FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
X Quarterly report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the quarterly period ended March 31, 1997 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: 0-15854
AMERICA FIRST PARTICIPATING/PREFERRED EQUITY MORTGAGE FUND LIMITED PARTNERSHIP
(Exact name of registrant as specified in its charter)
Delaware 47-0700550
(State or other jurisdiction (IRS Employer
of incorporation or organization) Identification No.)
Commission File Number: 0-15665
AMERICA FIRST PARTICIPATING/PREFERRED EQUITY MORTGAGE FUND
(Exact name of registrant as specified in its charter)
Delaware 47-0700551
(State or other jurisdiction (IRS Employer
of incorporation or organization) Identification No.)
Suite 400, 1004 Farnam Street, Omaha, Nebraska 68102
(Address of principal executive offices) (Zip Code)
(402) 444-1630
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
YES X NO
<PAGE> -i-
Part I. Financial Information
Item 1. Financial Statements
AMERICA FIRST PARTICIPATING/PREFERRED EQUITY MORTGAGE FUND
AND
AMERICA FIRST PARTICIPATING/PREFERRED EQUITY MORTGAGE FUND LIMITED PARTNERSHIP
COMBINED BALANCE SHEETS
(UNAUDITED)
<TABLE>
<CAPTION>
March 31, 1997 Dec. 31, 1996
-------------- --------------
<S> <C> <C>
Assets
Cash and temporary cash investments, at cost which approximates market value $ 9,210,423 $ 9,001,666
Investment in mortgage-backed securities (Note 4) 36,079,456 37,322,028
Investment in preferred equity participations (PEPs), net of valuation allowance (Note 5) 261,827 324,607
Investment in real estate (Note 6) 6,309,500 6,381,300
Investment in participating loans, net of valuation allowance (Note 7) 2,960,000 2,960,000
Interest receivable 300,298 305,606
Investment evaluation fees, net 581,682 587,441
Other assets 3,359,571 3,262,057
-------------- --------------
$ 59,062,757 $ 60,144,705
============== ==============
Liabilities and Partners' Capital
Liabilities
Accounts payable (Note 9) $ 337,721 $ 338,586
Distributions payable (Note 3) 512,023 512,457
Mortgage notes payable (Note 10) 9,590,833 9,590,833
-------------- --------------
10,440,577 10,441,876
-------------- --------------
Partners' Capital
General Partner 100 100
Exchangeable Unit Holders ($8.42 per unit in 1997 and $8.61 in 1996) 48,622,080 49,702,729
-------------- --------------
48,622,180 49,702,829
-------------- --------------
$ 59,062,757 $ 60,144,705
============== ==============
The accompanying notes are an integral part of the combined financial statements.
</TABLE>
<PAGE> -1-
AMERICA FIRST PARTICIPATING/PREFERRED EQUITY MORTGAGE FUND
AND
AMERICA FIRST PARTICIPATING/PREFERRED EQUITY MORTGAGE FUND LIMITED PARTNERSHIP
COMBINED STATEMENTS OF INCOME
(UNAUDITED)
<TABLE>
<CAPTION>
For the For the
Quarter Ended Quarter Ended
March 31, 1997 March 31, 1996
-------------- --------------
<S> <C> <C>
Income
Mortgage and mortgage-backed securities income $ 691,320 $ 794,849
Equity in earnings of property partnerships 169,713 61,916
Rental income 627,716 576,922
Interest income on participating loans 62,520 64,485
Interest income on temporary cash investments
and U.S. government securities 119,567 108,099
-------------- --------------
1,670,836 1,606,271
-------------- --------------
Expenses
General and administrative expenses (Note 9) 240,701 214,094
Real estate operating expenses 346,563 299,923
Depreciation 75,628 81,009
Interest expense 205,525 195,990
-------------- --------------
868,417 791,016
-------------- --------------
Net income $ 802,419 $ 815,255
============== ==============
Net income allocated to:
General Partner $ 6,782 $ 7,990
Exchangeable Unit Holders 795,637 772,542
Passthrough Certificate Holder - 34,723
-------------- --------------
$ 802,419 $ 815,255
============== ==============
Net income per exchangeable unit $ .14 $ .14
============== ==============
Net income per passthrough certificate $ - $ 347.23
============== ==============
Weighted average number of units outstanding 5,775,797 5,562,267
============== ==============
Weighted average number of certificates outstanding - 100
============== ==============
The accompanying notes are an integral part of the combined financial statements.
</TABLE>
<PAGE> -2-
COMBINED STATEMENT OF PARTNERS' CAPITAL
FOR THE QUARTER ENDED MARCH 31, 1997
(UNAUDITED)
<TABLE>
<CAPTION>
Exchangeable Unit Holders
----------------------------------
General
Partner # of Units Amount Total
-------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
Partners' Capital (excluding net unrealized
holding gains (losses))
Balance at December 31, 1996 $ 100 5,775,797 $ 49,399,062 $ 49,399,162
Net income 6,782 - 795,637 802,419
Cash distributions paid or accrued (Note 3) (6,782) - (1,530,008) (1,536,790)
-------------- -------------- -------------- --------------
100 5,775,797 48,664,691 48,664,791
-------------- -------------- -------------- --------------
Net unrealized holding gains (losses)
Balance at December 31, 1996 - - 303,667 303,667
Net change - - (346,278) (346,278)
-------------- -------------- -------------- --------------
- - (42,611) (42,611)
-------------- -------------- -------------- --------------
Balance at March 31, 1997 $ 100 5,775,797 $ 48,622,080 $ 48,622,180
============== ============== ============== ==============
The accompanying notes are an integral part of the combined financial statements.
</TABLE>
<PAGE> -3-
AMERICA FIRST PARTICIPATING/PREFERRED EQUITY MORTGAGE FUND
AND
AMERICA FIRST PARTICIPATING/PREFERRED EQUITY MORTGAGE FUND LIMITED PARTNERSHIP
COMBINED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
For the For the
Quarter Ended Quarter Ended
March 31, 1997 March 31, 1996
-------------- --------------
<S> <C> <C>
Cash flows from operating activities
Net income $ 802,419 $ 815,255
Adjustments to reconcile net income to
net cash from operating activities:
Equity in earnings of property partnerships (169,713) (61,916)
Depreciation 75,628 81,009
Amortization of discount on mortgage-backed
and U.S. government securities (7,314) (22,397)
Decrease in interest receivable 5,308 72,666
Amortization of investment evaluation fees 5,759 5,759
Increase in other assets (97,514) (63,175)
Decrease in accounts payable (865) (75,826)
-------------- --------------
Net cash provided by operating activities 613,708 751,375
-------------- --------------
Cash flows from investing activities
Mortgage principal payments received 903,608 1,146,389
Distributions received from PEPs 232,493 49,993
Investment in real estate (3,828) (3,645)
Maturity of U.S. government securities - 5,000,000
-------------- --------------
Net cash provided by investing activities 1,132,273 6,192,737
-------------- --------------
Cash flows used in financing activity
Distributions paid (1,537,224) (1,547,481)
-------------- --------------
Net increase in cash and temporary cash investments 208,757 5,396,631
Cash and temporary cash investments at beginning of period 9,001,666 2,573,156
-------------- --------------
Cash and temporary cash investments at end of period $ 9,210,423 $ 7,969,787
============== ==============
Supplemental disclosure of cash flow information:
Cash paid during the period for interest $ 205,525 $ 195,990
============== ==============
The accompanying notes are an integral part of the combined financial statements.
</TABLE>
<PAGE>
<PAGE> -4-
AMERICA FIRST PARTICIPATING/PREFERRED EQUITY MORTGAGE FUND
AND
AMERICA FIRST PARTICIPATING/PREFERRED EQUITY MORTGAGE FUND LIMITED PARTNERSHIP
NOTES TO COMBINED FINANCIAL STATEMENTS
MARCH 31, 1997
(UNAUDITED)
1. Organization
America First Participating/Preferred Equity Mortgage Fund (the Fund) was
formed on November 20, 1986, as a Nebraska general partnership for the purpose
of acquiring a portfolio of federally-insured multifamily mortgages or other
investments including preferred equity participations (PEPs). PEPs consist of
equity interests which are intended to provide the Fund with a participation
in the net cash flow and net sale or refinancing proceeds of the properties
collateralizing the mortgage loans. America First Participating/Preferred
Equity Mortgage Fund Limited Partnership (the Partnership) was also formed on
November 20, 1986, under the Delaware Revised Uniform Limited Partnership Act
to serve as the managing general partner of the Fund. The Fund and the
Partnership will continue in existence until December 31, 2036, unless
terminated earlier under the provisions of the Pooling and Servicing Agreement
forming the Fund and the Partnership Agreement forming the Partnership. The
General Partner of the Partnership is America First Capital Associates Limited
Partnership Three (AFCA 3).
2. Summary of Significant Accounting Policies
A)Financial Statement Presentation
The financial statements include the combined statements of the Fund and
the Partnership and have been prepared without audit. The combined
financial statements are prepared on the accrual basis of accounting in
accordance with generally accepted accounting principles. The combined
financial statements should be read in conjunction with the combined
financial statements and notes thereto included in the Fund's Annual Report
on Form 10-K for the year ended December 31, 1996. In the opinion of
management, all adjustments necessary to present fairly the financial
position at March 31, 1997, and results of operations for all periods
presented have been made.
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those
estimates.
B)Investment in Mortgage-Backed Securities
Investment securities are classified as held-to-maturity, available-for-
sale, or trading. 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 are reflected as adjustments to the carrying
value of the portfolio and adjustments to the component of partners'
capital. The Fund does not have investment securities classified as
trading.
C) Investment in Participating Loans
The investment in Participating Loans is recorded at cost and reduced by
principal payments received. Participating Loans are not insured or
guaranteed. The value of these investments is a function of the value of
the real estate collateralizing the Participating Loans. Interest income
on Participating Loans is excluded from income when, in the opinion of
management, collection of such interest is doubtful. This interest is
recognized as income when it is received.
<PAGE> -5-
AMERICA FIRST PARTICIPATING/PREFERRED EQUITY MORTGAGE FUND
AND
AMERICA FIRST PARTICIPATING/PREFERRED EQUITY MORTGAGE FUND LIMITED PARTNERSHIP
NOTES TO COMBINED FINANCIAL STATEMENTS
MARCH 31, 1997
(UNAUDITED)
The allowance for losses on Participating Loans is a valuation reserve
which has been established at a level that management feels is adequate to
absorb potential losses on outstanding loans. Reserves are established for
loans which management considers impaired. Loans are considered impaired
when it is probable that the Fund will be unable to collect amounts due
according to the contractual terms of the loan agreements. Based on this
analysis, all Participating Loans were considered impaired at March 31,
1997. A reserve is established for the difference between the recorded
investment in the Participating Loans and the fair value of the underlying
collateral. The allowance is periodically reviewed and adjusted when there
are significant changes in the estimated net realizable value of the
underlying collateral for the Participating Loans.
D)Investment in Preferred Equity Participations (PEPs)
The investment in PEPs consist of interests in limited partnerships which
own the properties underlying the mortgage-backed securities and are
accounted for using the equity method. PEPs are not insured or guaranteed.
The value of these investments is a function of the value of the real estate
underlying the PEPs.
The allowance for losses on investments in PEPs is a valuation reserve
which has been established at a level that management feels is adequate to
absorb potential losses on investments in PEPs. The allowance is based on
the fair value of the properties underlying the PEPs. The allowance is
periodically reviewed and adjusted when there are significant changes in the
fair value of the properties underlying the PEPs.
E)Investment in Real Estate
The investment in real estate is recorded at the lower of cost or estimated
net realizable value. The carrying value of each property is periodically
reviewed and adjusted when there are significant declines in the estimated
net realizable value.
Depreciation of real estate acquired in settlement of PEPs is based on the
estimated useful life of the properties (ranging from 6 to 27 1/2 years)
using the straight-line method.
F)Income Taxes
No provision has been made for income taxes since each Exchangeable Unit
Holder or Passthrough Certificate Holder is required to report their share
of the Partnership's or Fund's income for federal and state income tax
purposes.
G)Temporary Cash Investments
Temporary cash investments are invested in short-term debt securities
purchased with original maturities of three months or less.
H)Investment Evaluation Fees
The investment evaluation fees were incurred in connection with the
acquisition of assets. These fees are being amortized over the life of the
Fund.
I)Net Income Per Exchangeable Unit and Passthrough Certificate
Net income per Exchangeable Unit and Passthrough Certificate is allocated
based on the weighted average number of exchangeable units and passthrough
certificates outstanding during each period presented.
<PAGE> -6-
AMERICA FIRST PARTICIPATING/PREFERRED EQUITY MORTGAGE FUND
AND
AMERICA FIRST PARTICIPATING/PREFERRED EQUITY MORTGAGE FUND LIMITED PARTNERSHIP
NOTES TO COMBINED FINANCIAL STATEMENTS
MARCH 31, 1997
(UNAUDITED)
3. Fund and Partnership Income, Expenses and Cash Distributions
The Partnership Agreement and the Pooling and Servicing Agreement contain
provisions for distributing the cash available for distribution and for the
allocation of income and expenses for tax purposes among AFCA 3 and investors.
Cash distributions included in the combined financial statements represent the
actual cash distributions made during each period and the cash distributions
accrued at the end of each period.
4. Investment in Mortgage-Backed Securities
The mortgage-backed securities held by the Partnership represent Government
National Mortgage Association (GNMA) Certificates and Federal National
Mortgage Association (FNMA) Certificates. The GNMA Certificates are backed by
first mortgage loans on multifamily residential properties and pools of
single-family properties. The FNMA Certificates are backed by pools of
single-family properties. The GNMA Certificates are debt securities issued by
a private mortgage lender and are guaranteed by GNMA as to the full and timely
payment of principal and interest on the underlying loans. The FNMA
Certificates are debt securities issued by FNMA and are guaranteed by FNMA as
to the full and timely payment of principal and interest on the underlying
loans.
At March 31, 1997, the total amortized cost, gross unrealized holding
gains and aggregate fair value of held-to-maturity securities were
$14,446,351, $508,696 and $14,955,047, respectively.
At March 31, 1997, the total amortized cost, gross unrealized holding
gains, gross unrealized holding losses and the aggregate fair value of
available-for-sale securities were $21,675,716, $341,851, $384,462 and
$21,633,105 respectively.
<PAGE> -7-
AMERICA FIRST PARTICIPATING/PREFERRED EQUITY MORTGAGE FUND
AND
AMERICA FIRST PARTICIPATING/PREFERRED EQUITY MORTGAGE FUND LIMITED PARTNERSHIP
NOTES TO COMBINED FINANCIAL STATEMENTS
MARCH 31, 1997
(UNAUDITED)
Descriptions of the Fund's mortgage-backed securities at March 31, 1997, are
as follows:
<TABLE>
<CAPTION>
Number Interest Maturity Carrying
Type of Security and Name Location of Units Rate Date Amount
- ---------------------------------- ------------------ -------- -------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Held-to-Maturity
GNMA Certificates:
The Parklane Salt Lake City, UT 94 9.25% 03/15/2029 $ 6,385,328
Grand Villa Grand Junction, CO 47 9.25% 03/15/2029 1,989,074
Cambridge Court Kearney, NE 42 9.25% 02/15/2029 1,940,678
Hickory Villa Omaha, NE 52 9.25% 02/15/2029 2,512,497
Pools of single-family mortgages 9.58% (1) 2017 1,597,231
Pools of single-family mortgages 9.62% (1) 2016 to 2017 21,543
------------
14,446,351
------------
Available-for-Sale
GNMA Certificates:
Pools of single-family mortgages 8.56% (1) 2016 to 2020 2,634,495 (2)
Pools of single-family mortgages 9.30% (1) 07/15/2021 1,345,228 (2)
Pools of single-family mortgages 8.76% (1) 2021 850,883 (2)
Pools of single-family mortgages 8.76% (1) 2021 367,667 (2)
Pools of single-family mortgages 8.25% (1) 2021 to 2022 1,813,467 (2)
Pools of single-family mortgages 6.50% (1) 2023 4,010,276 (2)
Pools of single-family mortgages 6.03% (1) 2008 2,078,263 (2)
Pools of single-family mortgages 7.13% (1) 2009 5,802,480 (2)
FNMA Certificates:
Pools of single-family mortgages 5.52% (1) 2000 2,730,346 (2)
------------
21,633,105
------------
Balance at March 31, 1997 $ 36,079,456
============
(1)Represents yield to the Fund.
(2)Reserve account asset - see Note 8.
</TABLE>
Reconciliation of the carrying amount of the mortgage-backed securities is
as follows:
<TABLE>
<S> <C>
Balance at December 31, 1996 $ 37,322,028
Addition
Amortization of discount on mortgage-backed securities 7,314
Deductions
Mortgage principal payments received (903,608)
Net change in unrealized holding gains (losses) on available-for-sale securities (346,278)
------------
Balance at March 31, 1997 $ 36,079,456
============
</TABLE>
<PAGE> -8-
AMERICA FIRST PARTICIPATING/PREFERRED EQUITY MORTGAGE FUND
AND
AMERICA FIRST PARTICIPATING/PREFERRED EQUITY MORTGAGE FUND LIMITED PARTNERSHIP
NOTES TO COMBINED FINANCIAL STATEMENTS
MARCH 31, 1997
(UNAUDITED)
5. Investment in Preferred Equity Participations (PEPs)
The PEPs consist of interests in limited partnerships which own properties
financed by the Fund. The limited partnership agreements provide for a
participation in the net cash flow and net sale or refinancing proceeds of the
properties subject to various priority payments.
Descriptions of the PEPs held at March 31, 1997, are as follows:
<TABLE>
Carrying
Name Location Partnership Name Amount
- -------------------------- ------------------ -------------------------------------- ------------
<S> <C> <C> <C>
Harmony Bay Apartments Roswell, GA Harmony Bay Associates, Ltd. $ 887,388
Grand Villa Grand Junction, CO Stazier Associates Grand Junction Ltd. 167,726
Cambridge Court Kearney, NE Stazier Associates Kearney Ltd. 110,962
The Parklane Salt Lake City, UT Congregate Care Company -
Hickory Villa Omaha, NE Stazier Associates Omaha Ltd. -
------------
1,166,076
Less valuation allowance (904,249)
------------
Balance at March 31, 1997 $ 261,827
============
Reconciliation of the carrying amount of the PEPs is as follows:
Balance at December 31, 1996 $ 324,607
Equity in earnings of property partnerships 169,713
Distributions received from PREPs (232,493)
------------
Balance at March 31, 1997 $ 261,827
============
</TABLE>
6. Real Estate Acquired in Settlement of PEPs
The rental income and real estate operating, interest and depreciation
expenses of the properties owned by the Fund have been consolidated with the
Fund's operations and are reflected in the combined financial statements.
Real estate acquired in settlement of PEPs is comprised of the following
multifamily housing properties:
<TABLE>
Number Carrying
Name Location of Units Amount
- -------------------------- ------------------ -------- ------------
<S> <C> <C> <C>
Meadow Brook Apartments Amelia, OH 168 $ 3,470,774
Morrowood Townhouses Morrow, GA 264 6,020,730
------------
9,491,504
Less accumulated depreciation (3,182,004)
------------
Balance at March 31, 1997 $ 6,309,500
============
Reconciliation of the carrying amount of the real estate held is as follows:
Balance at December 31, 1996 $ 6,381,300
Investment in real estate 3,828
Depreciation (75,628)
------------
Balance at March 31, 1997 $ 6,309,500
============
</TABLE>
<PAGE> -9-
AMERICA FIRST PARTICIPATING/PREFERRED EQUITY MORTGAGE FUND
AND
AMERICA FIRST PARTICIPATING/PREFERRED EQUITY MORTGAGE FUND LIMITED PARTNERSHIP
NOTES TO COMBINED FINANCIAL STATEMENTS
MARCH 31, 1997
(UNAUDITED)
7. Investment in Participating Loans
The Participating Loans are collateralized by first mortgages on properties
jointly financed with America First Apartment Investors, L.P., whose general
partner is an affiliate of AFCA 3. The Participating Loan agreements call for
payment of base interest and additional interest out of a portion of the net
cash flow or net sale or refinancing proceeds of the properties.
Descriptions of the Participating Loans held as of March 31, 1997, are as
follows:
<TABLE>
<CAPTION>
Base
Number Interest Maturity Carrying
Name Location of Units Rate (1) Date Amount
- ---------------------------------- ------------------ -------- -------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Avalon Ridge Renton, WA 356 10% (2) 09/01/99 $ 1,245,000
Jackson Park Place Fresno, CA 296 10% 09/01/99 2,100,000
------------
3,345,000
Valuation allowance to net realizable value (385,000)
------------
Balance at March 31, 1997 $ 2,960,000
============
</TABLE>
(1)In addition to the base interest rate, the notes bear additional contingent
interest which, when combined with the base interest, is limited to a
cumulative, non-compounded amount not greater than 13% per annum. The Fund
did not receive any additional contingent interest in 1997.
(2)Interest is recognized as income on the cash basis which is at a rate lower
than the base interest rate. The amount of foregone interest for 1997 was
$21,105.
8. Fund Reserve Account
The Fund maintains a reserve account which consisted of the following at
March 31, 1997:
Cash and temporary cash investments $ 8,689,011
GNMA Certificates 18,902,759
FNMA Certificates 2,730,346
--------------
$ 30,322,116
==============
The reserve account was established to maintain working capital for the Fund
and is available to supplement distributions to investors and for any
contingencies related to the ownership of the investments and the operation of
the Fund. The GNMA Certificates mature between 2008 and 2023 and the FNMA
Certificates mature in 2000.
Management has announced its intent to utilize a portion of the reserve
account to acquire a maximum of 200,000 Exchangeable Units (Units) in the
over-the-counter market. As of March 31, 1997, 196,730 Units (none for the
quarter ended March 31, 1997) had been acquired at a total cost of $1,823,521.
<PAGE> -10-
AMERICA FIRST PARTICIPATING/PREFERRED EQUITY MORTGAGE FUND
AND
AMERICA FIRST PARTICIPATING/PREFERRED EQUITY MORTGAGE FUND LIMITED PARTNERSHIP
NOTES TO COMBINED FINANCIAL STATEMENTS
MARCH 31, 1997
(UNAUDITED)
9. Transactions with Related Parties
Substantially all of the Fund's general and administrative expenses are paid
by AFCA 3 or an affiliate and reimbursed by the Fund. The amount of such
expenses reimbursed to AFCA 3 during 1997 was $251,492. The reimbursed
expenses are presented on a cash basis and do not reflect accruals made at
quarter end.
AFCA 3 is entitled to an administrative fee of .35% per annum of the
outstanding amount of investments of the Fund to be paid by the Fund to the
extent such amount is not paid by property owners. During 1997, AFCA 3 earned
administrative fees of $56,776. Of this amount, $15,012 was paid by the
Fund and the remainder was paid by property owners.
An affiliate of AFCA 3 has been retained to provide property management
services for Morrowood Townhouses, Avalon Ridge, Harmony Bay Apartments and
Meadow Brook Apartments (beginning in September 1996). The fees for services
provided represent the lower of: (i) costs incurred in providing management of
the property; or, (ii) customary fees for such services determined on a
competitive basis. Total fees amounted to $58,685 in 1997.
10. Mortgage Notes Payable
The Fund assumed the following mortgage notes payable as a result of the
acquisition of real estate in settlement of PEPs.
<TABLE>
<CAPTION>
Interest Maturity Monthly
Collateral Rate Date Payment Balance
- ------------------------ -------- ---------- ------------ ------------
<S> <C> <C> <C> <C>
Meadow Brook Apartments 9.50% 11/25/2022 $ 24,374 $ 3,545,309
Morrowood Townhouses 9.50% 11/19/2022 $ 44,118 6,045,524
------------
Balance at March 31, 1997 $ 9,590,833
============
</TABLE>
These notes are payable to an unaffiliated party and are collateralized solely
by the foregoing properties. The notes are in default; however, the Fund
effectively has no risk with respect to the mortgage notes payable since the
Fund's net equity in the properties has previously been reduced to zero.
Therefore, for accounting purposes, the Fund records interest expense on these
notes only when it is paid.
11. Subsequent Event
On May 7, 1997, the Fund received $2,100,000 as repayment of the outstanding
principal balance on its Participating Loan on Jackson Park Place. In
addition, the Fund received contingent interest of $69,480.
<PAGE> -11-
Item 2.
AMERICA FIRST PARTICIPATING/PREFERRED EQUITY MORTGAGE FUND
AND
AMERICA FIRST PARTICIPATING/PREFERRED EQUITY MORTGAGE FUND LIMITED PARTNERSHIP
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
Liquidity and Capital Resources
The Fund originally acquired: (i) ten 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 seven states, (the GNMA Certificates); (ii) various
mortgage-backed securities collateralized by pools of single-family mortgages
and guaranteed as to principal and interest by either GNMA or the Federal
National Mortgage Association (FNMA) (the Single-Family Certificates); (iii) a
first mortgage loan insured by the Federal Housing Administration (the FHA
Loan) on a retirement living center located in California; (iv) limited
partnership interests (PEPs) in eleven limited partnerships which own the
multifamily properties financed by the GNMA Certificates and the FHA Loan; and
(v) two participating first mortgage loans (the Participating Loans) on
multifamily housing properties financed in part by an affiliated mortgage
fund. The FHA Loan and six of the GNMA Certificates collateralized by
multifamily properties have been repaid by GNMA or the Department of Housing
and Urban Development which left the Fund with only the PEPs on these
properties. Under the terms of the limited partnership agreements for the
PEPs, the Fund has removed the general partners of seven of the limited
partnerships owning multifamily properties. In three cases, the Fund acquired
the general partners' interest in the limited partnerships in addition to its
PEP. Accordingly, the Fund became the indirect owner of the entire equity
interest in these properties and began accounting for them as investments in
real estate (the Real Estate Interests). One of these properties was
foreclosed upon by GNMA in 1989 and, therefore, the Fund no longer holds an
interest in this property. In the remaining four limited partnerships, a
substitute limited partner was admitted and acquired a portion of the removed
general partner's interest. The Fund continued to own PEPs in these
properties until 1995 when Casa Sandoval was sold in foreclosure and the Fund
withdrew as the limited partner from Moonraker Apartments. Additionally,
effective September 29, 1996, Timber Cove Apartments was sold at a foreclosure
auction. As a result of the foregoing, at March 31, 1997, the Fund holds four
GNMA Certificates, 11 Single-Family Certificates, five PEPs, two Real Estate
Interests and two Participating Loans.
The following table shows the occupancy levels of the properties financed by
the Fund in which the Fund continues to hold an interest at March 31, 1997:
<TABLE>
<CAPTION>
Number Percentage
Number of Units of Units
Property Name Location of Units Occupied Occupied
- ------------------------------------- ------------------ -------------- -------------- --------------
<S> <C> <C> <C> <C>
The Parklane (1) Salt Lake City, UT 94 93 99%
Grand Villa (1) Grand Junction, CO 47 44 94%
Cambridge Court (1) Kearney, NE 42 40 95%
Hickory Villa (1) Omaha, NE 52 47 90%
Harmony Bay Apartments (2) Roswell, GA 300 286 95%
Meadow Brook Apartments (3) Amelia, OH 168 159 95%
Morrowood Townhouses (3) Morrow, GA 264 258 98%
Avalon Ridge (4) Renton, WA 356 288 81%
Jackson Park Place (4) Fresno, CA 296 260 88%
-------------- -------------- --------------
1,619 1,475 91%
============== ============== ==============
</TABLE>
(1)The Fund's investment consists of a GNMA Certificate and a PEP.
(2)The Fund's investment consists of a PEP.
(3)The Fund's investment consists of a Real Estate Interest.
(4)The Fund's investment consists of a Participating Loan.
<PAGE> -12-
AMERICA FIRST PARTICIPATING/PREFERRED EQUITY MORTGAGE FUND
AND
AMERICA FIRST PARTICIPATING/PREFERRED EQUITY MORTGAGE FUND LIMITED PARTNERSHIP
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
Distributions
Cash distributions paid or accrued were as follows:
<TABLE>
<CAPTION>
For the Quarter Ended For the Quarter Ended
March 31, 1997 March 31, 1996
------------------------------- -------------------------------
Per
Per Unit Per Unit Certificate
------------- ------------- -------------
<S> <C> <C> <C>
Regular monthly distributions
Income distributed $ .1378 $ .1389 $ 347.23
Return of capital .1271 .1260 315.02
------------- ------------- -------------
$ .2649 $ .2649 $ 662.25
============= ============= =============
Distributions
Paid out of current and prior undistributed cash flow $ .2649 $ .2649 $ 662.25
============= ============= =============
</TABLE>
Regular monthly distributions to investors consist primarily of interest and
principal received on the GNMA Certificates and Single-Family Certificates.
Additional cash for distributions is received from PEPs, Participating Loans,
and other investments. The Real Estate Interests do not generate cash flow to
the Fund as all net cash flow is used to pay debt service on the mortgage
notes. The Fund may draw on reserves to pay operating expenses or to
supplement cash distributions to investors. The Fund is permitted to
replenish its reserves through the sale or refinancing of assets. During
1997, a net amount of $232,017 of undistributed mortgage principal payments
was placed in reserves. The total amount held in reserves at March 31, 1997,
was $30,322,116 of which $21,633,105 was invested in Single-Family
Certificates.
The Fund believes that cash provided by operating and investing activities
and, if necessary, withdrawals from the Fund's reserves will be adequate to
meet its short-term and long-term liquidity requirements, including the
payments of distributions to investors. The Fund has no other internal or
external sources of liquidity. Under the terms of the Pooling and Servicing
agreement, the Fund is not authorized to enter into short-term or long-term
debt financing arrangements or issue additional Units or Certificates to meet
short-term and long-term liquidity requirements.
Asset Quality
The Fund continues to receive the full amount of monthly principal and
interest payments on its GNMA Certificates and Single-Family Certificates.
The GNMA Certificates and Single-Family Certificates are fully guaranteed as
to principal and interest by either GNMA or FNMA. The obligations of GNMA are
backed by the full faith and credit of the United States government.
<PAGE> -13-
AMERICA FIRST PARTICIPATING/PREFERRED EQUITY MORTGAGE FUND
AND
AMERICA FIRST PARTICIPATING/PREFERRED EQUITY MORTGAGE FUND LIMITED PARTNERSHIP
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
PEPs, Real Estate Interests, and Participating Loans, however, are not insured
or guaranteed. The value of these investments is a function of the value of
the real estate underlying the PEPs, the Real Estate Interests, or the real
estate collateralizing the Participating Loans. It is the policy of the
management of the Fund to make a periodic review of such real estate in order
to establish, when necessary, valuation reserves on investments in PEPs and
Participating Loans or adjust the carrying value of the Real Estate
Interests. The allowance for losses on investments in PEPs is based on the
fair value of the properties underlying the PEPs. A reserve for the
Participating Loans is established for the difference between the recorded
investment in the Participating Loans and the fair value of the underlying
collateral. The carrying value of each Real Estate Interest is recorded at
the lower of cost or net realizable value.
The fair value of the properties underlying the PEPs, the Real Estate
Interests, and the collateral for the Participating Loans is based on
management's best estimate of the net realizable value of such properties;
however, the ultimate realized values may vary from these estimates. The
valuation allowances for losses on PEPs and Participating Loans are
periodically reviewed and adjustments are made to the allowances when there
are significant changes in the estimated net realizable value of the
properties underlying the PEPs or the underlying collateral for the
Participating Loans. The carrying value of each Real Estate Interest is
adjusted when there are significant declines in the estimated net realizable
value. Internal property valuations and reviews performed during 1997
indicated that the investment in PEPs, the Real Estate Interests, and
Participating Loans recorded on the balance sheet at March 31, 1997, required
no adjustments to current carrying amounts.
On May 7, 1997, the Fund received $2,100,000 as repayment of the outstanding
principal balance on its Participating Loan on Jackson Park Place. In
addition, the Fund received contingent interest of $69,480.
The overall status of the Fund's other Permanent Investments has remained
relatively constant since December 31, 1996.
Results of Operations
The table below compares the results of operations for each period shown.
<TABLE>
<CAPTION>
For the For the Increase
Quarter Ended Quarter Ended (Decrease)
March 31, 1997 March 31, 1996 From 1996
-------------- -------------- --------------
<S> <C> <C> <C>
Mortgage and mortgage-backed securities income $ 691,320 $ 794,849 $ (103,529)
Equity in earnings of property partnerships 169,713 61,916 107,797
Rental income 627,716 576,922 50,794
Interest income on participating loans 62,520 64,485 (1,965)
Interest income on temporary cash investments
and U.S. government securities 119,567 108,099 11,468
-------------- -------------- --------------
1,670,836 1,606,271 64,565
-------------- -------------- --------------
General and administrative expenses 240,701 214,094 26,607
Real estate operating expenses 346,563 299,923 46,640
Depreciation 75,628 81,009 (5,381)
Interest expense 205,525 195,990 9,535
-------------- -------------- --------------
868,417 791,016 77,401
-------------- -------------- --------------
Net income $ 802,419 $ 815,255 $ (12,836)
============== ============== ==============
</TABLE>
The decrease in mortgage and mortgage-backed securities income for the quarter
ended March 31, 1997, compared to the same period in 1996, is due to the
continued amortization of the principal balances of the mortgage-backed
securities.
<PAGE> -14-
AMERICA FIRST PARTICIPATING/PREFERRED EQUITY MORTGAGE FUND
AND
AMERICA FIRST PARTICIPATING/PREFERRED EQUITY MORTGAGE FUND LIMITED PARTNERSHIP
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
Equity in earnings of property partnerships is a function of the cash flow
received by the Fund from its PEP interests in the operating partnerships
which own certain of the properties as well as the Fund's allocable share of
earnings generated by these properties. Equity in earnings of property
partnerships increased for the quarter ended March 31, 1997, compared to the
same period in 1996, due primarily to an equity distribution of approximately
$110,000 received from The Parklane.
Rental income, net of real estate operating expenses and depreciation, from
the properties acquired by the Fund in settlement of PEPs increased $9,535 for
the quarter ended March 31, 1997, compared to the same period in 1996. This
increase resulted from an increase in rental revenue primarily due to an
increase in average occupancy which was partially offset by an increase in
real estate operating expenses primarily due to an increase in property
improvements at Morrowood Townhouses. The increase in net rental income was
entirely offset by an increase in interest paid by the Fund on the mortgage
loans it has assumed on these properties. Since interest is paid only to the
extent of available cash flow from these properties, the Fund records more
interest expense as such cash flow increases.
Interest income on temporary cash investments increased for the quarter ended
March 31, 1997, compared to the same period in 1996, primarily due to an
increase in cash held in the Fund's reserve.
General and administrative expenses increased for the quarter ended March 31,
1997, compared to the same period in 1996, due primarily to increases in
salaries and related expenses and administrative fees.
<PAGE> -15-
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
4(a) Agreement of Limited Partnership dated November 20, 1986
(incorporated herein by reference to Form 10-K dated
December 31, 1986 filed pursuant to Section 13 or 15(d) of
the Securities Act of 1934 by America First Participating/
Preferred Equity Mortgage Fund Limited Partnership
(Commission File No. 0-15854)).
4(b) Form of Certificate of Beneficial Unit Certificate
(incorporated herein by reference to Form S-11 Registration
Statement filed February 24, 1986 with the Securities and
Exchange Commission by America First Participating/
Preferred Equity Mortgage Fund Limited Partnership
(Commission File No. 33-3566)).
4(c) Pooling and Servicing Agreement dated November 20, 1986
(including as an exhibit thereto the Form of Exchangeable
Passthrough Certificate) (incorporated herein by reference
to Form 10-K dated December 31, 1986 filed pursuant to
Section 13 or 15(d) of the Securities Exchange Act of 1934
by America First Participating/Preferred Equity Mortgage
Fund (Commission File No. 0-15665)).
(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>
<PAGE> -16-
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrants have duly caused this report to be
signed on their behalf by the undersigned, thereunto duly authorized.
AMERICA FIRST PARTICIPATING/
PREFERRED EQUITY MORTGAGE FUND
By America First Participating/
Preferred Equity Mortgage
Fund Limited Partnership,
Managing General Partner
of the Registrant
By America First Capital
Associates Limited Partnership
Three, General Partner of America First
Participating/Preferred Equity Mortgage
Fund Limited Partnership
By America First Companies L.L.C, General
Partner of America First Capital
Associates Limited Partnership
Three
By /s/ Michael Thesing
Michael Thesing,
Vice President and
Principal Financial Officer
Date: May 13, 1997
AMERICA FIRST PARTICIPATING/
PREFERRED EQUITY MORTGAGE
FUND LIMITED PARTNERSHIP
By America First Capital
Associates Limited Partnership
Three, General Partner of America First
Participating/Preferred Equity Mortgage
Fund Limited Partnership
By America First Companies L.L.C, General
Partner of America First Capital
Associates Limited Partnership
Three
By /s/ Michael Thesing
Michael Thesing,
Vice President and
Principal Financial Officer
Date: May 13, 1997
<PAGE> -17-
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> MAR-31-1997
<CASH> 9,210,423
<SECURITIES> 36,079,456
<RECEIVABLES> 300,298
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 9,510,721
<PP&E> 9,491,504
<DEPRECIATION> (3,182,004)
<TOTAL-ASSETS> 59,062,757
<CURRENT-LIABILITIES> 849,744
<BONDS> 0
<COMMON> 0
0
0
<OTHER-SE> 48,622,180
<TOTAL-LIABILITY-AND-EQUITY> 59,062,757
<SALES> 0
<TOTAL-REVENUES> 1,670,836
<CGS> 0
<TOTAL-COSTS> 662,892
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 205,525
<INCOME-PRETAX> 802,419
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 802,419
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
