FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
X Quarterly report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the quarterly period ended September 30, 2000 or
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: 000-24843
AMERICA FIRST TAX EXEMPT INVESTORS, L.P.
(Exact name of registrant as specified in its
Agreement of Limited Partnership)
Delaware 47-0810385
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
Suite 400, 1004 Farnam Street, Omaha, Nebraska 68102
(Address of principal executive offices) (Zip Code)
(402) 444-1630
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by the Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports) and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
<PAGE> -i-
Part I. Financial Information
Item 1. Financial Statements
AMERICA FIRST TAX EXEMPT INVESTORS, L.P.
BALANCE SHEETS
<TABLE>
<CAPTION> Sept. 30, 2000
(Unaudited) Dec. 31, 1999
-------------- --------------
<S> <C> <C>
Assets
Cash and temporary cash investments, at cost which
approximates market value (Note 4) $ 9,284,667 $ 3,914,863
Investment in tax-exempt mortgage bonds, at estimated fair value (Notes 3 and 5) 96,775,000 71,720,000
Interest receivable 1,217,521 627,379
Other assets 3,485,547 1,727,483
-------------- --------------
$ 110,762,735 $ 77,989,725
============== ==============
Liabilities and Partners' Capital
Liabilities
Accounts payable (Note 6) $ 725,323 $ 242,220
Distribution payable 1,341,536 -
Debt financing (Note 3) 38,155,000 5,000,000
-------------- --------------
40,221,859 5,242,220
-------------- --------------
Partners' Capital
General Partner 2,473 5,980
Beneficial Unit Certificate Holders
($7.17 per BUC in 2000 and $7.29 in 1999) 70,538,403 72,741,525
-------------- --------------
70,540,876 72,747,505
-------------- --------------
$ 110,762,735 $ 77,989,725
============== ==============
The accompanying notes are an integral part of the combined financial statements.
</TABLE>
<PAGE> -1-
AMERICA FIRST TAX EXEMPT INVESTORS, L.P.
COMBINED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
(UNAUDITED)
<TABLE>
<CAPTION>
For the Nine
For the For the For the Nine Months Ended
Quarter Ended Quarter Ended Months Ended Sept. 30, 1999
Sept. 30, 2000 Sept. 30, 1999 Sept. 30, 2000 (combined)
-------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
Income
Mortgage bond investment income $ 1,864,271 $ 1,379,794 $ 5,092,647 $ 4,393,032
Other interest income 115,516 23,258 262,615 33,140
Contingent interest income (Note 5) - 26,408 - 68,508
-------------- -------------- -------------- --------------
1,979,787 1,429,460 5,355,262 4,494,680
Expenses
Realized loss on investment in tax-exempt
mortgage bond - - 1,100,000 -
Interest expense 509,823 28,100 912,125 28,100
General and administrative expenses (Note 6) 233,657 200,563 767,621 659,729
-------------- -------------- -------------- --------------
743,480 228,663 2,779,746 687,829
-------------- -------------- -------------- --------------
Net income and comprehensive income $ 1,236,307 $ 1,200,797 $ 2,575,516 $ 3,806,851
============== ============== ============== ==============
Net income allocated to:
General Partner $ 12,363 $ 18,345 $ 36,755 $ 54,510
BUC Holders 1,223,944 1,182,452 2,538,761 3,752,341
-------------- -------------- -------------- --------------
$ 1,236,307 $ 1,200,797 $ 2,575,516 $ 3,806,851
============== ============== ============== ==============
Net income, basic and diluted, per BUC $ .13 $ .12 $ .26 $ .38
============== ============== ============== ==============
Weighted average number of BUCs outstanding 9,837,928 9,979,128 9,855,050 9,979,128
============== ============== ============== ==============
The accompanying notes are an integral part of the combined financial statements.
</TABLE>
AMERICA FIRST TAX EXEMPT INVESTORS, L.P.
STATEMENT OF PARTNERS' CAPITAL
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2000
(UNAUDITED)
<TABLE>
<CAPTION>
Beneficial Unit
General Certificate Holders
Partner # of BUCs Amount Total
-------------- --------------- --------------- --------------
<S> <C> <C> <C>
Partners' Capital (excluding accumulated other
comprehensive income)
Balance at December 31, 1999 $ 5,980 9,979,128 $ 73,647,525 $ 73,653,505
Net income 36,755 - 2,538,761 2,575,516
Cash distributions paid or accrued (40,262) - (3,985,954) (4,026,216)
Purchase of BUCs (141,200) (755,929) (755,929)
-------------- --------------- -------------- --------------
2,473 9,837,928 71,444,403 71,446,876
-------------- --------------- -------------- --------------
Accumulated Other Comprehensive Income
Balance at December 31, 1999 and Sept. 30, 2000 - - (906,000) (906,000)
-------------- --------------- -------------- --------------
Balance at September 30, 2000 $ 2,473 9,837,928 $ 70,538,403 $ 70,540,876
============== =============== ============== ==============
The accompanying notes are an integral part of the combined financial statements.
<PAGE> -2-
</TABLE>
AMERICA FIRST TAX EXEMPT INVESTORS, L.P.
COMBINED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
For the Nine
For the Nine Months Ended
Months Ended Sept. 30, 1999
Sept. 30, 2000 (combined)
-------------- --------------
<S> <C> <C>
Cash flows from operating activities
Net income $ 2,575,516 $ 3,806,851
Adjustments to reconcile net income to net cash
from operating activities
Realized loss on investment in tax-exempt mortgage bond 1,100,000 -
(Increase) decrease in interest receivable (590,142) 68,676
(Increase) decrease in other assets 4,856 (5,126)
Increase (decrease) in accounts payable 483,103 (52,430)
-------------- --------------
Net cash provided by operating activities 3,573,333 3,817,971
-------------- --------------
Cash flows used in investing activities
Acquisition of tax-exempt mortgage bonds (33,155,000) -
Increase in other assets (1,762,920) (787,165)
Purchase of BUCs (755,929) -
Bond issuance costs paid - (142,886)
-------------- --------------
Net cash used in investing activities (35,673,849) (930,051)
-------------- --------------
Cash flows from financing activities
Proceeds from debt financing 33,155,000 5,000,000
Proceeds from sale of tax-exempt mortgage bond 7,000,000 -
Distributions paid (2,684,680) (4,088,040)
-------------- --------------
Net cash provided by financing activities 37,470,320 911,960
-------------- --------------
Net increase in cash and temporary cash investments 5,369,804 3,799,880
Cash and temporary cash investments at beginning of period 3,914,863 920,801
-------------- --------------
Cash and temporary cash investments at end of period $ 9,284,667 $ 4,720,681
============== ==============
Supplemental disclosure of cash flow information:
Cash paid during the period for interest $ 408,285 $ -
============== ==============
</TABLE>
Supplemental disclosure of non-cash investing activity:
During the nine months ended September 30, 1999, the tax-exempt mortgage bonds
secured by Shoals Crossing and Ashley Square with a principal balances of
$4,500,000 and $6,500,000, respectively, were refinanced by their local
housing finance authorities. The bonds held by the Partnership were
terminated and new bonds in the same principal amounts were issued to the
Partnership.
Supplemental disclosure of non-cash financing activities:
As more fully described in Notes 3 and 5(7) and (8), on March 28, 2000 and
June 1, 2000, the Partnership securitized $17,155,000 and $16,000,000,
respectively, of tax-exempt mortgage bonds on Iona Lakes Apartments and Clear
Lake Colony Apartments, respectively, by depositing such bonds with a
custodian. The bonds were credit enhanced and interests in substantially all
of such bonds were sold to institutional investors with the Partnership
acquiring residual interests therein. These arrangements have been accounted
for as financing transactions.
In connection with the February 1, 1999, merger of the Partnership and America
First Tax Exempt Mortgage Fund Limited Partnership (the Prior Partnership)
described in Note 1 to the financial statements, 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 accompanying notes are an integral part of the combined financial
statements.
<PAGE> -3-
AMERICA FIRST TAX EXEMPT INVESTORS, L.P.
NOTES TO COMBINED FINANCIAL STATEMENTS
SEPTEMBER 30, 2000
(UNAUDITED)
1. Organization
America First Tax Exempt Investors, L.P. (the New Partnership) was formed on
April 2, 1998 under the Delaware Revised Uniform Limited Partnership Act for
the purpose of acquiring, holding, operating, selling and otherwise dealing
with a portfolio of federally tax-exempt mortgage bonds which have been issued
to provide construction and/or permanent financing of multifamily residential
apartments. The New Partnership commenced operations on February 1, 1999,
when it was merged with America First Tax Exempt Mortgage Fund Limited
Partnership (the Prior Partnership). The General Partner of both the Prior
Partnership and the New Partnership is America First Capital Associates
Limited Partnership Two (AFCA 2). The New Partnership and the Prior
Partnership are collectively referred to as the Partnership.
2. Basis of Presentation
The accompanying 2000 financial statements include the accounts of the New
Partnership. The accompanying 1999 financial statements include the combined
accounts of the New Partnership from February 1, 1999 (the Merger Date),
through September 30, 1999, and the accounts of the Prior Partnership from
January 1, 1999 until the Merger Date. The combination of the accounts of the
Prior Partnership and the New Partnership is reflected on an "as-if" pooling
basis for a merger of entities under common control.
The interim unaudited financial statements have been prepared according to the
rules and regulations of the Securities and Exchange Commission. Certain
information and footnote disclosures normally included in financial statements
prepared in accordance with generally accepted accounting principles have been
condensed or omitted according to such rules and regulations, although
management believes that the disclosures are adequate to make the information
presented not misleading. The financial statements should be read in
conjunction with the financial statements and notes thereto included in the
Partnership's Annual Report on Form 10-K for the year ended December 31,
1999. In the opinion of management, all normal and recurring adjustments
necessary to present fairly the financial position at September 30, 2000, and
results of operations for all periods presented have been made. The results
of operations for the three and nine-month periods ended September 30, 2000
are not necessarily indicative of the results to be expected for the full year.
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.
3. Debt Financing
As of September 30, 2000, the Partnership had securitized $38,155,000 of its
tax-exempt mortgage bond portfolio under three separate financing transactions
as described below.
The Partnership securitized $5,000,000 of its Northwoods Lake Apartments
tax-exempt mortgage bonds during August, 1999. In connection with the
securitization, the Partnership deposited $25,250,000 of such tax-exempt
mortgage bonds into a trust (the Primary Trust) which issued $25,250,000 in
trust certificates (the Primary Trust Certificates). The Primary Trust issued
and delivered to a Merrill Lynch affiliate $5,000,000 in Primary Trust
Certificates which have a first priority claim on principal and base interest
on the underlying tax-exempt mortgage bonds. The $5,000,000 in Primary Trust
Certificates were placed in a secondary trust (the Secondary Trust) and credit
enhanced by a Merrill Lynch affiliate. The Merrill Lynch affiliate sold to
institutional investors floating rate securities (the Secondary Securities) in
the amount of $4,995,000. The Partnership also pledged and transferred an
additional $3,000,000 of Primary Trust Certificates to a Merrill Lynch
affiliate to secure payment of the $5,000,000 principal amount of and accrued
interest on the aforementioned Primary Trust Certificates. The Partnership
obtained ownership of the remaining Primary Trust Certificates in the
principal amount of $17,250,000 and the rights to all subordinate interest
paid on the related tax-exempt mortgage bonds. The Partnership also acquired
<PAGE> -4-
AMERICA FIRST TAX EXEMPT INVESTORS, L.P.
NOTES TO COMBINED FINANCIAL STATEMENTS
SEPTEMBER 30, 2000
(UNAUDITED)
a residual interest in the Secondary Trust with a face amount of $5,000 and
proceeds of the transfer of the Primary Trust Certificates to the Merrill
Lynch affiliate in the amount of $4,995,000. The Partnership has a call right
on the Secondary Securities and upon exercise of such right may collapse the
Secondary and Primary Trusts and, therefore, retains a level of control over
the Secondary Securities. The purchase price of Secondary Securities is equal
to the par amount plus 10% of any increase in the market price of the
underlying Primary Trust Certificates. (Also see Note 5 (4)).
The Partnership also securitized tax-exempt mortgage bonds of $17,155,000 on
Iona Lakes Apartments which were acquired by the Partnership on March 28,
2000. Similar to the $5,000,000 securitization described above, the
$17,155,000 of tax-exempt mortgage bonds (the Iona Bonds) were deposited with
a custodian pursuant to a custody and participation agreement (the Custody
Agreement). The custodian issued (i) a certificate to a Merrill Lynch
affiliate evidencing a beneficial ownership interest in all outstanding
principal and base interest on the Iona Bonds (the Senior Certificate) and
(ii) a certificate to the Partnership evidencing a beneficial ownership
interest in all contingent interest on the Iona Bonds (the Residual
Certificate). The Merrill Lynch affiliate then transferred the Senior
Certificate to a secondary trust (Secondary Trust) and credit enhanced such
Senior Certificate. The Merrill Lynch affiliate sold to institutional
investors floating rate securities (the Secondary Securities) in the amount of
$17,150,000. In addition to the Residual Certificate, the Partnership
acquired for $5,000 a residual interest in the Secondary Trust with a face
amount of $5,000. The Partnership has a call right on the Secondary
Securities and, upon exercise of such right, may collapse the Custody
Agreement and the Secondary Trust and, therefore, retains a level of control
over the Secondary Securities. The purchase price of the Secondary Securities
is equal to the par amount plus 10% of any increase in the market value of the
underlying Senior Certificates. The Partnership has also pledged $12,600,000
of its Woodbridge Apartments of Bloomington III tax-exempt mortgage bonds and
$5,300,000 of Primary Trust Certificates related to the Northwoods Lake
Apartments tax-exempt bonds as additional collateral in connection with the
securitization. (Also see Notes 5(4) and (7)).
The Partnership also securitized tax-exempt mortgage bonds of $16,000,000 on
Clear Lake Colony Apartments which was acquired by the Partnership on June 8,
2000. This securitization is structured similar to the $17,155,000
securitization described above. Floating rate securities in the amount of
$15,995,000 were sold to institutional investors and the Partnership acquired
a residual interest in a trust with a face value of $5,000 for $5,000. The
Partnership also pledged $8,976,000 of its Woodbridge Apartments of Louisville
II tax-exempt mortgage bonds and $2,000,000 of Primary Trust Certificates
related to the Northwoods Lake Apartments tax-exempt mortgage bonds as
additional collateral in connection with the securitization. (Also see Notes
5(4) and (8)).
For financial statement purposes, the transactions described above have been
accounted for as financing transactions and, in effect, provide variable-rate
financing for the acquisition of new, or the securitization of existing,
tax-exempt bonds. Accordingly, the $38,155,000 of tax-exempt mortgage bonds
financed are required to be held in trust, the subordinated interests are
classified as other assets, and, in the case of the $5,000,000 debt financing,
the net cash proceeds were classified as cash and temporary cash investments.
In all of the transactions, the financing debt bears interest, plus credit
enhancement, servicing, trustee and related fees. Financing debt of
$21,000,000 bears interest at a weekly floating bond rate which averaged
approximately 4.33% for the nine month period ended September 30, 2000 (4.38%
for the quarter ended September 30, 2000). The remaining $17,155,000 of
financing debt provided for interest at a weekly floating rate through June
21, 2000 at which time the partnership elected to lock in the then current
rate of 4.70% until June 20, 2001. The stated maturity date is October 2011
for the $5,000,000 of debt financing; April 2004 for the $17,155,000 of debt
financing; and September 2002 for the $16,000,000 of debt financing, and, in
each case, is subject to the respective call feature described above. The
Partnership did not recognize a gain or loss in connection with any of the
financing transactions.
<PAGE> -5-
AMERICA FIRST TAX EXEMPT INVESTORS, L.P.
NOTES TO COMBINED FINANCIAL STATEMENTS
SEPTEMBER 30, 2000
(UNAUDITED)
4. Partnership Reserve Account
The Partnership maintains a reserve account which totaled $9,043,882 at
September 30, 2000.
In connection with the Partnership's plan to repurchase up to $1,000,000 of
the Partnership's Beneficial Unit Certificates (BUCs), the Partnership
utilized a portion of the reserve account to purchase and cancel, in open
market transactions, 141,200 BUCs at an aggregate cost of $755,929 during the
nine months ended September 30, 2000 (none during the quarter ended September
30, 2000).
<TABLE>
5. Investment in Tax-Exempt Mortgage Bonds
The Partnership classified its investment in tax-exempt mortgage bonds as
available-for-sale. At September 30, 2000, the total amortized cost, gross
unrealized holding losses and aggregate fair value of available-for-sale
securities were $97,681,000, $906,000 and $96,775,000, respectively. At
December 31, 1999, the total amortized cost, gross unrealized holding losses
and aggregate fair value of available-for-sale securities were $72,626,000,
$906,000, and $71,720,000 respectively.
Descriptions of the tax-exempt mortgage bonds owned by the Partnership at
September 30, 2000, are as follows:
Base
Number Maturity Interest
Property Name Location of Units Date Rate
--------------------------------- ----------------- -------- -------- ---------
<S> <C> <C> <C> <C>
Shoals Crossing Atlanta, GA 176 12/01/25 7.5% (1)
Ashley Square Des Moines, IA 144 12/01/25 7.5% (2)
Northwoods Lake Apartments (4) Duluth, GA 492 09/01/25 7.5% (1)
Woodbridge Apts. of Bloomington III (5) Bloomington, IN 280 12/01/27 7.5% (1)
Woodbridge Apts. of Louisville II (6) Louisville, KY 190 12/01/27 7.5% (1)
Iona Lakes Apartments (7) Ft. Myers, FL 350 04/01/30 6.9% (3)
Clear Lake Colony Apartments (8) West Palm Beach, FL 316 06/15/30 6.9% (3)
Ashley Pointe at Eagle Crest (9) Evansville, IN 150 12/01/27 7.0% (1)
</TABLE>
(1) In addition to the base interest rates shown, the bonds bear additional
contingent interest, as defined in each revenue note, of an additional 3.5% per
annum that is payable out of 50% (100% in the case of Shoals Crossing, Ashley
Pointe at Eagle Crest and Northwoods Lake Apartments) of the net cash flow
generated by the respective property. The Partnership did not receive
additional contingent interest from any such bonds during the quarter or nine
months ended September 30, 2000.
(2) In addition to the base interest rate shown, the bond bears additional
contingent interest, as defined in the revenue note, of an additional 3% per
annum payable out of the net cash flow generated by the property. Past due
unpaid contingent interest compounds at a rate of 10.5% per annum. The
Partnership did not receive any additional contingent interest during the
quarter or nine months ended September 30, 2000.
(3) In addition to the base interest rate shown, the bonds bear additional
contingent interest, as defined in the revenue note, of an additional 2.6% per
annum for Iona Lakes Apartments and 1.885% per annum for Clear Lake Colony
Apartments payable out of the net cash flow generated by the property. Past
due unpaid contingent interest compounds at a rate of 9.5% for Iona Lakes
Apartments and 8.785% for Clear Lake Colony Apartments per annum.
(4) Tax-exempt mortgage bonds of $25,250,000 have been deposited with a trust
(the Primary Trust as described in Note 3). The Partnership also pledged
Primary Trust Certificates representing a beneficial interest in $5,300,000
and $2,000,000 in principal amount of such bonds as described in (5) and (6)
below, respectively.
<PAGE> -6-
AMERICA FIRST TAX EXEMPT INVESTORS, L.P.
NOTES TO COMBINED FINANCIAL STATEMENTS
SEPTEMBER 30, 2000
(UNAUDITED)
(5) Tax-exempt bonds of $12,600,000, in addition to the $5,300,000 of Primary
Trust Certificates described in (4) above, have been pledged as additional
security to the beneficial owner of the tax-exempt mortgage bonds as described
in (7) below.
(6) Tax-exempt bonds of $8,976,000, in addition to the $2,000,000 of Primary
Trust Certificates described in (4) above, have been pledged as additional
security to the beneficial owner of the tax-exempt mortgage bonds as described
in (8) below.
(7) Tax-exempt bonds of $17,155,000 secured by Iona Lakes Apartments were
acquired by the Partnership on March 28, 2000. Such bonds have been deposited
with a custodian as described in Note 3. Also see (4) and (5) above.
(8) Tax-exempt bonds of $16,000,000 secured by Clear Lake Colony Apartments
were acquired by the Partnership on June 8, 2000. Such bonds have been
deposited with a custodian as described in Note 3. Also see (4) and (6) above.
(9) Tax-exempt bonds of $6,700,000 have been pledged as security for a
reimbursement obligation regarding a $11,350,000 letter of credit. Such
letter of credit was issued for the benefit of the purchaser of Bent Tree
Apartments (the Project) located in Columbia, South Carolina, as part of a plan
by the Partnership to acquire certain securities representing an interest in
tax-exempt bonds secured by the Project which are anticipated to be refunded
on or around December 21, 2000. Pending issuance of such bonds and certain
other events, the Partnership's obligations under the reimbursement obligation
will cease and the $6,700,000 of tax-exempt mortgage bonds will be released
from such pledge. However, upon issuance of the new bonds, the Partnership
anticipates that substantially all of these securities will be pledged as
collateral to the beneficial owner of the new bonds.
During the quarter ended June 30, 2000, the Partnership determined it was not
likely to recover or receive its contracted cash flows (including the
repayment of principal) on its $12,100,000 investment in the Arama Apartments
tax-exempt mortgage bond based on a commitment by the Partnership to the
obligor of such tax-exempt mortgage bond. Accordingly, the Partnership
realized a loss of $1,100,000 during such quarter and the previously adjusted
cost basis of the tax-exempt mortgage bond was written down to its fair value
of $7,000,000 as a new cost basis. On September 11, 2000, the Partnership
sold its investment in the Arama Apartments tax-exempt mortgage bond to the
obligor of such tax-exempt mortgage bond. Since the adjusted cost basis of
such bond was also $7,000,000 the Partnership realized no additional loss on
the sale.
6. 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 2 or an
affiliate and are reimbursed by the Partnership. The amount of such expenses
reimbursed to AFCA 2 during 2000 was $877,318 ($215,833 for the quarter ended
September 30, 2000). The reimbursed expenses included in this footnote are
presented on a cash basis and do not reflect accruals made at quarter end
which are reflected in the accompanying financial statements.
AFCA 2 is entitled to receive an administrative fee from the Partnership equal
to 0.45% of the outstanding principal balance of any tax-exempt bond or other
mortgage investment, unless the owner of the property financed by such
tax-exempt bond or other mortgage investment or another third party is
required to pay such administrative fee. Under the terms of each of the
Partnership's existing tax-exempt mortgage bonds, the property owners are
obligated to pay the administrative fee to AFCA 2. Therefore, the Partnership
did not pay any administrative fees to AFCA 2 during the quarter and nine
months ended September 30, 2000. The Partnership may become obligated to pay
administrative fees to AFCA 2 in the event it acquires additional tax-exempt
bonds or other mortgage investments and is not able to negotiate the payment
of these fees by the property owners or in the event it acquires title to any
of the properties securing its existing tax-exempt bonds by reason of
foreclosure. AFCA 2 received administrative fees of $258,029 during 2000
($97,141 during the quarter ended September 30, 2000), from the owners of
properties financed by the tax-exempt bonds held by the Partnership. Since
<PAGE> -7-
AMERICA FIRST TAX EXEMPT INVESTORS, L.P.
NOTES TO COMBINED FINANCIAL STATEMENTS
SEPTEMBER 30, 2000
(UNAUDITED)
these administrative fees are not Partnership expenses, they have not been
reflected in the accompanying financial statements. However, such fees are
payable by the property owners prior to the payment of any contingent interest
on the tax-exempt bonds secured by these properties.
In addition, AFCA 2 was also entitled to receive approximately $359,000 in
administrative fees from the Partnership for the year ended December 31,
1989. The payment of these fees, which has been deferred by AFCA 2, is
contingent upon, and will be paid only out of future profits realized by the
Partnership from the disposition of any Partnership assets. This amount will
be recorded as an expense by the Partnership when it is probable that these
fees will be paid.
AFCA 2 earned mortgage placement fees of $331,550 during 2000 (none during
the quarter ended September 30, 2000), in connection with the acquisitions of
the Iona Lakes Apartments and the Clear Lake Colony Apartments tax-exempt
mortgage bonds. The mortgage placement fees were paid by the owner of Iona
Lakes Apartments and Clear Lake Colony Apartments, respectively. Since such
fees are not expenses of the Partnership, they have not been reflected in the
accompanying financial statements.
An affiliate of AFCA 2 was retained to provide property management services
for Ashley Square, Northwoods Lake Apartments, Ashley Pointe at Eagle Crest,
Shoals Crossing, Iona Lakes Apartments (beginning in April 2000) and Clear
Lake Colony Apartments (beginning in June 2000). The management fees paid to
the affiliate of AFCA 2 reflect market rates for such services in the areas in
which these properties are located and totaled $245,017 during 2000 ($48,289
for the quarter ended September 30, 2000). These management fees are not
Partnership expenses and, accordingly, have not been reflected in the
accompanying financial statements. However, such fees are paid out of the
revenues generated by these properties prior to the payment of any interest on
the tax-exempt bonds held by the Partnership on these properties.
7. Commitments and Contingencies
As more fully described in Note 5(9), the Partnership has pledged $6,700,000
of tax-exempt mortgage bonds as collateral for a letter of credit in the
amount of $11,350,000.
<PAGE> -8-
Item 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
The following discussion should be read in conjunction with all of the
financial statements and notes included in Item 1 of this report as well as
the Partnership's Annual Report on Form 10-K for the year ended December 31,
1999.
On February 1, 1999, America First Tax Exempt Investors, L.P. (the New
Partnership) commenced operations when it merged with America First Tax Exempt
Mortgage Fund Limited Partnership (the Prior Partnership). The General
Partner of both the Prior Partnership and the New Partnership is America First
Capital Associates Limited Partnership Two (AFCA 2). The New Partnership and
the Prior Partnership are collectively referred to as the Partnership.
Liquidity and Capital Resources
The Partnership's primary capital resource consists of eight tax-exempt
mortgage bonds which were issued to the Partnership in order to provide
construction and/or permanent financing for eight multifamily housing
projects. The Partnership had an investment in a ninth tax-exempt mortgage
bond collateralized by the Arama Apartments, a 293 unit property located in
Miami, Florida which it sold on September 11, 2000. The eight multifamily
projects financed at September 30, 2000 are listed in the following table:
<TABLE>
At September 30, 2000
-----------------------------
Number Percentage
Number of Units of Units
Property Name Location of Units Occupied Occupied
------------------------------------- ------------------ -------------- -------------- --------------
<S> <C> <C> <C> <C>
Shoals Crossing Atlanta, GA 176 171 97%
Ashley Square Des Moines, IA 144 141 98%
Northwoods Lake Apartments Duluth, GA 492 481 98%
Woodbridge Apts. of Bloomington III Bloomington, IN 280 274 98%
Woodbridge Apts. of Louisville II Louisville, KY 190 186 98%
Iona Lakes Apartments Ft. Myers, FL 350 333 95%
Clear Lake Colony Apartments West Palm Beach, FL 316 314 99%
Ashley Pointe at Eagle Crest Evansville, IN 150 148 99%
-------------- -------------- --------------
2,098 2,048 98%
============== ============== ==============
</TABLE>
The aggregate carrying value of the tax-exempt bonds at September 30, 2000 was
$96,775,000. The Partnership has securitized $38,155,000 of its tax-exempt
bonds as described herein.
Each of the bonds bears interest at a fixed rate and provides for the payment
of additional contingent interest that is payable solely from available net
cash flow generated by the financed property. The principal amount of the
bonds does not amortize over their respective terms.
<PAGE> -9-
Tax-exempt interest earned on the bonds represents the Partnership's principal
source of cash flow. The Partnership also earns tax-exempt interest and
taxable interest on certain other investments. The Partnership's principal
uses of cash are the payment of operating expenses and distributions to BUC
holders. The following table sets forth information relating to cash
distributions paid to BUC holders for the periods shown:
<TABLE>
For the Nine
For the Nine Months Ended
Months Ended Sept. 30, 1999
Sept. 30, 2000 (combined)
-------------- --------------
<S> <C> <C>
Cash distributions
Income $ .2933 $ .4050
Return of capital .1117 -
-------------- --------------
Income $ .4050 $ .4050
============== ==============
Distributions
Paid out of current cash flow $ .3697 $ .3760
Paid out of prior undistributed cash flow .0353 .0290
-------------- --------------
Income $ .4050 $ .4050
============== ==============
</TABLE>
In addition to cash generated from interest income, the Partnership may draw
on its reserve to pay operating expenses or to supplement cash distributions
to BUC holders. As of September 30, 2000, the amount held by the Partnership
in the reserve was $9,043,882. Such amount includes proceeds of $7,000,000
from the sale of the Arama Apartments tax exempt mortgage bond on September
11, 2000. In addition, during nine months ended September 30, 2000, a net
amount of undistributed income totaling $350,700 was withdrawn from reserves
($105,229 for the quarter ended September 30, 2000). Future distributions to
BUC Holders will depend upon the amount of base and contingent interest
received on the mortgage bonds, the size of the reserves established by the
Partnership and the extent to which withdrawals are made from reserves.
The Partnership believes that cash provided by interest income from its
tax-exempt bonds and other investments, supplemented, if necessary, by
withdrawals from its reserve, will be adequate to meet its projected
short-term and long-term liquidity requirements, including the payments of
distributions to BUC Holders.
The Partnership is pursuing an investment strategy whereby it is investing in
additional tax-exempt mortgage bonds and related investments and financing
such acquisitions through the sale of senior interests in its tax-exempt bonds
and/or by issuing additional BUCs. By acquiring additional investments, AFCA
2 hopes to: (i) increase the amount of tax-exempt interest available for
distribution to BUC holders, (ii) reduce risk through increased asset
diversification and (iii) achieve improved economies of scale. By financing
the acquisition of additional investments through the sale of senior interests
in its tax-exempt bonds, the Partnership foregoes a portion of the interest it
earns on its tax-exempt bonds, but reinvests the sale proceeds in instruments
which are expected to generate a greater amount of interest income. To the
extent the Partnership sells such senior interests and is unable to reinvest
the proceeds in investments that generate interest at least as great as the
interest paid on the senior interests, the amount of interest income available
to the Partnership will decline. AFCA 2 is unable to estimate the amount of
additional tax-exempt mortgage bonds and other investments that the
Partnership may acquire and there can be no assurance that the Partnership
will be able to achieve any of the goals stated above.
<PAGE> -10-
In keeping with its investment strategy, the Partnership acquired $33,155,000
of tax-exempt bonds during 2000. These acquisitions include $17,155,000 of
tax-exempt mortgage bonds (the Iona Bonds) secured by Iona Lakes Apartments
located in Ft. Myers, Florida, which were acquired on March 28, 2000, and
$16,000,000 of tax-exempt mortgage bonds (the Clear Lake Colony Bonds) secured
by Clear Lake Colony Apartments located in West Palm Beach, Florida, which
were acquired on June 8, 2000. The Partnership securitized such bonds under
two separate financing transactions by depositing them with a custodian which
issued (i) certificates to a Merrill Lynch affiliate evidencing a beneficial
ownership interest in all outstanding principal and base interest on the bonds
and, in the case of the Iona bonds (ii) a residual certificate to the
Partnership evidencing a beneficial ownership interest in all contingent
interest on such bonds. With respect to the Clear Lake Colony Bonds, the
Partnership owns a separate series of bonds entitling it to contingent
interest thereon. The Merrill Lynch affiliate then transferred its
certificates to trusts, which, in turn, sold to institutional investors
floating rate securities credit enhanced by the Merrill Lynch affiliate. The
trusts also issued to the Partnership residual interests in the trusts with a
total face amount of $10,000 ($5,000 for each of the securitized bonds) for a
total purchase price of $10,000 ($5,000 each). The Partnership has a call
right on the senior floating rate securities and, upon exercise of such right,
may collapse the trusts and, therefore, retains a level of control over such
securities. The purchase price of the senior securities is equal to the par
amount plus 10% of any increase in the market value of the underlying bonds.
As described in Note 3 to the financial statements, these arrangements have
been accounted for as financing transactions and, in effect, provide
variable-rate financing to the Partnership.
As a result of the securitizations described above and one securitization
completed during 1999, the Partnership has securitized $38,155,000 of its
tax-exempt mortgage bond portfolio as of September 30, 2000. As of September
30, 2000, the Partnership has pledged a total of $62,031,000 of its tax-exempt
mortgage bond portfolio in connection with its securitizations.
In addition to the securitizations described above, tax-exempt bonds of
$6,700,000 have been pledged as security for a reimbursement obligation
regarding a $11,350,000 letter of credit. Such letter of credit was issued
for the benefit of the purchaser of Bent Tree Apartments (the Project) located
in Columbia, South Carolina, as part of a plan by the Partnership to acquire
certain securities representing an interest in tax-exempt bonds secured by the
Project which are anticipated to be refunded on or around December 21, 2000.
Pending issuance of such bonds and certain other events, the Partnership's
obligations under the reimbursement obligation will cease and the $6,700,000
of tax-exempt mortgage bonds will be released from such pledge. However, upon
issuance of the new bonds, the Partnership anticipates that substantially all
of these securities will be pledged as collateral to the beneficial owner of
the new bonds.
On September 11, 2000, the Partnership sold its investment in the Arama
Apartments tax-exempt mortgage bond to the obligor of such tax-exempt mortgage
bond for $7,000,000. Since the adjusted cost basis of such bond was also
$7,000,000 the Partnership realized no additional loss. The Partnership plans
to reinvest the proceeds from the sale pursuant to its investment strategy.
In connection with the Partnership's plan to repurchase up to $1,000,000 of
the Partnership's BUCs, the Partnership purchased and cancelled 141,200 BUCs
in open market transactions at a cost of $755,929 during the nine months ended
September 30, 2000.
Asset Quality
In conjunction with its periodic review of the real estate collateralizing the
Partnership's mortgage bonds, during the quarter ended June 30, 2000, the
Partnership determined it was not likely to recover or receive its contracted
cash flows (including the repayment of principal) on its $12,100,000
investment in the Arama Apartments tax-exempt mortgage bond based on a
commitment by the Partnership to the obligor of such tax-exempt mortgage
bond. Accordingly, the Partnership realized a loss of $1,100,000 during such
quarter and the previously adjusted cost basis of the tax-exempt mortgage bond
was written down to its fair value of $7,000,000 as a new cost basis. The
Partnership sold its investment in the Arama Apartments tax-exempt mortgage
bond on September 11, 2000, as discussed above.
The overall status of the Partnership's other tax-exempt mortgage bonds has
generally remained constant since December 31, 1999.
<PAGE> -11-
Results of Operations
Comparison of the Quarters Ended September 30, 2000 and September 30, 1999
Mortgage bond investment income increased $484,477 (35%) from $1,379,794 for
the quarter ended September 30, 1999 to $1,864,271 for the quarter ended
September 30, 2000. The majority of such increase is attributable to the
acquisitions of the Iona Lakes Apartments and Clear Lake Colony Apartments
tax-exempt mortgage bonds in March 2000 and June 2000, respectively. In
addition to the $575,212 of income earned on such newly acquired bonds during
the quarter ended September 30, 2000, the Partnership earned approximately
$74,700, $49,000 and $42,300 more on the Northwoods Lake Apartments,
Woodbridge Apartments of Bloomington III and Ashley Square tax-exempt mortgage
bonds, respectively, during the quarter ended September 30, 2000, compared to
the same period in 1999. Offsetting such additions to income was a
decrease of approximately $257,100 in mortgage bond investment income on the
Arama Apartments tax-exempt mortgage bond which was sold on September 11,
2000. Mortgage bond investment income earned during the quarters ended
September 30, 2000 and 1999 consisted of the full base interest due on all but
three of its tax-exempt mortgage bonds owned during the respective periods.
In addition, included in mortgage bond investment income for the quarters
ended September 30, 2000 and 1999, was approximately $100,000 and $25,000,
respectively, in past due base interest on the prior Northwoods Lake
Apartments bonds. Past due base interest on the prior bonds is recorded as it
is received. References made to "prior" bonds throughout the "Results of
Operations" discussion refer to tax-exempt bonds owned by the Partnership and
secured by the respective property before their reissuance in 1998 and 1999.
Other interest income increased $92,258 for the quarter ended September 30,
2000, compared to the same period in 1999. Such increase is primarily
attributable to the investment of cash proceeds resulting from $5,000,000 in
debt financing obtained in August 1999. Also contributing slightly to the
increase was the investment of the $7,000,000 in cash proceeds received from
the September 11, 2000 sale of the Arama Apartments tax-exempt mortgage bond.
The Partnership earned contingent interest income of $26,408 from the Arama
Apartments tax-exempt mortgage bond for the quarter ended September 30, 1999.
No such income was earned for the comparable period of 2000 due to a reduction
in net operating income generated by the Arama Apartments and the sale of such
bond on September 11, 2000.
During the quarter ended September 30, 2000, the Partnership incurred interest
expense of $509,823 on the $38,155,000 of debt financing obtained since August
1999 in connection with securitizing $38,155,000 of its tax-exempt mortgage
bonds. For the comparable period of 1999, the Partnership incurred interest
expense of $28,100 on $5,000,000 of debt financing obtained in August 1999.
Accordingly, interest expense increased $481,723 for the quarter ended
September 30, 2000, compared to the comparable period of 1999.
General and administrative expenses for the quarter ended September 30, 2000
increased $33,094 (17%) compared to the same period in 1999. Such increase is
attributable to (i) an increase of approximately $27,000 salaries and related
expenses and (ii) net increases of approximately $6,000 in the Partnership's
other general and administrative expenses.
Comparison of the Nine Months Ended September 30, 2000 and September 30, 1999
Mortgage bond investment income increased $699,615 (16%) from $4,393,032 for
the nine months ended September 30, 1999 to $5,092,647 for the nine months
ended September 30, 2000. The majority of such increase is attributable to
the acquisitions of the Iona Lakes Apartments and Clear Lake Colony Apartments
tax-exempt mortgage bonds in March 2000 and June 2000, respectively. In
addition to the $941,669 of income earned on such newly acquired bonds during
the nine months ended September 30, 2000, the Partnership earned
approximately $91,000 and $12,000 more on the Ashley Square and Northwoods
Lake Apartments tax-exempt mortgage bonds, respectively, during the nine
months ended September 30, 2000, compared to the same period in 1999.
Offsetting such additions to income were decreases of approximately $257,100,
$47,800, $21,100 and $18,900 in mortgage bond investment income earned on the
Arama Apartments, Shoals Crossing, Woodbridge Apartments of Louisville II and
Woodbridge Apartments of Bloomington III tax-exempt mortgage bonds
respectively. The decrease related to Arama Apartments resulted from the
nonperformance of such bond beginning the in the quarter ended September 30,
2000, and the sale of the bond on September 11, 2000. The decrease
<PAGE> -12-
attributable to Shoals Crossing is due to less cash flow generated by the
underlying property in 2000 compared to 1999. The decreases related to both
Woodbridge Apartments of Louisville II and Woodbridge Apartments of
Bloomington III are due to the receipt of less past due base interest on the
prior bonds related to such properties during 2000 than 1999. Despite the
decrease in income earned on these four bonds during the nine months ended
September 30, 2000, compared to the same period of 1999, the Partnership
earned the full base interest due on all but three of its tax-exempt mortgage
bonds during 2000 compared to two during 1999.
Other interest income increased $229,475 for the nine month period ended
September 30, 2000, compared to the same period in 1999. Such increase is
primarily attributable to the investment of cash proceeds resulting from
$5,000,000 in debt financing obtained in August 1999. Also contributing
slightly to the increase was the investment of the $7,000,000 in cash proceeds
received from the September 11, 2000 sale of the Arama Apartments tax-exempt
mortgage bond.
The Partnership earned contingent interest income of $45,806 and $22,702 from
the Arama Apartments and Ashley Pointe at Eagle Crest tax-exempt mortgage
bonds, respectively, for the nine months ended September 30, 1999. No such
income was earned from either bond for the comparable period of 2000 due to a
reduction in net operating income generated by the respective underlying
properties and the sale of the Arama Apartments bond on September 11, 2000.
During the nine months ended September 30, 2000, the Partnership realized a
loss of $1,100,000 in its tax-exempt mortgage bond secured by Arama
Apartments, as management determined it was not likely to recover or receive
its contracted cash flows (including repayment of principal) on such
investment. No such loss was realized for the comparable period of 1999.
During the nine months ended September 30, 2000, the Partnership incurred
interest expense of $912,125 on the $38,155,000 of debt financing obtained
since August 1999 in connection with securitizing $38,155,000 of its
tax-exempt mortgage bonds. For the comparable period of 1999, the Partnership
incurred interest expense of $28,100 on $5,000,000 of debt financing obtained
in August 1999. Accordingly, interest expense increased $884,025 for the nine
month period ended September 30, 2000, compared to the comparable period of
1999.
General and administrative expenses for the nine months ended September 30,
2000 increased $107,892 (14%) compared to the same period in 1999. Such
increase is attributable to (i) an increase of approximately $76,000 salaries
and related expenses; (ii) net increases of approximately $52,000 in other
general and administrative expenses partially offset by (iii) expenses of
approximately $20,000 incurred in 1999 in conjunction with the Merger.
New Accounting Pronouncement
The Partnership plans to adopt Statement of Financial Accounting Standards No.
133, "Accounting for Derivative Instruments and Hedging Activities" (SFAS 133)
effective January 1, 2001. Management is currently evaluating the effects of
adopting this statement and does not anticipate that such adoption will have a
material impact on the financial statements of the Partnership.
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.
<PAGE> -13-
Item 3. Quantitative and Qualitative Disclosures About Market Risk.
The Partnership's primary market risk exposure is interest rate risk related
to its investment portfolio and financing debt. There have been no
significant changes in the Partnership's interest rate risk on its investment
portfolio since December 31, 1999. However, in 2000, the Partnership
significantly increased its financing debt through the acquisitions of a
$17,155,000 tax-exempt mortgage bond in March 2000 and a $16,000,000
tax-exempt mortgage bond in June 2000. Such acquisitions were effectively
financed with variable-rate debt as more fully described under Liquidity and
Capital Resources.
At September 30, 2000, the Partnership had total debt financing with a
principal amount of and fair value of $38,155,000. The weighted average
interest rate of the variable-rate financing was 5.29% at September 30, 2000.
The stated maturity dates of the debt financing are as follows: October 2011
for the $5,000,000; April 2004 for the $17,155,000 and September 2002 for the
$16,000,000. However, the Partnership has the right to collapse each of the
financing transactions at any time.
As the above discussion incorporates only new positions or exposures since
December 31, 1999, and that existed as of September 30, 2000, it does not
consider those exposures or positions that could arise after September 30,
2000. Moreover, because future commitments are not discussed above, the
information presented has limited predictive value. As a result, the
Partnership's ultimate economic impact with respect to interest rate
fluctuations will depend on the exposures that arise during the period, the
Partnership's risk mitigating strategies at that time and interest rates.
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
The following documents are filed as part 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 Five (incorporated herein by
reference to Form S-11 Registration Statement filed August 30,
1985, with the Securities and Exchange Commission by America
First Tax Exempt Mortgage Fund Limited Partnership (Commission
File No. 2-99997)).
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. 333-50513) filed by
the Registrant on April 17, 1998.
4(b) Agreement of Limited Partnership of the Registrant
(incorporated by reference to Form 10-K dated December 31, 1998
filed pursuant to Section 13 or 15(d) of the Securities Act of
1934 by America First Tax Exempt Investors, L.P. (Commission
File No. 000-24843)).
4(c) Amended Agreement of Merger, dated June 12, 1998,
between the Registrant and America First Tax Exempt Mortgage
Fund Limited Partnership (incorporated by reference to Exhibit
4.3 to Amendment No. 3 to Registration Statement on Form S-4
(Commission File No. 333-50513) filed by the Registrant on
September 14, 1998.
27. Financial Data Schedule.
(b) Reports on Form 8-K
The following report on Form 8-K was filed during the period
covered by this report:
Date of Report Item Reported Financial Statements Filed
-------------- ------------- --------------------------
June 20, 2000 Other Events No
<PAGE> -14-
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
Dated: November 11, 2000 AMERICA FIRST TAX EXEMPT INVESTORS, L.P.
By America First Capital
Associates Limited
Partnership Two, General
Partner of the Registrant
By America First Companies L.L.C.,
General Partner of America First
Capital Associates Limited
Partnership Two
By /s/ Michael Thesing
Michael Thesing
Vice President
and Principal Financial Officer
<PAGE> -15-
