SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K/A
CURRENT REPORT PURSUANT
TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
Date of report (Date of earliest event reported)
April 10, 1998
AMERICA FIRST MORTGAGE INVESTMENTS, INC.
(Exact Name of Registrant as Specified in its Charter)
MARYLAND
(State or Other Jurisdiction of Incorporation)
1-13991 13-3974868
(Commission (IRS Employer
File Number) Identification No.)
399 Park Avenue, 36th Floor, New York, New York 10022
(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, Including Area Code (212) 935-8760
<PAGE> - i -
Item 2: Acquisition or Disposition of Assets
(a) On April 10, 1998, America First Mortgage Investments, Inc., a
Maryland corporation (the "Company"), consummated a combination transaction
(the "Merger") with America First Participating/Preferred Equity Mortgage Fund
Limited Partnership, a Delaware limited partnership ("Prep Fund 1"), America
First Prep Fund 2 Limited Partnership, a Delaware limited partnership ("Prep
Fund 2"), and America First Prep Fund 2 Pension Series Limited Partnership, a
Delaware limited partnership ("Pension Fund," and together with Prep Fund 1
and Prep Fund 2, the "Partnerships"). The Merger was approved by holders of
interests in the Partnerships representing a majority in interest of the
outstanding interests in each of such Partnerships.
In connection with the Merger, (i) Prep Fund 1 and Prep Fund 2 merged
with and into the Company, (ii) Pension Fund merged with AF Merger, L.P., a
Delaware limited partnership subsidiary of the Company, and survived the
merger becoming a subsidiary of the Company, (iii) all of the outstanding
Exchangeable Units representing assigned limited partnership interests in Prep
Fund 1 ("Prep Fund 1 Units") were converted (at the rate of 1.00 share for
each Prep Fund 1 Unit) into an aggregate of 5,775,797 shares of common stock,
par value $.01 per share (the "Common Stock"), of the Company, (iv) all of the
outstanding Beneficial Unit Certificates representing assigned limited
partnership interests in Prep Fund 2 ("Prep Fund 2 BUCs") were converted (at
the rate of approximately 1.26 shares for each Prep Fund 2 BUC) into an
aggregate of 2,012,269 shares of Common Stock and (v) 883,422 of the 905,974
outstanding Beneficial Unit Certificates representing assigned limited
partnership interests in Pension Fund ("Pension BUCs") were converted (at the
rate of approximately 1.31 shares for each Pension BUC) into an aggregate of
1,153,552 shares of Common Stock. In addition to the foregoing, holders of
22,552 Pension BUCs elected to continue their current investment in Pension
Fund by remaining as investors in Pension Fund through the retention of the
same security that was originally issued to, or subsequently acquired by, such
holders (the "Retention Option").
Pursuant to the terms of the Merger, the Company will also make a
one-time cash payment of $1.06 per share (the "Cash Merger Payment"), which
will be paid in four equal quarterly payments during the first year following
the Merger, to stockholders entitled to receive distributions; provided,
however, any distributions paid to stockholders by the Company out of earnings
during this first year will have the effect of reducing the amount of the Cash
Merger Payment so that the amount paid to stockholders will still be, in the
aggregate, equal to $1.06 per share.
As a result of the Merger, the Company has become the direct and indirect
owner, subject to liabilities, of five fixed-rate mortgage-backed securities
collateralized by first mortgage loans on multifamily properties which are
guaranteed by the Government National Mortgage Association ("Ginnie Mae"),
fixed-rate mortgage-backed securities collateralized by pools of single-family
mortgages which are guaranteed by Ginnie Mae or the Federal National Mortgage
Association, eight preferred real estate participations representing limited
partnership interests in partnerships that own the multifamily properties
collateralizing such mortgage-backed securities, all of the equity interest in
one limited partnership owning a multifamily property and one participating
first mortgage loan on a multifamily property (collectively, the "Assets").
The shares of Common Stock issued in the Merger were allocated among the
Partnerships in proportion to their respective net asset values, which were
intended to represent fairly the relative value of the Assets held by the
Partnerships. Based on Prep Fund 1's net asset value of $53,169,546, Prep Fund
2's net asset value of $18,533,307 and Pension Fund's net asset value of
$10,896,068, an aggregate of 5,775,797 shares of Common Stock had been
allocated in the Merger to Prep Fund 1, 2,012,336 shares of Common Stock had
been allocated in the Merger to Prep Fund 2 and a maximum of 1,183,373 shares
of Common Stock had been allocated in the Merger to Pension Fund. The number
of shares of Common Stock issued in the Merger to each holder of interests in
the Partnerships was rounded to the nearest whole share and, in lieu of
issuing fractional shares, the Company made cash payments to such holders
equal in amount to the fair market value of such fractional shares. In
addition, to the extent that holders of Pension BUCs elected the Retention
Option in lieu of receiving shares of Common Stock in the Merger, the
aggregate number of shares of Common Stock issued to Pension Fund in the
Merger was reduced by the number of shares of Common Stock that would have
been issued in exchange for such retained Pension BUCs. In connection with
<PAGE> - 1 -
the organization of the Company and pursuant to the merger agreement among the
parties, the general partners of the Partnerships (the "General Partners")
were issued 90,621 shares of Common Stock and were not issued any additional
shares as a result of the Merger.
Stewart Zimmerman, President and Chief Executive Officer of the Company,
William S. Gorin, Executive Vice President of the Company, and Ronald A.
Freydberg, Senior Vice President of the Company, were, until the consummation
of the Merger, employed by America First Companies, L.L.C., the entity which
controlled the General Partners ("America First"). Michael B. Yanney, the
Chairman of the Board of Directors of the Company, is currently Chairman of
the Board of Directors and Chief Executive Officer of America First. Gary
Thompson, Chief Financial Officer of the Company, is currently a Vice
President of America First. George Krauss, a director of the Company, is
currently a director of America First. All of the foregoing individuals are
currently employed by, or affiliated with, America First Mortgage Advisory
Corporation, a corporation which is majority-owned by America First and
manages the day-to-day activities of, and provides other related services to,
the Company.
(b) The multifamily property which is indirectly wholly-owned by the
Company through is ownership of all of the equity interest in the one limited
partnership owning such property is Morrowood Townhouses in Morrow, Georgia.
The Company intends to continue to have the property operate as a multifamily
residence.
Item 7: Financial Statements, Pro Forma Financial Information and Exhibits
(a) Financial Statements:
Audited Financial Statements of Prep Fund 1 as of December 31, 1997
and 1996 and for the years ended December 31, 1997, 1996 and 1995 are
incorporated by reference herein from Prep Fund 1's Annual Report on
Form 10-K for the Year ended December 31, 1997 (File No. 0-15854)).
Audited Financial Statements of Prep Fund 2 as of December 31, 1997
and 1996 and for the years ended December 31, 1997, 1996 and 1995 are
incorporated by reference herein from Prep Fund 2's Annual Report on
Form 10-K for the Year ended December 31, 1997 (File No. 1-10022)).
Audited Financial Statements of Pension Fund as of December 31, 1997
and 1996 and for the years ended December 31, 1997, 1996 and 1995 are
incorporated by reference herein from Pension Fund's Annual Report on
Form 10-K for the Year ended December 31, 1997 (File No. 0-17582)).
(b) Pro Forma Financial Information:
Pro forma balance sheet of the Company as of December 31, 1997
Pro forma income statement of the Company for the year ended December
31, 1997
(c) Exhibits:
3.1 Amended and Restated Articles of Incorporation of the Company
(incorporated herein by reference from Form 8-K dated April 10,
1998, filed by the Registrant pursuant to the Securities
Exchange Act of 1934 (Commission File No. 1-13991)).
3.2 Amended and Restated Bylaws of the Company (incorporated herein
by reference from Form 8-K dated April 10, 1998, filed by the
Registrant pursuant to the Securities Exchange Act of 1934
(Commission File No. 1-13991)).
10.1 Advisor Agreement, dated April 9, 1998, by and between the
Company and the Advisor (incorporated herein by reference from
Form 8-K dated April 10, 1998, filed by the Registrant pursuant
to the Securities Exchange Act of 1934 (Commission File No.
1-13991)).
10.2 1997 Stock Option Plan of the Company (incorporated herein by
reference from Form 8-K dated April 10, 1998, filed by the
Registrant pursuant to the Securities Exchange Act of 1934
(Commission File No. 1-13991)).
99.1 Pro forma balance sheet of the Company as of December 31, 1997
and pro forma income statement for the year ended December 31,
1997
<PAGE> - 2 -
Exhibit 99.1
The pro forma financial statements have been prepared assuming 100%
participation in the merger by all three Partnerships. (Although
approximately 97% of the Unitholders of Pension Fund approved the
Merger (less than 3% elected the Retention Option), the pro forma
financial statements assume 100% participation as the minority
interest by those Unitholders electing the Retention Option is
relatively insignificant. However, in future Form 10-Q and Form
10-K filings, the minority interest will be reflected.)
The pro forma balance sheet of the Company has been prepared as if
the Merger was consummated on December 31, 1997. The pro forma
statement of income of the Company for the year ended December 31,
1997, assumes that the Merger was consummated on January 1, 1997.
Since the Merger will be accounted for using the purchase method of
accounting, the pro forma financial statements have been prepared
using this method. Under the purchase method, Prep Fund 1 will be
deemed to be the acquirer of the other Partnerships because its
Unitholders will be allocated the largest number of shares of Common
Stock. As the surviving entity for accounting purposes, Prep Fund
1's assets and liabilities will be recorded by the Company at their
historical cost, with the assets and liabilities of the other
Partnership(s) recorded at their estimated fair values.
The pro forma financial statements are based upon available
information and upon certain assumptions, as set forth in the notes
to pro forma statements, that the General Partners believe are
reasonable in the circumstances. The pro forma financial statements
do not give effect to the anticipated realignment of the investment
portfolio or the implementation of the Company's business plan.
Thus, these pro forma financial statements do not purport to
represent what the Company's financial position or results of
operations would actually have been if the Merger in fact had
occurred on such date or at the beginning of such period or the
Company's financial position or results of operations for any future
date or period.
<PAGE> - 3 -
AMERICA FIRST MORTGAGE INVESTMENTS, INC.
PRO FORMA BALANCE SHEET
as of December 31, 1997
(unaudited)
<TABLE>
<CAPTION>
Assuming
Maximum Participation
---------------------------------
Prep Fund 1 Prep Fund 2 Pension Fund Pro Forma Pro Forma
(Historical) (Historical) (Historical) Adjustments Combined
--------------- --------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C> <C>
Assets
Cash and temporary cash
investments, at cost which
approximates market value $ 10,521,493 $ 2,277,552 $ 2,577,493 $ (1,094,711) H $ 14,281,827
Investment in mortgage-backed
securities 33,506,388 13,904,717 7,359,399 (263,524) A 55,044,339
658,816 B
(121,457) C
Investment in and advances to
preferred equity participations
(PEPs), net of valuation allowance 1,495,923 109,259 A 1,646,620
41,438 C
Investment in real estate 3,973,776 3,973,776
Investment in participating loans,
net of valuation allowance 860,000 860,000
Interest receivable 272,264 90,684 55,977 418,925
Investment evaluation fees, net 564,404 564,404
Other assets 3,245,745 38,971 32,016 (37,013) A 8,837,226
3,386,686 A
(31,530) C
1,529,397 C
672,954 H
--------------- --------------- --------------- --------------- ---------------
$ 54,439,993 $ 16,311,924 $ 10,024,885 $ 4,850,315 $ 85,627,117
=============== =============== =============== =============== ===============
Liabilities and Partners' Capital
Liabilities
Accounts payable $ 876,098 $ 279,666 $ 142,959 $ 1,298,723
Distributions payable 511,069 172,077 97,003 780,149
Mortgage notes payable 6,800,000 6,800,000
--------------- --------------- --------------- --------------- ---------------
8,187,167 451,743 239,962 - 8,878,872
--------------- --------------- --------------- --------------- ---------------
Stockholders' Equity
General Partner 100 100 100 (300) D -
Unit Holders 45,682,774 15,901,425 9,772,081 3,154,064 A -
1,430,590 C
(75,940,934) D
Net unrealized holding
gains (losses) 569,952 (41,344) 12,742 41,344 A 1,228,768
658,816 B
(12,742) C
Stockholders' equity 75,941,234 D 75,519,477
(421,757) H
--------------- --------------- --------------- --------------- ---------------
46,252,826 15,860,181 9,784,923 4,850,315 76,748,245
--------------- --------------- --------------- --------------- ---------------
$ 54,439,993 $ 16,311,924 $ 10,024,885 $ 4,850,315 $ 85,627,117
=============== =============== =============== =============== ===============
</TABLE>
See accompanying Notes to Pro Forma Financial Statements
<PAGE> - 4 -
AMERICA FIRST MORTGAGE INVESTMENTS, INC.
PRO FORMA STATEMENT OF INCOME
For the Year Ended December 31, 1997
(unaudited)
<TABLE>
<CAPTION>
Assuming
Maximum Participation
---------------------------------
Prep Fund 1 Prep Fund 2 Pension Fund Pro Forma Pro Forma
(Historical) (Historical) (Historical) Adjustments Combined
--------------- --------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C> <C>
Income
Mortgage and mortgage-backed
securities income $ 2,654,975 $ 1,010,651 $ 560,584 $ 4,226,210
Equity in earnings of property
partnerships 415,117 138,815 59,852 613,784
Rental income 2,290,589 2,290,589
Interest income on
participating loans 191,465 191,465
Interest income on temporary
cash investments and U.S.
government securities 569,624 126,328 138,649 834,601
--------------- --------------- --------------- --------------- ---------------
6,121,770 1,275,794 759,085 - 8,156,649
--------------- --------------- --------------- --------------- ---------------
Expenses
General and administrative
expenses 1,405,514 755,784 369,132 (1,497,544) E 2,438,056
(18,909) F
418,000 G
161,848 I
844,231 J
Real estate operating expenses 1,260,753 1,260,753
Depreciation 274,140 274,140
Interest expense 755,696 755,696
--------------- --------------- --------------- --------------- ---------------
3,696,103 755,784 369,132 (92,374) 4,728,645
--------------- --------------- --------------- --------------- ---------------
Net income $ 2,425,667 $ 520,010 $ 389,953 $ 92,374 $ 3,428,004
=============== =============== =============== =============== ===============
Net income per share $ 0.38
Weighted average number of
shares outstanding during the period 9,062,128
</TABLE>
See accompanying Notes to Pro Forma Financial Statements
<PAGE> - 5 -
AMERICA FIRST MORTGAGE INVESTMENTS, INC.
NOTES TO PRO FORMA FINANCIAL STATEMENTS
(unaudited)
A The historical balance sheet of Prep Fund 2 has been adjusted to reflect the
impact of applying the purchase method of accounting to this transaction.
The net assets of Prep Fund 2 are being adjusted to their estimated fair
value of $19,055,589. Estimated fair value is based on the market value of
Prep Fund 1's units since Prep Fund 1 is deemed to be the acquirer for
accounting purposes. The fair value of the tangible assets and liabilities
is equal to: (i) the amount the Partnership would receive under the terms of
the preferred real estate participations if the underlying properties were
sold for an amount equal to the net realizable value; (ii) the market value
of the mortgage-backed securities based on quoted market prices; (iii) any
undistributed cash and other assets; less (iv) any outstanding liabilities
owed by the Partnership. The net realizable value of the underlying
properties is determined by management 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 rate for rents and expenses,
capitalization rates and discount rates. These variables are supplied to
management by an independent real estate appraisal firm based upon local
market conditions for each property.
The effect of purchase accounting on the balance sheet results in the
following adjustments: (i) the investment in mortgage-backed securities and
the investments in and advances to PREPs, net of valuation allowance, have
been adjusted to fair value as described above; (ii) intangible items
included in other assets have been eliminated as these items were assigned
no value; (iii) the net unrealized holding losses on mortgage-backed
securities has been eliminated because the mortgage-backed securities fair
values become their cost basis; (iv) goodwill has been recorded based on the
equivalent market value of Prep Fund 1 units; and (v) the net effect of
those changes to the assets and liabilities has been applied to the
partners' capital account.
B The historical balance sheet of Prep Fund 1 has been adjusted to reflect all
of the mortgage-backed securities as available-for-sale since the Company
intends to replace a substantial portion of the Partnerships' current
portfolio. As a result, the mortgage-backed securities have been adjusted
to market value based on quoted market prices and the net unrealized holding
gain on mortgage-backed securities has been reflected as a component of
stockholders' equity.
C The historical balance sheet of Pension Fund has been adjusted to reflect
the impact of applying the purchase method of accounting to this
transaction. The net assets of Pension Fund are being adjusted to their
estimated fair value of $11,202,771. Estimated fair value is based on the
market value of Prep Fund 1's units since Prep Fund 1 is deemed to be the
acquirer for accounting purposes. The fair value of the tangible assets and
liabilities is equal to: (i) the amount the Partnership would receive under
the terms of the preferred real estate participations if the underlying
properties were sold for an amount equal to the net realizable value; (ii)
the market value of the mortgage-backed securities based on quoted market
prices; (iii) any undistributed cash and other assets; less (iv) any
outstanding liabilities owed by the Partnership. The net realizable value
of the underlying properties is determined by management 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 rate for
rents and expenses, capitalization rates and discount rates. These
variables are supplied to management by an independent real estate appraisal
firm based upon local market conditions for each property.
<PAGE> - 6 -
The effect of purchase accounting on the balance sheet results in the
following adjustments: (i) the investment in mortgage-backed securities
and the investments in and advances to PREPs, net of valuation allowance,
have been adjusted to fair value as described above; (ii) intangible items
included in other assets have been eliminated as these items were assigned
no value; (iii) the net unrealized holding losses on mortgage-backed
securities has been eliminated because the mortgage-backed securities fair
values become their cost basis; (iv) goodwill has been recorded based on
the equivalent market value of Prep Fund 1 units; and (v) the net effect of
those changes to the assets and liabilities has been applied to the
partners' capital account.
D Represents reclassification of the existing general partners' and unit
holders' capital to stockholders' equity.
E Under the terms of the Advisory Agreement, the Advisor is responsible for
compensation of the Company's officers and other personnel whereas, pursuant
to the terms of each Partnership's partnership agreement, compensation costs
and administrative fees were allocated to the respective Partnership. As
such, general and administrative expenses have been adjusted to reflect the
elimination of compensation costs that will be paid by the Advisor and the
elimination of administrative fees. The Advisor will receive a management
fee as described in footnote J.
F Represents the elimination of historical amortization of GNMA acquisition
costs for Prep Fund 2 and Pension Fund as these items were assigned no value
in adjusting to fair value in applying the purchase method of accounting.
G Represents additional incremental costs expected to be incurred in
conjunction with operating the Company. These incremental costs consist
of: (i) board of directors fees and expenses of $70,000 as the Company will
have its own board of directors; (ii) liability insurance of $67,000 for the
Company's directors and officers; (iii) legal fees of $89,000 associated
with operating the Company as a REIT; (iv) rent expense of $100,000 for the
Company's office space; (v) membership costs of $25,000 related to the New
York Stock Exchange; (vi) maintenance costs of $40,000 associated with
upgrading the Company's systems; (vii) printing costs of $9,000 associated
with communications to investors; and (viii) bank servicing fees of $18,000
associated with increased transaction volume.
H Represents the following adjustments to record remaining transaction costs
expected to be incurred: (i) a decrease in cash for anticipated transaction
costs remaining to be incurred of $1,094,711 ($2,419,802 less $1,325,091);
(ii) goodwill resulting from Prep Fund 1's proportionate share of the
transaction costs; and (iii) a reduction to stockholders' equity for Prep
Fund 2's (and Pension's assuming full participation) proportionate share of
the transaction costs. Prep Fund 2's and Pension Fund's proportionate
share of the transaction costs have been excluded from the pro forma
statements of operations.
I Represents the amortization of goodwill using the straight line method over
a period of 40 years. The amortization expense is included in general and
administrative expenses.
J Represents the base management fee payable to the Advisor pursuant to the
terms of the Advisory Agreement. The base management fee is 1.1% of the
first $300 million of the stockholders' equity plus .8% of the portion of
the stockholders' equity of the Company above $300 million. The Advisor was
not entitled to an incentive fee for the period presented in the pro forma
financial statements. Expenses incurred by the Advisor and reimbursed by
the Company are included in pro forma general and administrative expenses,
or in certain circumstances may be capitalized by the Company. Reimbursable
costs included in the Company's general and administrative expenses or
capitalized that are not part of the base management fee include all of the
Company's general and administrative expenses, except for amortization, and
capitalized costs include such items as transaction costs incurred in
connection with the merger. Reimbursable costs included in the Company's
general and administrative expenses or capitalized that are not part of the
base management fee amounted to $2,293,839 (of which $1,408,940 is included
in general and administrative expenses and $884,899 has been capitalized)
for the year ended December 31, 1997. These costs include, but are not
limited to, board of directors fees and expenses, supplies, mailing expense,
telephone expense, insurance, travel and meals, printing, legal, accounting,
rent, systems, transfer agent expenses and transaction costs incurred in
connection with the Merger.
<PAGE> - 7 -
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 hereunto duly authorized.
Dated: June 17, 1998 AMERICA FIRST MORTGAGE INVESTMENTS, INC.
By: /s/ Stewart Zimmerman
Stewart Zimmerman
President and Chief Executive Officer
<PAGE> - 8 -
