwood Apartments Orlando, FL 259 240 93%
The Hunt Apartments Oklahoma City, OK 216 208 96%
Greenbriar Apartments Tulsa, OK 120 115 96%
---------- ---------- -----------
2,545 2,394 94%
========== ========== ===========
The Exchange at Palm Bay Palm Bay, FL 72,002(1) 41,875(1) 58%
========== ========== ===========
</TABLE>
(1) Represents square feet.
Five of the apartment complexes and the office/warehouse facility were
acquired by the Partnership through a merger with America First Tax Exempt
Mortgage Fund 2 Limited Partnership (the Prior Partnership) on August 20,
1996. The Partnership also acquired three tax-exempt mortgage bonds secured
by additional apartment complexes as a result of the merger. The total
principal balance of these bonds equaled $40,315,000. During 1997, the
Partnership acquired The Retreat, Park Trace Apartments and Jackson Park Place
Apartments. Jackson Park Place Apartments was acquired through delivery of a
deed in lieu of foreclosure of the tax-exempt bonds that the Partnership held
on this property. In addition, during 1997 the Partnership was repaid on one
of its tax-exempt mortgage bonds. In May 1998, the Partnership sold its
remaining tax-exempt bond. The Partnership acquired four additional
properties in 1998. Littlestone at Village Green and St. Andrews at Westwood
Apartments were acquired in September 1998 for $10,563,778 and $15,875,081,
respectively. The Hunt Apartments and Greenbriar Apartments were acquired in
December 1998 for $7,611,832 and $4,311,310, respectively.
The principal sources of funds used by the Partnership to finance the
acquisition of additional apartment complexes are: (i) proceeds from the
issuance of tax exempt mortgage bonds secured by the Partnership's existing
and/or the acquired apartment complexes, (ii) the net proceeds from the sale
or disposition of tax-exempt bonds acquired in the merger with the Prior
Partnership and (iii) the assumption of existing indebtedness on properties
acquired.
The Partnership has borrowed a total of $40,205,000 through the
issuance of five tax-exempt mortgage bonds. As of December 31, 1998, the
aggregate outstanding principal balances of these bonds equaled $39,896,598.
The principal of two of the bonds do not amortize and are due in full at
maturity. Maturity dates range from November 2007 to December 2027. These
bonds bear interest at rates ranging from 4.96% to 6.65% per annum. Each bond
is a "non-recourse" obligation that is secured by a first mortgage or deed of
trust on one or two of the Partnership's apartment complexes. Principal and
interest payments on the bonds are made solely from the net cash flow and/or
net sale or refinancing proceeds of the mortgaged properties.
<PAGE> - 6 -
The Partnership has also assumed a taxable mortgage loan in connection with
the acquisition of Village Green Apartments. As of December 31, 1998, the
outstanding balance of this mortgage loan was $5,729,064. This mortgage loan
bears interest at the rate of 7.68% per annum. In addition to interest, the
loan requires monthly payments of principal through maturity on September 15,
2005. In connection with the acquisition of The Hunt Apartments and
Greenbriar Apartments, the Partnership assumed tax-exempt mortgage loans. As
of December 31, 1998, the aggregate outstanding balance of these mortgage
loans was $10,975,000. The mortgage loans bear interest at floating rates
which were 4.00% and 4.15% at December 31, 1998. The mortgage loan on The
Hunt Apartments matures on April 1, 2020 and the mortgage loan on Greenbriar
Apartments matures on March 15, 2005.
In May 1998, the Partnership sold its tax-exempt mortgage bond secured by
Avalon Ridge Apartments in Renton, Washington. The net cash proceeds realized
by the Partnership from the sale of this bond were $18,755,000.
In addition to making property acquisitions, the Partnership requires cash to
pay its operating expenses and for periodic distributions to its BUC holders.
On September 1, 1998, the Partnership increased the annual distribution rate
from $.75 per BUC ($.0625 per month) to $.80 per BUC ($.0667) effective with
the September distribution payable in October. The following table sets forth
information regarding cash distributions paid to BUC holders during the
years shown:
<TABLE>
<CAPTION>
For the For the For the
Year Ended Year Ended Year Ended
Dec. 31, 1998 Dec. 31, 1997 Dec. 31, 1996
--------------- --------------- ---------------
<S> <C> <C> <C>
Regular monthly distributions
Income $ .2464 $ - $ .5272
Return of capital .5203 .7500 .2228
--------------- --------------- ---------------
$ .7667 $ .7500 $ .7500
=============== =============== ===============
Distributions
Paid out of current and prior undistributed cash flow $ .7667 $ .7500 $ .7500
=============== =============== ===============
</TABLE>
The principal sources of cash available for the payment of expenses and
distributions are: (i) net rental revenues generated by the Partnership's
real estate, (ii) interest income earned on temporary investments and (iii)
amounts held in the Partnership's reserves. As of December 31, 1998, the
amount held by the Partnership in the reserve equaled $6,238,941. During the
year ended December 31, 1998, $1,374,001 of undistributed income was added to
the reserve. Future distributions to BUC holders will depend on the amount of
net rental income and interest income earned the Partnership and the amount
available in the reserve. The Partnership believes that the cash provided by
net rental income and interest income, supplemented, if necessary, by
withdraws from its reserve, will be adequate to meet its projected short-term
and long-term liquidity requirements. Under the terms of its Partnership
Agreement, the Partnership has the authority to enter into short-term and
long-term debt financing arrangements. However, the Partnership currently
does not anticipate entering into such arrangements for purposes of paying
expenses and making distributions. However, in connection with the
acquisition of additional real estate, the Partnership does expect to borrow
additional amounts through the issuance of tax-exempt mortgage bonds or
through the assumption of existing taxable mortgage debt. The Partnership is
not authorized to issue additional BUCs to meet short-term or long-term
liquidity requirements.
<PAGE> - 7 -
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 fair value of all real estate owned by the Partnership is based on
management's best estimate of the net realizable value of the properties which
may vary from the ultimate value realized from these properties. The fair
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. 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.
Based on the foregoing methodology, valuation and reviews performed during
1998 indicated that the carrying value of the Partnership's real estate
recorded on the balance sheet at December 31, 1998, required no adjustment.
The following sets forth certain information regarding the real estate owned
by the Partnership:
Jackson Park Place
Jackson Park Place Apartments, located in Fresno, California, had an average
occupancy rate of 97% during 1998 compared to 93% in 1997. This property
generated net cash flow of $907,000 in 1998 compared to $505,000 in 1997
(subsequent to its acquisition in May 1997). Tax-exempt refunding bonds
collateralized by this property were issued in December 1997 and bear interest
at an effective rate of 5.8%. Debt service payments on the bonds
totaled $598,840 during 1998. The bonds had a principal balance of
$8,396,598 at December 31, 1998. The last principal payment is due on
December 1, 2027.
Covey at Fox Valley
Covey at Fox Valley Apartments, located in Aurora, Illinois, had an average
occupancy rate of 95% during 1998 compared to 94% during 1997. This property
generated net cash flow of $1,082,000 in 1998 compared to $1,246,000 in 1997.
Excluding property tax refunds of approximately $180,000 received in 1997, net
cash flow generated in 1998 was $16,000 or 1.5% higher than in 1997.
Tax-exempt refunding bonds collateralized by this property and Park Trace
Apartments were issued in December 1997 and bear interest at an effective rate
of 5.3%. The $12,410,000 principal amount of the bonds does not amortize over
its term. Debt service on these bonds totaled $586,476 in 1998. The bonds
have a mandatory redemption date of November 1, 2007.
The Park at Fifty Eight
The Park at Fifty Eight Apartments, located in Chattanooga, Tennessee, had an
average occupancy rate of 95% during 1998 compared to 97% during 1997. This
property generated net cash flow, excluding debt service, of $350,000 in 1998
compared to $420,000 in 1997. The $70,000 decrease in net cash flow is
primarily attributable to a $50,000 increase in real estate taxes and a
$45,000 increase in other real estate operating expenses which was partially
offset by a $25,000 increase in rental revenue resulting primarily from an
increase in rental rates. In May 1996, tax-exempt refunding bonds, with a
total principal balance of $2,750,000 and collateralized by this property were
issued. The bonds bear interest at an effective rate of 6.65%. Debt service
on these bonds totaled $225,345 in 1998. At December 31, 1998, the remaining
principal balance of the bonds was $2,620,000. The final principal payment is
due on March 1, 2021.
<PAGE> - 8 -
Shelby Heights
Shelby Heights Apartments, located in Bristol, Tennessee, had an average
occupancy rate of 95% during 1998 compared to 92% in and 1997. This property
generated net cash flow, excluding debt service, of approximately $350,000 in
1998 compared to $313,000 in 1997. The $37,000 or 11.8% increase in net cash
flow is primarily attributable to an increase in rental revenue resulting from
the 3% increase in average occupancy. Tax-exempt refunding bonds
collateralized by this property and Park at Countryside were issued in March
1997 and bear interest at an effective rate of 6.1%. Debt service on the
bonds totaled $273,890 in 1998. The bonds had a remaining principal balance
of $3,380,000 at December 31, 1998. The final principal payment is due on
March 1, 2022.
Coral Point
Coral Point, located in Mesa, Arizona, had an average occupancy rate of 96%
during 1998 compared to 94% during 1997. This property generated net cash
flow, excluding debt service of $1,188,000 in 1998 compared to $1,103,000 in
1997. The $85,000 or 7.7% increase in net cash flow is primarily attributable
to an increase in rental revenue resulting from the 2% increase in average
occupancy and an increase in rental rates. Tax-exempt refunding bonds
collateralized by this property and St. Andrews at Westwood Apartments were
issued in April 1998 and bear interest at an effective rate of 4.96%. The
$13,090,000 principal amount of the bonds does not amortize over its term.
The bonds have a mandatory redemption date of March 1, 2008. Debt service on
the bonds totaled $325,016 in 1998.
Park at Countryside
Park at Countryside, located in Port Orange, Florida had an average occupancy
of rate of 98% in 1998 compared to 97% in 1997. The property generated net
cash flow, excluding debt service, of $396,000 in 1998 compared to $257,000 in
1997. The $139,000 or 54% increase in net cash flow is attributable to a
$71,000 increase in rental revenue due to a slight increase in average
occupancy combined with a $68,000 decrease in operating expenses, primarily
taxes and insurance. Tax-exempt refunding bonds collateralized by this
property and Shelby Heights were issued in March 1997 and bear interest at an
effective rate of 6.1%. Debt service on the bonds totaled $273,890 in 1998.
The bonds had a remaining principal balance of $3,380,000 at December 31,
1998. The final principal payment is due on March 1, 2022.
The Retreat
The Retreat, located in Atlanta, Georgia, had an average occupancy rate of 97%
in 1998 compared to 94% in 1997 (subsequent to its acquisition in April,
1997). The property generated net cash flow of $895,000 in 1998 compared to
$630,000 in 1997, subsequent to its acquisition. This property collateralized
certain tax-exempt refunding bonds that were issued July 30, 1997 by Jefferson
Place, L.P.. The bonds had a principal balance of $11,985,000 at December 31,
1998.
Park Trace Apartments
Park Trace Apartments, located in Norcross, Georgia, had an average occupancy
of 93% in 1998 compared to 86% in 1997 (subsequent to its acquisition in
October, 1997). The property generated net cash flow excluding debt service,
of $1,051,000 in 1998, compared to $194,000 in 1997, subsequent to its
acquisition. Tax-exempt refunding bonds, collateralized by this property and
Covey at Fox Valley, were issued in December 1997 and bear interest at an
effective rate of 5.3%. Debt service on these bonds totaled $586,476 in 1998.
The bonds have a mandatory redemption date of November 1, 2007.
The Exchange at Palm Bay
The Exchange at Palm Bay, located in Palm Bay, Florida, is an office/warehouse
facility. This property continues to experience low occupancy due to the
large amount of similar commercial real estate in the surrounding area. The
property's average leased space was 80% in 1998 compared to 65% in 1997. The
property generated operating cash flow of approximately $452,000 in 1998
compared to $244,000 in 1997. The increase in cash flow is a direct result of
the increase in average occupancy.
<PAGE> - 9 -
Littlestone at Village Green
Littlestone at Village Green, located in Gallatin, TN, was acquired by the
Partnership on September 18, 1998. From the date of acquisition through
December 31, 1998, the property had an average occupancy rate of 93% and
generated net cash flow, excluding debt service on the mortgage note assumed
by the Partnership of $236,000. The mortgage note payable
matures on September 15, 2005 and bears interest at 7.68%. The mortgage note
payable had a principal balance of $5,729,064 at December 31, 1998. Debt
service on the mortgage note payable was $ 117,316 in 1998.
St. Andrews at Westwood Apartments
St. Andrews at Westwood Apartments, located in Orlando, FL, was acquired by
the Partnership on September 30, 1998. From the date of acquisition through
December 31, 1998, the property had an average occupancy rate of 96% and
generated net cash flow, excluding debt service, of $387,000.
Tax-exempt refunding bonds, collateralized by this property and Coral Point,
were issued in April 1998 and bear interest at 4.96%. The $13,090,000
principal amount of the bonds does not amortize over its term. The bonds have
a mandatory redemption date of March 1, 2008. Debt service on the bonds
totaled $325,016 in 1998.
The Hunt Apartments
The Hunt Apartments, located in Oklahoma City, OK, was acquired by the
Partnership on December 17, 1998. The property had an occupancy rate of 96%
at December 31, 1998. From the date of acquisition through December 31, 1998,
the property generated net cash flow, excluding debt service on the mortgage
note assumed by the Partnership, of $47,000. The $6,930,000
mortgage note payable does not amortize over its term. The mortgage note
payable matures on April 1, 2020 and bears interest at a floating rate, which
rate was 4.00% on December 31,1998. No debt service payments were made during
1998.
Greenbriar Apartments
Greenbriar Apartments, located in Tulsa, OK, was acquired by the Partnership
on December 17, 1998. The property had an occupancy rate of 96% at December
31, 1998. From the date of acquisition through December 31, 1998, the
property generated net cash flow, excluding debt service on the mortgage note
assumed by the Partnership, of $31,000. The $4,045,000
mortgage note payable does not amortize over its term. The mortgage note
payable matures on March 15, 2005 and bears interest at a floating rate, which
rate was 4.15% on December 31,1998. No debt service payments were made during
1998.
<PAGE> - 10 -
Results of Operations
The tables below compare the results of operations for each year shown. The
results of operations for 1996 include the combined accounts of the
Partnership from August 20, 1996 (the Merger Date), through December 31, 1996,
and the accounts of the Prior Partnership from January 1, 1996, until the
Merger Date.
<TABLE>
<CAPTION>
For the For the For the
Year Ended Year Ended Year Ended
Dec. 31, 1998 Dec. 31, 1997 Dec. 31, 1996
--------------- --------------- ---------------
<S> <C> <C> <C>
Rental income $ 14,136,286 $ 9,511,041 $ 5,763,648
Mortgage bond investment income 839,201 1,611,956 2,107,486
Contingent interest - 290,520 -
Interest income on temporary cash investments 919,767 35,532 51,557
--------------- --------------- ---------------
15,895,254 11,449,049 7,922,691
--------------- --------------- ---------------
Real estate operating expenses 6,674,248 4,514,450 3,047,804
Depreciation 2,712,145 1,897,586 1,165,059
Interest expense 2,352,767 1,132,494 118,382
Realized loss on disposition of mortgage bond - 3,000,000 -
General and administrative expenses 1,421,998 1,263,054 1,146,709
--------------- --------------- ---------------
13,161,158 11,807,584 5,477,954
--------------- --------------- ---------------
Net income (loss) $ 2,734,096 $ (358,535) $ 2,444,737
=============== =============== ===============
</TABLE>
<TABLE>
<CAPTION>
Increase Increase
(Decrease) (Decrease)
From 1997 From 1996
--------------- ---------------
<S> <C> <C>
Rental income $ 4,625,245 $ 3,747,393
Mortgage bond investment income (772,755) (495,530)
Contingent interest (290,520) 290,520
Interest income on temporary cash investments 884,235 (16,025)
--------------- ---------------
4,446,205 3,526,358
--------------- ---------------
Real estate operating expenses 2,159,798 1,466,646
Depreciation 814,559 732,527
Interest expense 1,220,273 1,014,112
Realized loss on disposition of mortgage bond (3,000,000) 3,000,000
General and administrative expenses 158,944 116,345
--------------- ---------------
1,353,574 6,329,630
--------------- ---------------
Net income (loss) $ 3,092,631 $ (2,803,272)
=============== ===============
</TABLE>
<PAGE> - 11 -
Rental income increased $4,625,245 from 1997 to 1998. This increase was
primarily attributable to: (i) an increase of $1,600,000 for Park Trace due
to the acquisition of Park Trace Apartments in October 1997 as well as an
increase in occupancy; (ii) an increase of $672,000 for Jackson Park Place due
primarily to the acquisition of the property in settlement of the mortgage
bond secured by this property in May 1997 and an increase in average
occupancy; (iii) a $637,000 increase resulting from the acquisition of St.
Andrews at Westwood Apartments in September 1998; (iv) an increase of $551,000
for The Retreat due primarily to the acquisition of this property in April
1997; (v) a $394,000 increase resulting from the acquisition of Littlestone
at Village Green in September 1998; (vi) an increase of $312,000 for Coral
Point due primarily to an increase in occupancy; (vii) a $190,000 increase for
the Exchange at Palm Bay due to an increase in average leased space; (viii) an
increase of $120,000 in rental income at the Partnership's other properties;
(ix) an increase of $79,000 from Covey at Fox Valley due to a slight increase
in the average occupancy rate and rental rate increases and (x) a $70,000
increase resulting from the acquisition of The Hunt Apartments and Greenbriar
Apartments in December 1998.
Rental income increased $3,747,393 from 1996 to 1997. This increase was
primarily attributable to: (i) a $1,166,000 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 $1,128,000 increase resulting
from the acquisition of The Retreat in April 1997; (iii) a $743,000 increase
resulting from the acquisition of Park at Countryside in December 1996; (iv) a
$347,000 increase resulting from the acquisition of Park Trace Apartments in
October 1997; (v) a $182,000 increase resulting primarily from increased
rental rates on Covey at Fox Valley, Shelby Heights and Coral Point and
increased average occupancy at The Exchange at Palm Bay; and (vi) a $181,000
increase resulting primarily from the acquisition of Phase I of The Park at
Fifty-Eight in May 1996.
Mortgage bond investment income decreased $772,755 from 1997 to 1998. During
1998, the Partnership earned mortgage bond investment income of $839,201 on
its only remaining tax-exempt mortgage bond which was collateralized by Avalon
Ridge. Interest earned in 1998 represented current and a portion of past due
base interest. Such mortgage bond was sold on May 1, 1998. During 1997, the
Partnership earned mortgage bond investment income on three tax-exempt
mortgage bonds, two of which were owned by the Partnership for a partial
year. During 1997, the Partnership earned mortgage bond investment income of
approximately $838,000 on Avalon Ridge and approximately $774,000 on the two
mortgage bonds it owned for a partial year.
Mortgage bond investment income decreased $495,530 from 1996 to 1997. The
decrease was primarily attributable to: (i) a $496,000 decrease resulting from
the acquisition of Jackson Park Place in settlement of the mortgage bond for
real estate in May 1997; and (ii) a $395,000 decrease resulting primarily from
the disposition of the Jefferson Place mortgage bond in July 1997. These
decreases in investment income were partially offset by a $395,000 increase in
cash flow received from the tax-exempt bond secured by Avalon Ridge which paid
interest on a modified cash basis. The increase in net cash flow received
from Avalon Ridge was due primarily to an increase in average occupancy and
rental rate increases from 1996 to 1997.
During 1997, the Partnership earned contingent interest income of $290,520 on
its investment in a tax-exempt mortgage bond collateralized by Jackson Park
Place. No such income was earned in 1998 or 1996.
Interest income on temporary cash investments increased $884,235 from 1997 to
1998 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.
Interest income on temporary cash investments decreased $16,025 from 1996 to
1997 due primarily to a decrease in the average reserve balance attributable
to withdrawals made from Partnership reserves during 1997 to acquire
additional apartment complexes.
<PAGE> - 12 -
Real estate operating expenses increased $2,159,798 from 1997 to 1998.
Excluding property tax refunds of approximately $180,000 received by Covey at
Fox Valley during 1997, real estate operating expenses increased $1,979,798
from 1997 to 1998. This increase is attributable to: (i) a $726,000 increase
resulting primarily from the acquisition of Park Trace Apartments in October
1997; (ii) a $422,000 increase resulting primarily from the acquisition of
Jackson Park Place in May 1997; (iii) a $269,000 increase due to the
acquisition of St. Andrews at Westwood Apartments in September 1998; (iv) a
$249,000 increase resulting primarily from the acquisition of The Retreat in
April 1997; (v) a $158,000 increase due to the acquisition of Littlestone at
Village Green in September 1998; (vi) a $7,000 increase due to the
acquisition of The Hunt Apartments and Greenbriar Apartments in December 1998
and (vii) an increase of $149,000 in real estate operating expenses at the
Partnership's other properties.
Excluding property tax refunds of approximately $180,000 received by Covey at
Fox Valley in 1997, real estate operating expenses increased $1,646,713 from
1996 to 1997. This increase was attributable to: (i) a $599,000 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 $547,000 increase
resulting from the acquisition of The Retreat in April 1997; (iii) a $489,000
increase resulting from the acquisition of Park at Countryside in December
1996; (iv) a $141,000 increase resulting from the acquisition of Park Trace
Apartments in October 1997; and (v) a $72,000 increase in property
improvements and advertising expenses at Shelby Heights and Coral Point.
These increases were partially offset by (i) a $134,000 decrease in
administrative expenses and property improvements at The Exchange at Palm Bay;
and (ii) a $67,000 decrease in real estate taxes and labor expenses at Covey
at Fox Valley and The Park at Fifty-Eight.
Depreciation expense increased $814,559 from 1997 to 1998 and is primarily
attributable to: (i) a $357,000 increase resulting from the acquisition of
Park Trace Apartments in October 1997; (ii) a $147,000 increase resulting from
the acquisition of St. Andrews at Westwood Apartments in September 1998; (iii)
a $129,000 increase resulting from the acquisition of Jackson Park Place in
May 1997; (iv) a $93,000 increase resulting from the acquisition of
Littlestone at Village Green in September 1998; (v) a $67,000 increase
resulting from the acquisition of The Retreat in April 1997; (vi) a $15,000
increase resulting from the acquisition of The Hunt Apartments and Greenbriar
Apartments in December 1998; and (vii) a $7,000 increase on the Partnership's
other properties.
Depreciation expense increased $732,527 from 1996 to 1997 primarily
attributable to: (i) a $258,000 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 $200,000 increase resulting from the acquisition
of The Retreat in April 1997; (iii) a $174,000 increase resulting from the
acquisition of Park at Countryside in December 1996; (iv) a $71,000 increase
resulting from the acquisition of Park Trace Apartments in October 1997; and
(v) a $30,000 increase resulting primarily from the acquisition of Phase I of
The Park at Fifty-Eight in May 1996.
Interest expense increased $1,220,273 from 1997 to 1998 and is primarily
attributable to: (i) a $726,000 increase on bonds payable of $12,410,000
issued December 1997; (ii) a $554,000 increase on bonds payable of $8,505,000
issued in December 1997; (iii) a $511,000 increase on bonds payable of
$13,090,000 issued in April 1998; (iv) a $92,000 increase in interest expense
due to the assumption of the mortgage loan on Littlestone at Village Green in
September 1998; (v) a $45,000 increase on bonds payable of $3,450,000 issued
in March 1997; (vi) a $15,000 increase due to the assumption of the mortgage
loans on The Hunt Apartments and Greenbriar Apartments in December 1998. These
increases were partially offset by a reduction in interest of approximately
$723,000 resulting from the reduction of the average amount borrowed by the
Partnership on its Line of Credit used to acquire new properties.
Interest expense increased $1,014,112 from 1996 to 1997 primarily attributable
to (i) interest of approximately $776,000 on the Partnership's Line of Credit
used to acquire new properties; (ii) interest of approximately $172,000 on
bonds payable of $3,450,000 which were issued in March 1997; and (iii) a
$67,000 increase on bonds payable of $2,750,000 which were issued in May
1996. Interest expense of $118,382 was incurred in 1996 on the $2,750,000 of
bonds payable which were issued in May 1996.
<PAGE> - 13 -
During 1997, the Partnership realized a loss of $3,000,000 in connection with
the payoff of its investment in a tax-exempt mortgage bond on Jefferson
Place. No such loss was incurred in 1998 or 1996.
General and administrative expenses increased $158,944 from 1997 to 1998.
This increases is primarily due to an increase of approximately $132,000
in administrative fees resulting from the acquisition of additional properties
during 1997 and 1998 and net increases of approximately $27,000 in other
general and administrative expenses.
General and administrative expenses increased $116,345 from 1996 to 1997.
This increase was primarily due to: (i) an increase of approximately $171,000
in salaries and related expenses; (ii) an increase of approximately $126,000
in administrative fees on the newly acquired properties; and (iii) net
increases of approximately $6,000 in other general and administrative
expenses. These increases were partially offset by a decrease of
approximately $186,000 of costs incurred in conjunction with the Merger.
<PAGE> - 14 -
Year 2000
The Partnership does not own or operate its own computer system and owns no
business or other equipment. However, the operation of the Partnership's
business relies on the computer system and other equipment maintained by
America First Companies L.L.C., the parent company of its general partner
("America First"). In addition, the Partnership has business relationships
with a number of third parties whose ability to perform their obligations to
the Partnership depend on such systems and equipment. Some or all of these
systems and equipment may be affected by the inability of certain computer
programs and embedded circuitry to correctly recognize dates occurring after
December 31, 1999. America First has adopted a plan to deal with this
so-called "Year 2000 problem" with respect to its information technology
("IT") systems, non-IT systems and third party business relationships.
State of Readiness
The IT system maintained by America First consists primarily of personal
computers, most of which are connected by a local area network. All
accounting and other record keeping functions relating to the Partnership that
are conducted in house by America First are performed on this PC-LAN system.
America First does not own or operate any "mainframe" computer systems. The
PC-LAN system runs software programs that America First believes are
compatible with dates after December 31, 1999. America First has engaged a
third party computer consulting firm to review and test its PC-LAN system to
ensure that it will function correctly after that date and expects that this
process, along with any necessary remediation, will be completed by
mid-1999. America First believes any Year 2000 problems relating to its IT
systems will be resolved without significant operational difficulties.
However, there can be no assurance that testing will discover all potential
Year 2000 problems or that it will not reveal unanticipated material problems
with the America First IT systems that will need to be resolved.
Non-IT systems include embedded circuitry such as microcontrollers found in
telephone equipment, security and alarm systems, copiers, fax machines, mail
room equipment, heating and air conditioning systems and other infrastructure
systems that are used by America First in connection with the operation of the
Partnership's business. America First is reviewing its non-IT systems along
with the providers that service and maintain these systems, with initial
emphasis being placed on those, such as telephone systems, which have been
identified as necessary to America First's ability to conduct the operation of
the Partnership's business activities. America First expects that any
necessary modification or replacement of such "mission critical" systems will
be accomplished by mid-1999.
The Partnership has no control over the remediation efforts of third parties
with which it has material business relationships and the failure of certain
of these third parties to successfully remediate their Year 2000 issues could
have a material adverse effect on the Partnership. Accordingly, America First
has undertaken the process of contacting each such third party to determine
the state of their readiness for Year 2000. Such parties include, but are not
limited to, the Partnership's transfer and paying agent and the financial
institutions with which the Partnership maintains accounts. America First has
received initial assurances from certain of these third parties that their
ability to perform their obligations to the Partnership are not expected to be
materially adversely affected by the Year 2000 problem. America First will
continue to request updated information from these material third parties in
order to assess their Year 2000 readiness. If a material third party vendor
is unable to provide assurance to America First that it is, or will be, ready
for Year 2000, America First intends to seek an alternative vendor to the
extent practical.
<PAGE> - 15 -
Costs
All of the IT systems and non-IT systems used to conduct the Partnership's
business operations are owned or leased by America First. Under the terms of
its partnership agreement, neither America First nor the Partnership's general
partner may be reimbursed by the Partnership for expenses associated with
their computer systems or other business equipment. Therefore, the costs
associated with the identification, remediation and testing of America First's
IT and non-IT systems will be paid by America First rather than the
Partnership. The Partnership will bear its proportionate share of the costs
associated with surveying the Year 2000 readiness of third parties. However,
the Partnership's share of the costs associated with these activities is
expected to be insignificant. Accordingly, the costs associated with
addressing the Partnership's Year 2000 issues are not expected to have a
material effect on the Partnership's results of operations, financial position
or cash flow.
Year 2000 Risks
The Partnership's general partner believes that the most reasonably likely
worst-case scenario will be that one or more of the third parties with which
it has a material business relationship will not have successfully dealt with
its Year 2000 issues and, as a result, is unable to provide services or
otherwise perform its obligations to the Partnership. For example, if the
Partnership's transfer and paying agent experiences Year 2000-related
difficulties, it may cause delays in making distributions to BUC holders or in
the processing of trading of BUCs. It is also possible that one or more of
the IT and non-IT systems of America First will not function correctly, and
that such problems may make it difficult to conduct necessary accounting and
other record keeping functions for the Partnership. However, based on
currently available information, the general partner does not believe that
there will be any protracted systemic failures of the IT or non-IT systems
utilized by America First in connection with the operation of the
Partnership's business.
Contingency Plans
Because of the progress which America First has made toward achieving Year
2000 readiness, the Partnership has not made any specific contingency plans
with respect to the IT and non-IT systems of America First. In the event of a
Year 2000 problem with its IT system, America First may be required to
manually perform certain accounting and other record-keeping functions.
America First plans to terminate the Partnership's relationships with material
third party service providers that are not able to represent to America First
that they will be able to successfully resolve their material Year 2000 issues
in a timely manner. However, the Partnership will not be able to terminate
its relationships with certain third parties, who may experience Year 2000
problems. The Partnership has no specific contingency plans for dealing with
Year 2000 problems experienced with these third parties.
All forecasts, estimates or other statements in this report relating to the
Year 2000 readiness of the Partnership and its affiliates are based on
information and assumptions about future events. Such "forward-looking
statements" are subject to various known and unknown risks and uncertainties
that may cause actual events to differ from such statements. Important
factors upon which the Partnership's Year 2000 forward-looking statements are
based include, but are not limited to, (a) the belief of America First that
the software used in IT systems is already able to correctly read and
interpret dates after December 31, 1999 and will require little or any
remediation; (b) the ability to identify, repair or replace mission critical
non-IT equipment in a timely manner, (c) third parties' remediation of their
internal systems to be Year 2000 ready and their willingness to test their
systems interfaces with those of America First, (d) no third party system
failures causing material disruption of telecommunications, data transmission,
payment networks, government services, utilities or other infrastructure, (e)
no unexpected failures by third parties with which the Partnership has a
material business relationship and (f) no material undiscovered flaws in
America First's Year 2000 testing process.
<PAGE> - 16 -
Forward Looking Statements
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 7A. Quantitative and Qualitative Disclosures About Market Risk.
The Partnership's primary market risk exposure is interest rate risk. The
Partnerhsip's exposure to market risk for changes in interest rates relates
primarily to its long-term borrowings used to fund expansion of the
Partnership's real estate portfolio. At December 31, 1998, the majority
(approximately 81%) of the Partnership's long-term borrowings consisted of
fixed-rate financing. The remaining 19% consisted of variable-rate
financing. The Parnership had no short-term financing at December 31, 1998.
The Partnership does not use derivative instruments to hedge its borrowings.
The table below presents principal amounts and weighted average interest rates
by year of maturity for the Partnership's borrowings:
<TABLE>
<CAPTION>
Principal Weighted Average
Maturity Amount Interest Rate
------------ ----------------- -----------------
Fixed Rate Borrowings <C> <C> <C>
1999 $ 341,489 5.70%
2000 366,815 5.69%
2001 393,223 5.69%
2002 415,791 5.68%
2003 439,601 5.67%
Thereafter 43,668,743 5.69%
Variable-Rate Borrowings 10,975,000 4.06%
The aggregate fair value of the Partnership's borrowings was $58,058,162 at
December 31, 1998.
</TABLE>
Item 8. Financial Statements and Supplementary Data. The Financial
Statements and supporting schedules of the Registrant are set forth in Item 14
hereof and are incorporated herein by reference.
Item 9. Changes in and Disagreements With Accountants on Accounting and
Financial Disclosure. There were no disagreements with the Registrant's
independent accountants on accounting principles and practices or financial
disclosure during the fiscal years ended December 31, 1998 and 1997.
The information required by this Item 9 relating to a change in accountants
has been previously reported (as that term is defined by Rule 12a-2 of the
Exchange Act) with the Commission by the Partnership on its Current Report on
Form 8-K dated December 15, 1998, as amended, and is hereby incorporated by
reference.
<PAGE> - 17 -
PART III
Item 10. Directors and Executive Officers of the Registrant. The
Registrant has no directors or officers. Management of the Registrant
consists of the general partner of the Registrant, America First Capital
Associates Limited Partnership Four ("AFCA"), and its general partner, America
First Companies L.L.C. The following individuals are managers and officers of
America First Companies L.L.C., and each serves for a term of one year:
<TABLE>
<CAPTION>
Name Position Held Position Held Since
- - ----------------------- -------------------------- -----------------------
<S> <C> <C>
Michael B. Yanney Chairman of the Board, 1987
President, Chief Executive
Officer and Manager
Michael Thesing Vice President, Secretary, 1987
Treasurer and Manager
William S. Carter, M.D. Manager 1994
Martin A. Massengale Manager 1994
Alan Baer Manager 1994
Gail Walling Yanney Manager 1996
Mariann Byerwalter Manager 1997
</TABLE>
Michael B. Yanney, 65, has served as the Chairman, President and Chief
Executive Officer of America First Companies L.L.C. and its predecessors since
1984. From 1977 until the organization of the first such fund in 1984, Mr.
Yanney was principally engaged in the ownership and management of commercial
banks. Mr. Yanney also has investments in private corporations engaged in a
variety of businesses. From 1961 to 1977, Mr. Yanney was employed by Omaha
National Bank and Omaha National Corporation (now part of U.S. Bank), where he
held various positions, including the position of Executive Vice President and
Treasurer of the holding company. Mr. Yanney also serves as a member of the
boards of directors of Burlington Northern Santa Fe Corporation, Forest Oil
Corporation, Level 3 Communications, Inc., Freedom Communications, Inc., Magnum
Resources, RCN Corporation, Rio Grande Medical Technologies, Inc., Mid-America
Apartment Communities, Inc. and PKS Information Services, Inc..
Michael Thesing, 44, has been Vice President and Chief Financial Officer
of affiliates of America First Companies L.L.C. since July 1984. He serves as
President of America First Investment Advisors, L.L.C. and is a member of the
Board of Managers of America First Companies L.L.C.. From January
1984 until July 1984 he was employed by various companies controlled by Mr.
Yanney. He was a certified public accountant with Coopers & Lybrand from 1977
through 1983.
William S. Carter, M.D., 72, is a retired physician. Dr. Carter
practiced medicine for 30 years in Omaha, Nebraska, specializing in
otolaryngology (disorders of the ears, nose and throat).
Martin A. Massengale, 65, is President Emeritus of the University of
Nebraska, Director of the Center for Grassland Studies and Foundation
Distinguished Professor. Prior to becoming President in 1991, he served as
Interim President from 1989, as Chancellor of the University of Nebraska
Lincoln from 1981 until 1990 and as Vice Chancellor for Agriculture and
Natural Resources from 1976 to 1981. Prior to that time, he was a professor
and associate dean of the College of Agriculture at the University of
Arizona. Dr. Massengale currently serves on the board of directors of Woodmen
Accident & Life Insurance Company and IBP, Inc. and is a member of the Board
of Trustees of the Great Plains Funds, Inc.
<PAGE> - 18 -
Alan Baer, 76, is presently Chairman of Alan Baer & Associates, Inc., a
management company located in Omaha, Nebraska. He is also Chairman of Lancer
Hockey, Inc., Baer Travel Services, Wessan Telemarketing, Total Security
Systems, Inc. and several other businesses. Mr. Baer is the former Chairman
and Chief Executive Officer of the Brandeis Department Store chain which,
before its acquisition, was one of the larger retailers in the Midwest. Mr.
Baer has also owned and served on the board of directors of several banks in
Nebraska and Illinois.
Gail Walling Yanney, 62, is a retired physician. Dr. Walling practiced
anesthesia and was most recently the Executive Director of the Clarkson
Foundation until October of 1995. In addition, she was a director of FirsTier
Bank, N.A., Omaha prior to its merger with First Bank, N.A.. Ms. Yanney is
the wife of Michael B. Yanney.
Mariann Byerwalter, 38, is Vice President of Business Affairs and Chief
Financial Officer of Stanford University. Ms. Byerwalter was Executive Vice
President of America First Eureka Holdings, Inc. ("AFEH") and EurekaBank from
1988 to January 1996. Ms. Byerwalter was Chief Financial Officer and Chief
Operating Officer of AFEH, and Chief Financial Officer of EurekaBank from 1993
to January 1996. She was an officer of BankAmerica Corporation and its
venture capital subsidiary from 1984 to 1987. She served as Vice President
and Executive Assistant to the President of Bank of America and was a Vice
President in the bank's Corporate Planning and Development Department. Ms.
Byerwalter currently serves on the board of directors of Redwood Trust, Inc.
Item 11. Executive Compensation. Neither the Registrant nor AFCA has
any managers or officers. Certain services are provided to the Registrant by
managers and officers of America First Companies L.L.C. (the general partner
of AFCA). None of the managers or executive officers of America First
Companies L.L.C. receive compensation from the Registrant and AFCA receives no
reimbursement from the Registrant for any portion of their salaries.
Remuneration paid by the Registrant to AFCA pursuant to the terms of its
limited partnership agreement during the year ended December 31, 1998, is
described in Note 9 of the Notes to the Financial Statements filed in response
to Item 8 hereof.
Item 12. Security Ownership of Certain Beneficial Owners and Management.
(a) No person is known by the Registrant to own beneficially more than 5%
of the Registrant's BUCs.
(b) Michael B. Yanney owns 11,000 BUCS and William S. Carter, M.D. owns
5,000 BUCs. No other manager or officer of America First Companies L.L.C.
and no partner of AFCA owns any BUCs.
(c) There are no arrangements known to the Registrant, the operation of
which may at any subsequent date result in a change in control of the
Registrant.
Item 13. Certain Relationships and Related Transactions. The general
partner of the Registrant is AFCA and the sole general partner of AFCA is
America First Companies L.L.C.
Except as described herein, the Registrant is not a party to any
transaction or proposed transaction with AFCA, America First Companies, L.L.C.
or with any person who is: (i) a manager or executive officer of America
First Companies L.L.C. or any general partner of AFCA; (ii) a nominee for
election as a manager of America First Companies L.L.C.; (iii) an owner of
more than 5% of the BUCs; or, (iv) a member of the immediate family of any of
the foregoing persons.
During 1998, the Registrant paid or reimbursed AFCA or America First
Companies L.L.C. $1,312,871 for certain costs and expenses incurred in
connection with the operation of the Registrant. These costs and expenses
included legal and accounting fees and investor communication costs, such as
printing and mailing charges, and costs incurred in connection with the
offering of multifamily housing refunding bonds and the acquisition of real
estate. See Note 8 to Notes to Financial Statements filed in response to Item
8 hereof for a description of these costs and expenses.
<PAGE> - 19 -
Pursuant to the Limited Partnership Agreement, AFCA 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 fee
paid to AFCA 4 was $484,274 in 1998.
AFCA is entitled to receive a property acquisition fee from the
Registrant in connection with the identification, evaluation and acquisition
of additional properties and the financing thereof. The Registrant paid
acquisition fees of $470,543 to AFCA during 1998.
America First Properties Management Company, L.L.C. (the "Manager") was
retained to provide property management services with respect to the
day-to-day operation of the multifamily properties owned or financed by the
Partnership during 1998. The property management agreements provide that the
Manager is entitled to receive a management fee equal to a stated percentage
of the gross revenues generated by the property under management. Management
fees payable to the Manager range from 4% to 5% of gross revenues. Because
the Manager is an affiliate of AFCA, the management fees payable by the
Registrant to the Manager may not exceed the lesser of (i) the rates that the
Registrant would pay an unaffiliated manager for similar services in the same
geographic location or (ii) the Manager's actual cost for providing such
services. During the year ended December 31, 1998, the Registrant paid the
Manager property management fees of $708,958.
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form
8-K. (a) The following documents are filed as part of this report:
1. Financial Statements of the Registrant. The following
financial statements of the Registrant are included in response
to Item 8 of this report:
Independent Auditors' Reports.
Balance Sheets of the Registrant as of December 31, 1998, and
December 31, 1997.
Statements of Income and Comprehensive Income of the Registrant
for the years ended December 31, 1998, December 31, 1997, and
December 31, 1996.
Statements of Partners' Capital of the Registrant for the years
ended December 31, 1998, December 31, 1997, and December 31, 1996.
Statements of Cash Flows of the Registrant for the years ended
December 31, 1998, December 31, 1997, and December 31, 1996.
Notes to Financial Statements of the Registrant.
Schedule III--Real Estate and Accumulated Depreciation for the
year ended December 31, 1998.
2. Financial Statement Schedules. The information required to be
set forth in the financial statement schedule is included in
the Financial Statements filed in response to Item 8 hereof.
3. Exhibits. The following exhibits were filed as required by
Item 14(c) of this report. Exhibit numbers refer to the
paragraph numbers under Item 601 of Regulation S-K:
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).
<PAGE> - 20 -
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) 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 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
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 Securities Exchange Act of 1934 by America First
Apartment Investors, L.P. (Commission File No. 0-20737)).
10(e) $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.
(incorporated herein by reference to Form 10-Q dated
June 30, 1998 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(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.
(incorporated herein by reference to Form 10-Q dated
June 30, 1998 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) 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.
(incorporated herein by reference to Form 10-Q dated
June 30, 1998 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) 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. (incorporated herein by reference to Form
10-Q dated June 30, 1998 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> - 21 -
24. Power of Attorney.
27. Financial Data Schedule
(b) The Registrant filed the following reports on Form 8-K during the
last quarter of the period covered by this report.
<TABLE>
<CAPTION>
Date of Report Item Reported Financial Statements
Filed
--------------- ------------------------- ---------------------
<S> <C> <C>
September 18, 1998 Item 2. Acquisition or
Disposition of Assets Yes
Item 7. Financial Statements and
Exhibits
December 15, 1998 Item 4. Change in Registrants
Certifying Accountant No
Item 7. Financial Statements and
Exhibits
</TABLE>
<PAGE> - 22 -
INDEPENDENT AUDITORS' REPORT
To the Partners
America First Apartment Investors L.P.:
We have audited the accompanying consolidated balance sheet of America First
Apartment Investors L.P. and subsidaries (formerly America First Tax Exempt
Mortgage Fund 2 Limited Partnership) as of December 31, 1998, and the related
consolidated statements of income (loss) and comprehensive income, partners'
capital and cash flows for the year then ended. These consolidated financial
statements are the responsibility of the Partnership's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of America
First Apartment Investors L.P. at December 31, 1998 and the results of its
operations and its cash flows for the year then ended, in conformity with
generally accepted accounting principles.
Omaha, Nebraska
March 19, 1999 /s/KPMG Peat Marwick LLP
To the Partners
America First Apartment Investors L.P.:
Under date of March 19, 1999, we reported on the consolidated balance
sheet of America First Apartment Investors L.P. and subsidiaries as of
December 31, 1998, and the related consolidated statements of income (loss) and
comprehensive income, partners' capital and cash flows for the year then
ended. In connection with our audit of the aforementioned consolidated
financial statements, we have also audited the related financial statement
schedule as listed in Item 14. This financial statement schedule is the
responsibility of the Partnership's management. Our responsibility is to
express an opinion on this financial statement schedule based on our audit.
In our opinion, the financial statement schedule, when considered in relation
to the basic consolidated financial statements taken as a whole, presents
fairly, in all material respects, the information set forth therein.
Omaha, Nebraska
March 19, 1999 /s/KPMG Peat Marwick LLP
<PAGE> - 23 -
INDEPENDENT ACCOUNTANTS' REPORT
To the Partners
America First Apartment Investors L.P.:
We have audited the accompanying balance sheets of America First Apartment
Investors L.P. (formerly America First Tax Exempt Mortgage Fund 2 Limited
Partnership) as of December 31, 1997 and the related consolidated statements
of income and comprehensive income, partners' capital and cash flows for each
of the two years in the period ended December 31, 1997. These consolidated
financial statements are the responsibility of the Partnership's management.
Our responsibility is to express an opinion on these consolidated financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatements. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of America
First Apartment Investors L.P. at December 31, 1997 and the results of its
operations and its cash flows for each of the two years in the period ended
December 31, 1997, in conformity with generally accepted accounting principles.
Omaha, Nebraska
March 26, 1998 /s/Pricewaterhouse Coopers LLP
---------------------------------
Coopers and Lybrand L.L.P.
<PAGE> - 24 -
AMERICA FIRST APARTMENT INVESTORS, L.P.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
Dec. 31, 1998 Dec. 31, 1997
-------------- --------------
<S> <C> <C>
Assets
Cash and temporary cash investments, at cost which
approximates market value (Note 4) $ 19,694,420 $ 7,879,934
Investment in real estate, net of accumulated depreciation (Note 5) 99,915,375 64,267,471
Investment in tax-exempt mortgage bonds, at estimated fair value (Note 6) - 13,006,526
Other assets 1,908,591 1,969,591
-------------- --------------
$ 121,518,386 $ 87,123,522
============== ==============
Liabilities and Partners' Capital
Liabilities
Accounts payable and accrued expenses (Note 8) $ 4,622,741 $ 4,261,162
Bonds and mortgage notes payable (Note 7) 56,600,662 27,035,000
Distribution payable (Note 3) 351,163 329,051
-------------- --------------
61,574,566 31,625,213
-------------- --------------
Partners' Capital
General Partner 21,129 7,037
Beneficial Unit Certificate Holders
($11.50 per BUC in 1998 and $10.65 in 1997) 59,922,691 55,491,272
-------------- --------------
59,943,820 55,498,309
-------------- --------------
$ 121,518,386 $ 87,123,522
============== ==============
The accompanying notes are an integral part of the consolidated and combined financial statements.
</TABLE>
<PAGE> - 25 -
AMERICA FIRST APARTMENT INVESTORS, L.P.
CONSOLIDATED AND COMBINED STATEMENTS OF INCOME (LOSS) AND COMPREHENSIVE INCOME
<TABLE>
<CAPTION>
For the For the For the
Year Ended Year Ended Year Ended
Dec. 31, 1998 Dec. 31, 1997 Dec. 31, 1996
(Combined)
-------------- -------------- --------------
<S> <C> <C> <C>
Income
Rental income $ 14,136,286 $ 9,511,041 $ 5,763,648
Mortgage bond investment income (Note 5) 839,201 1,611,956 2,107,486
Contingent interest (Note 5) - 290,520 -
Interest income on temporary cash investments 919,767 35,532 51,557
-------------- -------------- --------------
15,895,254 11,449,049 7,922,691
-------------- -------------- --------------
Expenses
Real estate operating expenses 6,674,248 4,514,450 3,047,804
Depreciation 2,712,145 1,897,586 1,165,059
Interest expense 2,352,767 1,132,494 118,382
Realized loss on disposition of mortgage bond - 3,000,000 -
General and administrative expenses (Note 8) 1,421,998 1,263,054 1,146,709
-------------- -------------- --------------
13,161,158 11,807,584 5,477,954
-------------- -------------- --------------
Net income (loss) 2,734,096 (358,535) 2,444,737
Other comprehensive income:
Unrealized gains (losses) on securities
Unrealized holding gains arising during the year 5,748,474 - -
Plus: reclassification adjustment for losses included in net income - 3,000,000 -
-------------- -------------- --------------
5,748,474 3,000,000 -
-------------- -------------- --------------
Net comprehensive income $ 8,482,570 $ 2,641,465 $ 2,444,737
============== ============== ==============
Net income (loss) allocated to:
General Partner $ 54,463 $ 42,485 $ 36,098
BUC Holders 2,679,633 (401,020) 2,408,639
-------------- -------------- --------------
$ 2,734,096 $ (358,535) $ 2,444,737
============== ============== ==============
Net income (loss), basic and diluted, per BUC $ .51 $ (.08) $ .46
============== ============== ==============
Weighted average number of BUCs outstanding 5,212,167 5,212,167 5,228,895
============== ============== ==============
The accompanying notes are an integral part of the consolidated and combined financial statements.
</TABLE>
<PAGE> - 26 -
AMERICA FIRST APARTMENT INVESTORS, L.P.
CONSOLIDATED STATEMENT OF PARTNERS' CAPITAL
FROM DECEMBER 31, 1995, TO DECEMBER 31, 1998
<TABLE>
<CAPTION>
Beneficial Unit
Certificate Holders
General
Partner # of BUCs Amount Total
--------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C>
Partners' Capital (excluding accumulated other
comprehensive income):
Balance at December 31, 1995 $ 7,553 $ 5,245,623 $ 67,357,194 $ 67,364,747
Net income 36,098 - 2,408,639 2,444,737
Cash distributions paid or accrued (Note 3)
Income (39,613) - (2,756,612) (2,796,225)
Return of capital - - (1,165,059) (1,165,059)
Purchase of units - (33,456) (294,270) (294,270)
--------------- --------------- --------------- ---------------
Balance at December 31, 1996 4,038 5,212,167 65,549,892 65,553,930
Net income (loss) 42,485 - (401,020) (358,535)
Cash distributions paid or accrued (Note 3)
Income (39,486) - (2,011,594) (2,051,080)
Return of capital - - (1,897,532) (1,897,532)
--------------- --------------- --------------- ---------------
Balance at December 31, 1997 7,037 5,212,167 61,239,746 61,246,783
Net income 54,463 - 2,679,633 2,734,096
Cash distributions paid or accrued (Note 3)
Income (40,371) - (1,284,543) (1,324,914)
Return of capital - - (2,712,145) (2,712,145)
--------------- --------------- --------------- ---------------
Balance at December 31, 1998 21,129 5,212,167 59,922,691 59,943,820
--------------- --------------- --------------- ---------------
Accumulated Other Comprehensive Income
Balance at December 31, 1995 and 1996 - - (8,748,474) (8,748,474)
Other comprehensive income - - 3,000,000 3,000,000
--------------- --------------- --------------- ---------------
Balance at December 31, 1997 - - (5,748,474) (5,748,474)
Other comprehensive income - - 5,748,474 5,748,474
--------------- --------------- --------------- ---------------
- - - -
--------------- --------------- --------------- ---------------
Balance at December 31, 1998 $ 21,129 5,212,167 $ 59,922,691 $ 59,943,820
=============== =============== =============== ===============
The accompanying notes are an integral part of the consolidated and combined financial statements.
</TABLE>
<PAGE> - 27 -
AMERICA FIRST APARTMENT INVESTORS, L.P.
CONSOLIDATED AND COMBINED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
For the For the For the
Year Ended Year Ended Year Ended
Dec. 31, 1998 Dec. 31, 1997 Dec. 31, 1996
(Combined)
--------------- --------------- ---------------
<S> <C> <C> <C>
Cash flows from operating activities
Net income (loss) $ 2,734,096 $ (358,535) $ 2,444,737
Adjustments to reconcile net income to net cash
provided by operating activities
Depreciation 2,712,145 1,897,586 1,165,059
Amortization 189,231 165,536 4,526
Realized loss on disposition of mortgage bond - 3,000,000 -
Decrease (increase) in other assets 121,624 269,278 (482,178)
Increase in accounts payable and accrued expenses 361,579 406,468 771,681
--------------- --------------- ---------------
Net cash provided by operating activities 6,118,675 5,380,333 3,903,825
--------------- --------------- ---------------
Cash flows from investing activities
Real estate capital improvements (3,135) (680,889) (168,599)
Acquisition of real estate (21,627,444) (26,524,322) (5,305,736)
Proceeds from disposition of mortgage bond 18,755,000 12,200,000 -
--------------- --------------- ---------------
Net cash used in investing activities (2,875,579) (15,005,211) (5,474,335)
--------------- --------------- ---------------
Cash flows from financing activities
Distributions paid (4,014,947) (3,948,612) (3,963,396)
Net borrowing (repayments) on line of credit - (3,584,200) 3,584,200
Proceeds from issuance of bonds payable 13,090,000 24,365,000 2,750,000
Bond issuance and line of credit costs paid (249,855) (1,269,236) (396,724)
Principal payments on bonds payable (253,808) (80,000) -
Purchase of units - - (294,270)
--------------- --------------- ---------------
Net cash provided by financing activities 8,571,390 15,482,952 1,679,810
--------------- --------------- ---------------
Net increase in cash and temporary cash investments 11,814,486 5,858,074 109,300
Cash and temporary cash investments at beginning of year 7,879,934 2,021,860 1,912,560
--------------- --------------- ---------------
Cash and temporary cash investments at end of year $ 19,694,420 $ 7,879,934 $ 2,021,860
=============== =============== ===============
Supplemental disclosure of cash flow information:
Cash paid during the year for interest $ 1,924,779 $ 898,046 $ 53,133
=============== =============== ===============
Supplemental schedule of non-cash investing activities:
Settlement of mortgage bond for real estate $ - $ 8,760,000 $ -
Supplemental disclosure of non-cash financing activity
Acquisition of real estate through assumption
of bonds or mortgage notes payable $ 16,729,470 - -
The accompanying notes are an integral part of the consolidated and combined financial statements.
</TABLE>
<PAGE> - 28 -
AMERICA FIRST APARTMENT INVESTORS, L.P.
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS
DECEMBER 31, 1998
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 accompanying 1996 consolidated statements of income (loss) and
comprehensive income, cash flows and partners' capital include the
combined accounts of the Partnership from August 20, 1996 (the Merger
Date), through December 31, 1996, and the accounts of the Prior
Partnership from January 1, 1996, until the Merger Date.
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
the Partnership's 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). Declines in the estimated net realizable value are charged
to income.
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 in other comprehensive income. 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 in other comprehensive income. The Partnership does not have
investment securities classified as held-to-maturity or trading.
<PAGE> - 29 -
AMERICA FIRST APARTMENT INVESTORS, L.P.
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS
DECEMBER 31, 1998
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) Revenue Recognition
The Partnership leases multifamily rental units under operating leases
with terms of one year or less. Rental revenue is recognized as earned net
of any vacancy losses and rental concessions offered. Rental income on
commercial property is recognized on a straight-line basis over the term
of each operating lease.
F) 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.
The tax basis of the Partnership's assets and liabilities exceeded the
reported amounts by $5,577,227 and $11,240,910 at December 31, 1998, and
December 31, 1997, respectively.
G) Temporary Cash Investments
Temporary cash investments are invested in short-term debt securities
purchased with an original maturity of three months or less.
H) Net Income per BUC
Net income per BUC has been calculated based on the weighted average
number of BUCs outstanding during each year presented.
I) Reclassifications
Certain prior year amounts have been reclassified to conform with the
current year classification.
J) Comprehensive Income
In 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. The adoption of SFAS 130 had no impact on
total Partners' Capital.
K) Segment Reporting
In 1998, the Partnership adopted Statement of Financial Accounting
Standards No. 131, "Disclosures about Segments of an Enterprise and
Related Information" (SFAS 131). SFAS 131 requires that a public business
enterprise report financial and descriptive information about its
reportable operating segments. The adoption of SFAS 131 did not have an
impact on the financial reporting of the Partnership as it is engaged
solely in the business of operating real estate acquired and providing
financing for the acquisition and improvement of real estate.
<PAGE> - 30 -
AMERICA FIRST APARTMENT INVESTORS, L.P.
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS
DECEMBER 31, 1998
L) New Accounting Pronouncements
In June, 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, "Accounting for Derivative
Instruments and Hedging Activities" (SFAS 133). This statement provides new
accounting and reporting standards for the use of derivative instruments.
Adoption of this statement is required by the Partnership effective
January 1, 2000. Management believes that the impact of such adoption
will not be material to the financial statements.
In April 1998, the Accounting Standards Executive Committee issued
Statement of Position 98-5, "Reporting on the Costs of
Start-Up Activities" (SOP 98-5). This statement requires costs of start-up
activities and organization costs to be expensed as incurred. Adoption of
this statement is required by the Partnership effective January 1, 1999.
Management intends to adopt the statement as required in fiscal 1999.
Management believes that the impact of such adoption will not have an
impact to the financial statements.
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. Income and expenses will be allocated to each BUC Holder on a
monthly basis based on the number of BUCs held by each BUC Holder as of the
last day of the month for which such allocation is to be made. Distributions
of Net Operating Income and Net Sale Proceeds will be made to each BUC Holder
of record on the last day of each distribution period based on the number of
BUCs held by each BUC Holder as of such date.
Net Operating Income, as defined in the Limited Partnership Agreement, in each
distribution period will be distributed 99% to the BUC Holders and 1% to
AFCA 4.
The portion of Net Sale Proceeds, as defined in the Limited Partnership
Agreement, will be distributed 100% to the BUC Holders.
Liquidation Proceeds, as defined in the Limited Partnership Agreement,
remaining after repayment of any debts or obligations of the Partnership
(including loans from AFCA 4) and after the establishment of any reserve AFCA
4 deems necessary, will be distributed to AFCA 4 and BUC Holders to the extent
of positive balances in their capital accounts. Any remaining Liquidation
Proceeds will be distributed in the same manner as the Net Sale Proceeds.
Cash distributions are presently made on a monthly basis but may be made
quarterly or semiannually if AFCA 4 so elects. Cash distributions included in
the financial statements represent the actual cash distributions made during
each year and the cash distributions accrued at the end of each year.
4. Partnership Reserve Account
The Partnership maintains a reserve account which totaled $6,238,941 at
December 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
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 December 31, 1998, 33,456 BUCs had been
acquired at a cost of $294,270 (none during 1998 or 1997).
5. Investment in Real Estate
During 1998, the Partnership acquired four multifamily properties, Littlestone
at Village Green, St. Andrews at Westwood Apartments, The Hunt Apartments and
Greenbriar Apartments. Such properties were financed with proceeds from
previous offerings of tax-exempt multifamily housing revenue refunding bonds,
proceeds from the sale of the Partnership's tax-exempt mortgage bond
collateralized by Avalon Ridge Apartments and the assumption of existing debt
on certain properties acquired.
<PAGE> - 31 -
AMERICA FIRST APARTMENT INVESTORS, L.P.
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS
DECEMBER 31, 1998
The Partnership's investment in real estate is comprised of the following:
<TABLE>
<CAPTION>
Building Carrying Carrying
Number and Value at Value at
Property Name Location of Units Land Improvements Dec. 31, 1998 Dec. 31, 1997
-------------------------- ----------------- -------- ------------ -------------- -------------- --------------
<S> <C> <C> <C> <C> <C> <C>
Covey at Fox Valley(1) Aurora, IL 216 $ 1,320,000 $ 10,028,338 $ 11,348,338 $ 11,348,338
The Exchange at Palm Bay Palm Bay, FL 72,002(2) 1,296,002 3,993,084 5,289,086 5,285,951
The Park at Fifty Eight(1),(3)Chattanooga, TN 196 231,113 4,122,226 4,353,339 4,353,339
Shelby Heights(1) Bristol, TN 100 175,000 2,952,847 3,127,847 3,127,847
Coral Point(1) Mesa, AZ 336 2,240,000 8,960,000 11,200,000 11,200,000
Park at Countryside(1) Port Orange, FL 120 647,000 2,616,648 3,263,648 3,263,648
The Retreat (4) Atlanta, GA 226 1,800,000 7,315,697 9,115,697 9,115,697
Jackson Park Place Fresno, CA 296 1,400,000 10,709,534 12,109,534 12,112,415
Park Trace Apartments (1) Norcross, GA 260 2,246,000 11,789,810 14,035,810 14,038,016
Littlestone at Village Green Gallatin, TN 200 508,000 10,055,778 10,563,778 -
St. Andrews at Westwood Apts Orlando, FL 259 1,617,200 14,257,881 15,875,081 -
The Hunt Apartments Oklahoma City, OK 216 550,000 7,061,832 7,611,832 -
Greenbriar Apartments Tulsa, OK 120 648,000 3,663,310 4,311,310 -
-------------- --------------
112,205,300 73,845,251
Less accumulated depreciation (12,289,925) (9,577,780)
-------------- --------------
Balance at end of year $ 99,915,375 $ 64,267,471
============== ==============
</TABLE>
(1) Property is encumbered as described in Note 7.
(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 serves as collateral for $12,200,000 of multifamily revenue
refunding bonds issued on Jefferson Place as described in Note 6.
<TABLE>
<CAPTION>
For the For the For the
Year Ended Year Ended Year Ended
Dec. 31, 1998 Dec. 31, 1997 Dec. 31, 1996
--------------- --------------- ---------------
<S> <C> <C> <C>
Reconciliation of the carrying values of the
real estate held is as follows:
Balance at beginning of year $ 64,267,471 30,199,846 $ 29,390,570
Acquisition of real estate 38,356,914 26,524,322 5,305,736
Capital improvements 3,135 680,889 168,599
Settlement of mortgage bond for real estate - 8,760,000 -
Depreciation (2,712,145) (1,897,586) (1,165,059)
Write-down of impaired real estate - - (3,500,000)
--------------- --------------- ---------------
Balance at end of year $ 99,915,375 $ 64,267,471 $ 30,199,846
=============== =============== ===============
The following summarizes the activity in the
valuation allowance:
Balance at beginning of year $ - $ - $ 3,500,000
Write-down of impaired real estate - - (3,500,000)
---------------- ---------------- ---------------
Balance at end of year $ - $ - $ -
================ ================ ===============
</TABLE>
<PAGE> - 32 -
AMERICA FIRST APARTMENT INVESTORS, L.P.
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS
DECEMBER 31, 1998
6. Investment in Tax-Exempt Mortgage Bonds
The tax-exempt mortgage bonds consisted of three such bonds issued by various
state and local governments, agencies or authorities to finance the
construction and/or permanent financing of apartment projects. During 1997,
one of the tax-exempt mortgage bonds was prepaid and the property underlying
one tax-exempt mortgage bond was conveyed to the Partnership through a deed in
lieu of foreclosure. During 1998, the remaining bond was sold by the
Partnership. The Partnership earned interest income of $839,201 on such
mortgage bond during 1998. No contingent interest was earned in 1998.
Each of the mortgage bonds provided for the payment of base interest and for
the payment of additional contingent interest out of a portion of the net cash
flow of the properties, and out of a portion of the sale or refinancing
proceeds from a property, subject to various priority payments.
<TABLE>
<CAPTION>
For the For the For the
Year Ended Year Ended Year Ended
Dec. 31, 1998 Dec. 31, 1997 Dec. 31, 1996
--------------- --------------- ---------------
<S> <C> <C> <C>
Reconciliation of the carrying amounts of the
mortgage bonds is as follows:
Balance at beginning of year $ 18,755,000 $ 40,315,000 $ 40,315,000
Disposition of mortgage bond (18,755,000)(1) (12,800,000)(2) -
Settlement of mortgage bond for real estate - (8,760,000)(3) -
--------------- --------------- ---------------
Balance at end of year $ - $ 18,755,000 $ 40,315,000
=============== =============== ===============
The following summarizes the activity in the
unrealized holding losses:
Balance at beginning of year $ 5,748,474 $ 8,748,474 $ 8,748,474
Change in unrealized holding losses (5,748,474)(1) (3,000,000)(2) -
--------------- --------------- ---------------
Balance at end of year $ - $ 5,748,474 $ 8,748,474
=============== =============== ===============
</TABLE>
(1) On May 1, 1998, the Partnership sold its tax-exempt mortgage bond which
was collateralized by Avalon Ridge Aparments 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.
(2) On July 30, 1997, the Partnership received payment on its tax exempt
mortgage bond on Jefferson Place. As a result, the Partnership recognized
a loss of $3,000,000.
<PAGE> - 33 -
AMERICA FIRST APARTMENT INVESTORS, L.P.
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS
DECEMBER 31, 1998
(3) In accordance with the terms of the Loan Agreement underlying the
$8,670,00 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.
7. Bonds and Mortgage Notes Payable
Bonds and mortgage notes payable were originated by the Partnership through the
issuance of tax-exempt refunding bonds or were assumed by the Partnership in
connection with the acquisition of multifamily housing properties. Bonds and
mortgage notes payable at December 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>
Bonds Payable:
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 8,396,598
principal and interest
are due the 1st of each month
Coral Point and 4.96% 3/1/2008 semiannual payments of $325,016 in 1998, 13,090,000
St Andrews at interest are due each $650,033 thereafter
Westwood Apartments March 1 and September 1 -------------
39,896,598
Mortgage Notes Payable:
Littlestone
at Village Green 7.68% 9/15/2005 Monthly payment of $542,921 5,729,064
principal and interest
are due the 15th of each month
The Hunt Apartments 4.00%(1) 4/1/2020 Monthly payments of interest interest only 6,930,000
are due the 1st of each month
Greenbriar Apartments 4.15%(1) 3/15/2005 Monthly payments of interest interest only 4,045,000
are due the 15th of each month
-------------
16,704,064
-------------
Balance at December 31, 1998 $ 56,600,662
=============
<PAGE> - 34 -
AMERICA FIRST APARTMENT INVESTORS, L.P.
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS
DECEMBER 31, 1998
</TABLE>
(1) Weekly floating rate. The mortgage note is also collateralized by cash
slightly in excess of the mortgage balance.
Principal maturities on the bonds and mortgage notes payable are as follows:
Year Amount
---------------- ----------------
1999 $ 341,489
2000 366,815
2001 393,223
2002 415,791
2003 439,601
Thereafter 54,643,743
----------------
$ 56,600,662
================
8. Transactions with Related Parties
Substantially all of the Partnership's general and administrative expenses and
certain costs capitalized by the Partnership are paid by AFCA 4 or an
affiliate and 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 amount of such
expenses reimbursed to AFCA 4 or an affiliate are shown below. The reimbursed
expenses are presented on a cash basis and do not reflect accruals made at the
end of each year.
<TABLE>
<CAPTION>
1998 1997 1996
--------------- --------------- ---------------
<S> <C> <C> <C>
Costs capitalized by the Partnership $ 265,146 735,971 $ 199,060
Interest on line of credit 50,784 621,148 -
Reimbursable salaries and benefits 631,071 528,916 482,635
Professional fees and expenses 92,158 71,722 56,325
Other expenses 67,020 51,324 33,564
Investor services and custodial fees 100,678 36,488 60,199
Registration fees 30,250 32,296 24,466
Report preparation and distribution 12,907 22,431 16,017
Insurance 32,147 22,133 23,030
Consulting and travel expenses 21,576 16,008 9,970
Telephone 9,134 10,297 8,363
Restructuring costs - - 186,385
Stock certificates - - 1,952
--------------- --------------- ---------------
$ 1,312,871 $ 2,148,734 $ 1,101,966
=============== =============== ===============
</TABLE>
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 $484,274 in 1998, $352,190 in 1997, and $226,200 in 1996.
Under the terms of the tax-exempt mortgage bonds which had been owned by the
Partnership, the owners of the properties financed by these bonds were to pay
AFCA 4 an administrative fee out of the net cash flow of the financed
properties remaining after the payment of base interest on the related
mortgage bonds. Administrative fees totaling $26,280 were paid by property
owners 1996. No such fees were paid to AFCA in 1997 or 1998. However, during
1997, AFCA 4 received deferred administrative fees of $371,220 from the owner
of Jackson Park Place in conjunction with the transfer of this property to the
Partnership in settlement of the mortgage bond. Because administrative fees
paid by property owners are not Partnership expenses, they are not reflected
in the accompanying financial statements.
<PAGE> - 35 -
AMERICA FIRST APARTMENT INVESTORS, L.P.
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS
DECEMBER 31, 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. The Partnership paid acquisition fees of $470,543,
$325,184 and $39,863 to AFCA 4 during 1998, 1997 and 1996 respectively.
The general partner of the property partnership which owned 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 1998, 1997, or 1996. 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 the multifamily properties owned or financed by the Partnership (beginning
when such properties were acquired by the Partnership). 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 $708,958 in 1998, $611,079 in 1997, and
$431,730 in 1996.
9. Fair Value of Financial Instruments
The following methods and assumptions were used by the Partnership in
estimating the fair value of its financial instruments:
Cash and temporary cash investments: Fair value approximates the carrying
value of such assets.
Investment in tax-exempt mortgage bonds: Fair value is based on
management's best estimate of the net realizable value of the underlying
collateral of the bonds. See Note 2D.
Bonds and mortgage notes payable: Fair value is based on estimated future
cash flows discounted using the quoted market rate, from an independent
source, of similar obligations.
<TABLE>
<CAPTION>
At December 31, 1998 At December 31, 1997
----------------------------------- -----------------------------------
Carrying Estimated Carrying Estimated
Amount Fair Value Amount Fair Value
--------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C>
Cash and temporary cash investments $ 19,694,420 19,694,420 7,879,934 $ 7,879,934
Investment in tax-exempt mortgage bonds - - 13,006,526 13,006,526
Bonds and mortgage notes payable 56,600,662 58,058,162 27,035,000 27,737,000
</TABLE>
<PAGE> - 36 -
AMERICA FIRST APARTMENT INVESTORS, L.P.
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS
DECEMBER 31, 1998
10. Summary of Unaudited Quarterly Results of Operations
<TABLE>
<CAPTION>
First Second Third Fourth
>From January 1, 1998 to December 31, 1998 Quarter Quarter Quarter Quarter
--------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C>
Total income $ 3,441,838 $ 4,132,204 $ 3,909,342 $ 4,411,870
Total expenses (2,867,731) (3,096,663) (3,161,166) (4,035,598)
--------------- --------------- --------------- ---------------
Net income $ 574,107 $ 1,035,541 $ 748,176 $ 376,272
=============== =============== =============== ===============
Net income, basic and diluted, per BUC $ .11 $ .19 $ .14 $ .07
=============== =============== =============== ===============
Market Price per BUC
High sale 11-3/8 10-3/4 10-1/2 10-1/4
Low sale 9-3/4 9-1/8 9-1/8 8-1/2
=============== =============== =============== ===============
</TABLE>
<TABLE>
<CAPTION>
First Second Third Fourth
>From January 1, 1997 to December 31, 1997 Quarter Quarter Quarter Quarter
--------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C>
Total income $ 2,331,310 $ 3,066,182 $ 2,891,992 $ 3,159,565
Total expenses (1,434,255) (2,267,619) (5,425,977)(1) (2,679,733)
--------------- --------------- --------------- ---------------
Net income (loss) $ 897,055 $ 798,563 $ (2,533,985) $ 479,832
=============== =============== =============== ===============
Net income (loss), basic and diluted, per BUC $ .17 $ .15 $ (.49) $ .09
=============== =============== =============== ===============
Market Price per BUC
High sale 9-1/2 9-3/8 9-7/8 10-1/2
Low sale 8-5/8 8-3/4 8-7/8 9-3/8
=============== =============== =============== ===============
</TABLE>
(1) During the third quarter of 1997, the Partnership realized a loss of
$3,000,000 on the disposition of its tax-exempt mortgage bond on Jefferson
Place.
The BUCs are quoted on the NASDQ National Market System under the symbol
APROZ. The 1998 high and low quarterly prices of the BUCs were compiled from
on-line trading sources based on information provided by NASDAQ and represent
final sale prices. The 1997 high and low quarterly prices of the BUCs were
compiled from the Monthly Statistical Reports provided to the Partnership by
the National Association of Securities Dealers, Inc. and represent final sale
prices.
<PAGE> - 37 -
Schedule III
AMERICA FIRST APARTMENT INVESTORS, L.P.
REAL ESTATE AND ACCUMULATED DEPRECIATION
DECEMBER 31, 1998
<TABLE>
<CAPTION>
Costs Capitalized
Initial Cost Subsequent
Description to Partnership to Acquisition
- - --------------------------------------------------------------------- -------------------------- ------------------------
Building Building
and and Carrying
Property Location # of Units Encumbrances Land Improvements Improvements Costs
- - ------------------------ --------------- ------------ ------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Covey at Fox Valley Aurora, IL 216 (b) $ 1,320,000 $11,090,000 $ - $ -
The Exchange at Palm Bay Palm Bay, FL 72,002 sq ft (a) 1,296,002(c) 4,349,682 1,509,854 -
The Park at Fifty Eight Chattanooga, TN 196 (b) 231,113(d) 2,553,474 1,818,485 -
Shelby Heights Bristol, TN 100 (b) 175,000 3,275,000 - -
Coral Point Mesa, AZ 336 (b) 2,240,000 8,960,000 - -
Park at Countryside Port Orange, FL 120 (b) 647,000 2,616,648 - -
The Retreat Atlanta, GA 226 (e) 1,800,000 7,315,697 - -
Jackson Park Place Fresno, CA 296 (b) 1,400,000 10,709,534 - -
Park Trace Apartments Norcross, GA 260 (b) 2,246,000 11,789,810 - -
Littlestone at Village Gallatin, TN 200 (b) 508,000 10,055,778 - -
Green
St. Andrews at Westwood Orlando, FL 259 (b) 1,617,200 14,257,881 - -
Apartments
The Hunt Apartments Oklahoma City, OK 216 (b) 550,000 7,061,832 - -
Greenbriar Apartments Tulsa, OK 120 (b) 648,000 3,663,310 - -
------------ ------------ ------------ ------------
$14,678,315 $97,698,646 $ 3,328,339 $ -
============ ============ ============ ============
</TABLE>
<TABLE>
<CAPTION>
Gross Amount at December 31, 1998
------------------------------------------
Building Accumulated Which
and Total Depreciation Date of Date Depreciation
Property Land Improvements (f),(g) (h) Construction Acquired is Computed
- - ------------------------ ------------ ------------ ------------ ------------ ------------ -------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Covey at Fox Valley $ 1,320,000 $10,028,338 $ 11,348,338 $ 3,877,356 1989 1989 27.5 years
The Exchange at Palm Bay 1,296,002 3,993,084 5,289,086 2,202,401 1988 1990(d) 31.5 years
The Park at Fifty Eight 231,113 4,122,226 4,353,339 892,408 1987 1991(e) 27.5 years
Shelby Heights 175,000 2,952,847 3,127,847 856,048 1987 1991 27.5 years
Coral Point 2,240,000 8,960,000 11,200,000 2,404,719 1987 1991 27.5 years
Park at Countryside 647,000 2,616,648 3,263,648 190,234 1983 1996 27.5 years
The Retreat 1,800,000 7,315,697 9,115,697 465,517 1985 1997 27.5 years
Jackson Park Place 1,400,000 10,709,534 12,109,534 645,923 1985 1997 27.5 years
Park Trace Apartments 2,246,000 11,789,810 14,035,810 500,269 1988 1997 27.5 years
Littlestone at Village
Green 508,000 10,055,778 10,563,778 92,984 1987 1998 27.5 years
St. Andrews at Westwood
Apartments 1,617,200 14,257,881 15,875,081 146,899 1989 1998 27.5 years
The Hunt Apartments 550,000 7,061,832 7,611,832 9,987 1984 1998 27.5 years
Greenbriar Apartments 648,000 3,663,310 4,311,310 5,180 1985 1998 27.5 years
------------ ------------ ------------ ------------
$14,678,315 $97,526,985 $112,205,300 $ 12,289,925
============ ============ ============ ============
</TABLE>
(a) The Partnership has no encumbrance against this property.
(b) The encumbrance represents bonds payable originated by the Partnership
through the issuance of tax-exempt refunding bonds or bonds or mortgage
notes payable assumed by the Partnership in connection with the acquisition
of properties. Bonds and mortgage notes payable totaled $56,600,662 at
December 31, 1998. (See Note 7 to the accompanying Financial
Statements).
(c) Land with a cost of $1,150,318 and $145,684 was acquired in 1990 and 1996,
respectively.
(d) Land with a cost of $135,000 and $96,113 was acquired in 1991 and 1996,
respectively.
<PAGE> - 38 -
(e) The encumbrance represents multifamily revenue refunding
bonds issued on Jefferson Place with a balance of $11,985,000 at December
31, 1998. (See Note 6 to the accompanying Financial Statements).
(f) Reconciliation of Real Estate:
<TABLE>
<CAPTION>
1998 1997 1996
--------------- --------------- ---------------
<S> <C> <C> <C>
Balance - beginning of year $ 73,845,251 $ 37,880,040 $ 35,905,705
Acquisitions 38,356,914 35,284,322 5,305,736
Improvements 3,135 680,889 168,599
Write-down of impaired real estate(1) - - (3,500,000)
--------------- --------------- ---------------
Balance - end of year $ 112,205,300 $ 73,845,251 $ 37,880,040
=============== =============== ===============
</TABLE>
(1) On January 1, 1996, the Partnership adopted Statement of Financial
Accounting Standards No. 121, "Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to be Disposed of" (FAS 121). As a
result of adopting FAS 121, the Partnership wrote down the carrying value
of each impaired property to estimated net realizable value thus
eliminating the valuation allowance on real estate acquired.
(g) As of December 31, 1998, the aggregate cost of the Partnership's
investment in real estate for federal income tax purposes amounted to
$103,949,416.
(h) Reconciliation of Accumulated Depreciation:
<TABLE>
<CAPTION>
1998 1997 1996
--------------- --------------- ---------------
<S> <C> <C> <C>
Balance - beginning of year $ 9,577,780 $ 7,680,194 $ 6,515,135
Depreciation expense 2,712,145 1,897,586 1,165,059
--------------- --------------- ---------------
Balance - end of year $ 12,289,925 $ 9,577,780 $ 7,680,194
=============== =============== ===============
</TABLE>
See accompanying consolidated and combined financial statements and notes
thereto.
<PAGE> - 39 -
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: March 29, 1999 AMERICA FIRST APARTMENT INVESTORS, L.P.
By America First Capital
Associates Limited
Partnership Four, General
Partner of the Registrant
By America First Companies L.L.C.,
General Partner of America First Capital
Associates Limited Partnership Four
By /s/ Michael Thesing
Michael Thesing
Vice President, Secretary,
Treasurer and Chief Financial
Officer (Vice President and Principal
Financial Officer of Registrant)
<PAGE> - 40 -
Pursuant to the requirements of the Securities and Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
Date: March 29, 1999 By /s/ Michael B. Yanney*
Michael B. Yanney
Chairman of the Board, President,
Chief Executive Officer and Manager
Date: March 29, 1999 By /s/ Michael Thesing
Michael Thesing
Vice President, Secretary, Treasurer
and Manager (Chief Financial and
Accounting Officer)
Date: March 29, 1999 By /s/ William S. Carter, M.D.*
William S. Carter, M.D.
Manager
Date: March 29, 1999 By /s/ Martin A. Massengale*
Martin A. Massengale
Manager
Date: March 29, 1999 By /s/ Alan Baer*
Alan Baer
Manager
Date: March 29, 1999 By /s/ Gail Walling Yanney*
Gail Walling Yanney
Manager
Date: March 29, 1999 By /s/ Mariann Byerwalter*
Mariann Byerwalter
Manager
*By Michael Thesing Attorney in Fact
/s/ Michael Thesing
Michael Thesing
<PAGE> - 41 -
EXHIBIT 24
POWER OF ATTORNEY
<PAGE> - 42 -
POWER OF ATTORNEY
The undersigned hereby appoints Michael Thesing as his agent and
attorney-in-fact for the purpose of executing and filing all reports on Form
10-K relating to the year ending December 31, 1998, and any amendments
thereto, required to be filed with the Securities and Exchange Commission by
the following persons:
America First Tax Exempt Investors, L.P.
America First Tax Exempt Mortgage Fund Limited Partnership
America First Apartment Investors, L.P.
Capital Source L.P.
Capital Source II L.P.-A
IN WITNESS WHEREOF, the undersigned has executed this Power of Attorney
on the 1st day of February, 1999.
/s/ Michael B. Yanney
Michael B. Yanney
<PAGE> - 43 -
POWER OF ATTORNEY
The undersigned hereby appoints Michael Thesing as his agent and
attorney-in-fact for the purpose of executing and filing all reports on Form
10-K relating to the year ending December 31, 1998, and any amendments
thereto, required to be filed with the Securities and Exchange Commission by
the following persons:
America First Tax Exempt Investors, L.P.
America First Tax Exempt Mortgage Fund Limited Partnership
America First Apartment Investors, L.P.
Capital Source L.P.
Capital Source II L.P.-A
IN WITNESS WHEREOF, the undersigned has executed this Power of Attorney
on the 1st day of February, 1999.
/s/ William S. Carter, M.D.
William S. Carter, M.D.
<PAGE> - 44 -
POWER OF ATTORNEY
The undersigned hereby appoints Michael Thesing as his agent and
attorney-in-fact for the purpose of executing and filing all reports on Form
10-K relating to the year ending December 31, 1998, and any amendments
thereto, required to be filed with the Securities and Exchange Commission by
the following persons:
America First Tax Exempt Investors, L.P.
America First Tax Exempt Mortgage Fund Limited Partnership
America First Apartment Investors, L.P.
Capital Source L.P.
Capital Source II L.P.-A
IN WITNESS WHEREOF, the undersigned has executed this Power of Attorney
on the 1st day of February, 1999.
/s/ Martin A. Massengale
Martin A. Massengale
<PAGE> - 45-
POWER OF ATTORNEY
The undersigned hereby appoints Michael Thesing as his agent and
attorney-in-fact for the purpose of executing and filing all reports on Form
10-K relating to the year ending December 31, 1998, and any amendments
thereto, required to be filed with the Securities and Exchange Commission by
the following persons:
America First Tax Exempt Investors, L.P.
America First Tax Exempt Mortgage Fund Limited Partnership
America First Apartment Investors, L.P.
Capital Source L.P.
Capital Source II L.P.-A
IN WITNESS WHEREOF, the undersigned has executed this Power of Attorney
on the 1st day of February, 1999.
/s/ Alan Baer
Alan Baer
<PAGE> - 46 -
POWER OF ATTORNEY
The undersigned hereby appoints Michael Thesing as his agent and
attorney-in-fact for the purpose of executing and filing all reports on Form
10-K relating to the year ending December 31, 1998, and any amendments
thereto, required to be filed with the Securities and Exchange Commission by
the following persons:
America First Tax Exempt Investors, L.P.
America First Tax Exempt Mortgage Fund Limited Partnership
America First Apartment Investors, L.P.
Capital Source L.P.
Capital Source II L.P.-A
IN WITNESS WHEREOF, the undersigned has executed this Power of Attorney
on the 1st day of February, 1999.
/s/ Gail Walling Yanney
Gail Walling Yanney
<PAGE> - 47 -
POWER OF ATTORNEY
The undersigned hereby appoints Michael Thesing as his agent and
attorney-in-fact for the purpose of executing and filing all reports on Form
10-K relating to the year ending December 31, 1998, and any amendments
thereto, required to be filed with the Securities and Exchange Commission by
the following persons:
America First Tax Exempt Investors, L.P.
America First Tax Exempt Mortgage Fund Limited Partnership
America First Apartment Investors, L.P.
Capital Source L.P.
Capital Source II L.P.-A
IN WITNESS WHEREOF, the undersigned has executed this Power of Attorney
on the 1st day of February, 1999.
/s/ Mariann Byerwalter
Mariann Byerwalter
<PAGE> - 48 -
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> DEC-31-1998
<CASH> 19,694,420
<SECURITIES> 0
<RECEIVABLES> 60,083
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 19,754,503
<PP&E> 112,205,300
<DEPRECIATION> (12,289,925)
<TOTAL-ASSETS> 121,518,386
<CURRENT-LIABILITIES> 4,973,904
<BONDS> 39,896,598
<COMMON> 0
0
0
<OTHER-SE> 59,943,820
<TOTAL-LIABILITY-AND-EQUITY> 121,518,386
<SALES> 0
<TOTAL-REVENUES> 15,895,254
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 10,808,391
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,352,767
<INCOME-PRETAX> 2,734,096
<INCOME-TAX> 0
<INCOME-CONTINUING> 2,734,096
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,734,096
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
