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, 1995 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: 0-16497
CAPITAL SOURCE L.P.
(Exact name of registrant as specified in its charter)
Delaware 52-1417770
(State or other jurisdiction (IRS Employer
of incorporation or organization) Identification No.)
Suite 400, 1004 Farnam Street, Omaha, Nebraska 68102
(Address of principal executive offices) (Zip Code)
(402) 444-1630
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
YES X NO
<PAGE>
Part I. Financial Information
Item 1. Financial Statements
CAPITAL SOURCE L.P.
BALANCE SHEETS
<TABLE>
<CAPTION>
Sept. 30, 1995
(Unaudited) Dec. 31, 1994
--------------- ---------------
<S> <C> <C>
Assets
Investment in real estate:
Land $ 3,093,671 $ 3,093,671
Buildings 35,505,314 35,505,314
Personal property 2,004,057 1,991,554
--------------- ---------------
40,603,042 40,590,539
Less accumulated depreciation (8,777,910) (8,142,887)
--------------- ---------------
Net investment in real estate 31,825,132 32,447,652
--------------- ---------------
Cash and temporary cash investments, at cost
which approximates market value (Note 5) 1,729,372 2,351,857
Escrow deposits and property reserves 1,655,659 1,371,560
Investment in U.S. government securities (Note 5) 997,815 -
Investment in GNMA security (Note 8) 7,121,571 7,145,554
Investment in mortgage-backed securities (Note 5) 1,693,102 1,822,428
Interest and other receivables 122,200 28,455
Deferred mortgage issuance costs, net 2,417,839 2,519,546
Other assets 555,427 416,647
--------------- ---------------
$ 48,118,117 $ 48,103,699
=============== ===============
Liabilities and Partners' Capital (Deficit)
Liabilities
Accounts payable and accrued expenses $ 1,347,962 $ 1,143,750
Distribution payable (Note 3) 860,587 860,587
Mortgage loan payable (Note 7) 6,395,004 6,395,004
Interest payable 335,475 349,158
Due to operating partnerships' general partners and their affiliates (Note 4) 4,504,831 4,512,113
--------------- ---------------
13,443,859 13,260,612
--------------- ---------------
Minority interest 225,016 227,365
--------------- ---------------
Partners' Capital (Deficit)
General Partners (271,165) (269,500)
Limited Partners ($10.29 per BAC in 1995 and $10.34 in 1994) 34,720,407 34,885,222
--------------- ---------------
34,449,242 34,615,722
--------------- ---------------
$ 48,118,117 $ 48,103,699
=============== ===============
The accompanying notes are an integral part of the consolidated financial statements.
</TABLE>
<PAGE>
CAPITAL SOURCE L.P.
STATEMENTS OF INCOME
(UNAUDITED)
<TABLE>
<CAPTION>
For the For the For the Nine For the Nine
Quarter Ended Quarter Ended Months Ended Months Ended
Sept. 30, 1995 Sept. 30, 1994 Sept. 30, 1995 Sept. 30, 1994
--------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C>
Income
Rental income $ 1,790,268 $ 1,964,722 $ 5,343,855 $ 5,859,366
Mortgage-backed securities income 32,647 41,325 101,229 41,325
Interest on GNMA securities 155,845 - 468,062 -
Interest on temporary cash investments
and U.S. government securities 45,474 30,457 128,496 120,653
Other income 67,796 37,129 172,922 172,488
--------------- --------------- --------------- ---------------
2,092,030 2,073,633 6,214,564 6,193,832
--------------- --------------- --------------- ---------------
Expenses
Real estate operating expenses 925,875 698,264 2,471,122 2,301,986
Depreciation 261,793 277,010 635,023 779,145
Interest expense 145,555 141,649 422,205 425,937
General and administrative expenses (Note 4)
Investor servicing 68,088 54,577 169,373 165,772
Professional fees 17,142 13,275 56,492 67,925
Other expenses 1,147 1,334 3,154 6,630
Amortization 37,800 39,295 101,707 126,341
--------------- --------------- --------------- ---------------
1,457,400 1,225,404 3,859,076 3,873,736
--------------- --------------- --------------- ---------------
Minority interest in losses of operating
partnerships 661 1,181 2,349 3,751
--------------- --------------- --------------- ---------------
Net income $ 635,291 $ 849,410 $ 2,357,837 $ 2,323,847
=============== =============== =============== ===============
Net income allocated to:
General Partners $ 6,353 $ 8,494 $ 23,578 $ 23,238
Limited Partners 628,938 840,916 2,334,259 2,300,609
--------------- --------------- --------------- ---------------
$ 635,291 $ 849,410 $ 2,357,837 $ 2,323,847
=============== =============== =============== ===============
Net income per BAC $ .1864 $ .2492 $ .6918 $ .6818
=============== =============== =============== ===============
</TABLE>
CAPITAL SOURCE L.P.
STATEMENT OF PARTNERS' CAPITAL
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1995
(UNAUDITED)
<TABLE>
<CAPTION>
General Limited
Partners Partners Total
--------------- --------------- ---------------
<S> <C> <C> <C>
Partners' Capital (excluding net unrealized holding gain)
Balance at December 31, 1994 $ (269,500) $ 34,885,222 $ 34,615,722
Net income 23,578 2,334,259 2,357,837
Cash distributions paid or accrued (Note 3) (25,818) (2,555,973) (2,581,791)
--------------- --------------- ---------------
(271,740) 34,663,508 34,391,768
--------------- --------------- ---------------
Net unrealized holding gain
Balance at December 31, 1994 - - -
Change 575 56,899 57,474
--------------- --------------- ---------------
575 56,899 57,474
--------------- --------------- ---------------
Balance at September 30, 1995 $ (271,165) $ 34,720,407 $ 34,449,242
=============== =============== ===============
The accompanying notes are an integral part of the consolidated financial statements.
</TABLE>
<PAGE>
CAPITAL SOURCE L.P.
STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
For the Nine For the Nine
Months Ended Months Ended
Sept. 30, 1995 Sept. 30, 1994
--------------- ---------------
<S> <C> <C>
Cash flows from operating activities
Net income $ 2,357,837 $ 2,323,847
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 736,730 905,488
Amortization of discount on mortgage-backed and U.S. government securities (8,150) (708)
Minority interest in losses of operating partnerships (2,349) (3,751)
Increase in interest and other receivables (93,745) (70,188)
Increase in escrow deposits and property reserves (284,099) (132,396)
Increase in other assets (138,780) (279,301)
Increase in accounts payable and accrued expenses 204,212 318,425
Decrease in due to operating partnerships'
general partners and their affiliates (7,282) (212,395)
Decrease in interest payable (13,683) (94,504)
--------------- ---------------
Net cash provided by operating activities 2,750,691 2,754,517
--------------- ---------------
Cash flows from investing activities
Principal payments received on GNMA securities 23,983 -
Principal payments received on mortgage-backed and U.S. government securities 184,713 64,764
Acquisition of mortgage-backed securities - (1,943,741)
Acquisition of U.S. government securities (987,578) -
Acquisition of personal property (12,503) (6,560)
--------------- ---------------
Net cash used in investing activities (791,385) (1,885,537)
--------------- ---------------
Cash flow used in financing activity
Distributions (2,581,791) (2,581,795)
--------------- ---------------
Net decrease in cash and temporary cash investments (622,485) (1,712,815)
Cash and temporary cash investments at beginning of period 2,351,857 3,926,986
--------------- ---------------
Cash and temporary cash investments at end of period $ 1,729,372 $ 2,214,171
=============== ===============
Supplemental disclosure of cash flow information:
Cash paid during the period for interest $ 435,888 $ 520,441
=============== ===============
The accompanying notes are an integral part of the consolidated financial statements.
</TABLE>
<PAGE>
CAPITAL SOURCE L.P.
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 1995
(UNAUDITED)
1. Organization
Capital Source L.P. (the Partnership) was formed on August 22, 1985, under the
Delaware Revised Uniform Limited Partnership Act. The General Partners of
the Partnership are Insured Mortgage Equities Inc. and America First Capital
Source I, L.L.C. (the General Partners).
The Partnership provided virtually 100% of the debt and equity financing for
eight multifamily rental housing properties. The Partnership's investment in
the properties consisted of: (i) approximately 85% in the form of permanent
mortgages and/or loans to fund construction, and (ii) the balance to purchase
up to a 99% limited partnership interest in the operating partnerships which
developed, own, and operate the properties. Each loan is insured or
guaranteed, in an amount substantially equal to the face amount of the
mortgage, by the Federal Housing Administration (FHA) or the Government
National Mortgage Association (GNMA). CS Properties I, Inc., which is owned
by affiliates of the General Partners, serves as the Special Limited Partner
for the operating partnerships. The Special Limited Partner has the power,
among other things, to remove the general partners of the operating
partnerships under certain circumstances and to consent to the sale of the
operating partnerships' assets. The General Partners have negotiated
agreements with each operating partnership's general partner whereby the
operating partnership's general partner guarantees to fund certain operating
deficits of that operating partnership.
The Partnership will terminate subsequent to the sale of all properties but in
no event will the Partnership continue beyond December 31, 2030.
2. Summary of Significant Accounting Policies
A) Financial Statement Presentation
The consolidated financial statements include the accounts of the
Partnership and seven subsidiary operating partnerships. The Partnership
is a limited partner with an ownership interest of up to 99% in six of
the subsidiary operating partnerships. The Partnership's ownership
interest in The Ponds at Georgetown L.P. is 30.29%. The remaining limited
partner interest of 68.70% is owned by Capital Source II L.P.-A, an
affiliate of the General Partners. All significant intercompany accounts
and transactions have been eliminated in consolidation.
The consolidated financial statements are prepared without audit on the
accrual basis of accounting in accordance with generally accepted
accounting principles. In the opinion of management, all normal and
recurring adjustments necessary to present fairly the financial position
at September 30, 1995, and results of operations for all periods presented
have been made.
B) Investments in U.S. Government Securities and Mortgage-Backed Securities
On January 1, 1994, the Partnership adopted Statement of Financial
Accounting Standard No. 115 "Accounting for Certain Investments in Debt and
Equity Securities" (FAS 115). FAS 115 requires that investment securities
be classified as held-to-maturity, available-for-sale, or trading. Under
FAS 115, investments classified as held-to-maturity are carried at
amortized cost. Investments classified as available-for-sale are reported
at fair value with any unrealized gains or losses excluded from earnings
and reflected as a separate component of partners' capital. Subsequent
increases and decreases in the net unrealized gain/loss on the
available-for-sale securities will be reflected as adjustments to the
carrying value of the portfolio and adjustments to the component of
partners' capital. The Partnership does not have investment securities
classified as trading. The adoption of FAS 115 had no impact to partners'
capital or earnings prior to June 30, 1995, since all investment
securities were classified as held-to-maturity. As described in Note 5,
on June 30, 1995, the Partnership reclassified certain investment
securities from the held-to-maturity category to the available-for-sale
category.
<PAGE>
C) Depreciation and Amortization
Depreciation of real estate is based on the estimated useful life of the
properties using the straight-line method. Deferred mortgage issuance and
organization costs are being amortized over their respective periods of
benefit.
D) Revenue Recognition
The operating partnerships lease 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.
E) Income Taxes
No provision has been made for income taxes since BAC Holders are required
to report their share of the Partnership's income for federal and state
income tax purposes.
F) Temporary Cash Investments
Temporary cash investments are invested in short-term debt securities
purchased with original maturities of three months or less.
G) Net Income per Beneficial Assignment Certificate (BAC)
Net income per BAC is based on the number of BACs outstanding (3,374,222)
during each period presented.
H) Reclassifications
Certain amounts in the 1994 consolidated financial statements have been
reclassified to conform with the 1995 presentation.
3. Partnership Income, Expenses and Cash Distributions
Profits and losses from normal operations and cash available for distribution
will be allocated 99% to the investors and 1% to the General Partners.
Certain fees payable to the General Partners will not become due until
investors have received certain priority returns. Cash distributions included
in the consolidated financial statements represent the actual cash
distributions made during each period and the cash distributions accrued at
the end of each period.
The General Partners will also receive 1% of the net proceeds from any sale
of Partnership assets. The General Partners will receive a termination fee
equal to 3% of all sales proceeds less actual costs incurred in connection
with all sales transactions, payable only after the investors have received a
return of their capital contributions and a 13% annual return on a cumulative
basis. The General Partners will also receive a fee equal to 9.1% of all
cash available for distribution and sales proceeds (after deducting from cash
available or sales proceeds any termination fee paid therefrom) after
investors have received a return of their capital contributions and a 13%
annual return on a cumulative basis.
4. Transactions with Related Parties
The General Partners, certain of their affiliates and the operating
partnerships' general partners have received or may receive fees,
compensation, income, distributions and payments from the Partnership in
connection with the offering and the investment, management and sale of the
Partnership's assets (other than disclosed elsewhere) as follows.
The operating partnerships' general partners provide various on-site property
development and management services. There were no property development and
management fees for the nine months ended September 30, 1995. Unpaid fees,
which are non-interest bearing, are included in amounts due to operating
partnerships' general partners and their affiliates on the accompanying
consolidated balance sheets and will be paid as the operating partnerships
reach specified performance standards or upon sale of the related property.
<PAGE>
The General Partners are entitled to receive an asset management and
partnership administration fee equal to 0.5% of invested assets per annum,
payable only during such years that an 8% return has been paid to investors on
a noncumulative basis. Any unpaid amounts will accrue and be payable only
after a 13% annual return to investors has been paid on a cumulative basis and
the investors have received the return of their capital contributions. For
the nine months ended September 30, 1995, distributions to investors
represented less than an 8% return; accordingly, no fees were paid or accrued
during these periods.
Substantially all of the Partnership's general and administrative expenses are
paid by a General Partner or an affiliate and reimbursed by the Partnership.
The amount of such expenses reimbursed to the General Partner for 1995 was
$224,385 ($66,915 for the quarter ended September 30, 1995). Reimbursed
expenses are presented on a cash basis and do not reflect accruals made at
quarter end.
An affiliate of America First Capital Source I, L.L.C. has been retained to
provide property management services for Waterman's Crossing, Misty Springs
Apartments, and Fox Hollow Apartments (beginning in June, 1995). The fees for
services provided in 1995, amounted to $97,198 ($40,459 for the quarter ended
September 30, 1995), and represented the lower of costs incurred in providing
management of the property or customary fees for such services determined on a
competitive basis.
5. Partnership Reserve Account
The Partnership maintains a reserve account which consisted of the following
at September 30, 1995:
<TABLE>
<S> <C>
Cash and temporary cash investments $ 884,261
GNMA Certificates 1,693,102
U.S. government securities 997,815
---------------
Balance at September 30, 1995 $ 3,575,178
===============
</TABLE>
The reserve account was established to maintain working capital for the
Partnership and is available for distribution to BAC Holders and for any
contingencies related to Permanent Investments and the operation of the
Partnership. The GNMA Certificates mature between 2007 and 2009 and the U.S.
government securities mature in 1996. On June 30, 1995 the Partnership
transferred all securities held in the reserve account from the
held-to-maturity classification to the available-for-sale classification. At
September 30, 1995, the total amortized cost, gross unrealized holding gains
and aggregate fair value of available-for-sale securities were $2,633,443,
$57,474 and $2,690,917 respectively.
6. Parent Company Only Financial Information
Generally accepted accounting principles require that the Partnership's
financial statements consolidate the operating partnerships since the
Partnership holds a majority ownership interest and, through CS Properties I,
Inc. can exercise control over the general partners. In the consolidated
financial statements, the Partnership's investment in FHA Loans and GNMA
Certificates is eliminated against the related mortgage payable recorded by
the operating partnership. If a mortgage loan goes into default and is
foreclosed upon by FHA or GNMA, the respective agency may, at their
discretion, repay the FHA Loan or the GNMA Certificate. If this occurs, the
Partnership's investment in the operating partnership would be eliminated,
resulting in the recognition of a gain on the Partnership's financial
statements. This arises because consolidation accounting does not allow the
Partnership to stop recording losses from the operating partnerships when the
net investment is reduced to zero.
<PAGE>
The parent company only financial information below represents the condensed
financial information of the Partnership using the equity method of accounting
for the investment in operating partnerships, rather than the consolidation of
those partnerships. Under the equity method of accounting, the Partnership's
capital contributions are adjusted to reflect its share of operating
partnership profits or losses and distributions. The investment in operating
partnerships represents the Partnership's limited partnership interest in the
accumulated deficits of those operating partnerships. The parent company only
information is provided to more clearly present the Partnership's investment
in the operating partnerships. Since the Partnership is not a general
partner, it is not obligated to fund the negative balances. If the
investments in all operating partnerships were eliminated at September 30,
1995, Partnership capital would increase by $12,097,391 ($3.55 per BAC).
The FHA Loans and the GNMA Certificates are collateralized by first mortgage
loans on the properties owned by the operating partnerships and are guaranteed
or insured as to principal and interest by FHA or GNMA. The FHA insured
mortgage loans are subject to a 1% assignment fee. The obligations of FHA and
GNMA are backed by the full faith and credit of the United States government.
Parent Company Only
Condensed Balance Sheets
<TABLE>
<CAPTION>
Sept. 30, 1995 Dec. 31, 1994
--------------- ---------------
<S> <C> <C>
Assets
Cash and temporary cash investments $ 1,729,372 $ 2,351,857
Investment in FHA Loans 12,670,380 12,716,874
Investment in mortgage-backed securities 31,549,504 31,770,666
Investment in U.S. government securities 997,815 -
Investment in operating partnerships (12,097,391) (11,858,322)
Interest receivable 364,746 343,597
Other assets 218,482 266,003
--------------- ---------------
$ 35,432,908 $ 35,590,675
=============== ===============
Liabilities and Partners' Capital
Liabilities
Accounts payable $ 123,079 $ 114,366
Distributions payable 860,587 860,587
--------------- ---------------
983,666 974,953
Partners' Capital 34,449,242 34,615,722
--------------- ---------------
$ 35,432,908 $ 35,590,675
=============== ===============
</TABLE>
Parent Company Only
Condensed Statements of Income
<TABLE>
<CAPTION>
For the Nine For the Nine
Months Ended Months Ended
Sept. 30, 1995 Sept. 30, 1994
--------------- ---------------
<S> <C> <C>
Income
Mortgage and mortgage-backed securities income $ 2,706,860 $ 2,743,969
Interest on temporary cash investments and U.S. government securities 106,552 103,582
Interest on mortgage-backed securities 101,229 41,325
Equity in losses of operating partnerships (279,569) (275,886)
Other income 2,400 1,800
-------------- ---------------
2,637,472 2,614,790
Expenses
Operating and administrative 279,635 290,943
-------------- ---------------
Net income $ 2,357,837 $ 2,323,847
============== ===============
</TABLE>
<PAGE>
Parent Company Only
Condensed Statements of Cash Flows
<TABLE>
<CAPTION>
For the Nine For the Nine
Months Ended Months Ended
Sept. 30, 1995 Sept. 30, 1994
--------------- ---------------
<S> <C> <C>
Cash flows from operating activities
Net income $ 2,357,837 $ 2,323,847
Adjustments to reconcile net income to net cash
provided by operating activities:
Equity in losses of operating partnerships 279,569 275,886
Amortization 50,616 50,616
Amortization of discount on investment securities (8,150) (708)
Other non-cash adjustments (15,531) 4,610
--------------- ---------------
Net cash provided by operating activities 2,664,341 2,654,251
--------------- ---------------
Cash flow from investing activities
FHA Loan and GNMA Certificates principal payments 323,043 190,970
Acquisition of U.S. government securities (987,578) (1,943,741)
Investment in operating partnerships (40,500) (32,500)
--------------- ---------------
Net cash used in investing activities (705,035) (1,785,271)
--------------- ---------------
Cash flow used in financing activity
Distributions (2,581,791) (2,581,795)
--------------- ---------------
Net decrease in cash and temporary cash investments (622,485) (1,712,815)
Cash and temporary cash investments at beginning of period 2,351,857 3,926,986
--------------- ---------------
Cash and temporary cash investments at end of period $ 1,729,372 $ 2,214,171
=============== ===============
</TABLE>
7. Mortgage Loan Payable
The mortgage collateralized solely by Fox Hollow Apartments provides for
interest at 8.86% and is payable monthly in payments of $42,495 plus service
charges of $2,364 and tax escrow payments of $4,312. The mortgage loan
payable of $6,395,004 is recorded on the consolidated balance sheet, since it
is no longer eliminated in consolidation. The mortgage is an obligation of
the operating partnership which owns the property. A provisional workout
agreement was in effect with HUD that extended to April 30, 1996, however HUD
sold the mortgage on May 8, 1995. The new mortgage holder has notified the
property partnership that foreclosure proceedings may be initiated should the
property be unable to pay any accrued interest on the mortgage to bring it
current. The General Partners are negotiating a settlement agreement with
the mortgage holder.
8. Investment in GNMA Security
The Falcon Point property was not able to generate sufficient cash flow to
service its mortgage loan. Foreclosure proceedings were initiated against the
property on October 28, 1994 thereby eliminating the Partnership's equity in
the property. The Partnership continues to hold the GNMA Certificate related
to Falcon Point which continues to generate interest income at 8.75% for the
Partnership. The GNMA Certificate is shown on the consolidated balance sheet
since it is no longer eliminated in consolidation. The investment matures on
June 15, 2029, and is classified as held-to-maturity. The Partnership
estimates that the fair value approximates carrying value at September 30,
1995.
<PAGE>
Item 2.
CAPITAL SOURCE L.P.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
Liquidity and Capital Resources
The Partnership originally acquired: (i) five mortgage-backed securities
guaranteed as to principal and interest by the Government National Mortgage
Association (GNMA) collateralized by first mortgage loans on multifamily
housing properties located in five states; (ii) three first mortgage loans
insured as to principal and interest by the Federal Housing Administration
(FHA) on multifamily housing properties located in two states; and (iii)
Partnership Equity Investments in eight limited partnerships which own the
multifamily properties financed by the GNMA Certificates and FHA Loans. The
Partnership subsequently received FHA Debentures in payment of the FHA Loan on
Fox Hollow Apartments which were paid in full on January 5, 1993. Although
the Partnership continues to hold the GNMA Certificate related to Falcon Point
Apartments, the Partnership no longer holds an equity investment in Falcon
Point Apartments since foreclosure proceedings were initiated on October 28,
1994. Collectively, the GNMA Certificates, the remaining FHA Loans and the
remaining Partnership Equity Investments are referred to as the Permanent
Investments. The obligations of GNMA and FHA are backed by the full faith and
credit of the United States government.
The FHA Loans, GNMA Certificates, U.S. government securities, and Partnership
Equity Investments in operating partnerships represent the Partnership's
principal assets as shown in the Parent Company Only Financial Information in
Note 6 to the financial statements. The parent company information is
presented using the equity method of accounting for the investment in
operating partnerships. Generally accepted accounting principles, however,
require that the Partnership's financial statements consolidate the operating
partnerships, since (i) the Partnership holds a majority ownership, and (ii)
through CS Properties I, Inc., it can influence decisions of the general
partners in certain circumstances.
The following FHA Loans, GNMA Certificates, and U.S. government securities
were owned by the Partnership at September 30, 1995. Interest income from the
FHA Loans, GNMA Certificates, and U.S. government securities is the primary
source of cash available for distribution to investors.
<TABLE>
<CAPTION>
Guaranteed Interest Maturity Carrying
Property Name or Insured By Rate Date Value
- - - ---------------------------------------- --------------- ---------- --------------- ---------------
<S> <C> <C> <C> <C>
Bluff Ridge Apartments FHA 8.72% 11-15-2028 $ 3,554,593
Falcon Point Apartments GNMA 8.75% 06-15-2029 7,121,571
Highland Park Apartments FHA 8.75% 11-01-2028 9,115,787
Misty Springs Apartments GNMA 8.75% 06-15-2029 4,321,201
The Ponds at Georgetown GNMA 9.00% 12-15-2029 2,257,063
Waterman's Crossing GNMA 10.00% 09-15-2028 11,028,779
Water's Edge Apartments GNMA 8.75% 12-15-2028 5,127,788
Pools of single-family properties GNMA 7.58%(1) 2008 to 2009 829,175
Pools of single-family properties GNMA 7.58%(1) 2007 to 2008 863,927
U.S. government securities U.S. government 6.41%(1) 03-31-1996 997,815
---------------
$ 45,217,699
===============
</TABLE>
(1) Represents yield to the Partnership.
<PAGE>
Distributions
Cash distributions paid or accrued per BAC were as follows:
<TABLE>
<CAPTION>
For the Nine For the Nine
Months Ended Months Ended
Sept. 30, 1995 Sept. 30, 1994
--------------- ---------------
<S> <C> <C>
Regular monthly distributions
Income $ .6918 $ .6320
Return of capital .0657 .1255
--------------- ---------------
.7575 .7575
=============== ===============
Distributions
Paid out of cash flow $ .7575 $ .7575
=============== ===============
</TABLE>
Regular quarterly distributions to BAC Holders consist primarily of interest
received on FHA Loans, GNMA Certificates, and U.S. government securities.
Additional cash for distributions is received from other investments. The
Partnership may draw on reserves to pay operating expenses or to supplement
cash distributions to investors. The Partnership is permitted to replenish
reserves with cash flows in excess of distributions paid. For the nine months
ended September 30, 1995, a net amount of $429,274 of undistributed cash flow
was added to reserves (a net amount of $209,799 for the quarter ended
September 30, 1995). The total amount held in reserves at September 30, 1995,
was $3,575,178 of which $2,690,917 was invested in GNMA Certificates and U.S.
government securities.
The Partnership believes that cash provided by operating activities and, if
necessary, withdrawals from the Partnership's reserves will be adequate to
meet its short-term and long-term liquidity requirements, including the
payments of distributions to BAC Holders. The Company has no other internal
or external sources of liquidity. Under the terms of the Partnership
agreement, the Partnership is not authorized to enter into short-term or
long-term debt financing arrangements or issue additional BACs to meet
short-term and long-term liquidity requirements.
Asset Quality
The FHA Loans and GNMA Certificates owned by the Partnership are guaranteed as
to principal and interest by FHA and GNMA, respectively. The obligations of
FHA, GNMA, and the government securities are backed by the full faith and
credit of the United States government. The Partnership Equity Investments,
however, are not insured or guaranteed. The value of these investments is a
function of the value of the real estate owned by the limited partnerships
which own the properties financed by the FHA Loans and GNMA Certificates.
The Partnership continues to hold the GNMA Certificate related to Falcon Point
Apartments; however, it is anticipated that the unpaid principal balance of
the GNMA Certificate will be paid to the Partnership within the next several
months. Until such time, the Partnership will continue to receive full
payments of interest and principal.
As previously reported, although the Partnership no longer has an interest in
the Fox Hollow mortgage, it has retained its equity interest in the property
as a result of a workout arrangement with HUD. On May 8, 1995, HUD sold the
Fox Hollow mortgage. While this transaction had no immediate impact on the
Partnership, the new mortgage holder has notified the Fox Hollow property that
foreclosure proceedings may be initiated should the property be unable to pay
any accrued interest on the mortgage to bring it current. The General
Partners believe that the equity interest in the Fox Hollow property will
ultimately have some value for the Partnership. Therefore, the General
Partners are negotiating a settlement agreement with the mortgage holder which
would enable the Partnership to retain its equity interest in Fox Hollow.
The overall status of the Partnership's other investments has remained
relatively constant since June 30, 1995.
<PAGE>
The following table shows the occupancy levels of the properties financed by
the Partnership at September 30, 1995:
<TABLE>
<CAPTION>
Number Percentage
Number of Units of Units
Property Name Location of Units Occupied Occupied
- - - ------------------------------- -------------------- ------------ ------------ ------------
<S> <C> <C> <C> <C>
Bluff Ridge Apartments Jacksonville, NC 108 98 91%
Fox Hollow Apartments High Point, NC 184 179 97%
Highland Park Apartments Columbus, OH 252 247 98%
Misty Springs Apartments Daytona Beach, FL 128 128 100%
The Ponds at Georgetown Ann Arbor, MI 134 132 99%
Waterman's Crossing Newport News, VA 260 251 97%
Water's Edge Apartments Lake Villa, IL 108 103 95%
------------- ------------ ------------
1,174 1,138 97%
============= ============ ============
</TABLE>
Results of Operations
The tables below compares the results of operations for each period shown.
<TABLE>
<CAPTION>
For the For the Increase
Quarter Ended Quarter Ended (Decrease)
Sept. 30, 1995 Sept. 30, 1994 From 1994
--------------- --------------- ---------------
<S> <C> <C> <C>
Rental income $ 1,790,268 $ 1,964,722 $ (174,454)
Mortgage-backed securities income 32,647 41,325 (8,678)
Interest on GNMA securities 155,845 - 155,845
Interest income on temporary cash investments
and U.S. government securities 45,474 30,457 15,017
Other income 67,796 37,129 30,667
--------------- --------------- ---------------
2,092,030 2,073,633 18,397
--------------- --------------- ---------------
Real estate operating expenses 925,875 698,264 227,611
Depreciation 261,793 277,010 (15,217)
Interest expense 145,555 141,649 3,906
Investor servicing 68,088 54,577 13,511
Professional fees 17,142 13,275 3,867
Other expenses 1,147 1,334 (187)
Amortization 37,800 39,295 (1,495)
--------------- --------------- ---------------
1,457,400 1,225,404 231,996
--------------- --------------- ---------------
Minority interest in losses of operating partnerships 661 1,181 (520)
--------------- --------------- ---------------
Net income $ 635,291 $ 849,410 $ (214,119)
=============== =============== ===============
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
For the Nine For the Nine Increase
Months Ended Months Ended (Decrease)
Sept. 30, 1995 Sept. 30, 1994 From 1994
--------------- --------------- ---------------
<S> <C> <C> <C>
Rental income $ 5,343,855 $ 5,859,366 $ (515,511)
Mortgage-backed securities income 101,229 41,325 59,904
Interest on GNMA securities 468,062 - 468,062
Interest income on temporary cash investments
and U.S. government securities 128,496 120,653 7,843
Other income 172,922 172,488 434
--------------- --------------- ---------------
6,214,564 6,193,832 20,732
--------------- --------------- ---------------
Real estate operating expenses 2,471,122 2,301,986 169,136
Depreciation 635,023 779,145 (144,122)
Interest expense 422,205 425,937 (3,732)
Investor servicing 169,373 165,772 3,601
Professional fees 56,492 67,925 (11,433)
Other expenses 3,154 6,630 (3,476)
Amortization 101,707 126,341 (24,634)
--------------- --------------- ---------------
3,859,076 3,873,736 (14,660)
--------------- --------------- ---------------
Minority interest in losses of operating partnerships 2,349 3,751 (1,402)
--------------- --------------- ---------------
Net income $ 2,357,837 $ 2,323,847 $ 33,990
=============== =============== ===============
</TABLE>
Rental income, net of real estate operating expenses, depreciation, and
amortization decreased approximately $385,000 and $516,000 for the quarter and
nine months ended September 30, 1995, respectively, compared to the same
periods in 1994 primarily due to the foreclosure of Falcon Point Apartments in
November 1994. Excluding the decrease in rental income related to Falcon
Point Apartments, rental income increased approximately $14,000 and $136,000
for the quarter and nine months ended September 30, 1995, respectively,
compared to the same periods in 1994. The increases in rental income are
primarily due to an overall increase in average occupancy during the
respective periods. Real estate operating expenses, net of real estate
operating expenses related to Falcon Point Apartments, increased for the
quarter and nine months ended September 30, 1995, compared to the same periods
in 1994, due to overall expense increases. Depreciation expense, net of the
depreciation expense related to Falcon Point Apartments, increased
approximately $26,000 for the quarter ended September 30, 1995 and decreased
approximately $24,000 for the nine months ended September 30, 1995, compared
to the same periods in 1994. The increase for the quarter ended September 30,
1995, compared to the same period in 1994, was due to adjustments made to
depreciation expense for certain properties. The decrease for the nine months
ended September 30, 1995, was due to certain personal property becoming fully
depreciated. Amortization expense, net of the amortization expense related to
Falcon Point Apartments, remained relatively constant for the quarter and nine
months ended September 30, 1995, compared to the same periods in 1994.
Interest on GNMA securities for the quarter and nine months ended September
30, 1995, resulted from the recognition of the GNMA Certificate related to
Falcon Point Apartments for financial statement purposes effective November 1,
1994. Prior to the foreclosure, the Partnership's investment in the GNMA
Certificate was eliminated in consolidation.
Mortgage-backed securities income increased for the nine months ended
September 30, 1995, compared to the same period in 1994 as a result of
interest earned on mortgage-backed securities acquired in June and July 1994.
Mortgage-backed securities income decreased for the quarter ended September
30, 1995, compared to the same period in 1994 due to the amortization of the
principal balance of the mortgage-backed securities. Interest income on
temporary cash investments and U.S. government securities increased for the
quarter and nine months ended September 30, 1995, compared to the same periods
in 1994. These increases are the result of interest income of approximately
$26,000 earned for the nine months ended September 30, 1995 (approximately
$13,000 for the quarter ended September 30, 1995) on U.S. government securities
purchased in March, 1995. These increases were partially offset by decreases
in interest earned on other cash investments due to a decrease in cash
reserves as a result of the purchase of the U.S. government securities.
<PAGE>
Other income consists primarily of garage rentals, washer/dryer, and vending
income generated by the Partnership's properties. Notwithstanding the
decrease related to Falcon Point Apartments, other income increased for the
quarter and nine months ended September 30, 1995, compared to the same periods
in 1994.
Investor servicing costs increased for the quarter and nine months ended
September 30, 1995, compared to the same periods in 1994 due to increases in
expenses associated with maintaining and providing investors with Partnership
information. Professional fees increased for the quarter ended September 30,
1995, compared to the same period in 1994 primarily due to a increase in legal
fees. However, professional fees for the nine months ended September 30,
1995, compared to the same period in 1994 decreased primarily due to a
decrease in legal fees.
<PAGE>
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
4(a) Agreement of Limited Partnership of Capital Source
L.P. (incorporated herein by reference from Exhibit A of
the Prospectus contained in the Registrant's
Post-Effective Amendment No. 3 dated May 15, 1986 to the
Registration Statement on Form S-11 (Commission File No.
0-16497)).
4(b) Beneficial Assignment Certificate (incorporated by
reference to page 47 of Form 10-K for the fiscal year
ended December 31, 1989 filed with the Securities and
Exchange Commission by the Registrant (Commission File No.
0-16497)).
(b) Form 8-K
The registrant did not file a report on Form 8-K during the
quarter for which this report is filed.
<PAGE>
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 13, 1995 CAPITAL SOURCE L.P.
By America First Capital
Source I, L.L.C., General Partner
By /s/ Michael Thesing
Michael Thesing
Vice President, Secretary and
Treasurer (Vice President and Principal
Financial Officer of Registrant)
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> SEP-30-1995
<CASH> 1,729,372
<SECURITIES> 9,812,488
<RECEIVABLES> 122,200
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 5,097,916
<PP&E> 40,603,042
<DEPRECIATION> (8,777,910)
<TOTAL-ASSETS> 48,118,117
<CURRENT-LIABILITIES> 2,544,024
<BONDS> 0
<COMMON> 0
0
0
<OTHER-SE> 34,449,242
<TOTAL-LIABILITY-AND-EQUITY> 48,118,117
<SALES> 0
<TOTAL-REVENUES> 6,214,564
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 3,859,076
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 2,357,837
<INCOME-TAX> 0
<INCOME-CONTINUING> 2,357,837
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,357,837
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
